Banking veterans get longer life as directors

By Gamini Abeywardane
The Central Bank has amended the recently introduced corporate governance rules for banks, stretching the tenure of the incumbent chairmen and founder directors, by five more years, ending a stir that has been causing concern in the banking circles for some time.

This follows representations, made by several banks, which alleged that, the corporate rules imposed by the Central Bank recently were, too harsh and would disturb the smooth functioning of the banks.
Several banks such as the Seylan Bank, the Commercial Bank and the DFCC Bank have gone before the courts, challenging various provisions of these corporate rules.

The new rules among others, imposed a maximum limit of eight years, for a director to serve in a bank, which caused a major stir in the banks, with the possibility of a sudden exodus of a large number of experienced directors, who are closely linked up with the operations of these banks.

They included eminent people like Deshamanya Lalith Kotelawala (Seylan Bank), Edgar Gunatunga (Sampath Bank), Mahendra Amarasuriya (Commercial Bank) and Rienzie Wijetilleke (Hattion National Bank).
The new corporate rules, which were issued in December 2007, prescribed that, the term of office of a director, other than the director, who holds the Chief Executive Officer (CEO) position, should be four years and should be reelected, only for another term. With regard to the current directors, the term of office also included the period, that has been served by them, as at the effective date of the code.

According to the amended rules, which have been just released, in addition to the CEO, executive directors would also be permitted, to function as directors, for more than nine years. There are also transitional provisions for the Monetary Board, to exempt the founding directors and incumbent chairmen, from directions regarding maximum age, the number of companies a director could serve, and the total period a director can serve.

Senior bankers had expressed the view that, if the proposed rules were implemented, in the original form, most directors, including those holding considerable stakes, would have to leave the boards of directors, as most of them, had already served for long periods.

The new code, which came into force from January 1, 2008 and is to be complied by June 30, 2008 is aimed at, ensuring the stability of the banking and financial system. Among the proposed rules, there are stringent provisions dealing with problems, such as conflict of interest and management control.

It also seeks, to increase the role of competent independent directors on bank directorates, taking into consideration, the special privileges given to banks, to raise funds, through deposits from the public. It proposes that, every bank should have at least three independent non-executive directors, or one third of the total number of directors, whichever is higher.

The rules are aimed at, removing the possibilities for misuse of banking facilities by shareholders, or any related parties and also contain provisions, with regard to composition of boards, criteria to asses the fitness and propriety of directors, management functions delegated by the board and related party transactions.