ASSIGNMENT COVER SHEET

(to be completed by the student)

AIB student ID number: A001426051
Student name: RANASINGHE T.A.D.O.D
Course name: MASTER OF BUSINESS ADMINISTRATION
Subject name: CORPORATE GOVERNANCE: CONCEPT AND PRACTICE
Subject facilitator: MR.LASANTHA SENARATNE
Teaching Centre: OXFORD COLLEGE OF BUSINESS
No. of pages: 14
Word count: 2632
DECLARATION

I, the above named student, confirm that by submitting, or causing the attached assignment to
be submitted, to AIB, I have not plagiarised any other persons work in this assignment and
except where appropriately acknowledged, this assignment is my own work, has been expressed
in my own words, and has not previously been submitted for assessment.

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 ASSESSMENT SHEET
(to be completed by the examiner)
Student name:

Course name:

Subject name:

Assessor/marker:

COMMENTS
Principles learnt (for example, number and understanding of principles referred to, their influence on the structure of this paper,
number and correct citations of references, use of appropriate jargon)

/4

Application of principles. That is, the analysis and evaluation of the example problem based on the
principles, including the final recommendations and their justification

/8
How well the example problem was described, including the extent and depth of information
(including the data) about it that was accessed

/4
Structure and presentation

/2
Style, grammar and language

/2

Total
Less penalties
GRAND TOTAL /20
General comments

FOR MODERATORS USE ONLY

I agree with the assessors assessment

I disagree with the assessors assessment and the new mark is as follows for /20
the following reasons:

Moderator:

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 CORPORATE GOVERNANACE
CONCEPT AND PRACTICE

ASSIGNMENT
OPTION 01:
Conduct a review of the governance which you are familiar with in the
form of a report to the chairman of the governing board of directors. In the brief
report use the concepts, tools and techniques learnt in this subject to review the
structure, process and effectiveness of the governance of the organization and to
make recommendation for appropriate improvements.

AUSTRALIAN INSTITUTE OF BUSINESS AND

ADMINISTRATION

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Contents
1.0 Executive summery ............................................................................................................................... 5
2.0 Overview of the Company ......................................................................................................................... 6
3.0 Board of Directors ...................................................................................................................................... 6
4.0 Corporate governance Structure ............................................................................................................. 8
5.0 Why is good governance important? .......................................................................................................... 9
6.0 Pillars of Good Governance ....................................................................................................................... 9
7.0 Results of poor governance .................................................................................................................. 11
8.0 Audit and compliance committee ............................................................................................................. 12
9.0 Remuneration committee ......................................................................................................................... 12
10.0 Corporate social responsibility ............................................................................................................... 13
11.0 Review of the corporate governance issues of the company.................................................................. 13
12.0 Conclusion .............................................................................................................................................. 16
13.0 Reference list .......................................................................................................................................... 17

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1.0 Executive summery

This assignment report reviews the Corporate Governance principles and practices by addressing the
Chairman of The Nation Pride Ltd. The main intention behind this report to convey the message which will
useful to the chairman in the long run to acts as governance body for the Board.
This assignment consist corporate governance tools, concept and techniques that are taken and compared
with the Code of best practices on corporate governance which issued jointly by The Securities and
Exchange Commission of Sri Lanka (SEC) and The Institute of Chartered Accountants of Sri Lanka
(ICASL) to give key guidance to the companys Corporate Governance. Moreover in this report mainly
highlighted on the structure, process and the effectiveness of governance in The Nation Pride has been
evaluated in order to capture the weak practices and suggested recommendations for appropriate
improvements where possible to drag Chairmans attention.

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2.0 Overview of the Company

The Nation Pride Plc mainly engaged in the cultivation and processing tea, rubber, coconut and palm oil
and other demanding crops. Generally The Nation Pride succeeds to generate:

Palm oil : 14.453 Million ton kg

Coconut : 891,400 nuts
Cinnamon : 12,952 kg
Rubber : 152 Million ton kg
Green leaf : 7.55 million ton kg
Tea : 12.5 million ton kg per annum.
The company has a land base of approximately 6,000 hectares and was established in 1996 and is based in
Ratnapura, Sri Lanka (NPL 2013).

3.0 Board of Directors

The Nation Pride is governed by its board of directors, who supervise its management and other core
businesses affairs behalf of the potential shareholders. All of the board members act as in satisfactory way
to keep the company shareholders best interest and adding insight to the company based on accountability,
transparency and responsibility.
The board consist of eight Director Board panel, five of them are Executive Directors whilst other two are
Independent Non-Executive Directors (INED) and one Non-Executive Director (NED) to maintain the
balance of the council and add more value by using their expertise in the turbulent business environment.
Brief profiles of the Directors are set out in the appendix.
Dr. S. Yaddehige (Chairman)
Mr. J.H.P. Ratnayeke (Executive)
Mr. S.S. Poholiyadde (Executive)
Mr. P.H. Fernando (Executive)
Mrs. T.D. Abegunasekara (Executive)
Mrs. K.A Wanniarachchi (Non Executive)
Mr. N.C. Peiris (Independent Non Executive)
Mr. A.K. Perera (Independent non Executive) (NPL 2013)

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20/07/2014
The Chairman,
The Nation Pride Limited,
No 116, Sir James Peiris Mawatha,
Colombo 02,
Sri Lanka

Dear Sir,

The Importance of Corporate Governance for the Nation Pride Limited

This report I have attached to share what I have seen after closer inspection of corporate governance with
regards to your organization. This report consist with the corporate governance concept, tools and
mechanism to indicate the current situation of the company and the needed requirement with justifications
why it is needed and I have supplied some of appropriate recommendations to improve current practices to
satisfy all the stakeholders needs for your concern.
Thank you.
Best regards,

Acting Chief Executive Officer

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4.0 Corporate governance Structure

During the year Board members meet three occasions. Prior to all these meeting they collects necessary
background information from the senior management regarding the current issues they are facing. Before
the board meetings the entire relevant document must be submitted in advance to measure company
performance to take decisions on new investment opportunities capital project which reacquire Director
Board approval to implement. A separate memorandum is provided on statutory payments at all the director
meeting.

Source: The Nation Pride Annual Report 2013-14

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5.0 Why is good governance important?
Good governance is important because of several reasons:
Confidence:
Good governance creates confidence among people in their local government when their decisions are made
in transparent and accountable way. This allows people to feel that their decisions are taken by majority of
communitys interest regardless of other differing options taken by specific individual. Not only that this
also encourage the local government to remember the important of having ethical decision making process
and the rules and regulations that imposed by the law.
Further good governance encourage all members whom are present at board meeting are free to generate
their ideas regarding the matters and recommend suggestions for improvement, this will be taken as
respected way even though if everyone and doesnt agree. This create climate of trust and the confident that
the advice or suggestion that they mutually taken by for the shareholders best interest to keep company run
on optimistic level. On the other side, officers will feel more confident when they are implementing the
strategies which are mutually agreed and released by the above level.

Leads to most accurate up to date decisions:

When the decisions are based on most recent accurate up to date information and projected data, by the
considering expectations of the stakeholder views allows open and frank debates to reflect the board interest
of the members. This will helpful to the council to accept the outcome if the decision could be successfully
implemented or less tempted to make conflict with other members.

6.0 Pillars of Good Governance

Corporate governance is about promoting corporate fairness transparency and accountability.
(EIU 2002)

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The Principle of good governance is accountability, fairness, responsibility, transparency, integrity and
honesty. This reflect on the how effectiveness of Board of Directors contributing to the long term success
towards the company. After carefully inspection of The Nation Pride indicates following:
Fairness:
The process of strategic decision making, Board of directors carefully takes the decisions which comes with
the most legitimate interest and comply with all the stakeholders involves with company core business.
When concerning the Nation Pride when they come up with any transaction with the other parties such as
with the external Audit committee reports, mergers or Acquisitions Company has calling their Independent
Non Executives knowledgeable to assess the transactions maximise the fairness and accuracy. (NPL 2013)

Integrity
Integrity means the degree to which a company adheres to a code of ethics and established laws.
(Tricker 2009)
The Nation Prides financial reports are produced on the basis of the same accounting policies and methods
in accordance with Sri Lanka Accounting standards (SLFRS/LKAS) and are compliance with Sri Lanka
Accounting standards 34. Further, company has been using the companys act No 7 of 2007 when
producing the interim financial statements. According to the annual financial report of year 2013 produced
by the financial controller he has indicated all the figures which gives a true balance and current position of
the company. (NPL 2013)

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 Accountability
Tricker (1984) defines, encompassing accountability to a broader group of people than just the
shareholders. This means companies are discharge their accountability to all their stakeholders and act in a
socially responsible way in all areas of their business activities. The Nation Pride follows up their
stakeholders needs and as well as the shareholders interest for the long term success for the company
portfolio.

Transparency refers to the principle that allows those affected by administrative decisions and
business transaction or charitable task to know not only the basics facts and figure how they came to
conclusion but also about the mechanism and processes. It is duty of managers and other trustees to
act in an understandable and visible way.(EB transparency in corporate Governance 2011)
Company should be providing sufficient report and facts on time to time, review what they have done and
in understandable format for the shareholders. This will increase the shareholder confidence and positively
reflect on the company future investment projects. The Nation Pride plc has increased their transparency
level since 2002 when shareholders began to lose their faith on public companies due to poor corporate
governance in Sri Lanka. But now there are increased regulations and mechanism how financial reports
must done with certain responsibilities. The Nation pride has been using proper accounting policies and
financial statements are in compliance with fulfilling current requirements of the companies Act no 7 of
2007 (NPL 2013).

7.0 Results of poor governance

According to professor Kenedy (2013) in Sri Lankan history corporate governance first blew up when
Pramuka an unlisted bank bankrupt in October, 2002 and 14,000 depositors lost their billion of rupees. At
that time no one thought again it will be happened but after 8 years Golden Key scammed 26 billion
rupees from the public deposits. Those Corporate governance pitfalls are considerably low when compared
with the international levels. Lehman Brothers succeeded to hide 50 bullion US dollars in loans and
disguised as sales with the help of company auditors and finally it went bankrupt. Further there are many
greater examples such as Enron Scandal in 2001 which shareholders lost their retirement accounts worth
$74 billion and thousands of people lost their jobs due to poor corporate governance practices.

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8.0 Audit and compliance committee
During the financial year ended 2013 fulfilling its responsibilities following activities were carried out:
Audit committee members followed the charter which refer as term of reference provide clear guidance
for committee members about what their roles, structure and membership requirements while processes the
activities. This quarterly prepared charter conveys the responsibilities which take into consideration of all
members of internal and external auditors and the board of The Nation Pride. Each quarter audit committee
review the past data and update current performance of company and express its consequences
independently without any discharge of their duties.
The numbers of the meetings to be held vary by the looking at the objectives, scope of activities and the
size of the new business opportunities. The Nation Pride chief executive officer, deputy general manager
finance, chief financial controller usually attend the meetings and the head of the internal audit also be there
by invitation.
The board places significant emphasis on strong internal compliance procedures. The financial statements
are prepared in strict compliance with the guidance of SLAS and other statutory requirements. Financial
statements are published through company website quarterly and report to shareholders when significant
developments are made (NPL 2013).

9.0 Remuneration committee

The Nation Pride remuneration committee has appointed by and responsible to the Board of Directors and
remuneration committee has reviewed and recommended the new remuneration policy in 2011 to retain its
potential executive staff while introducing specific remuneration packages for executive directors. In
declaring overall policies of the company has been taken after carefully examine the competitive market
conditions of attracting and retaining employees and market information its business performance (NPL
2013).

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10.0 Corporate social responsibility

Source: The Nation Pride annual report 2013-2014

Nation Pride management address the CSR as protecting environment, effectively engaged in human
resource practices, industry and supplier relations business ethics etc. Further, it gives priorities to the
communities who interact with their day to day business operations. CSR could be a strategic management
concept which will later on directly enhance the reputation of the company and the same time hinder the
poverty and optimizing the good living standards among societies.

11.0 Review of the corporate governance issues of the company

As third party point of view to The Nation Pride Plc, I have indicated some of the code of practices which I
saw that the company currently not practicing but it should to govern the shareholders and other
stakeholders rights. Therefore some of the codes of practices are mention below with most appropriate
recommendation which come up with the justification after concerning all pitfalls of recent corporate
governance.

Requirement: Code A.7- there should be a proper formal and transparent procedure to appointment
of board of directors.
A.7.1 Nomination committee should established to make recommendation to the Board on all new
Board appointments. Terms of reference for nomination committee are set out in schedule in schedule A.
The chairman and members of the nomination committee should be identified in the annual report. (SEC &
ICASL 2013)

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Current situation: No nomination committee has mentioned in the last three annual reports.
Recommendation
Nomination committee is responsible foreseeing companys corporate and other compliance
management programs. Some of those responsibilities are monitoring the compliance with the
applicable laws, continuous changing rules and regulations align with corporate governance survive
from the competition in time to time. Further this committee responsible for identifying screening
and recruiting individuals become qualified board members and other committee councillors.
Further without proper nomination committee shareholder cannot see the formal procedure of
appointment of new council members (especially when one Director has resigned and new
Directors appointment) therefore nomination committee with propter term of reference and
appointment procedure should include in the annual report increase the transparency of the
company.

Requirement: A.9 Board should regularly appraise their performance in order to ensure that board
responsibilities are adequately discharged,
A.9.1- the Board should once a year appraise itself on its performance in the discharge of its key
responsibilities as set in A1.2. Schedule B contain sample Board performance Evaluation
Checklist may use for this purpose,
A.9.2 the board should take on an annual self-evaluation of board performance and its committees,
A.9.3 the board should emphasis on how much a performance evaluation has been conducted, in the
annual report. (SEC & ICASL 2013)
Current situation: No performance appraisal system in the annual report for the board of directors.
Recommendations
The company should include the performance checklist for their annual report. Therefore company
should appraisal board performance and the individual contribution to the companys long term
success. In 2013 august there was a sudden change in director board which appointed Mr.A.K
Perera due to resignation of Mrs. L.D Senanayake and thats not the first time someone left the
company that I noticed by turning the papers of past annual reports of last few years. Therefore there
should be proper appraisal system to count on the hard work of existing directors as well as new
appointed directors to see whether their hard work effectively dedicated to companys vision,
mission and align with its current system. Further Code B.2 state that the Directors remuneration

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 should be link with individual performance. Therefore its vital to have a proper performance
appraisal system attract and retain the potential directors for long run of the Nation Pride Plc.

Requirement: A.5 preferable Board to have balance of Executive and Non-Executive Directors.
Hence no individual or small group members dominate the Board decision making,
A5.1 The Board should include Non-Executive directors of sufficient calibre and number of their
views to carry out the significant weight in the Boards decisions. The Board must include at least
two Non-Executive Directors or maintain the proper balance of one third of total no of Directors,
whichever is higher. (SEC & ICASL 2013)
Current position: Board consist of Five Executive Directors (ED), Two Independent Non-Executive
Directors (INED) and One Non-Executive Directors (NED).
Recommendation:
When looking at code of best practice side it has to be at least two of Independent Non-Executive
directors to approve the director board decision in order to give the authority to use power within
itself to manage the company resources. But it is always better to change the Board of Directors
(BOD) to increase the Independent Non-executive directors to hinder the chances of bias and
prevent the chances of maximizing wealth of Directors by trying to achieve their personal goals
which not align with the companys mission and vision. Therefore its better to reconsider about the
balance of the BOD by increasing Non Independent Non-Executive directors to the company.
Requirement: importance of risk management committee.
Current situation: there is no proper Risk Management system review since 2011 Annual report.
Recommendation:
When dealing with the different market segments it is vital to conduct separate risk such as ever
changing international regulations, credit risks, new product development (Plantation), resource
utilization, reputation and variable costs (inflation, overheads) etc. But recent Annual reports noted
that The Nation Pride audit committee only conducted internal process for mitigate operation risk.
Hence it is essential Directors to take better consideration about to appoint separate risk
management committee divide the risk into separate business functions and conduct a review of
each risk at least annually.

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12.0 Conclusion

When looking behind the past collapses and compare what happened with the Major energy giant like
Enron and the other financial institution such as Lehman Brothers and their bankrupt shareholders and
employees its prime argument to for importance of corporate governance especially in a developing
countries like Sri Lanka. Therefore well executed corporate governance should act as police department to
review and take the necessary actions on the right time. Further when attracting selecting and retain the
Right Board of Directors despite of the concern of best practises its always better to give good attention of
their attitudes and past behaviour before imposing the responsibilities.

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13.0 Reference list

Ceylon Today | Management failure cause collapse of finance companies - Professor Kenedy . 2014.
Ceylon Today | Management failure cause collapse of finance companies - Professor Kenedy .
[ONLINE] Available at: http://www.ceylontoday.lk/22-43324-news-detail-management-failure-
cause-collapse-of-finance-companies-professor-kenedy.html. [Accessed 28 July 2014].
Exchange Commission of Sri Lanka 2013 - Code of Best Practice on Corporate Governance
Available at http://www.sec.gov.lk/?page_id=347 & lang=en[Accessed 18th July 2013]
Kingdom: Oxford University Press.
Securities and Institute of Chartered Accountants in Sri Lanka 2013 - Code of Best Practice on
Corporate Governance Available at http://www.casrilanka.com/casl /index. php? option=
com_content&view=article& id=250&Itemid=65 [Accessed 16th July 2013]
st
Solomon, J. (2004). Corporate Governance and Accountability. 1 ed. Wiley.
The Nation Pride Limited 2013, The annual report 2012/2013
TRANSPARENCY IN CORPORATE GOVERNANCE | economy building. [ONLINE] Available
at: http://economybuilding.wordpress.com/2011/03/02/transpanrency-in-corporate-governance/.
[Accessed 26 July 2014].
TRANSPARENCY IN CORPORATE GOVERNANCE | economy building. 2014.
Tricker, B. (2009). Corporate Governance: Principles, Policies and Practices. (2nd edn), United
Tricker, R 2012. Corporate governance. 1st ed. Oxford: Oxford University Press.

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