Nalaka Godahewa, Chairman of the Securities and Exchange Commission of Sri Lanka (SEC), has in a newspaper interview last week claimed that he is being singled out over allegations of ‘conflict of interest’. The issue is over his position as Chairman of the Sri Lanka Tourism Development Authority (SLTDA) and Chairman of the Colombo Land [...]

Feeds Editorials Times Online

The Sundaytimes Sri Lanka

Alleged ‘Conflict of Interest’ relating to Dr Nalaka Godahewa

View(s):

Nalaka Godahewa, Chairman of the Securities and Exchange Commission of Sri Lanka (SEC), has in a newspaper interview last week claimed that he is being singled out over allegations of ‘conflict of interest’.

The issue is over his position as Chairman of the Sri Lanka Tourism Development Authority (SLTDA) and Chairman of the Colombo Land and Development Co (CLND), a listed company in the Colombo Stock Exchange(CSE).

While rejecting the argument that there is no conflict in these positions, he states in that interview, “It is only those people who cannot understand these basic guidelines of governance who are trying to make an issue out of nothing.”

Referring to the CLND announcement to build a hotel and (pertaining to this) the Business Times raising an issue of a conflict of interest, the newspaper has also quoted Dr Godahewa as saying, “… the ‘conflict of interest’ scenario will only arise in the future as even the land for the proposed hotel has not been purchased yet and that in any case he intends to resign from SLTDA before the land is acquired.”

Dr Godahewa further says, “.. this argument was first put forward by a business editor of a weekly newspaper.” He argues in the interview that ‘current law does not allow anyone to be punished for a future intention’.

He says the CLND does not provide any tourism services currently. “What has been disclosed by the company to the Colombo Stock Exchange is that it intends to purchase a land for the purpose of building a hotel in future. The land is not even purchased yet. So obviously there is no hotel constructed. The company may even decide to build something else on the land once purchased. In any case I intend to resign from the SLTDA before any of these take place. So this conflict situation that you have questioned is never going to arise,” the newspaper has quoted him as saying.

Response from the Business Editor, Feizal Samath

The reference to an unnamed business editor of a weekly newspaper is a singular reference to the Sunday Times business editor because it was I who raised the issue of disqualification (see Business Times issue of August 25 headlined – Question mark over SLTDA chief’s current status -). Since the issues raised (in the other newspaper interview last week) concerns us, we are responding to Dr Godahewa’s claims.

What are these basic guidelines of governance that Dr Godahewa is talking about? We believe some of the basic norms in this regard are transparency, integrity, good faith, commitment to acceptable values of the reasonable sections of the society and the like.

In last week’s interview Dr Godahewa refers to what he calls a “future intention” as the company cannot as yet, in his interpretation, be classified as operating any tourism service.

He however says he intends to resign from the SLTDA before the stated objective of building a hotel is fulfilled by the CLND, conceding that if he remains, there is a likely-hood of him being disqualified from serving at the Authority.

Let’s take up Dr Godahewa’s argument as the current director of a listed company which has announced to the Colombo Stock Exchange (CSE), in fulfillment of its obligation under the Rules of the CSE, a ‘desire to construct a hotel’ for tourist services, as not being in conflict with Section 5 (1) of the Tourism Act No. 38 of 2005.

This section refers to ‘Disqualification from membership of the Sri Lanka Tourism Development Authority etc’.

This clause applies to the Chairman; Director-General; Secretary to the Ministry of the Minister in charge of the subject to Tourism or his representative; and Secretary to the Treasury or his representative;

It states that … ‘A person shall be disqualified from being appointed or from continuing, as a member of the Authority, if he is, or becomes,— (a) the owner, partner, director, majority shareholder or an employee of, or in, any business which operates or provides tourist services of any class or description’.

Now, the company – of which Dr Godahewa is director/chairman and has announced (in a statement to another newspaper on Tuesday) that he owns 1 % shares in CLND – makes a solemn declaration in an April 4, 2012 announcement to the CSE that … “Pursuant to Section 8.1 (b) of the Listing Rules of the CSE we write to inform you that as part of the proposed Liberty Plaza expansion programme the board of directors of the Colombo Land and Development Co entered into a Sales agreement today to purchase a plot of land on the Duplication Road adjacent to the Liberty Plaza southern Car park at a cost of Rs 221 million. The objective of this acquisition is to construct a 180 room city hotel which will cater to the fast growing demand of tourist accommodation in the city of Colombo. The planned project is expected to commence in the later part of 2012 and completed by 2014.”

The company has thus announced to the CSE and the investing public a clear intention that it is going, sooner than later (“latter part of 2012”), to be involved in the business of operating and or providing tourist services of some class or description!

One may argue that Dr Godahewa may be strictly correct when he says the company, in which he is a director, is not ‘yet’ involved in a ‘tourism service’ as prescribed. However, in saying that he intends anyway to resign “before any of this”, namely the company going ahead with the construction of a hotel, is clearly an acceptance by him that the intended plan solemnly announced to the CSE if implemented would be a clear violation of Section 5(1) the Tourism Act(in his case) in view of his position at SLTDA.

For all purposes, once a declaration is made (CLND announcement) it carries with it a fundamental moral duty and obligation of full and proper conduct to be judged in the spirit of the purpose of the provisions of the SEC Act, which has set up a regulatory authority, and an obligation to the investor public arising from the disclosure to the CSE of CLND’s intentions and most importantly the spirit and expectation of the law enshrined in Section 5(1) of the Tourism Act.

By saying that he will go (resign) if or when construction of the hotel starts “in the latter part of 2012” (we are almost in October 2012!) is a tongue in cheek admission that he clearly will be disqualified – when that eventuality comes to pass sooner than later.

Apart from the strict letter of the law, it is our conviction that the public rightfully believes there is a moral obligation, a code of conduct to be followed, particularly by those who hold positions of responsibility and trust in the public sector.

As chairman of the SEC he must first set an example of the values that the provisions of the SEC Act have put in place to ensure that the securities market is properly regulated by ensuring a level playing field and not permit any activity which might place unsuspecting investors at a disadvantage.

Section 5 (1) of the Tourism Act was intended to stop those who govern the affairs of tourism from having a share of the tourism pie. The legislative intent and spirit is very clear. The two activities are meant to be kept distinct and apart.

If Dr Godahewa’s argument is one of ‘future intent’ – only which he seems to imply does not offend Section 5(1) -, then one needs to look at the contents of the announcement made to the CSE in discharge of the disclosure requirement, which would influence perceptions of the share market in respect of the securities of CLND.

The announcement details out the objective of the ‘sales agreement’ saying the objective is to construct a hotel which ‘will cater to the growing demand for tourist accommodation’. By doing so, shareholders of the company and the public at large are informed of a ‘positive’ development in the company. This could lead to a rise in share prices based on positive information. Now taking Dr Godahewa’s argument that this may or may not happen, if in the future the company makes another announcement saying it doesn’t intend to go ahead with the project – after the share price has risen, etc – what happens?.

There is every likely-hood of the share price coming down in a likely pump and dump scenario. When individuals take up public office, they should not only abide by the law but also ensure that the spirit of the law is honoured and upheld, not sacrificed at the altar of convenience.

Let the readers, shareholders, SEC, CSE decide

“This argument (conflict of interest) was first put forward by a business editor of a weekly newspaper. I feel this journalist has watched the Hollywood movie ‘Minority report’ of Steven Spielberg where according to the law in 2054 future intentions can be punished by law. However, to my knowledge, the current law does not allow anyone to be punished for a future intention,” he said.

Business Times (BT): Is Dr Godahewa implying that if CLDN goes ahead with the construction of a hotel that this would be a conflict (for him) that would arise in the future?

Quote from NG in statement he gave to BT which was published on Aug. 26 (http://www.sundaytimes.lk/120826/business-times/question-mark-over-sltda-chiefs-current-status-9578.html):

“…Whether a company (CLDN) entering into a sales agreement to purchase a land for a future real estate development could be interpreted as providing a tourism service in the current context is up to the stakeholders to decide and act upon. Since there is nothing illegal, immoral or unethical in our business plans we will work relentlessly to achieve our plans thereby contributing to the development of country’s economy.”

Quote from NG in the newspaper interview:

“…The company (CLND) may even decide to build something else on the land once purchased. In any case I intend to resign from SLTDA before any of these take place. So this conflict situation that you have questioned is never going to arise.”
BT: Isn’t the SLTDA/SEC chairperson contradicting himself – in these two statements? If there is no conflict now or in the future,why resign?




Share This Post

DeliciousDiggGoogleStumbleuponRedditTechnoratiYahooBloggerMyspace
comments powered by Disqus

Advertising Rates

Please contact the advertising office on 011 - 2479521 for the advertising rates.