The Securities and Exchange Commission (SEC) of Sri Lanka has stressed the need to separate the roles of chairman and chief executive officer in listed companies and invited the public and all stakeholders to submit written comments on the move.
“The best practice on Corporate Governance discourages concentration of power in one individual. An established norm is that there should be a clear division of responsibilities at the level of Board of Directors (BOD) of the Company, which will ensure a balance of power and authority, such that no one individual has unfettered powers of decision. As best practice, the chairman is expected to be an independent non executive director and shall not perform the role of the CEO,” it said in a published consultation paper on ‘Segregation of Chief Executive Officer and Chairman Role, Performed by One Individual in Listed Entities’.
Currently, as per the Listing Rules of Colombo Stock Exchange (CSE), there is no specific rule relating to the separation of the CEO and Chairman positions. Due to absence of such rule, the SEC notes that certain Public Listed Companies have the role of Chairman and CEO and Managing Director (MD) performed by the same individual.
Highlighting the rationale for introducing segregation of CEO and Chairman Roles, the paper stated the SEC together with the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) developed the Voluntary Code of Best Practice on Corporate Governance over a decade ago and such code requires segregation of roles of Chairman and CEO.
The SEC also notes CA Sri Lanka has issued a revised code in December 2017. Additionally, the Central Bank of Sri Lanka (CBSL) has already implemented the requirement for selected entities regulated by the respective regulator.
“Corporate Governance Principles of the Organization for Economic Cooperation and Development (OECD-2015) also promotes the separation of the role of CEO and Chairman which will lead to improve discharging of responsibilities of the board under principle VI – Responsibilities of the Board Item E.”
Furthermore, paper points out that due to the national strategic initiative to improve Sri Lanka’s competitiveness in international ranking on the Ease of Doing Business as approved by Ministry of Development Strategies and International Trade Sri Lanka (MODSIT), it is timely to adopt a policy to separate the CEO and Chairman roles as identified in item six (06) of the road map produced by the MODSIT.
“Many other jurisdictions have already embraced these principles and has addressed the conflict either by mandatory segregation, comply if not explain approach or on a voluntary compliance basis. Jurisdictions such as Pakistan, Indonesia, Norway and Netherlands require mandatory segregation whereas jurisdictions such as Australia, Singapore and Malaysia require either to comply or explain as to why compliance is not met. Sri Lanka recommended voluntary compliance for a decade in order to create awareness and to provide adequate time to embrace the concept.”
The SEC has called for public and all stakeholders written comments to this consultation paper on or before 19th August 2019, under the title “Public Consultation on Segregation of CEO and Chairman Role Performed by One Individual in Listed Entities”.
As per the consultation paper, comments received may be publicly available and will not be treated as confidential unless a special request is made in that respect.
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