The challenge in finding true independent directors with diverse skill sets for banks surfaced at a recently held top-level meeting of the stakeholders in the banking sector, in Colombo.
It is no secret that the majority of the director boards of local banks lack truly independent directors with the required skills. The gender balance is also not seen in many of the boards.
Independent directors are supposed to challenge some of the management decisions without just rubber stamping every management action and should keep abreast with the developments taking place in the industry.
“It’s a very difficult thing to find independent directors,” Sampath Bank PLC Senior Non-Executive Director Sanjiva Senanayake told a public-private policy dialogue organised by the Ceylon Chamber of Commerce to discuss on the regulatory and compliance challenges facing the banking sector.
Complementing Senanayake’s comments, Cargills Bank Managing Director and Ceylon Chamber of Commerce Chairman Rajendra Theagarajah said, “There is an apparent scarcity in diversity in bank boards.”
Senanayake challenged some of the criteria that cause a director to lose his/her independent status.
According to bank governance, if independent directors hold directorships in another entity or a 100 percent-owned subsidiary of the bank, they lose their independence.
He also said he fails to understand the rationale behind the nine-year cap imposed on a director of holding a bank directorship and the thinking behind the need to relinquish the directorship when he/she reaches 70 years of age.
In response, Central Bank Assistant Governor Yvette Fernando said the nine-year rule was adopted after studying the different practices in other jurisdictions, while the 70-year age limit was adopted from the Companies Act.
According to the Companies Act, a director needs to step down upon reaching age 70 and if he/she seeks to continue, he/she needs to be appointed by the shareholders every year. But that discretion has been taken out for a bank director by the Central Bank.
According to Fernando, while these rules were voluntary, when they were initially introduced, hardly any bank adhered, which compelled the Central Bank to make the compliance mandatory.