Corporate Governance
Corporate Governance is the system by which CDB is directed and controlled by management. Good Corporate Governance provides the framework within which a company operates, sustained on principles of corporate accountability and transparency. From a broader perspective, it involves the relationship which exists between stakeholders of a company including the community at large and its directorate. The existence of formal and stringent mechanisms within a company for facilitating good Corporate Governance practices. This is reflected in the corporate behaviour, which is committed to achieving goals set for the benefit of all corporate stakeholders. The global recession and the failure of financial institutions in the recent past, clearly demonstrate the pivotal role played by good Corporate Governance practices in sustaining corporate growth and performance. CDB has continuously endeavoured to abide by best practices in governance; and conducted operations in a legal and ethical manner displaying professionalism, transparency and accountability.
The CDB’s Corporate Governance structure is based on the ‘Code of Best Practice on Corporate Governance’ issued jointly by the ICASL and the Securities and Exchange Commission of Sri Lanka (SEC) as well as the Finance Companies (Corporate Governance) Direction No. 03 of 2008 issued by the Monetary Board of the Central Bank of Sri Lanka under the Finance Business Act No. 42 of 2011.
Section I
Statement of Compliance
The disclosures below reflect CDB’s level of conformance to the ‘CODE OF BEST PRACTICE ON CORPORATE GOVERNANCE ISSUED JOINTLY BY THE SECURITIES AND EXCHANGE COMMISSION OF SRI LANKA AND THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA’.
The disclosure below reflects the CDB’s level of conformance with the above code which comprises of seven fundamental principles. There are:
- A. Directors
- B. Directors’ Remuneration
- C. Relations with Shareholders
- D. Accountability and Audit
- E. Institutional Investors
- F. Other Investors
- G. Sustainability Reporting
| Corporate Governance Principles | SEC & ICASL Code Reference | Compliance Status | CDB’s Level of Compliance |
A. Directors A.1 The Board The Company should be headed by a Board, which should direct, lead and control the Company The Board consists of professionals in Finance, Accounting, Management, Information Technology, Marketing, Human Resources and Business Leaders. All Directors possess the skills and experience and knowledge complemented with a high sense of integrity and independent judgment. Their leadership skills, direction provided and controls put in place ensure the achievement of the objectives of the Company set out in the corporate plan and the budget which aims to satisfy the expectations of all stakeholders. |
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| Board Meetings | A.1.1 | Compliant | Board meetings are held monthly mainly to review the performance of the Company and other matters referred to the Board by the Heads of respective divisions, while Special Board Meetings are convened whenever necessary. These meetings ensure that prompt action is taken to align the business processes to achieve the expectations of all stakeholders.
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| Responsibilities of the Board |
A.1.2 | Compliant | The Board collectively is responsible for the success of the Company. The Board formulate the business strategy and ensure that MD/CEO and management team possess the skills experience and knowledge to implement the strategy. It also ensures that effective systems are in place to secure integrity of the information, Internal controls and risk management and compliance with all applicable laws and regulations. The Independent Directors are responsible for bringing independent judgment to decisions make by the Board.
The Board is satisfied with the integrity of financial information and the robustness of the financial controls and system of risk management of the Company. |
| Compliance with laws and access to Independent professional Advice | A. 1.3 | Compliant | The Board collectively as well the Directors individually, recognised their duty to comply with laws of country which are applicable to the Company. The Board of Directors ensures that procedures and processes are in place to ensure that the Company complies with all applicable laws and regulations. A procedure has been put in place for Directors to seek independent professional advice, in furtherance of their duties, at the Company’s expense. This will be co-ordinated through the Board Secretary, as and when it is required. In addition, the Board is assisted by several Board Sub-committees on various matters. |
| Advice and services of the Company Secretary | A.1.4 | Compliant | All secretarial matters for which clarification is needed by the Board are referred to the Company Secretary who having required qualifications as set out in the Company Act. Company Secretary provides all information after obtaining necessary professional advice, whenever required to do so. All Board members have access to the Company Sectary to ensure that proper Board procedures are followed and that all applicable Rules and Regulation are complied with. Consent of all Board members is required for the removal of the Company Secretary. |
| Independent judgment of Directors | A.1.5 | Compliant | None of the Directors have held executive responsibilities in their capacity as Non-Executive Directors. The Non-Executive Directors do not have any business interests that could materially interfere with the exercise of their independent judgment. Directors are required to disclose all transactions with the Company, including those of their close family members as required by the relevant Sri Lanka Accounting Standards and the Companies Act, and these requirements have been complied with. |
| Dedication of adequate time and effort for matters of the Board | A.1.6 | Compliant | The Board members dedicate adequate time and effort to fulfil their duties as Directors of the Company (both before and after the Board meeting) to ensure that the duties and responsibilities owned to the Company are discharged accordingly. In addition to attending Board meeting, they have attended Sub-committee meeting and also have made decisions via circular resolution where necessary. The Board Sub-committees include Assets and Liability Committee, Audit Committee, Integrated Risk Management Committee, Credit Committee, Remuneration Committee, Nomination Committee. Further, additional meetings and discussions are held with the management whenever the need arises. |
| Training for new and existing Directors | A.1.7 | Compliant | Both new and existing Directors of the Company are provided guidelines on general aspects of directorship and industry specific matters. In this regards, the Directors have recognised the need for continuous training, expansion of knowledge and to take part in such professional development as and when they consider necessary which would assist them to carry out duties as Directors. During the year, presentations were made to the Board/Board Sub-committee by the Company from time to time on industry specific matters and regulatory updates.
The Directors have attended a number of meetings with the corporate management teams to familiarise themselves with the Company strategy, operation and internal control. The Directors have attended the ‘Directors Symposium’ conducted by CBSL during the year. |
A.2 Chairman and Chief Executive Officer (CEO) There is a clear separation in the duties of the Chairman and Chief Executive Officer to ensure a balance of power and authority, in such a way that any individual has no unfettered powers of decisions. The role of the Chairman and MD/Chief Executive Officer is functioning separately at Company. The Chairman is responsible for the lead, direct and manage the work of the Board to ensure that it operates effectively and fully discharge its legal and regulatory responsibilities. The MD/CEO’s role is primarily to conduct the business operation of the Company with help of the corporate management. |
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| Division of responsibilities of the Chairman and MD/CEO | A.2.1 | Compliant | The role of the Managing Director and Chairman are not combined. The Chairman is a Non-Executive Director while the Managing Director serves as an Executive Director of the Company. This is to ensure a balance of power in strategic and operational decisions authority such that no one possesses unfettered powers of decisions. |
A.3 Chairman’s Role The Chairman’s main role is to lead and manage the Board, ensuring that it discharges its legal and regulatory responsibilities effectively and fully. He preserves order and facilitates the effective discharge of the Board function. The profile of the Chairperson is given in the Board of Directors section. |
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| Role of the Chairman | A.3.1 | Compliant | The Chairman’s main role is to lead and manage the Board and ensuring effectiveness in all aspects of its role. The Chairman of the CDB is a Non-Executive Director. The Chairman’s role encompasses that -
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A.4 Financial Acumen The Board should ensure the availability within it of those with sufficient financial acumen and knowledge to offer guidance on matters of finance There are a sufficient number of Board members who possess finance qualifications and experience in the financial services industry and provide significant input in matters concerning this area. |
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| Availability of sufficient financial acumen and knowledge | A.4 | Compliant | The Chairman is a fellow member of the Chartered Institute of Management Accountants of UK. MD/CEO is a member of the Chartered Institute of Management Accountants of UK. In addition, the Board includes two members of The Institute of Chartered Accountants of Sri Lanka and Three members of the Chartered Institute of Management Accountants of UK. Directors profiles are given in the Board of Directors section. |
A.5 Balance of the Board The Code recommends having a balance of Executive and Non-Executive Directors so that no individual or small group of individuals can dominate the Board’s decision-making. |
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| Presence Non-Executive Directors | A.5.1 | Compliant | Six of the eleven are Non-Executives Directors (NED) which is well above the minimum prescribed by this code which is two NEDs or NEDs equivalent to one-third of the total number of Directors, whichever is higher. This ensures that the views of NEDs carry a significant weight in the decisions made by the Board. |
| Independent Directors | A.5.2 | Compliant | Three out of six Non-Executive Directors are independent as defined by the Code. |
| Independence evaluation review | A.5.3 | Compliant | All three Independent Directors are independent of management and free of any business or other relationship that could impair his independence. |
| Signed declaration of independence | A.5.4 | Compliant | All Non-Executive Directors of the Company have made written submissions as their independence against the specified criteria set out by the Company, which is in line with the requirements of Schedule H of the Code. |
| Determination of independence of the Directors by the Board | A.5.5 | Compliant | The Board has determined the independence of Directors based on the declarations submitted by the NEDs, as to their independence, as a fair representation and will continue to evaluate their independence on this basis annually. No circumstances have arisen for the determination of independence by the Board, beyond the criteria set out in the Code. Independent Non-Executive Directors are:
Mr. Razik Mohamed |
| Appointment of Alternative Director | A.5.6 | Compliant | Where the alternative Director is appointed, a requirement of the Code has been compliant. |
| Senior Independent Director | A.5.7 | N/A | Although the requirement to appoint a Senior Independent Director does not arise under this Code, the Company has designated Mr. Razik Mohamed as the Senior Independent Director, to meet the requirement under 7 (2) of the Finance Companies (Corporate Governance) Direction No. 03 of 2008 issued by CBSL. |
| Confidential discussion with the Senior Independent Director | A.5.8 | N/A | Please refer above comment. |
| Meeting of Non-Executive Directors | A.5.9 | Compliant | Chairman meets with the Non-Executive Directors without the presence of MD/CEO, on a need basis. |
| Recording of concern in Board minutes | A.5.10 | N/A | There were no concerns raised by the Directors during the year, which needed to be recorded in the Board meeting minutes. |
A.6 Supply of Information Management is required to provide time bound information in a form and of quality appropriate to enable the Board to discharge its duties. Financial and non-financial information are analysed and presented to the Board to make informed and accurate decisions. |
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| Information to the Board by the Management | A.6.1 | Compliant | The Board was provided with timely and appropriate information by the management by way of Board papers and proposals. The Board sought additional information as and when required. Corporate and Senior Management made presentations on issues of importance. The Chairman ensured that all Directors were briefed on matters arising Board meetings. The Directors have free and open contact with Corporate and Senior Management of the Company. |
| Adequate time for effective Board Meetings | A.6.2 | Compliant | Board was provided with timely and appropriate information by the management by way of Board papers and proposals. The Board sought additional information as and when necessary. |
A.7 Appointments to the Board In terms of the Company’s Articles of Association the majority shareholder is entitled from time to time, by writing under the hand of its Chairman, to make appointments of new Directors. The said appointments are notified to the Board of Directors immediately. In identifying suitable candidates for appointment as Executive and Non-Executive Directors, professional qualifications, business experience and personal qualities are taken into consideration. |
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| Nomination Committee and Assessment of Board Composition | A.7.1 & A.7.2 | Compliant | Board as a whole annually assess Board-composition to ascertain whether the combined knowledge and experience of the Board matches the strategic demands facing the Company. The findings of such assessment should be taken into account when new Board appointments are considered and when incumbent Directors come up for re-election. |
| Disclosure of details of new Directors to shareholders | A.7.3 | Compliant | When the new Directors were appointed to the Board, a brief resume of each such Director including the nature of his experience, the names of companies in which the Director holds directorship, membership, in the Board Sub-committee etc., are informed to the Central Bank of Sri Lanka and Colombo Stock Exchange in addition to disclosing this information in the Annual Report. Further, the required information is published in a newspapers for the information of interest parties. Any changes in the details provided by the Directors are disseminated to the Colombo Stock Exchange without any delay. |
A.8 Re-election The Code requires all Directors to submit themselves for re-election at regular intervals and at least once in every three years. It also requires that all Non-Executive Directors to be appointed for a specific terms and subject to re-election. |
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| Appointment of Non-Executive Directors | A.8.1 | Compliant | Association of the Company requires each Director to retire by rotation once in every three years and is required to stand for re-election by the shareholders at the Annual General Meeting. The proposed re-election of Directors are subject to prior review by the full Board. |
| Re-election by the shareholders | A.8.2 | Compliant | Refer comment above. |
A.9 Appraisal of Board Performance The Board periodically appraises its own performance against the pre-set targets in order to ensure that the Board responsibilities are satisfactorily discharged. |
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| Annual appraisal of Board performance and that of its Committees | A.9.1 & A.9.2 |
Compliant | The Board annually evaluated its performances against the annual objectives set at the beginning of the year. The performances of Board Committees evaluated against the objectives of respective committees. |
| Disclosure of criteria used for the Performance Evaluation | A.9.3 | Compliant | See ‘Report of the Remuneration Committee’ in Annual Report for details of the criteria considered for performance evaluation of the Board. |
A.10 Disclosure of Information in Respect of Directors The Code requires that the details in respect of each Director to be disclosed in the Annual Report for the benefit of the shareholders. |
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| Details in respect of Directors | A.10.1 | Compliant | Details of Directors are given on this Annual Report. |
A.11 Appraisal of CEO The Code requires the Board to assess the performance of the Chief Executive Officer (CEO) at least annually to ascertain degree to which the CEO met the pre-set financial and non-financial targets. |
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| Financial and non-financial targets for CEO | A.11.1 | Compliant | MD/CEO‘s performance objectives are aligned with the business sustainability of the Company. The performance targets for the MD/CEO are set at the commencement of every year by the full Board which are in line with, medium and long-term objectives of the Company. |
| Annual evaluation of the performance of CEO | A.11.2 | Compliant | There is an ongoing process to evaluate the performance of MD/CEO against the financial and non-financial targets set as described above which is followed by a formal annual review by the Board at the end of each financial year. |
B. Directors’ Remuneration B.1 Remuneration Procedures The Code requires companies to have a formal and transparent procedure for developing policy on executive remuneration and fixing the remuneration packages of individual Directors and also recommends that no Director should be involved in deciding his/ her remuneration in order to avoid the self-review threat. |
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| Remuneration Committee | B.1.1 | Compliant | The Remuneration Committee is responsible for assisting the Board with regard to the remuneration policy for the Executive Director and the Corporate Management and for making all relevant disclosures. The Committee determines and agrees with the Board, the broad policy framework for the remuneration of the MD/CEO. The MD/CEO participate in meetings by invitation in deciding the remuneration of the Corporate Management in order to recruit, retain and motivate the Corporate Management team. |
| Composition of the Remuneration Committee | B.1.2 & B.1.3 |
Compliant | The following Non-Executive Directors served on the Remuneration Committee during the financial year:
Mr. S.R. Abeynayake - Chairman |
| Remuneration of Non-Executive Directors | B.1.4 | Compliant | The Board as a whole decides the remuneration of the Non-Executive Directors.
The Non-Executive Directors receive a fee for being a Director of the Board and additional fee for either chairing or being a member of a Committee, working on Special Committees and/or serving on Subsidiary Boards. They do not receive any performance related/incentive payments. |
| Consultation of the Chairman and access to professional advice | B.1.5 | Compliant | Input of the Chairman is obtained by his involvement as a member of the said Sub-committee. External professional advice is sought by the Remuneration Committee, on a need basis through the Board Secretary. |
B.2 The Level and Make-up of Remuneration Levels of remuneration of both Executive and Non-Executive Directors should be sufficient to attract and retain the Directors needed to run the Company successfully. The proportion of remuneration of Executive Directors is linked to corporate and individual performance. |
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| Level and make-up of remuneration | B.2.1 to B.2.8 | Compliant | The Board is mindful of the fact that the remuneration of Executive and the Non-Executive Directors should reflect the expectation of the Company and sufficient enough to attract and retain the quality of Directors needed to run the Company. The remuneration package of the MD/CEO is structured to link rewards to corporate and individual performance. The Company’s remuneration framework for CEO is designed to create and enhance value for all CDB’s stakeholders and to ensure there is strong alignment between the short-term and long-term interest of the Company. |
| Remuneration of the Non-Executive Directors | B.2.9 | Compliant | Non-Executive Directors receive a director’s fee in line with the market practices as disclosed in this Annual Report. Non-Executive Directors do not participate in the current share option plans of the Company and/or other performance-related incentive schemes. |
B.3 Disclosure of Remuneration The Code requires the Company to disclose in its Annual Report the details of the remuneration paid and the remuneration policy. |
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| Disclosure of Directors’ remuneration in the Annual Report | B.3.1 | Compliant | Refer the Remuneration Committee Report for disclosure on the names of the Remuneration Committee Members and the remuneration policy of the Company.
Also refer Note 40 to the Financial Statements for the aggregate remuneration paid to Executive and Non-Executive Directors. |
C. Relations with Shareholders C.1 Constructive use of the Annual General Meeting (AGM) and Conduct of General Meetings The Code requires the Board to use the Annual General Meeting to communicate with shareholders and encourage their active participation. In this regard all shareholders of the Company receive the Notice of Meeting within the statutory due dates. |
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| Use of Proxy Votes | C.1.1 | Compliant | The Company has a effective mechanism to record all proxy votes and proxy votes lodged for each resolution prior to the general meeting. |
| Separate resolution for all separate issues | C.1.2 | Compliant | Separate resolutions are proposed for all substantially separate issues to provide shareholders with the opportunity to deal with each significant matter separately. This mechanism promotes better stewardship while assuring the transparency in all activities of the Company. |
| Availability of all Board Sub-committee Chairman | C.1.3 | Compliant | Chairman of the Company ensures that Chairman of all Board appointed Sub-committees are present at the AGM to answer the questions under their purview. |
| Adequate notice of the AGM to shareholders together with the summary of the procedure | C.1.4 & C.1.5 | Compliant | A Form of Proxy and copy of the Annual Report are dispatched to all shareholders together with the Notice of Meeting detailing the summery of procure as per legal requirements giving adequate notice to shareholders. This provides opportunity to all shareholders to attend the AGM for their voting status and obtain clarifications for the matters of interest to them. |
C.2 Communication with Shareholders The Board is required to implement effective communication with shareholders. |
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| Communication with shareholders | C.2.1 to 2.7 | Compliant | The Company has implemented the relevant communication channel, disclosed the policy and methodology and other requirement of the code for communication with shareholders. |
C.3 Major Transactions Directors are required to disclose to shareholders all proposed material transactions which would materially alter the net asset position of the Company. |
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| Major Transactions | C.3.1 | Compliant | During the year, there were no major transactions as defined by Section 185 of the Companies Act No. 07 of 2007 which materially affected CDB’s net asset base. Transaction, if any, which materially affect the net assets of the Company, will be disclosed in the quarterly/annual Financial Statements. |
D. Audit and Accountability D.1 Financial Reporting The Board is required to present a balanced and understandable assessment of the Company’s financial position, performance and prospects |
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| Reports to public and Regulatory and Statutory reporting | D.1.1 | Compliant | CDB has reported a true and fair view of its position and performance for the year ended 31st March 2014 and at end of each quarter of 2013/14. In the preparation of Financial Statements, CDB had strictly complied with the requirements of the Companies Act No. 07 of 2007, the Finance Business Act No. 42 of 2011 and amendments thereto and are prepared and presented in conformity with Sri Lanka Accounting Standards. CDB has complied with the reporting requirements prescribed by the regulatory authorities such as Central Bank of Sri Lanka, the Colombo Stock Exchange, the Securities and Exchange Commission. |
| Directors Report in the Annual report | D.1.2 | Compliant | The Directors’ Report given on this Annual Report covers all areas of this section as required by the Direction. |
| Statement of Directors’ and Auditors responsibility for the Financial Statements, Report/Statement on Internal Control | D.1.3 | Compliant | The Statement of Directors’ Responsibility for financial reporting is given in this Annual Report as required by the Direction and Auditors reporting responsibility is given in their Audit Report on the Financial Statement in this Annual Report. |
| Management Discussion and Analysis | D.1.4 | Compliant | The Management Discussion and Analysis Report is given in this Annual Report as required by the Direction. |
| Declaration by the Board that the business is a going concern | D.1.5 | Compliant | This is given in the Directors’ Report. |
| Summoning an EGM to notify serious loss of capital | D.1.6 | Compliant | Likelihood of such occurrence is remote. However, should the situation arise, an EGM will be called for and shareholders will be notified. |
| Disclosure of Related Party Transactions | D.1.7 | Compliant | Relevant related party transactions are adequately and accurately disclosed in the Annual report . |
D.2 Internal Control The Code requires the Board to have a process of risk management and a sound system of internal controls to safeguard shareholders’ investments and the Company’s assets. |
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| Review of risks facing the Company and evaluation of the internal control system | D.2.1 | Compliant | The Company has established a comprehensive framework of policies and procedures for risk management and internal controls, which are regularly reviewed and updated. The Company’s Audit Committee ensures that there is an effective internal control and financial reporting system by adopting the following measures:
The Company obtained the External Auditor’s certification on the effectiveness of the internal control mechanism on financial reporting. |
| Internal audit function | D.2.2 | Compliant | The Company already has it own in-house Internal Audit Department, which is responsible for internal audit function. |
| Reviews of the process and effectiveness of risk management and internal controls | D.2.3 | Compliant | The Audit Committee carry out reviews of the process and effectiveness of risk management, internal controls and document to the Board on regular basis. |
D.3 Audit Committee The code requires the Board to have formal and transparent arrangements in selecting and applying the accountings policies, financial reporting and internal control principles and maintaining an appropriate relationship with the Company’s External Auditor. |
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| Composition of the Audit Committee | D.3.1 | Compliant | The Company’s Audit Committee consists of three members all of whom are Non-Executive Directors. The Committee operates within clearly defined terms of reference.
Details of the members, invitees and the Secretary of the Committee are found on Audit Committee Report in this Annual Report. |
| Duties an Audit Committee - Ensuring the objectivity and independence of External Auditors | D.3.2 | Compliant | The Committee maintains an appropriate relationship with the External Auditors, KPMG (Chartered Accountants) to ensure their objectivity and independence. The payment to External Auditors for audit and non-audit services are disclosed in the Directors’ Report of this Annual Report. In addition, the Company has an established an internal audit function which operates independently and has direct access to the Audit Committee. The External Auditors do not have any relationship (other than that of Auditor) and any interest in the Company. |
| Terms and reference of the Audit Committee | D.3.3 | Compliant | Audit Committee is guided by clearly define terms and references. |
| Disclosure of the Audit Committee | D.3.4 | Compliant | Names of the members of Audit Committee are given in this Annual Report under Audit Committee Report. |
D.4 Code of Business Conduct and Ethics The Company should develop a Code of Business Conduct and Ethics for Directors and members of the Senior Management team |
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| Code of Business Conduct and Ethics | D.4.1 | Compliant | Company has developed a Code of Business Conduct and Ethics for all employees, which addresses conflict of interest, corporate opportunities, confidentiality of information, fair dealing, protecting and proper use of the Company’s assets, compliance with applicable laws and regulations and encouraging the reporting of any illegal or unethical behaviour etc. |
| Affirmation by the Chairman that there is no violation of the Code of Conduct and Ethics | D.4.2 | Compliant | Refer to Chairman’s Statement in this Annual Report for details. |
D.5 Corporate Governance Disclosure The Company should disclose the extent of adoption of best practices in Corporate Governance |
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| Disclosure of Corporate Governance | D.5.1 | Compliant | This requirement is met through the presentation of this Report. |
E. Institutional Investors E.1 Institutional shareholders are required to make considered use of their votes and encouraged to ensure their voting intentions are translated into practice |
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| Communication with shareholders | E.1.1 | Compliant | Annual General Meeting is used to have an effective dialogue with the shareholders on matters which are relevant and concern to the general membership. |
E.2 Evaluation of Corporate Governance Initiations Institutional Investors are encouraged to give due weight to all relevant factors in Board structure and composition |
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F. Other Investors F.1 Investing/Divesting Decision |
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| Individual shareholder | F.1 | Compliant | Individual shareholders are encouraged to carry out adequate analysis or seek independent advice on their investing, holding or divesting decisions. |
F.2 Shareholder Voting |
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| Individual shareholders voting | F.2 | Compliant | Individual shareholders are encouraged to participate in General Meetings and exercise their voting rights. |
G. Sustainability Reporting G.1 Principles of Sustainability Reporting Sustainability is a business approach that creates long-term stakeholder value by embracing opportunities and managing risks derived from economic, environmental and social development and their potential implications and impacts on the business activities of the entity. Sustainability reporting is the practice of recognising, measuring, disclosing and being accountable to internal and external stakeholders for organisational performance towards the goals of sustainable development in the context of the overall business activities and strategy of the entity and be directed to the target stakeholders, usually, shareholders, employees, customers, society and Governments. |
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| Principles of Sustainability Reporting | G.1.1 to 1.7 | Compliant | The Company has adopted the relevant principles and procedure of the Code to develop a sustainable business environment and disclosures are made in this Annual Report. |
Section II
Statement of Compliance
Finance Companies (Corporate Governance) Direction No. 03 of 2008 as amended by Finance Companies (Corporate Governance) Direction No. 04 of 2008.
The Monetary Board of the Central Bank of Sri Lanka has issued the above Direction which shall apply to every finance company licensed in terms of Section 02 of the Finance Business Act No. 42 of 2011 and shall come into operation with effect from 1st January 2009.
| Corporate Governance Principle | CBSL Rule Reference | Compliance Status | CDB’s Level of Compliance |
2. The Responsibilities of the Board of Directors |
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| 1. Strengthening the safety and soundness of the Company | 2. (1) | Compliant | The Board formulates the business strategy and ensure that CEO and management team possess the skills experience and knowledge to implement the strategy. It also ensures that effective systems are in place to secure integrity of the information, Internal controls and risk management and compliance with all applicable laws and regulations. |
| 2. Chairman and CEO | 2. (2) | Compliant | The Chairman is a Non-Executive Director. The Chief Executive Officer is in charge of the overall management of the Company. |
| 3. Independent professional advice to Board of Directors | 2. (3) | Compliant | Please refer Section A.1.3 of the SEC and ICASL Code compliance table |
| 4. Conflict of Interests | 2. (4) | Compliant | Board is conscious of its obligations to ensure that Directors avoid conflicts of interest (both real and apparent) between their duty to CDB and their other interests. The Board has taken steps to ensure that conflicts and potential conflicts of interest of Directors are disclosed to the Board. Any Director with a material personal interest in a matter being considered by the Board declares his/her interest and unless the Board resolves otherwise, he/she do not participate in discussions or vote on that specific matter. Independent Directors do participate in such meetings. |
| 5. Formal schedule of matters | 2. (5) | Compliant | The Board have a formal schedule of matters reserved to it. |
| 6. Situation of Insolvency | 2. (6) | Compliant | No such situation has been arisen during the year. |
| 7. Corporate Governance Report | 2. (7) | Compliant | This Report addresses the requirement. |
| 8. Annual self-assessment by the Directors | 2. (8) | Compliant | The Directors provide an annual self-assessment to the Board to assess the fit and propriety to hold office as Directors of the Company. |
3. Meetings of the Board |
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| 9. Board Meeting | 3. (1) | Compliant | The Board has met 12 times for the financial year under review and have ensured that the performance of the Company for the financial year under review has been duly assessed at those meetings. |
| 10. Inclusion of proposals by all Directors in the agenda | 3. (2) | Compliant | The Company Secretary facilitates any requires made by the Directors at the meeting or otherwise and ensures that the said matters and proposals are included in the agenda for the next meeting for discussion. |
| 11. Notice of Meetings | 3. (3) | Compliant | Directors are given adequate time and at least 7 days of notice for regular Board meetings. For all other meetings a reasonable notice period is given. |
| 12. Non-attendance of Directors | 3. (4) | Compliant | Such an instance had not arisen in the Company. |
| 13. Board Secretary | 3. (5) | Compliant | Please refer Section A.1.4 of the SEC and ICASL Code compliance table. |
| 14. Agenda and Minutes of the Meetings | 3. (6) & 3. (8) |
Compliant | The Company Secretary prepares the agenda and keep the minutes of meetings. |
| 15. Access to Secretary by Directors | 3. (7) | Compliant | All the Directors have access to Secretary and records of Board meetings. |
| 16. Minutes of Board Meetings shall be recorded in sufficient details | 3.(9) | Compliant | Minutes of all meetings are duly recorded in sufficient detail and retained by the Company Secretary under the supervision of the Chairman. |
4. The Board’s Composition |
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| 17. Number of Directors | 4. (1) | Compliant | The Board comprises of eleven Directors. |
| 18. Subject to transitional provisions contained herein and subject to para 5.(1) of this Direction the total period of service of the Director other than a Director who holds the position of CEO of Executive Director shall not exceed nine years | 4. (2) | Compliant | |
| 19. Appointment of an employee as a Director | 4. (3) | Compliant | The Company has five Executive Directors. |
| 20. Independent Non-Executive Director | 4. (4) | Compliant | Three out of eleven Directors are Independent Non-Executive Directors. |
| 21. Alternative Director | 4. (5) | Compliant | This situation has not arisen. |
| 22. Credibility, skills and experience of Non-Executive Directors | 4. (6) | Compliant | Profiles of the Non-Executive Directors are included in this Annual Report. |
| 23. Presence of Non-Executive Directors in Board Meetings | 4. (7) | Compliant | One-half of the quorum was Non-Executive Directors in all meetings held. |
| 24. Details of Directors | 4. (8) | Compliant | Details of Directors included in this Annual Report. |
| 25. Appointment of new Directors | 4. (9) | Compliant | The Board collectively assesses the composition of the Board and make appointment as necessary. |
| 26. Appointment to fill a casual vacancy | 4. (10) | Compliant | |
| 27. Resignation/removal of a Director | 4. (11) | Compliant | |
5. Criteria to Assess the Fitness and Propriety of Directors |
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| 28. Directors over 70 years of age | 5. (1) | Compliant | This situation has not arisen. |
| 29. Holding in office in more than 20 companies | 5. (2) | Compliant | No Director holds such positions. |
6. Management Function Delegated by the Board |
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| 30. Delegation of work to the management and review of delegation process | 6. (1) & 6. (2) |
Compliant | The Board annually evaluates the delegated authority process to ensure that the delegation of work does not materially affect the ability of the Board as a whole in discharging its functions. |
7. The Chairman and Chief Executive Officer |
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| 31. Division of Responsibilities of the Chairman and MD/CEO | 7 .(1) | Compliant | The role of Chairman and Chief Executive Officer separated. |
| 32. Chairman shall be an Non-Executive Director, In the case where the Chairman is not an Independent Non-Executive Director, the Board shall designate an Independent Non-Executive Director as the senior Director with suitably documented term of reference to ensure a greater independent element. The designation of the senior shall be disclosed in the finance company’s Annual Report. | 7. (2) | Compliant | Chairman is a Non-Executive Director. The Board was designated Mr. Razik Mohamed (Independent Non-Executive Director) as Senior Director. |
| 33. Relationship between Chairman and CEO and other Directors | 7. (3) | Compliant | There are no material relationships between the Chairman/CEO and/or other members of the Board which will impair their respective roles. |
| 34. Role of the Chairman | 7. (4) to 7. (10) |
Compliant | Please refer Section A.3 of the SEC and ICASL Code compliance table. |
| 35. Role of the Chief Executive Officer | 7. (11) | Compliant | Please refer Section A.2.1 of the SEC and ICASL Code compliance table. |
8. Board Appointed Committees |
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| 36. Board appointed two Sub-committees | 8. | Compliant | Audit Committee and Integrated Risk Management Committee are functions as per the requirements of this direction accordingly. |
9. Related Party Transactions |
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| 37. Avoiding conflict of interest in related party transaction and favourable treatment | 9. (2) to 9. (4) |
Compliant | Compliant steps have been taken by the Board to avoid any conflict of interests, that may arise, in transacting with related parties as per the definition of this Direction and Sri Lanka Accounting Standard - LKAS 24 on ‘Related Party Transactions’. Further, the Board ensures that no related party benefits from favourable treatment. |
10. Disclosures |
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| 38. Financial reporting, statutory and regulatory reporting | 10. (1) | Compliant | Financial Statements for the year ended 31st March 2014 are in conformity with all rules and regulatory requirements and for the quarters then ended have been published in all three languages. |
| 39. Minimum disclosure in the Annual Report | 10. (2) | Compliant | All required disclosures have been made in the Annual Report. |
11. Transitional Provisions |
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| 40. Transitional and other general provisions | 11. (1) to 11. (6) |
Compliant | The Company has complied with transitional provisions when applicable. |
Attendance of Directors at Board meetings for the financial year 2013/14 is as follows:
| Name of the Director | Number of Board Meetings Attended during the financial year |
| Mr. D H J Gunawardena | 12 |
| Mr. W P C M Nanayakkara | 12 |
| Mr. S R Abeynayake | 11 |
| Mr. P A J Jayawardena | 10 |
| Dr. Ajantha Dharmasiri | 11 |
| Mr. D A de Silva | 11 |
| Mr. Razik Mohamed | 12 |
| Mr. T M D P Tennakoon | 11 |
| Mr. R H Abeygoonewardena | 12 |
| Mr. S V Munasinghe | 12 |
| Mr. W W K M Weerasooriya | 11 |