The Island - Business

The First Executive Committee Meeting of the newly established Sri Lanka-Nepal Business Council was held on 29th June at the Royal Nepalese Embassy. The Ambassador (designate) of Nepal in Sri Lanka Bala Bhadur Kunwar addressed the members of the Executive Committee. He referred to the Nepal Economy and the potential of Trade and Investment Development between the two countries. In this group picture are from left Kumar Bhadur K. C. 3rd Secretary of Royal Nepalese Embassy, Nimal Piyasena (Treasurer), Alfred Edirisinghe, Chandra Ediriweera, Milton Arandare, A. F. M. Navavi, Kumar Semage, Lakshman Perera (Secretary), Jagath Savanadasa (President) Ambassador (designate) of Nepal in Sri Lanka Bala Bhadur Kunwar: Captain D. A. Wickramasinghe (President Sri Lanka - Nepal Friendship Society), Carlo Ponnampalam, Jaysiri Samaratunga, Sudhir Bhattariai (Charge D. Affairs of Royal Nepalese Embassy) and Hector Abeysiriwardena.

The National Productivity Secretariat (NPS) of the Ministry of Industrial Development is organising a seminar to popularise ESOPs in Sri Lanka under its National Productivity Decade programme. This is yet another in the series of public lectures and seminars organised regularly by the NPS and which have become popular amongst those interested in concepts and techniques relating to Productivity.

ESOP is a scheme by which employees of an enterprise take up a portion of shares in the enterprise thereby becoming owners themselves. It has been proved that ESOPs have increased productivity in many companies. Employees who have an ownership stake in the company have become more loyal, more responsible and have worked with greater dedication, resulting in benefits to the company as a whole and to themselves as shareholders.

The Chairman, Colombo Stock Exchange (CSE), has gone on record stating that ESOPs would be encouraged and that this would be included in the new policy document of the CSE.

ESOPs are expected to play a major role in the future as a tool to provide benefits to employees, to increase productivity in companies, and establish harmonious labour management relations.

The seminar titled "Productivity through ESOPS" will be held on July 12, 2000 at the Hotel Trans Asia from 5 p.m. to 7 p.m. All those who are interested in participating should contact the National Productivity Secretariat at the Ministry of Industrial Development by telephone on 343936.

This seminar will be conducted by Mr. Arjuna Herath, Director Corporate Finance of Merchant Bank of Sri Lanka Ltd (BMSL). The seminar will deal with the relationship between the Productivity and the Share Ownership, what an ESOP is, the various ESOP structures in Sri Lanka as well as in other countries and how to formulate a suitable ESOP. He will also draw on his experience in providing consultancy for the establishment of ESOPs in several Sri Lankan companies.

By 'Analyst'
I was amazed to read in the newspapers a remark attributed to Mr. Senaratne, the Secretary to the Ministry of Posts and Telecommunications that no postal service in the world is privatised. This is completely untrue and in fact the reverse is the situation. Sri Lanka must be the only country in the world where the postal services are run by a government department.

The problem of the post office being divested from government is due to a number of myths, fallacies, ignorance and / or the lack of knowledge on the part of the government, trade unions and staff of the postal service.

First of all the government and most people in Sri Lanka, use the word "privatisation" far too loosely. The position should be clarified is as follows:

The government has to consider which activities are core to the business of government and which are not. In other words which activities can stand on their own and be transformed into a viable business enterprise. Privatisation is when an organisation’s shares are sold to an investor, joint venturer or the public and it becomes an incorporated company under the obligations of the Companies Act. On the other hand "corporatisation" is the commercialisation of an activity formed as a state-owned enterprise to conduct a service in a profitable and an efficient manner to serve the community. It is formed also under the Companies ‘Act and its affairs must be conducted according to sound business principles. This is in effect the practice of de-regulation and opening the door to competition as well.

In most countries the Boards of Directors of state owned enterprises are appointed from business disciplines, i.e., non- political persons and non-civil servants. In other words, the postal service is a business to be developed by persons with business acumen as a commercial enterprise.

The government must first of all decide what are its core activities. Posts, Telecom, Roads, Airports, Harbours, etc. are all functioning as state-owned enterprises in almost every country in the world. All the state should be interested is the provision of a modern efficient service to serve the community. In addition the government immediately rids itself of the financial and personnel burden of large sections of the civil service. This will also help to reduce what is currently a bloated civil service that we have in Sri Lanka.

There are also two ways of ensuring that the commercialised corporation follows the mandate of government i.e. not disposing of the "family silver" or the nation’s assets and following the rules of transparency and fair market practices. This is done by firstly a regulator being appointed to oversee the corporation’s performance. Secondly the signing of a performance contract between the operator and the minister responsible as representing the owner. In fact in some countries two ministers are appointed for this purpose i.e. a shareholding Minister (usually the Minister of Finance) and a Regulatory Minister (usually the minister under whose ministry the activity falls) financially, the postal department, I am told has a deficit of expenditure over income of approximately Rs. 600 million per year. This is ridiculous, because if the postal service is commercialised and freed from the fetters of the present Postal Act, it can engage in an other business activity. For example, New Zealand Post invested its profits after commercialisation and are now the largest real estate owning company in the country. In most other countries, both developing and developed, the words "Post Office" is no longer used. They are called "Post Shops" and sell groceries, stationery, food items, etc. Diversification into other business activities is not permitted under the current Postal Ordinance.

The next aspect is the modernisation of the post offices. From what I have observed, some of the post offices even in principal towns, don’t seem to have had a coat of paint since they were built. The equipment used is archaic and unused in most modern post operations. Post offices in any country has the best network and this surely creates a window of opportunity to work as an agent for other government departments or the business sector for a fee. I have seen postal services after incorporation making vast inroads, for example, into the courier market, and savings banking facilities. But the present systems and procedures hardly lend themselves to venturing into other or even related business ventures in Sri Lanka.
(Continued tomorrow)

The premier accountancy body in Sri Lanka, the Institute of Chartered Accountants of Sri Lanka (ICASL) is vested with the sacred duty of promulgating Accounting Standards and Auditing Standards in Sri Lanka. When promulgating standards which should be adopted by Business Enterprises in the preparation of Annual Accounts the ICASL holds the view that Sri Lanka should be at the topmost in world rankings. Not only do they promulgate Accounting Standards introduced in developed economies they also advocate that the business community adhere to Best Corporate Governance practices which are not even heard of in some of our neighbouring countries which boast of higher economic growth rates than Sri Lanka. Not to mention that Best Corporate Governance, Sri Lanka Style, which was demonstrated to the world with the recent Sampath Bank episode.

However, when setting up Auditing Standards the practices followed in developed economies are being very conveniently ignored. The ICASL adopted a new format for audit reports based on revisions that have taken place elsewhere. Unfortunately some important aspects such as, reporting on consistency of the contents of Annual Reports with the financial statements and compliance with Stock Exchange Rules and Regulations have not been considered as basic elements in the revised Auditor’s Report recommended under Sri Lanka Standards on Auditing. The investing public fails to understand why the ICASL is adopting double standards. If the ICASL is genuinely interested in improving the standard of Annual Reports issued by Business Enterprises, they should also modify the currently used Audit Report to fall in line with those of other countries, where new Accounting Standards are promulgated regularly. This is more effective than presenting awards for Annual Reports. Of course the former does not provide an opportunity for publicity and prominence which some ICASL members crave for.

In other countries the remuneration paid to Auditors for performing non-Audit services have to be disclosed in the accounts. Sadly there is no such requirement in Sri Lanka. In some other countries moves are already underway to prohibit altogether the Auditors from providing Non Audit services. Needless to say, such sophistication is not required under economic conditions prevailing in our country. A presenter of a television business programme recently stated that we are a country with "Champagne Regulations in a Bootleg Economy". The ICASL of course takes adequate care to ensure that the practicing members are not subject to unhealthy controls. The ICASL will even go to the extent of modifying an International Accounting Standard to include a "Negative Audit Assurance" as long as the Auditors are not held responsible for the assurance given to shareholders.

The ICASL seems to believe in doing things differently. Countries like Pakistan simply give effect to International Accounting Standards (IAS) with the same identity, whereas ICASL introduces IAS in Sri Lanka by changing its name to Sri Lanka Accounting Standards. But of course after going through a due review process. From the days of the collapse of finance companies a few years back, the investing public continue to feel let down by the well protected fraternity of the Audit profession in Sri Lanka. The fact that ICASL has not taken action against a single auditor for negligence despite the collapse of many businesses due to frauds, is ample proof of protection they enjoy. Most of these companies continued to publish clean audit reports until the time of collapse of the business enterprise. The ICASL will probably take up the view that standard of auditing in Sri Lanka is so superior to other countries the need to take action against an Auditor for negligence has not arisen, unlike in those countries.

Is it unfair to conclude that the Auditing Profession owes a duty of exercising due care to improve the quality of their audits including reporting standards to compensate for its past failures and take responsibility for information disclosed in Annual Reports instead of reporting only on financial statements. The Auditors consider themselves king pins to good corporate governance. It is high time for auditors to play a more responsible role in this regard instead of rendering mere lip service.

The investing public is hopeful that at least the Colombo Stock Exchange will prevail upon ICASL to improve the reporting standards of Auditors though not necessarily upto the standards adopted in the United Kingdom.
Insolvent Investor

Janshakthi Life Insurance Company Limited recently announced the appointment of Mr. Prakash A. Schaffter and Mr. L.C.R. de C. Wijetunga as Directors of the Company.

Mr. Prakash A. Schaffter who will now function as Director/General Manager is a Fellow of the Chartered Institute of Insurance and holds a Bachelor’s Degree in Political Science from the University of London, and a Master’s Degree in Business Administration from the University of Cambridge. Mr. Schaffter has extensive work experiences in the United Kingdom as well as in Sri Lanka in his career field of insurance practice, and has spent as General Manager of Janashakthi Life from January 1999.

Mr. L. C. R. de Wijetunga is the Executive Director - Corporate Affairs of Nestle Lanka Limited, and is a Director of Janashakthi General Insurance Company Limited, Hunter & Company Limited, Ceylon Brewery Limited. Lion Brewery Limited and the Yahala Group. He is also the Chairman of the Advisory Council on Industries to the Government of Sri Lanka, Chairman of the Industrial Association of Sri Lanka, and a Governor of the Sri Lanka Business Development Centre.

Mr. Wijetunga also serves as a Committee Member of the Ceylon Chamber of Commerce, a Member of the Council of the Employer’s Federation of Ceylon, a member of the Industrialisation Commission of Sri Lanka, and as a Member of the Joseph Frazer Memorial Hospital Board of Trustees.

Janashakthi Life Insurance Company Limited commenced operations in September 1994 as the first ever Sri Lankan Insurance company specialising exclusively in Life Insurance business.

The Board of Directors of the Company now comprises: Desamanya Nissanka Wijewardena (Chairman), C. T. A. Schaffter (Managing Director), Tryphon R. Mirando (Director Marketing), Prakash A. Schaffter (Director/General Manager), N. Pararajasingham , W. T. Ellawala. A.S. de Silva and L. C. R. de C. Wijetunga.

Nations Trust Bank, whose business philosophy is embodied in its new logo the thumbprint symbolising individuality, has formally launched itself as the newest and most dynamic entrant to Sri Lanka’s banking arena with a formidable array of services. The Bank currently has three branches located at Kollupitiya, Kandy and Fort, while yet another is due to open in Kotahena in a month’s time.

Five In-Store units are located at Keells Super Liberty Plaza, Wattala, and Mt Lavinia, as well as at Park & Shop Nugegoda and Kohuwela.

These together with a comprehensive array of delivery channels which range from Supermarket Banking to technology driven facilities including ATMs, Telephone and Internet Banking, make Nations Trust a force to be reckoned with. Chief Executive Officer of Nations Trust Anura Gunasekara said that "never before has a Bank launched with a full suite of services operaionally ready or with so many units concurrently commencing operation".

The Bank’s AGM Corporate Finance Ranjit Bibile stated that as the Bank had been active in the Corporate Market for over a year, they had experienced strong growth in volumes which had more than met their expectations.

The Bank’s state of the art technology eliminates the need for special visits, while via their linked and highly automated network, banking is within your reach by phone, PC or on your next supermarket visit.

"In short the Bank comes to you," said Gunasekara, who went on to say that it was their intention to be a catalyst for change, going beyond the norms of traditional banking, without losing sight of the traditional values for forgoing strong partnerships with their clients.

Mrs. P. N. Jayawardene of House of Fashions was awarded the prestigious year 2000 Zonta woman of achievement award for excellence in the industry/entrepreneurship category on Sunday the 02nd of July at a special award ceremony held at The Galle Face Hotel.

This award is issued by Zonta international, a consultative body to the United Nations and a worldwide organization of executives in business and the professions working together to advance the status of women. Zonta club members consist of women who are respected leaders in their respective fields and membership is by invitation only.

Mrs. Jayawardene together with her husband heads House of Fashion - Sri Lanka’s most sought after fashion retail outlet! A Super Store that provides the hundreds and thousands of people who patronize it with high quality fashion items at extremely reasonable prices.