University of Kelaniya, Sri Lanka
MFIN 52092 – Corporate Governance &
Business Ethics (CGBE)
Mrs. Dhanushka Piyananda
B.B.Mgt. (Finance) (Kel’ya), MBA(PIM), MPhil (UOC), FCA, FMAAT, ACMA
MAAT,
Senior Lecturer
Department of Finance
E-Mail – dhanushkap@kln.ac.lk
Introduction to
Corporate Governance
Learning Outcomes
• Corporate Governance : The Definition
• Key aspects of Good Corporate Governance
• Objectives of Good Corporate Governance
• Global Landmarks in the Emergence of Corporate
Governance
• Corporate Governance History in Sri Lanka
• Corporate Governance : Recent Developments in
Sri Lanka
Corporate Governance :
Definitions
• Corporate governance is the system by which
organizations are directed and controlled.
“Cadbury Report”
• ‘Corporate governance is concerned with ways of
bringing the interests of investors and manager into
line and ensuring that firms are run for the benefit of
investors’.
• Corporate governance includes ‘the structures,
processes, cultures and systems that engender the
successful operation of organizations’
Why.. Corporate Governance?
Key Aspects of Good Corporate
Governance
• Rule of Law
• Transparency
• Responsiveness
• Consensus Oriented
• Equity and Inclusiveness
• Effectiveness and Efficiency
• Accountability
• Participation
Global Landmarks in the
Emergence of Corporate
• DevelopmentsGovernance
in USA
• Watergate scandal (1970)
• Developments in UK
• Bank of Credit and Commerce International (BCCI)
Scandal.
• Barings Bank
• Polly Peck International (PPI)
• Robert Maxwell’s Mirror Group News International
Governance Failures : Global
Examples
With $639 billion in
assets and $619 billion
in debt, Lehman's
bankruptcy filing was
the largest in the US
history.
Bernard Ebbers,
WorldCom CEO
convicted in historic
fraud scandal, USD11bn
25 years in prison
Dennis Kozlowski, CEO,
Tyco, USD 81 million
unauthorized bonus,
25 years in prison
ENRON CEO, Jeffry Skilling,
24 years in prison.
Governance Failures : Local
Examples
Collapse of Golden Key
Credit Card Company
Pramuka Bank Failure
ETI
Global Landmarks in the Emergence
of Corporate Governance
Corporate Governance Committees
• Cadbury Committee on Corporate Governance – 1992
• The Committee on the Financial Aspects of Corporate Governance"
• The Paul Ruthman Committee
• The Greenbury Committee (1995)
• The Hampel Committee (1995)
• Emphasis on Internal controls
• The Combined Code
• The Turnbull Committee
• The board must conduct internal audit periodically
Global Landmarks in the Emergence of
Corporate Governance
World Bank on Corporate Governance
• The World Bank was one of the earliest economic organizations to study
the issue of corporate governance and suggest certain guidelines.
• The World Bank report on corporate governance recognizes the
complexity of the concept and focuses on principles such as transparency,
accountability, fairness, and responsibility that are universal in their
applications.
• This report points the way to the establishment of trust and the
encouragement of enterprise.
• It marks an important milestone in the development of corporate
governance.
Global Landmarks in the Emergence
of Corporate Governance
OECD Principles
• Organization for Economic Co-operation and Development (OECD) was
one of the earliest non-governmental organizations to work on and spell
out principles and practices that should govern corporate in their goal to
attain long-term shareholder value.
• The OECD principles in summary include the following elements.
i) The rights of shareholders
ii) Equitable treatment of shareholders
iii) Role of stakeholders in corporate governance
iv) Disclosure and Transparency
v) Responsibilities of the board
Global Landmarks in the Emergence of
Corporate Governance
Sarbanes-Oxley (SOX) Act of 2002
• The Sarbanes-Oxley Act of 2002 is a law the U.S. Congress
passed on July 30 of that year to help protect investors
from fraudulent financial reporting by corporations.
• The Sarbanes-Oxley Act of 2002 came in response to
financial scandals in the early 2000s involving publicly
traded companies such as Enron Corporation, Tyco
International PLC, and World.Com.
• Attempts to strengthen corporate oversight.
• Improve internal corporate controls.
Global Landmarks in the Emergence of
Corporate Governance
Sarbanes-Oxley (SOX) Act of 2002: Major Elements
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Public Company Accounting Oversight Board (PCAOB)
Auditor Independence
Corporate Responsibility
Enhanced Financial Disclosures
Analyst Conflicts of Interest
Commission Resources and Authority
Studies and Reports
Corporate and Criminal Fraud Accountability
White Collar Crime Penalty Enhancement
Corporate Tax Returns
Corporate Fraud Accountability
Corporate Governance History in Sri Lanka
• British Colonial Period
• Open economy (1977)
• The Institute of Chartered Accountants of Sri Lanka (ICASL)
developed the first code of corporate governance giving due
attention to the financial aspect of CG. (1997)
• Code of best practices was developed jointly by ICASL jointly
with the Securities and Exchange Commission (SEC) (2008)
• Subsequent amendments – 2013, 2017, 2023
• A Guide to Corporate Governance in Small and Medium
Enterprises (SME)