INED discusses governance failures of failed companies
The Independent Directors (INED) Forum of The Sri Lanka Institute of Directors (SLID) recently held a panel discussion on companies that had failed in Sri Lanka with a view to imparting a wider understanding of the governance failures that occurred and enabling critical leanings, in order to prevent such failures in the future.
The session was open to the public and the discussions were directed at what preventive actions could be taken by directors on company Boards, particularly the role and responsibilities ofindependent directors.
The keynote speaker, Arittha Wikramanayake (Partner, Nithya Partners), set the tone for the discussions by sharing some key features drawn from some case studies in Sri Lanka followed by an interactive panel discussion with panelists Dr. Harsha Cabral (PC) (Independent Non-executive Chairman, Tokyo Cement (Lanka) PLC), Sujeewa Rajapaksa (Managing Partner, BDO Partners), and Ravi Abeysuriya (INED Seylan Bank PLC/HNB Assurance PLC). The session was moderated by Manil Jayesinghe (Partner, EY).
The panel discussion, along with active audience participation, moved around questions such aswhat was the composition of these Boards? What was the role of the INEDS on those Boards? Were there any dominating personalities on the Boards? Were the Board of directors negligent or reckless? Were they denied critical information by the company executives? What were the roles of the Board Audit Committee and Internal Audit?what are the red flags an INED should look out for? What should an INED do in these situations?
The panelists shared their individual observations on critical issues drawn from a number of local cases of corporate failure and highlighted what was lacking from the perspective of good corporate governance at the Board level.
The session drew a record level of participation from both the SLID membership and the general public. By the end of the session, the key takeaways for the participants, particularly the independent directors on company Boards were:
Before you accept an INED position, do your due diligence on the company and its Board of Directors.
As a director you must act in good faith in the best interest of the company. If you are unable to do so, then you should not be on the Board.
If you do not agree on any matter or decision then ensure that your dissent is recorded in the minutes of the Board meeting. It is good practice to circulate an email to the Board of Directors with your comments on why you disagreed. This can be used as a record if it is omitted from the Board minutes.
Understand the company’s business strategy. Does the strategy set up the company to fail? INEDS must challenge this. Have a questioning mind.
Audit committees should be capable, independent and effective, and ensure that the internal auditor reports to the committee and regularly evaluate whether the external auditor is independent in terms of the relevant Codes and the Companies Act.
INEDS should ensure that robust risk management systems and processes, checks and balances and independent monitoring and reporting are in place so that reckless risk taking and negligenceis-avoided.
Are you getting the right information? As an INED you may not have the operational knowledge that Executive directors have. Be inquisitive. If you don’t understand ask questions; don’t keep silent.
Is there a good environment in the Boardroom for adequate discussion and to arrive at the right conclusion?
In conclusion Jayesinghe noted that companies don’t fail overnight but over a period of time and that INEDS should watch out for indicators that the company is in trouble and address those issues or take action to protect the company.