Sri Lanka mulls mandatory separation of chairman, CEO roles
ECONOMYNEXT – Sri Lanka’s capital markets regulator is considering absorbing voluntary governance requirements in to mandatory listing rules and mandating that the roles of chairman and chief executive officer be performed by two people.
Thilak Karunaratne, chairman of the Securities and Exchange Commission (SEC), said corporate governance codes and frameworks were triggered as a result of corporate scandals that adversely affected capital markets across the globe.
The SEC is planning to absorb voluntary governance requirements in to mandatory listing rules, he said in a speech at the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) when it launched the “Code of Best Practice on Corporate Governance 2017” on Wednesday 13th December.
“Based on the approach adopted by other jurisdictions, the SEC has started to pursue an initiative to ensure enforceability relating to governance is enhanced and grant oversight by absorbing the voluntary governance requirements in to mandatory listing rules,” he said.
The drafting of these rules is completed and the SEC was currently considering which areas of governance requirements need to be mandated, which need to comply with mandatory requirements or have an alternative means of complying, and which can be made comply or explain.
For example, Karunaratne said the current voluntary code recommends the duality of roles of chairman and Chief Executive Officer (CEO) performed by two different individuals.
“The SEC is considering mandating such duality, requiring separation and two individuals (not from immediate family) performing the roles.”
The new draft rules do allow one person to perform both roles, subject to additional safeguards introduced.“However, I must emphasize here that the Commission must approve such provisions after public and stakeholder consultations, suggestions for which will require serious consideration,” Karunaratne said.
“Corporate Governance has become a key priority on the agenda of capital market regulators and is considered an important factor in strengthening capital markets.
“Implementing sound Corporate Governance practices that comprise of clear and transparent disclosures, encourage accountability and ethical leadership create value for companies, facilitate access to capital and enhances investor confidence.”
Karunaratne said that while a lot has been done in the area of Corporate Governance, Sri Lanka needs to ensure a responsive regulatory framework and cannot afford to fall behind.
“Furthermore, good market conduct is driven by good behaviour and not by rules and regulations alone.”
(COLOMBO, December 14, 2017)