ECONOMYNEXT – Sri Lanka’s Securities and Exchange Commission (SEC) has said it is time to separate the roles of chairman and chief executive officer in listed companies and called for public comments on the move.
“The best practice on corporate governance discourages concentration of power in one individual,” it said in a published consultation paper.
“An established norm is that there should be a clear division of responsibilities at the level of Board of Directors (BOD) of the company, which will ensure a balance of power and authority, such that no one individual has unfettered powers of decision.”
According to best practice, the chairman is expected to be an independent non executive director and shall not perform the role of chief executive.
The SEC said it is inviting the public and all stakeholders to submit written comments to the consultation paper by 19th August 2019.
Currently, according to the listing rules of Colombo Stock Exchange (CSE), there is no specific rule on the separation of the chief executive and chairman positions.
Due to absence of such rule, the SEC said certain listed companies have the role of chairman and chief executive and managing director performed by the same individual.
An analysis by the SEC shows that “a vast majority of listed entities (83 percent of total listed entities) have already segregated the roles of chairman and chief executive and have an independent or a non-executive director as chairman.
Separating the roles of chairman and chief executive was important given the need to improve Sri Lanka’s competitiveness in international ranking on the Ease of Doing Business being pursued by the Ministry of Development Strategies & International Trade Sri Lanka (MODSIT).
“It is timely to adopt a policy to separate the CEO and chairman roles as identified in the road map produced by the MODSIT.”
The SEC together with the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) developed a voluntary code of best practice on corporate governance over a decade ago
requiring segregation of roles of chairman and chief executive.
The Central Bank of Sri Lanka has already implemented the requirement for selected entities regulated by the respective regulator, it said.
The SEC also said Corporate Governance Principles of the Organization for Economic Cooperation and Development promotes the separation of the role of chief executive and
Jurisdictions such as Pakistan, Indonesia, Norway and Netherlands require mandatory segregation whereas jurisdictions such as Australia, Singapore and Malaysia require either to comply or explain why compliance is not met.
(COLOMBO, 23 July, 2019)