Compulsory board seats: CCC recommends it only as best practice
The Securities and Exchange Commission (SEC) in a letter to the Ministry of National Policies and Economic Affairs has pointed out the legal implications and the detrimental impact to the capital market pertaining to the proposal to allocate a board seat for any individual holding 10 per cent and over in a commercial bank or 15 per cent in a listed firm, Ministry officials said. ”The SEC sent us a letter recently on this and has said that they’ll send a detailed report later. It says that this sort of a rule will have serious implications for publicly quoted companies,” the official told the Business Times. He said for the moment, this proposal is on hold.
The Treasury had written to the SEC last month pertaining to the proposal, requesting them to implement it, according to a senior Treasury official. Currently there’s no compulsion for those owning such percentages. This new proposal applies only to individual and not companies/entities. Meanwhile the Ceylon Chamber of Commerce (CCC) has recommended that this proposal be a ‘best practice’ mechanism and that listed firms along with banks shouldn’t be bound by law to accommodate shareholders as directors, CCC sources said. Analysts point out that such a proposal shouldn’t be implemented in a hurry because as per current rules “directors can be voted out at a company’s Annual General Meeting”.
They also say that it’s dangerous to allow such a move as a competitor for an example can acquire 15 per cent in a company and with a board seat be privy to sensitive information. “For an example, Lalith Hapangama owner of Lalan Rubbers has 21 per cent in Dipped Products PLC. Both Lalan Rubbers and Dipped Products PLC are in the same rubber business. Also Dammika Perera, leading businessman has 31 per cent in Lanka Aluminum and no board seat,” an analyst said. He said with such disparities and contentious issues, it’s best to reexamine this proposal.