The judgment in the Lanka Marine Services Ltd (LMSL) privatization has opened a can of worms on unethical and unlawful happenings across the spectrum of corporate Sri Lanka. This newspaper has been swamped with information from all segments of society about irregularities in the stock-market; the lack of regulation or lackadaisical approach towards non or insufficient disclosure, fudging of accounts and worse – creation of bogus audit committees.

At a seminar organized by Transparency International (TI) on business ethics and integrity – which drew its share of controversy having been held at a time when business ethics of the highest order was being eroded – leading corporate lawyer Arittha Wickremanayake spoke of instances where top 10 listed companies include information on meetings of audit committees in their annual reports when in fact, there was never an audit committee.

In fact The Sunday Times FT itself is aware of at least one case where a leading corporate ran a copied version of another audit report-just filling in numbers. It didn’t have an audit committee. At a seminar on business integrity there were many ‘interesting’ comments on governance and transparency made by two JKH directors which are extensively reported below.

Deva Rodrigo, panelist at the TI seminar, said there have been cases in the past where auditors were sacked by companies over balance sheet issues but didn’t disclose this unlike now where under the new Companies Act, such disclosure is compulsory. He was referring to The Sunday Times FT editorial in early July where it was stated that the Hunter’s auditor had been sacked and that it was probably the first time such a thing has happened or is a rare occurrence in recent times.

While insider dealing is perennially happening and now even through retailers, the re-stating of accounts is happening all the time. Some companies re-state accounts year in, year out. Insufficient disclosure happens at the same time. On the other hand, we applaud companies that provide full disclosure.

There is the argument thrown around that what happens in a listed company is a matter for the board of directors and its shareholders – and should not be the concern of the general public. What about other stakeholders like the public at large? What about those … statements by ministers in the past like former Finance Minister Ronnie de Mel of expanding the stock-market and creating a share-owning democracy? What about creating confidence in the market to attract more members of the investing public? What is the purpose of creating more regional offices for the Colombo Stock Exchange if the top listed firms are going to be the domain of a chosen few?

The delay in the Ceylon Chamber of Commerce (CCC) in responding to the Supreme Court judgment concerning one of its members is being questioned by some members. “Whatever one might argue about the judgment, it must be respected. There is no question about it,” one member said. “If a member company has been declared involved in an illegal deal, the chamber must take action –given that it talks a lot about values, governance, ethics and transparency,” he said. Questions are being raised about the conflict of interest in whatever discussion that is taking place at the chamber on this issue. CCC Chairman Jayampathi Bandaranayake is chairman of Ceylon Tobacco (CTC) where Susantha Ratnayake, Deputy Vice Chairman of the chamber and JKH chairman, is also a director. Deva Rodrigo, a JKH director and former CCC chairman, is also a CTC director.

One would hope – in the name of good governance and ethics -- that these interests are declared.
In a letter, Mohan Mendis, an exporter writing as a member of the concerned public, says he is appalled by the silence of the business community over the LMSL issue. “Had a lesser known business been at the centre of public discussion consequent on a less supreme judgment, would not the rule book be thrown at it, inquiries held and judgment passed for public ‘hanging’?” he asked.

With many questions being raised over the role of independent directors, The Sunday Times also took a look at these issues and a report on this is published elsewhere. While there is a criteria for selection of independent directors, there is no code of conduct or guidelines on the role of the independent director or their functions.

Nevertheless the intention and spirit of this practice should be honoured and there are moral grounds on which independent directors should operate – not wait for rules. There have also been a few instances of independent directors doing exactly that. In the Nawaloka Hospitals insider dealing case, it is learnt that the independent directors jointly wrote to the Securities and Exchange Commission (SEC) assuring their full support to the SEC investigation to bring the culprits to book.

Browbeating shareholders is another ruse to hide things and minimise disclosure. Some directors at Hunter’s pitched into shareholders at a stormy EGM this week. Isn’t there a role for the CSE and/or the SEC to ensure that shareholders are treated courteously?

While the Old Boys Network in the stock-market and outside is hard to break, it can only be done if more watchdog structures are built to ensure that companies come clean and proper accounting is resorted to. The counter argument is that too much regulation stiffles growth. But if most companies act this way then unfortunately regulation has to come in – although regulation is also sometimes not enforced.

Maybe it’s time a tripartitite watchdog operation is formed bringing the SEC, and a group of lawyers and accountants who will act as independent observers at shareholder meetings to ensure decorum, decent behaviour and the rights of stakeholders. The corporate sector needs an urgent shake-up and the Supreme Court judgment provides regulators and decent blokes in the private sector that much needed opportunity to put the house in order.