SEC gets tough

Corporate governance standards mandatory for listed companies from financial year starting April 1, 2008

In a major move that is likely to discipline companies and directors as well as make them accountable, the Securities and Exchange Commission (SEC) has decided to make corporate governance standards mandatory for listed entities from April next year.

SEC sources said that it will be mandatory for listed companies to comply with the Corporate Governance Standards in the Listing Rules with effect from the financial year commencing on or after 01st April 2008 and the Annual Report must contain the relevant affirmative statements.
This is the first time where Corporate Governance has been made mandatory for all listed companies and SEC will look at consolidation and enhancement of these requirements to the future.

Pursuant to a joint initiative by the Institute of Chartered Accountants of Sri Lanka and the SEC, a committee formulated rules on Corporate Governance. This move in consultation with the Colombo Stock Exchange was to ensure good corporate governance among listed companies and to boost investor confidence.

These Rules will be incorporated in the Listing Rules of the CSE with a view to enforcing mandatory compliance.

The Committee decided to develop standards in respect of the following in the first instance:

• Non-executive directors
• Independent directors
• Criteria for determining ‘independence’ of directors
• Disclosure by directors
• Remuneration committees and
• Audit committees.

It is envisaged that these rules will be implemented in the following manner.

It will be mandatory for listed companies to publish a Table in the Annual Report relating to the financial year commencing on or after 01st April 2007 confirming that as at the date of the Annual Report they comply with the Corporate Governance Standards set out in the Listing Rules and if not, explain why the company has not complied with identified items.

Thereafter it will be mandatory for listed companies to comply with the Corporate Governance Standards in the Listing Rules with effect financial year starting April 1, 2008 and the Annual Report must contain the relevant affirmative statements.

This is the first time where Corporate Governance has been made mandatory for all listed companies and SEC will look at consolidation and enhancement of these requirements to the future.

A fortnight ago the Central Bank announced that it is also planning to implement its mandatory code of corporate governance for licensed banks from January 1, 2008. (See The Bottom Line Money section of last week)