Corporate governance and corporate responsibility are two important concepts in modern private enterprise development. Corporate governance relates to clean honest transparent conduct of corporate affairs while corporate responsibility relates to corporate entities conducting their affairs in such a manner as to ensure minimum harm and maximum benefits to the economy, society and environment in which they operate.
Corporate governance has drawn considerable attention in recent years. In 1995 the Sri Lanka Accounting and Auditing Standards Act was passed in parliament. The law requires private companies above a certain size as well as financial institutions to comply with the standards set. They must prepare and present their accounts in compliance with the standards set by the Sri Lanka Accounting Standards and be audited by members of the Institute of Chartered Accountants of Sri Lanka (ICASL).
It is contended that Sri Lanka's standards of accounting and auditing are among the highest in the world. There are severe penalties for non-compliance and even jail sentences for deliberate misleading of shareholders.
There have been efforts by the Securities and Exchange Commission to acquaint directors of their responsibilities. There has also been the formation of a Sri Lanka Accounting and Auditing Standards Monitoring Board.
Despite these achievements there appears to be a gap between the compliance requirements and some awful experiences in the recent past. For instance a profitable company, which many banks considered creditworthy and had raised a vast sum of money in the stock exchange, suddenly went bust.
We are told the company had not even paid its EPF and ETF dues. Had this company complied with these standards? Was the audit correctly done? More cynically one might ask the question, does the compliance with these standards mean much in terms of actual performance of a company?
A second issue is whether companies are really run for the benefit of the directors rather than the shareholders. Do directors milk their companies for their personal benefit? Are there rules and regulations which govern and control the manner in which directors gain personal benefits?
A third issue is to what extent the emoluments of the management are paid in non-taxable allowances to reduce the payment of income taxes by the executives. These payments, which in fact are part of the salaries, do not attract taxes in the hands of the receiver as they are disguised as costs to the firm. This is a widespread practice in firms and auditors too are fully aware of it and often give advice for such tax evasion.
The issue of corporate social responsibility is a more complex issue. With the growth of the private sector and especially the development of large conglomerates there is a need for them to look beyond the bottom line. They indeed must share a responsibility to lighten the national burden in some areas, adopt policies which would help greater social integration, increase training and employment opportunities and fund research. Short termism in corporate decision making must give way to the long term considerations of stability of society and the economy.
Many companies are willing to spend vast sums of money on supporting sporting events and in advertising campaigns. How much are they willing to spend on scholarships, training facilities and research? Do private corporate entities have a program of integrating the excluded elements of our society, especially the mainstream educated unemployed.
We are aware of some feeble attempts, but are these adequate to make a serious dent on a social problem which is threatening the very foundations of our society. Ultimately corporate profits would very much depend on social stability and economic growth. To neglect a private sector initiative of sizeable proportions to tackle this problem could undermine the very existence and growth of private firms.
This realisation followed by an action program is critical. Demonstrating a corporate social responsibility could ultimately be the single most important factor in the sustainability of private enterprise growth and profitability. A longer socially responsible view is a healthier view for private enterprise. Good corporate governance must be coupled with a sense of corporate social responsibility to achieve a robust private enterprise economy in a healthy, stable society and economy.
Proliferating 'free trade areas' have become a pox on the world trading system. It is a mark of Washington's blurred vision and failure of leadership that, departing from half-century of steadfast adherence to non-discriminatory multilateralism in trade, the administration has sought to build discriminatory free trade areas instead.
This is stated by Jagdish Bhagwati, Professor of Economics and Political Science at Columbia University (New York) in an article in the Economist.
The writer observes that the administration fudges the distinction between genuine, multilateral, non-discriminatory free trade and the inherently discriminatory free trade agreements.
He says "let us henceforth talk not of free-trade agreements (FTAS) but of preferential trade agreements (PTAS). Bhagwati says that the fudge extends to characterising PTASs as "open regionalism" meaning that new members will always be welcomed.
But, says the writer, this is a protracted and tricky process and is subject to votes in the legislature. He cites the difficulty of adding Chile to NAFTA as a case in point.
Bhagwati states categorically that PTAS are inferior policy to the multilateral freeing of trade. This is because preferential trade agreements deny trading opportunities to outsiders and also because they may wellbe worse for members by creating what Bhagwati calls trade diversion. This takes place, he says, when instead of importing goods from the countries that can supply most cheaply, members of a PTA may choose to buy from fellow members.
Thus, says the writer, "rather than merely creating trade where there was none before - which improves economic welfare - PTA may redirect it from efficient sources to inefficient ones."
Bhagwati says that the distinction between trade creation and trade diversion was first drawn by the famous economist Jacob Viner in 1950. Since then, he says, most other economists have regarded it as essential in thinking clearly about whether regional trade agreements advance or retard economic well-being.
Trade diversion, he points out, is now beginning to emerge in several empirical studies as a major concern. He cites a study by Alexander Yeats, an economist at the World Bank in which he has found evidence of significant trade diversion due to Mercosur.
(Mercosur is a trading arrangement between four South American countries comprising Argentina, Brazil, Paraguay and Uruguay. It is estimated that in 1994 the commercial interchange between the four nations reached, approximately US$ 12 billion) Bhagwati deplores the fact that American commentators recently discussed the effects of NAFTA without mentioning that Mexico too had suffered from trade diversion to American sources. He refers to a provisional estimate by Arvind Panagariya of Maryland University which suggests that Mexico's recent losses from trade diversion due to NAFTA could be as high as $3 billion a year.
The biggest problem, says Bhagwati, which increasingly bothers scholars of international trade is the "systemic" effect of proliferating PTAS. A few PTAS are just bad; in large numbers their bad effects multiply.
A further problem is that as PTAS spread, the world trading system comes to look "like a spaghetti-bowl of ever more complicated trade barriers each depending on the supposed "nationality" of products.
As soon as trade barriers are differentiated by country and the principle of non-discrimination is not fully adhered to, imported products must be assigned to a country to determine which duties and quotas apply".
Bhagwati points out that the difficulty is acute for PTAS where members have different external tariffs. For instance, he says, United States made an issue of Hondas produced in Canada, claiming that they were not Canadian enough in content to quality for the lower NAFTA tariffs.
Bhagwati cites a case where the absurdity of basing discriminatory trade policies on determinations of the origin of products is illustrated. A former US trade representative, Carla Hills told Japan that cars produced by transplant factories in America were Japanese and that export of such cars back to Japan should not therefore count towards the import targets that America sought from Japan.
At the same time she told Europeans that the very same cars should be considered American, that is, they should not be subject to EU quotas for Japanese cars.
KARACHI, Pakistan, Dec 5 (Reuters) - Pakistan is likely to devalue its rupee by between four and six percent against the dollar in the near future, despite official denials, foreign exchange dealers and bankers said on Friday.
Finance Minister Sartaj Aziz ruled out an imminent devaluation in an interview with Reuters Financial Television on Friday, but dealers said this had not changed the market's opinion that the rupee's value would be cut, possibly by the month's end.
The kerb market, where the rupee opened 0.03 down at 45.18 to the dollar, expects an early devaluation brought on by falling official foreign exchange reserves, big foreign debt repayments and competition from tumbling regional currencies.
But some bankers and analysts said the government might be tempted to delay a devaluation to allow the dust to settle after a recent constitutional crisis.
"Devaluation has become a political issue as it has its impact on prices for a country which is a net importer," a foreign banker said.
"The timing depends on how weak or strong the government thinks it is after the recent (political) crisis," he added. Dealer Owais Kalia, responding to Aziz's statement, said whenever officials were posed with a question on devaluation "they always say that but act otherwise".
He said a four to six percent devaluation before the close of December was the market talk at the moment, which would keep the rupee under pressure.
The State (central) Bank of Pakistan (SBP) rate, which was last changed on October 15, when the rupee was slashed by about eight percent against the U.S. currency, was at 44.0500/44.2703 to the dollar on Friday.
Pakistan's cash foreign exchange reserves, excluding bullion reserves, fell to $1.318 billion on November 29 from $1.435 billion a week earlier, but were up compared to $0.668 billion on November 28, 1996, the SBP said on Thursday.
Bankers say Pakistan is scheduled to meet repayments worth $2.115 billion on its $30-billion foreign debt by June 30 next year, while the inflow of remittances and bank deposits have slowed down in recent weeks.
"The more they (the government) stagger the decision (to devalue) the more the pressure is likely to grow. If our currency is overvalued compared to others in the region our exports will go down," Kalia said. Exports of cotton and related items fetch Pakistan more than 60 percent of its foreign exchange earnings. Among textile exports cotton yarn is the largest foreign exchange earner followed closely by cotton fabrics. - Reuters
ZURICH, - Swiss banks have begun paying out the contents of dormant wartime accounts to owners who came forward after lists of unclaimed assets were published this year, the Swiss Bankers Association (SBA) said on Friday.
"The SBA notes with satisfaction that the arbitration process is working and that the first payments for legitimate claims have taken place," it said in a statement.
It did not say who got the first payments, which followed intense international pressure on banks amid allegations by Jewish groups that Swiss banks were hoarding billions of dollars in assets of Holocaust victims. Banks deny this.
In an unprecedented break with banking secrecy, banks have released details of around 5,500 accounts opened by foreigners before May 9, 1945. The accounts hold around 67 million Swiss francs ($46.8 million) in all.
The SBA said around 6,000 claims had been filed for dormant accounts opened before 1945 and left untouched since the end of the war. It pledged banks would make an honest effort to clear up the matter once and for all.
"The banks will continue their efforts to fulfil this important task with openness and commitment," the SBA said. The banks pledged on Thursday not to pay out dormant wartime wealth to any Nazi war criminals who may come forward and claim the money.
Marvin Hier, dean of the Wiesenthal Centre human rights group, said in a statement that the latest list of accounts published in October included names matching those of Gestapo officer Karl Bauer; Emil Baumann, accused of murdering civilians at concentration camps; and regional Nazi chief Alfred Meyer.
Banks in October released the names of 14,000 people, including some 3,700 foreigners, who had a combined 18 million Swiss francs in unclaimed wealth sitting in banks since the war.
A first list in July showed nearly 1,800 foreigners' accounts containing 61 million francs. The actions of Swiss banks in handling the assets of Holocaust victims has been subject to intense international scrutiny in recent weeks.
At an international conference on the fate of Nazi gold held earlier this week, delegates were urged to do much more to compensate the victims of Nazi persecution.
But Switzerland rejected new Jewish demands for billions of dollars in compensation for buying looted Nazi assets. - Reuters
Return to Business Contents Page
| HOME PAGE | FRONT PAGE | EDITORIAL/OPINION | NEWS / COMMENT | TIMESPORTS
Please send your comments and suggestions on this web site to
info@suntimes.is.lk or to
webmaster@infolabs.is.lk