Separation of Chairman/CEO roles, a fillip for good governance | Sunday Observer

Separation of Chairman/CEO roles, a fillip for good governance

The move to separate the roles of the Chairman and Chief Executive Officer (CEO) of listed companies following stakeholder consultation by the Securities and Exchange Commission of Sri Lanka (SEC) was hailed by senior corporate personalities and institution heads as a step that will ensure that policies will not be compromised and the independence of the organisation will be maintained.

Former Chairman Hatton National Bank Rienzie Wijetilleke said under no circumstances should the seat of the Chairman or the CEO be shared by another person and added that there should be a clear division of responsibilities between the Chairman and the Managing Director or the CEO.

“During my tenure as Managing Director and then as chairman, I ensured that my seat was not shared by another official. The CEO must be allowed to run the company independently while the Board of Directors should set the policies to run the institution,” Wijetilleke said adding that the chairman acts as a non executive director and looks into the interest of the Board. Executive directors represent the interest of the clients more than the board.

Partner, Gajma and Company and Senior Tax Consultant, N.R. Gajendran said the separation of the roles of the chairman and CEO for the purpose of governance is a good move. The separation of roles will ensure checks and balances in an organisation.

However, on the practical side, how far it will help the institution is something that still needs to be considered, because the chairman, (being a non-executive), would not know as much about the internal operations of the institution, as the CEO.

Former Central Bank Deputy Governor W.A. Wijewardena said the independence of institutions must be maintained without allowing policies to be compromised. “We are moving into a society where everything will be done in a transparent manner. The separation of responsibilities will improve good governance practices of organizations,” he said.

SEC Chairman Ranel Wijesinha in a media release last week stated Corporate Governance Provisions for the separation of the Chairman and the Chief Executive Officer roles in Listed Companies, were to be introduced only after stakeholder consultation.

He said that a decision was taken at the end of the third quarter of 2018, to subject this issue to consultation when the Commission responded to a proposal in the Sri Lankan corporate context it is a key measure, which requires the consideration of multiple perspectives. The Commission at a meeting early this year resolved to conduct a public consultation.

When the Commission was constituted in June 2018, we began a series of consultations on key issues between the SEC and the Colombo Stock Exchange (CSE), and between the SEC and the broking community or between and among any other groups of internal/external stakeholders.

The healthy interaction, open and transparent approach, the positive, constructive and proactive dialogue has worked well so far, and we have taken a decision to also adopt this approach to a ‘Dialogue with Listed Companies’ to be hosted by the SEC.

This ‘Dialogue’ which was to be scheduled for October/November 2018 was postponed due to the political situation, which prevailed. It is our intention to conduct this forum to discuss a wide variety of matters within the next week or two. “In essence, we bring to bear upon our deliberations the latest developments in the field. However, we are not simply driven by Best Practices of other jurisdictions alone or by rankings of the World Economic Forum or the Global Competitiveness Rankings or Competitiveness Rankings, or ‘Doing Business Index’ of the World Bank,” Wijesinha said.

The UK Corporate Governance Code states the roles of chairman and chief executive should not be held by the same person.

The issue whether holding both roles diminishes the effectiveness of the Board is a hot topic at shareholder meetings.

However, in many companies the world over, the CEO who holds a top management position in the company also serves as the chairman of the board.