Corporate Governance Code for Sri Lanka

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discuss about. With the rapid growth of technology, businesses are becoming more and more technologized and complex. Different functional areas are connected with each other’s through ERP systems and cross functional reporting structures. Therefore, it is equally important to consider about good governance practices other than financial practices.

4.1. IT Governance

IT Governance has become an important factor for all businesses and across all sectors for a number of reasons:

• Widely spreading awareness of IT related risks.

• Increasing focus on IT costs in organisations.

• Growing understanding over the importance of management commitment towards improving controls related to IT activities.

• Due to the incidents such as Enron and other corporate scandals, Governance has become an important focus to be consider in corporate world as technology is possessing an important role in improving the standards of corporate governance.

IT Governance provide for IT management and control through five key areas as Alignment, Value Delivery, Risk Management, Resource Management and Performance Measurement. (Centre, 2005). Most common framework for measuring IT governance is “COBIT” which was introduced by IT Governance Institute for the purpose of addressing Sarbanes-Oxley regulations. The use of latest version of COBIT 5 is widely spreading over the developed countries. However, comparing the IT Governance in Sri Lanka with developed countries such as USA, Canada and European Union ending up with negative conclusions. Higher percentage of reputed listed and non-listed companies in Sri Lanka are not adhering to IT Governance at all. Smaller portion of the business world such as Commercial Banks and multi nationals are maintain good IT Governance practices with standard Codes, however with issues in compliance.

4.2. Marketing Governance

Marketing has unbreakable bond with businesses. Yet, it is difficult to decide sufficiency of marketing governance in current business world. Marketing governance is one of the most lacking element in most of the organisations. Governance in Marketing can be identified as a structure of procedures, processes, and policies used to optimize the management of marketing functions. (AANA, 2011)

Understanding the maturity of a company’s current processes and procedures is important to improve the marketing function. The Capability Maturity Model (CMM), initially introduced by Carnegie Mellon University for the purpose of Software Engineering Process Management improvements, can also be used for other business processes including Marketing Governance to assess the maturity.

Further to that, COBIT standard introduces by the IT Governance Institute can also be used to make improvements to Marketing Governance. COBIT can be identified as a Best Practice framework for process management which is easy to adapt for Marketing Governance even though it is originally designed for IT Governance.

Marketing Governance in Sri Lankan business world can be seeing as in a level of development yet with considerable deficiencies. Ethics and cultural concerns are the least to consider whereas advertising and popularity become first priorities. When considering the marketing governance in developed countries such as Australia (where marketing governance is considered to be highly valued), UK and USA; it can be stated that the Sri Lanka has a long way to go in terms of ethical practice of advertising.

4.3. HR Governance

With the increasing awareness among senior business leaders that the people are the most important asset for an organisation, HR Governance has entered to the Corporate Governance arena. Personnel costs alleged to be represent the single largest expense for an employer in many industries. (Hathorn, 2017). Therefore, organisations cannot afford to manage such costly resource in a disordered manner. It has been identified that the effective HR Governance facilitate compliance with ethical and legal obligations related to people management practices. A robust HR Governance framework in place can be useful for organisations to improve their business functions as well as in making decisions at the highest levels including the board of directors.

In Sri Lankan context, HR Governance is practicing strongly in most companies. However, there are some large companies that do not follow standard employee hiring and firing practices. Also when it comes to factories and manufacturing, higher number of Sri Lankan companies/factories can be identified with poor working conditions. 

5. Family Businesses & Corporate Governance codes

5.1. Listed family companies

The corporate governance in family firms differs from non-family firms due to the reason that owners having multiple roles in a family business. It has been identified that 64% of listed companies in Sri Lanka are family controlled. (Mustakallio, M., Autio, E., & Zahra, S. A., 2002). According to Hemas Holdings Group Director; Abbas Esufally, incentives, attracting top people, need of funds and compliance are the main reason that a family company tends to be publicly listed.

Key feature of family business is that majority of its leaderships/directorships are owned by family members. Transferring of management is undertaking from one generation to another by maintaining the shareholder family. In addition, shortages in legal structure of our country towards protecting the rights of investors have also become a reason to the manifestation of a controlling shareholder. (Senarane, 2011). The traditional Corporate Governance Codes are not adequate enough to mitigate principal-principal agency conflicts in family businesses. Predominantly, streamlining or circulating of corporate laws in business organisations to reduce the chances of overtaking minority shareholders by powered family firm owners can be identified as rising requirement in the Sri Lankan business arena. (Ediriweera, A., Armstrong, A., & Heenetigala, K., 2016).

5.2. Non-listed large family Business

Corporate Governance practices are not compulsory for non-listed family businesses. They are not listed in stock exchange therefore, they are not bound to reveal their compliance and adherence over good governance practices to the public. However, even though the Corporate Governance practices are not mandatory for non-listed family businesses which are not registered in Colombo Stock Exchange, there are many larger family