The positive side of the Enron saga
By Cleatus Jayawardena
The Enron's saga is still unfolding and in all probability it will end
with the remaining assets being taken over by another, resulting in significant
losses to all the stake holders employees, customers, suppliers and shareholders.
It will be a sad end to a company that till recently prided itself as the
"Best company in the world". Having such high sounding and inspiring mission
statements and pay off lines have all meant nothing to the stockholders
and employees. They are now struggling to make something out of the remaining
mess that was created through the unbridled greed of the directors and
a few employees. There is more evidence coming up that Enron was a particularly
bad case of mismanagement, misleading accounts, careless and shoddy auditing
and in all probability outright fraud.
Positive side
Despite all these negatives there is one positive side to this whole episode.
At least it directed the attention of the investors, regulators and legislators
towards accounting and auditing process and profession. Auditing profession
was hitherto thought to be the highest upholders of corporate ethics, the
guardians of shareholder interest and whistle blowers when corporate governance
was compromised. After Enron, the standard confirmation given by the auditors
that "all necessary explanations have been obtained and the auditors are
fully satisfied" will never be taken with much respect unless auditors
learn to display a higher sense of responsibility, independence and accountability.
The Enron investigation has revealed that Arthur Anderson, while handling
the main corporate audit also handled the financial advisory and consultancy
work directly as well as through subsidiaries.
With some sensitive and important documents relating to the Enron debacle
being shredded, the actual level of complicity of Anderson, will not be
known but it can be safely assumed that there were very serious conflicts
arising from the dual function of auditing and advising being carried out
by the same party. It is very likely that the audit arm of Anderson did
everything possible to cover up and hide the losses and damage caused through
the advice given by its own subsidiaries.
Another good thing that happened from the Enron collapse was to focus
shareholder attention on certain deceptive accounting practices adopted
by companies including those in Sri Lanka. As a result of this new investigative
focus on accounting, share prices of major US conglomerates and multi nationals
like Tyco, Invensys, Global Crossing and the bluest of the blue chip General
Electric, came down sharply. Even though General's share price recovered
later, Tyco and Invensys were not that fortunate. Having seen a drastic
decline in their share prices, at least they are still trading at a fraction
of their earlier value whereas Global Crossing was forced to file for protection
under Chapter II.
Opaque accounting questioned
All these firms and many others had been adopting unusual accounting practices
to inflate turnovers & profits and disguise liabilities. Through opaque
accounting methods, losses and liabilities were passed onto subsidiaries
and associates in a manner that would not require to be consolidated in
the final accounts. Unorthodox accounting of this nature could not have
been carried out without complicity from the company and auditors at the
highest levels. There is new evidence that Kenneth Lay, CEO of Enron, has
been selling his own personal shares in Enron even as recently as July
when Anderson's partners have been sounding serious alarm over the situation
of the company.
Regulatory changes
The Securities Exchange Commission (SEC) of USA headed by Harvey Pitt,
an experienced lawyer, is now trying to tie up things using the existing
legislative and administrative powers held by the SEC in order to ensure
that a proper set of un-doctored accounts are presented by public companies.
They have gone to the extent of proposing that auditors of public companies
be appointed by the SEC without giving discretion to the Boards and the
shareholders. The other line of attack selected by the SEC is tightening
accounting disclosure requirements thereby reducing the freedom hitherto
enjoyed in being able to report figures in a most favourable way but which
did not represent or reflect the true financial situation. The level of
mis-reporting was such that Enron has been able to show turnovers of $
150 Billion with an actual turnover of only $ 8 Billion. This type of financial
mis-reporting was possible because of the discretion enjoyed by the company
accountants and the freedom enjoyed by auditors enabling 'qualified statements'
to be made in small print thereby letting down shareholders who actually
appoint auditors.
Enrons and Andersons of SL
All this may sound unimportant for Sri Lanka. But unless we too get our
own systems and rules in place, we too are likely to see the sudden collapse
of a few well-known public quoted companies and banking institutions that
engage in this type of financial mis-reporting in a very casual manner.
One is the treatment given to reporting of profits of associates. There
had been recent accounts published by leading insurers and development
lending institutions where the profits of associate companies were consolidated
giving the impression that asset position and capital is very sound. But
a little deeper scrutiny reveals that the actual position is much different
where the profits and reserves claimed will never accrue unless the associates
are wound up. The hidden liabilities and cleverly concealed bad debts of
these development banks can be crippling.
There had been instances where weakly capitalised banks were taking
on unsustainable assets aided by off balance sheets vehicles. Through this
method they have also been showing enhanced profits in order to maintain
share prices and market capitalisation. Most of these balance sheets have
been certified by the auditors without any qualification whatsoever. It
would of course be asking far too much from our Central Bank to study accounts
published by local banks intelligently until the first bank failure takes
place here, and that day is not far away.
Duty of shareholders
One weakness in Sri Lanka is the absence of lobbies of shareholders who
can take up questionable issues as a group. I have personally observed
brave attempts made by one or two knowledgeable shareholders at AGM's to
question the accounting and performances and being ignored and rebuffed
by directors. Occasions are many where directors had bought over influential
minority shareholders just before AGM's either to avoid embarrassing question
or to ask the "right type" of questions. Stronger lobbies of minority shareholders
will reduce chances of possible manipulation by interested directors.
Ceylinco Savings Bank goes to school
Instead of the traditional mass media launch, Ceylinco Savings Bank took
the unusual step of launching its Punchi children's savings account directly
to children of a top girls' school in Colombo at a ceremony on March 7,
its Manager, Advertising and Publicity, Glenda Parthipan said.
Marking the event with several entertaining presentations, the bank,
which commenced business last year, introduced and illustrated the benefits
of building up savings from an early age.
Conceived and directed by the Ceylinco Savings Bank team, the launch
was successful in presenting the Bank's unique Children's Savings Account,
Punchi. The team outlined details of the unique features of the product
and communicated the benefits of early financial planning to children of
the selected school.
The prime motive in planning the launch in this manner was to give first
hand experience in savings and banking, while helping them plan for critical
future requirements.
By planning for the early needs of children, parents and children can
look forward to realising their aspirations, said the CEO of Ceylinco Savings
Bank, Sunimal Fernando.
Seylan Bank operating profits flat
Seylan Bank's operating profit for the year ended December 31, 2001 remained
flat at Rs. 662 million.
The bank's chief executive officer Rohini Nanayakkara described the
year as one with a "dismal and uncertain macro-economic climate." The bank's
net profit after tax grew by 11 percent to Rs. 272 million while turnover
grew by 26 percent to Rs 8.5 billion.
Interest income increased by 27 percent to Rs. 7.5 billion and deposits
grew by 15 percent to Rs. 48 billion. The bank will focus on expanding
activity in foreign currency banking, trade financing, corporate banking
and technology-based services, Nanayakkara said.
Adding colour to the roads
By Hiran Senewiratne
CVR Graphics has specialised in bus advertising.
The company helps to bring additional revenue to government coffers
while adding colour to road transport in the country.
The company has painted more than 1,000 buses for big corporate clients.
Several prominent brand names in the country have found space on Sri
Lanka Transport Board buses from almost all depots scattered around the
country, the firm's Managing Director Cyril Liyanage said in an interview.
The printing is done on a giant sticker which is more economical than
the spray paint method, he said. The company got the technology from Singapore
where the practice is common. Liyanage started the business in 1990 with
an initial investment of Rs. 50,000 and just one employee after leaving
the Ceylon Transport Board. Today, he has 15 trained people working at
his Boralasgamuwa workshop which is equipped to accommodate four large
buses simultaneously for painting advertisements.
Liyanage said the bus advertisements will help the state bus companies
to make extra money.
CVR Graphics intends to invest in digital printing, Liyanage added.
Doing business the Wayamba way
By Naomi Gunasekara
Hildon Hamangoda, Director General of the Wayamba Chamber of Commerce and
Industry (WCCI), is a man with an interesting nature: blunt, amiable, optimistic
and witty. Seated behind his desk, dressed in a blue shirt and tie, he
looked very much the stern bureaucrat one would expect to head a chamber.
Yet, a few pleasantries with the man and a glance over his tiny office
proved otherwise.
"People who do their work do not have clean tables," he joked, trying
to tidy his table somewhat. His small window, which opened to a garden
full of greenery, was covered by three strings pulled across the window
containing old greeting cards. "We are only a service organisation. We
don't engage in any business transactions or handle finances because that
contradicts the chamber concept," he said with a smile while pointing out
that a lot of people sought loans from the chamber. "We don't have finances
to be offered but assist people to get finances from institutions like
banks. We carry on a TNT courier service and operate a desk for CIMA to
help the business community and the students."
Situated at the Janakala Kendraya in Kurunegala, the Wayamba Chamber
of Commerce and Industry is a provincial chamber affiliated to the Federation
of Chambers of Commerce of Sri Lanka and the Ceylon Chamber of Commerce.
It is also affiliated to the SAARC Chamber of Commerce and the Confederation
of Asia Pacific Chambers of Commerce.
The WCCI concentrates on serving the business community and has no other
agendas, says Hamangoda; "Whereas other organisations have several objectives
we have only one clear-cut objective. That is to help the business community.
We are a strong organisation affiliated to both national and international
chambers and work hard to give the best possible service to our members."
Established in 1992, the WCCI boasts of a membership of over three hundred
small, medium and large-scale businessmen representing a cross-section
of the Wayamba business community. Almost all leading manufacturers and
traders from Wayamba are WCCI members and the chamber plans to reach the
400-member mark by the end of the year.
"Our members are our strength. They are very enthusiastic and participate
in most of the events organised by the chamber," said Hamangoda while recalling
the difficulties he faced in attracting members years ago; "People were
skeptical about the role of the chamber at the beginning because they thought
it was a 'velandha sangamaya' where people came to put 'seettu'. Things
changed gradually and we are hoping to reach the 400 member mark by December,"
said Hamangoda. Although Kurunegala is considered a rural area, it has
the potential to become one of Sri Lanka's strongest business centres,
says Hamangoda. "Our economy is our greatest asset. It is steady and flourishing,"
he said, revealing that Kurunegala will be a hub for the northern and eastern
markets in the coming months with the business community optimistic about
peace.
"With peace in Jaffna, Kurunegala will be the hub to the north-east
markets because those who are afraid to invest directly in Jaffna will
certainly look at Kurunegala. Five major roads, Colombo, Kandy, Dambulla,
Negombo and link in Kurunegala. So those who are skeptical about Jaffna
and do not want to take a risk will definitely look at Kurunegala."
According to Hamangoda, the secret behind Kurunegala's flourishing economy
is three-fold. Firstly, its economy is based on the coconut industry, which
revolves around 25 industries like nuts, desiccated coconut, coir, coco
peat and coconut oil. "Coconut is not a seasonal crop like paddy where
a drought or floods will devastate the entire industry. If there are no
nuts we can always export the coconut leaves."
Wayamba also possesses the largest number of foreign employees and its
economy is constantly pumped with hard-earned foreign exchange. "We also
have a newly-emerged business class consisting of youth who have access
to a foreign business education. They leave school after their O/Ls to
train in Japan because they have enough money even to have their haircuts
in Singapore or Japan."
Land values in Kurunegala have increased rapidly over the years and
a perch in town costs about 1.2 million rupees. "This shows our market
potential and strength. This will go up in the coming months," says a beaming
Hamangoda, who sees a better future for Wayamba in the coming years.
In providing its services to the Wayamba business community, the WCCI
organises seminars and workshops to enlighten them on new technologies
and concepts. "We had a workshop recently and introduced our members to
e-commerce and factoring. We showed them how to purchase goods on the Internet
by placing an order for a short-sleeved, 14 - collar-sized shirt at Marks
& Spencer, London via e-mail."
"The business community needs to be informed of the latest concepts
and developments in the sphere of business because they have a lot of questions
to ask like "where can I sell my products? where can I get the raw material?
where can I get the modern technology for my business?"
The chamber also provides its members with the opportunity to develop
their business skills by offering them scholarships. "These scholarships
come from donor agencies. The Ministry of Industries and the Chamber of
Commerce help us with these scholarships, which mainly focus on entrepreneurship
development."
Visiontech 2002
Wayamba Visiontech 2002 is an exhibition and trade fair organised by the
Wayamba Chamber of Commerce and Industry in collaboration with the Institution
of Incorporated Engineers Sri Lanka, Industrial Services Bureau and the
Wayamba Engineering Diplomates' Association. It will be held in Kurunegala
during April 6-8 for the sixth consecutive year.
"Facilities that were once confined to Colombo will be brought to Kurunegala.
This has been very successful in the past so much so that twelve national
level companies who were previous participants opened branches their branches
in Kurunegala," said Hamangoda.
The event is attended by leading companies in Sri Lanka and helps rural
businessmen to acquire knowledge of the latest technologies and business
concepts while providing businessmen from Colombo an insight in to the
Wayamba markets. Fifty air-conditioned and 20 non-air-conditioned stalls
are available for small, medium and large-scale businessmen engaged in
automation, computers and accessories, communication and information technology,
household appliances, electrical and electronic appliances, modern furniture,
interior décor, floor tiles and bathroom fittings, business related
services, books and stationary, foreign educational services, real estate
and property development and other products or services that seek new markets.
Those interested can contact WCCI at wcci@sltnet.lk
or 037-24356/55. |
