Company Philosophy
Today’s businesses must be flexible and at the same time be efficient and effective in their resource utilisation to survive, compete and grow. This requires an organisation to strategically align all resources with its Business Strategy and manage all decision-making and operational risks ideally within a robust Enterprise Governance framework.
The Company philosophy perceives good governance as an uncompromising pursuit that provides assurance and comfort for growth in a sustainable manner; not as a set of controls that stifles growth. A healthy balance between value creation & resource utilisation (performance) and accountability & assurance (conformance) is the guiding principle of the accountability framework of the organisation.
The Company’s enterprise governance framework covers both business governance and corporate governance aspects. It encompasses a structure which is linked to strategic planning, performance management & accountability, and provides across the organisation the basis for making strategic decisions, identifying key performance indicators, assessing risk appetite and managing risk.
Governance Policy
The Company is committed to a policy of transparent, accountable and responsible governance. The Board’s overriding objective is to deliver superior returns to all stakeholders whilst maintaining high standards of corporate and business ethics. In this regard, the organisation ensures clear lines of responsibility and accountability across the entire Group.
The Company has adopted the Code of Best Practices issued by the Institute of Chartered Accountants of Sri Lanka, adheres to the listing rules of the Colombo Stock Exchange, and has included other best practices of Corporate Governance within its own.
Governance Strategy
Good Governance is not simply an integral part of the Company strategy, but the very basis of it. It ensures the Group’s compliance with the country’s legislative and regulatory requirements and promotes sustainability & growth. Performance, Conformance, Ethics, Accountability, Sustainability and Risk Management constitute some of the building blocks of the Company Strategy.
The Group follows an approach of incrementally embedding enterprise governance into its value adding process, and is making a conscious effort to continually improve the governance framework and process.
Governance Culture
Enterprise Governance requires high levels of commitment across the organisation, hence it is essential that a conducive governance culture be created. This envisages creating awareness at all levels and aligning good governance to corporate values. All employees are expected to observe the corporate values in achieving their respective and overall Company objectives.
Performance is not encouraged at the expense of business principles and values. These values are inculcated in employees as the Group recognises the importance of good business & corporate governance towards sustainability. Appreciating the importance of good governance, respecting the governance structure transparency, good conduct, confidentiality of customer information, sustainability, Conformance to laws and regulations are some key features of the Group’s governance culture.
Governance Process
The final responsibility of good governance lies with the Board of Directors. In order to achieve the Board’s objectives it has in place a governance structure and process via Board Committees that execute and monitor its effectiveness.
Enterprise Governance Framework
The Enterprise Governance framework covers the processes and systems that the Board has in place to ensure that the Company’s resources are employed efficiently and prudently towards achieving the Company’s business objectives. It extends to the Company’s governance structure and processes that have been established to promote increased shareholder value, lower cost of capital, reduced risk and other shareholder expectations.
Performance
Strategic Planning
Value Creation and Resource Utilisation are the two main pillars in the ‘Performance’ dimension of Governance, upon which the Board of Directors set the direction of Corporate Strategy. In addition to formulating strategy, the Board through committees, is responsible for ensuring an effective review mechanism. Towards the effective utilisation of Resources the Board is mandated to approve all significant investment decisions. A Capital Expenditure approval guideline ensures that key investment decisions receive timely approval of the Board. The Board sets the broad parameters for the business and these parameters are translated into specific objectives by the business units.
The business units develop their respective plans based on the direction of the Corporate Strategy set by the Board. Business units present their annual budgets and forecast for the ensuing period together with non-financial information such as market conditions, competition, challenges and opportunities etc. to the Board. The Annual Budget also includes the Capital Expenditure plan of the business unit and its resource requirements in terms of Working Capital and Human Resources. The Board evaluates these plans and proposals and provides feedback as deemed necessary. After all amendments have been duly incorporated, the plans are formally approved by the Board and they then partly form the basis of the key performance indicators.
Implementing the Strategic Plan
The Group Management Committee (GMC) is responsible to the Board of Directors for the implementation of business strategy. The GMC exercises direct supervision over every Business Unit including support services. This supervisory role is exercised in accordance with guidelines laid by the Board. A management team consisting of GMC members meet with corporate service unit heads on a monthly basis to review progress and discuss and resolve operational issues.
Managers of respective business units are responsible for achieving the pre-agreed results. Rewards and incentives are linked to the many parameters including profitability and resource utilisation. Business Unit Managers report their views and concerns to the respective GMC members and these views and concerns are discussed at the GMC meetings. While the business units have substantial autonomy in the conduct of their day-to-day operations, each business unit falls under the purview of a GMC member.
The Board of Directors, regularly apprised of progress, evaluate performance in line with the overall business objectives. Information generally reviewed by the Board includes key performance indicators, budgets, financial statements, customers, market developments, employees and principals. The operational results of each business unit is reviewed quarterly by the Board of Directors and projected results are compared with budgets and key performance targets.
Individual targets of employees’ are set out in line with the business unit’s overall targets and are reviewed on a biannual basis. The performance of individual executives is evaluated based on their level of achievement, and this forms the basis of their remuneration revisions and promotions.
Conformance
Board of Directors
The Board consists of seven executive Directors (including the Chairman), two Non-Executive Directors and three Independent Non-Executive Directors. This balance ensures that Board functions are separate from other aspects of the Company’s operations such as governance and management.
The Board acts within the provisions of the Companies Act No. 7 of 2007, Articles of Association and the relevant regulations and statutes.
A list of Directors with brief biographies appears on Board of directors section.
Chairman & Chief Executive Officer
The functions of the Chairman and Chief Executive Officer (CEO) are vested in the same person. The Company believes that the dual role performed by the Chairman and CEO does not compromise the principles of good corporate governance. This is further ensured by the significant presence of Non-Executive and Independent Directors including a Lead Director on the Board.
These Directors provide a mechanism for critically reviewing all aspects of the Company’s operations. They ensure that no single individual has unfettered powers of decision-making and ensures that independent judgement prevails over
issues of strategy, performance and risk. The presence of a Lead Director adds
more emphasis to transparency in governance affairs.
The Chairman ensures that good governance is practiced through the entirety of the organisation; that there is a balance of power on the Board and both Executive and Non-Executive Directors have opportunities for effective participation; that the Board has full knowledge of the Company’s affairs and is in complete control; and facilitates effective communication with all of the Company’s stakeholders.
The Chairman and CEO’s performance is reviewed by the Nomination Committee and the Remuneration Committee. Each committee consists of three Independent Non-Executive Directors including the Lead Director and two Non-Executive Directors.
Board Responsibilities
The Board provides good stewardship, vision and strategic direction to the institution and fosters a culture of integrity, transparency and accountability across the Group. The Directors are from diverse backgrounds and bring to bear a wide range of experience and competencies that facilitates the effective discharging of its responsibilities. The Board monitors and evaluates risks and performance, approves all important investment decisions and is also responsible for the installation of sound internal financial controls.
The Directors’ Responsibilities for the Financial Statements.
Board Independence
The composition of the Board of Directors meets the level of independence required by the rules of the Colombo Stock Exchange.
Board members are free to suggest the inclusion of items on the agenda of Board Meetings and carry out their duties in the interest of the Company without any undue influence from other parties.
Shareholding of Directors is available in the Annual Report of the Board of Directors.
Related party transactions given in Notes to the Financial Statements shows the transactions relating to Directors and/or parties related to them.
The Company maintains the ‘Interest Register’ required by the Companies Act No. 7 of 2007, which also shows details of Directors, interests in the Company, as required by the Act.
Lead Director
Mr. R. Seevaratnam, an independent non-executive Director, functions as the Lead Director to whom concerns relating to governance of the Company can be conveyed should the need arises. The Lead Director presides at Board Meetings in the absence of the Chairman of the Board of Directors. The Board assess the role of the Lead Director on a regular basis.
Appointment, Retirement & Re-Election of Directors
The Board appoints the Directors based on the recommendations of the Nominations Committee. The Company’s Articles of Association provides that any Director appointed by the Board to hold office until the next Annual General Meeting (AGM), may seek re-appointment by the Shareholders at the said AGM. Non- Executive Directors are appointed to the Board after evaluation of their level of expertise in the relevant field. In terms of the Articles of Association, one third of the Directors retire in rotation and may offer themselves for re-appointment at the AGM.
New appointments are made known to the public through the Colombo Stock Exchange and the media.
Board’s understanding of the Company’s Business
Following appointment to the Board, new Directors are given the opportunity to familiarise and obtain an in-depth understanding of the Company’s business, its strategy, risks and processes, at their discretion.
Training is provided to Executive Directors to equip themselves to discharge their responsibilities effectively. This includes training provided by principals, external and in-house training etc.
The expenses of individual Directors in obtaining independent professional advice are borne by the Company subject to
Board approval.
Effectiveness of the Board
Each Director brings on Board a wide range of skills, knowledge and experience. Expertise in Finance, Engineering, Law and Marketing is available in the present Board.
A sophisticated management information system is in place and provides relevant and current information. All Board Members including Non-Executive Directors receive information on the operations and performance of the Company on a monthly basis. This routine helps eliminate information asymmetry between executive Directors and Non-Executive Directors. The Directors are provided with comprehensive data on financial and non-financial information prior to Board meetings. Additional information may be requested by any member of the Board as and when required.
Evaluation of Board Performance
The performances of all Executive Directors are evaluated by the Nomination Committee and the Remuneration Committee. Achievement of budgeted results and key performance indicators are important measuring tools in performance evaluation.
The effectiveness of the individual Independent Directors are reviewed and assessed by the Board on a regular basis.
Meetings and Attendance
Every member dedicates sufficient time for the Board’s affairs by attending Board meetings, Committee meetings, performance and strategy review meetings. In addition, the Board Members communicate with each other through circulars, e-mails, telephone conversations and letters.
The number of meetings held and their attendance is given in the table appearing below.
Board and Committee Meetings and the attendance of members
| Name |
Board |
Audit
Committee |
Nominations
Committee |
Remuneration
Committee |
| A.R. Pandithage |
8/8 |
- |
- |
- |
| R. Seevaratnam** |
8/8 |
6/6 |
1/1 |
1/1 |
| Dr. H. Cabral ** |
7/8 |
6/6 |
1/1 |
1/1 |
| Dr. U. Liyanage** |
7/8 |
6/6 |
1/1 |
1/1 |
| A.N. Algama |
8/8 |
- |
- |
- |
| A.M. Pandithage * |
6/8 |
5/6 |
1/1 |
1/1 |
| A.G. Pandithage |
7/8 |
- |
- |
- |
| B.C.S.A.P. Gooneratne |
8/8 |
- |
- |
- |
| R.A. Ebell* |
6/8 |
4/6 |
1/1 |
1/1 |
| R.C. Weerawardane |
6/8 |
- |
- |
- |
| S.C. Algama |
8/8 |
- |
- |
- |
|
* Non-Executive Director
** Independent Non-Executive Director
The Company Secretary
The Company Secretary assists the Chairman in all aspects pertaining to the functions of the Board of Directors. He helps in arranging Board meetings and in making available all the necessary information to the Board for their deliberations.
Members of the Board have unrestricted access to the advice and services of the Company Secretary. The appointment and removal of the Company Secretary rests with the Board.
The Board Committees
The Board has several committees to assist in the discharge of its responsibilities more effectively.
Audit Committee
The Audit Committee is a sub-committee of the Board and its main purpose is to assist the Board in the effective discharge of its responsibilities on financial reporting, risk management and corporate control. It assists the Board in monitoring compliance with applicable laws and other regulatory requirements. The Committee is responsible for reviewing the financial reporting system and Financial Statements, including compliance with relevant accounting standards and Company policies.
The Audit Committee determines the appointment, evaluation, terms of engagement and fees of the auditors. The Committee also ensures that the objectivity and independence of the auditors are not impaired in any way as a result of the additional professional services performed by them.
The Board of Directors appoints members to the Audit Committee. The committee consists of three Independent Non-Executive Directors and two Non-Executive Directors. The Chairman of the Committee is Mr. R. Seevaratnam, an experienced Chartered Accountant.
Mr. H.M.A. Jayesinghe, who has previously served on the Board and as the Chairman of the Audit Committee functions as an Independent Consultant to the Committee offering valuable insight.
Any member of the Board including the Chairman/Chief Executive Officer and Deputy Chief Executive Officer may attend the Committee meetings by invitation.
Terms of Reference of the Committee clearly sets out its responsibilities and authority.
More details can be found in the Audit Committee Report
Committee meetings and the attendance of members is given in the table appearing on Governance section.
Remuneration Committee
The Remuneration Committee is responsible for determining the framework and policy on remuneration of the Chairman/Chief Executive Officer, Deputy Chief Executive Officer, Executive Directors and Senior Management.
The Company aims to attract and retain high calibre executives by ensuring that their rewards are competitive and linked to both individual and business performance. Whilst recognising the market demands and the contribution of the executives to the overall performance, the Company believes that the remuneration policy should at the same time be in sync with shareholder interests.
The Board of Directors appoints members to the Remuneration Committee.
The Committee consists of three Independent Non-Executive Directors and two Non-Executive Directors. The Chairman is Dr. U. Liyanage, an independent Non-Executive Director. The Committee is entitled to obtain professional advice at the Company’s expense.
Total Directors’ emoluments are disclosed in Note 28.
Committee meetings and attendance of members is disclosed in the table.
The report of the Remuneration Committee .
Nomination Committee
The Committee’s main role is to nominate suitable candidates as and when vacancies occur on the Board. The Committee is responsible for succession planning and in ensuring smooth management transitions. It reviews the size and structure of the Board on a continuing basis and constantly reviews the balance of skills, knowledge and experience of the Board of Directors. The Committee also reviews the independence of Directors including actual, potential or perceived conflicts of interest.
Appointments to the Board are made further to careful scrutiny of the required level and range of skills, knowledge, expertise and desired independence. Succession planning at Board and Senior Management level is a subject that is under the purview of the Nominations Committee. The Committee consults the views of the Chairman/CEO on matters of succession at senior management level.
The Committee consists of three Independent Non-Executive Directors and two Non-Executive Directors. Its chair is
Dr. H. Cabral, an Independent Director.
The Committee is entitled to obtain professional advice at the Company’s expense.
The Committee has specific terms of references defining its scope and authority.
The report of the Nomination Committee.
Risk Management
The Audit Committee is assigned the task of developing and implementing a sound and transparent risk management system through the Executive Management. The Audit Committee uses Internal Audit, Financial Information and Management Information & Feedback to evaluate risks.
A review of the risk management strategy is provided in the Enterprise Risk Management section.
Internal Controls
The main responsibility for establishing a suitable and effective system of Internal Controls lies with the Board of Directors. A sound system of internal control helps establish better levels of operational efficiency, provides more reliable financial data, and enables early detection of non-compliance with laws and regulations.
Outsourcing of the internal audit function has enhanced independence. The internal audit plan is agreed with the internal auditors at the beginning of each financial year by the Audit Committee, however, the internal auditors are allowed the freedom to carryout any additional tasks they consider necessary.
Financial Reporting
Financial Statements of the Company are prepared in accordance with Sri Lanka Accounting Standards. The Board endeavours to present a balanced and objective assessment of the Company’s position, performance and prospects. These are discussed in detail in the following reports:
• Directors’ Report.
• Chairman’s & CEO’s Review.
• Financial Review .
• Business Performance Review.
Investor Rights and Relations
The Company communicates regularly with its shareholders updating them on the Company’s position, performance and prospects. The Annual Report provides the most comprehensive review of the Company’s performance and prospects. This is supplemented by quarterly reports and other circulars, where necessary.
The Annual General Meeting provides a forum for shareholders to raise any queries. The Chairmen of the Audit, Remuneration and Nomination Committees are present at the Annual General Meeting. All Directors were present at the last AGM of the Company.
Every shareholder is entitled to one vote per share at a poll.
Employees
The monthly Employees Council meetings provide a forum for employees to communicate with the management on a regular basis. The Company’s ‘Open Door’ policy encourages employees to raise any matter of concern with any member of the management including the Chairman.
This process is detailed in the Sustainability Report .
Sustainability Reporting
The Board ensures that the Company’s growth is aligned with its contribution to the general economy, environment and society. The Group prepares its sustainability report annually using Global Compact Reporting Initiative guidelines. More details on this is available in the Sustainability Report.
Independent Review
In order to carry out a critical independent review of the Corporate Governance, the Company engaged Ms. Det Norske Veritas in May 2007. This review highlighted several areas for improvement, which is currently receiving attention. The rating report is available on Governance reports.
Compliance with Corporate Governance Regulations
The Company has implemented the regulations of the Section 6 of the listing rules of Colombo Stock Exchange on Corporate Governance.
Mr. R. Seevaratnam, Dr. H. Cabral and Dr. U. Liyanage satisfy the criteria of an independent director and have submitted the requisite declaration on their independence.
Corporate Governance Compliance Table (Colombo Stock Exchange Circular No. 02/2007)
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