Focus on transparency

Veteran chartered accountant, former company managing director and Public Rights Activist, Chandra Jayaratne, has written to the Director General of the Securities and Exchange Commission of Sri Lanka on the good governance and transparency associated with the Regulatory Reforms proposals covering the operation of Executive Share Option Schemes in Sri Lanka. In his letter, under the theme: Regulatory Reforms Proposal Re; Executive Share Option Schemes, Jayaratne said: "I write to submit good governance and transparency associated with Regulatory Reforms proposal covering the operation of Executive Share Option Schemes in Sri Lanka.

In the above connection, I draw your kind attention to the newspaper report titled, 'Share option bonanza for JKH executive directors,' which appeared in the Sunday Island of 29 November 2014.

I submit that the Securities and Exchange Commission appoints a committee comprising multi disciplinary professionals and multi stakeholder representatives, to review and report as to whether;

1. Share option schemes of the type, structure, operation, and options as referred to in this news media report, in application as a part of executive compensation by listed companies operating In Sri Lanka, within the currently applicable company law, governance, market supervision, codes of conduct and enforcement framework, are appropriate and beneficial to and in the interest of all stakeholders in the longer term?

2. If such schemes are to be promoted in Sri Lanka, review whether the present laws, regulations, disclosure requirements, market supervision, codes of conduct and enforcement schemes are adequate to ensure the sustainable beneficial interests of all stakeholders?

3. Review whether such schemes can be abused by key executive option holders for their personal benefit and lead to market manipulations, conflicts of interests and promote undesirable related party/financial transactions?

4. If such schemes are to be retained in operation in Sri Lanka, in the interests of all stakeholders, review whether the relevant key executives and their related parties should be prevented from trading in their holdings of company shares for a specified period of at least two to three years before and after exercise of such options?

5. If such schemes are to be retained in operation in Sri Lanka, in the interests of all stakeholders, review whether new/revised good governance expectations led Codes of Best Practice and Codes of Ethical Conduct should be in place, with an effective compliance process, self declarations, independent monitoring schemes and transparency via independent financial media?

In the run up to this submission, I placed the above issues as a questionnaire and circulated it to 50 key market participants. There were 21 responses with the respondents expressing the under noted views in respect of each of the questions;

1. Question 1: 18 persons 'NO' and Three Persons 'YES'

2. Question 2:19 persons 'NO' and 1 person 'YES'

3. Question 3: 20 Persons 'YES'

4. Question 3: 20 Persons 'YES'

5. Question 3: 20 Persons 'YES'

I trust that this submission will receive your professional attention:

The letter has been copied to the Secretary, Ministry of Finance & Planning; Central Bank Governor, Registrar of Companies; Chairman, Securities & Exchange Commission of Sri Lanka; Chairman, Colombo Stock Exchange, Director General, Colombo Stock Exchange; Director General, Accounting & Auditing Standards Monitoring Board; President, Chartered Financial Analysts Association, President, Institute of Chartered Accountants of Sri Lanka and the chairman, Ceylon Chamber of Commerce and all editors of financial media.
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