ASSIGNMENT COVER SHEET

(to be completed by the student)

GLG student ID number: A 10158

Student name: K.MAYURATHAN

Course name: MBA(GENERIC)

Subject name: STRATEGIC LEGEL & SOCIAL ISSUES

Subject facilitator: LASANTHA SENARATNE

Teaching Centre: OXFORD COLLEGE,SRILANKA

No. of pages: 15

Word count: 1850

DECLARATION

I, the above named student, confirm that by submitting, or causing the attached assignment to be
submitted, to GLG, I have not plagiarised any other person’s 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 marker)
Student name:
Contents K.MAYURATHAN

Course name: MBA(GENERIC)

Subject name: STRATEGIC LEGEL & SOCIAL ISSUES

Teaching Centre: OXFORD COLLEGE,SRILANKA

Assessor/marker:

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

/4

Application of those 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 MODERATOR’S USE ONLY

I agree with the assessor’s assessment

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

Moderator:
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PROCESS OF THE
ASSIGNMENT ...................................................... 4

INTRODUCTION..............................................................................
....4

NEW COMPANY ACT IN

SRILANKA..................................................5

WHO ARE DIRECTORS

……………………..........................................7

ROLES OF BOARD DIRECTORS…………………………….…………...9

RESPOSIBILITIES OF BOARD
DIRECTORS....................................................................................
....10

REFERENCES.................................................................................
14

Appendix

Appendix 1: MANAGING DIRECTOR,

COMMERCIAL BANK SRILANKA.....................................................
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PROCESS OF THE ASSIGNMENT

• To identify, understand if the company laws in the Country are a hindrance to the
Performance of their duties within corporations.
• To identify, discuss director’s duties imposed by company law in your country.
• Implications of these company laws on entrepreneurial behavior by the directors.

INTRODUCTION

Every country has different corporate Governance according to their company law
based on the government of the country. But the good corporate is equal and more
important to the company.

Within any corporation, the structure of corporate governance begins with laws that
impact the operation of any company within the area of jurisdiction. Companies
cannot legally operate without a corporate structure that meets the minimum
requirements set by the appropriate government jurisdiction. All founding documents
of the company must comply with these laws in order to be granted the privilege of
incorporation. In many jurisdictions, these documents are required by law to contain
at least the seeds of how the company will be structured to allow the creation of a
balance of power within the corporation.

Much of the basis for corporate governance is found in the documents that must be
prepared and approved before incorporation can take place. These documents help
to form the basis for the final expression of the balance of power between
shareholders, stakeholders, management, and the board of directors. The bylaws,

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articles of incorporation, and the company charter will all include details that
determine who has what authority in the decision making process of the company.

Along with the laws of the land and the founding documents, corporate governance is
further refined by the drafting of formal policies that not only recognize the
assignment of powers in accordance to the bylaws and corporate charter, but also
help to further define how those powers may be employed. This helps to allow the
company some degree of flexibility in maintaining a balance of power as the company
grows, without undermining the rights and privileges inherent in each type of
corporate participation.

New Companies Act No 07 of 2007

The Companies Act No. 7 of 2007 marks a significant milestone

In the development of the company law in Sri Lanka for many reasons.
Briefly, the major changes introduced by the Act are:

(1) A shift of stakeholder rights from “contract” to “statute”;

The Act introduces a significant change in stakeholder relations by shifting their rights
from contract to statute. It introduces a fundamental change to this model by
introducing an element of “self help”, by granting shareholders and directors the right
to enforce the provisions of the Act through private prosecutions and private actions.

(2) The elimination of long existing concepts and principles which

formed the bedrock of company law in Sri Lanka

The new law eliminates several concepts which existed under the previous law.
These include the elimination of: the requirement for a memorandum of association;
the concept of authorized capital; the need for an objects clause and the application

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of the doctrine of ultra vires; and the concept of par value of shares. The law also
abolishes the concept of “Peoples Companies” which existed under the previous law.
(3) The relaxation of restrictions that existed under the previous law and
the provision for greater flexibility in the incorporation and
management of companies

One of the main objectives of the new law is the simplification of procedures and the
reduction of the costs of operating under the corporate structure. The law also makes
provision for single shareholder companies and for greater flexibility for the operations
of private companies by permitting them to dispense with certain formalities specified
in the Act, and the simplification of other operational procedures. The new law also
removes many of the procedural formalities that existed under the previous regime as
a part of this process of simplification.

(4) The introduction of new concepts relating to capital and distributions

The new law introduces several new concepts relating to the operation of companies.
These primarily relate to the treatment of capital and distributions. The law also sets
out comprehensive principles relating to distributions by making the process less
cumbersome and by granting companies considerable scope in determining the best
use of its resources.

(5) Codification of duties of directors and providing for greater transparency;

The Act has sought to achieve simplification of the law by the codification of several
principles which had developed through case law. These include the definition of the
term “directors”; their role; and their rights and duties. Apart from specifying these
broad principles, the law also lays down strict disclosure requirements expected from
directors. These include the disclosure of interests in transactions with the company,
interests in shares and remuneration received. The law also introduces certain new
duties on directors, especially in respect of action required where the company is

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Faced with financial difficulty. Failure to comply with these responsibilities can lead to
severe criminal sanctions, disqualification, and in certain cases, the obligation to
provide restitution.

(6) The strengthening of stakeholder rights for the purpose of creating greater
balance in the rights of stakeholders; and the introduction of shareholder
rights, and remedies;

One of the key features of the new law is the introduction of several new shareholder
remedies. These include the right of shareholders to obtain restraining orders to
prevent the company and its directors from contravening the provisions of the Act and
the articles of the company, and to institute derivative actions. Apart from remedies
that can be enforced through a court of law, the law also provides for “minority buy
out rights” whereby minority shareholders could require the company to purchase
their shares when they object to the company engaging in a “major transaction”.

(7) The provision of alternative dispute resolution procedures;

The Act takes cognizance of the high cost of litigation which deters shareholders from
seeking to enforce the provisions of the law. Accordingly, it provides for a Companies
Disputes Board which is vested with powers of mediation

WHO ARE DIRECTORS?

The Board of Directors

The board of directors is appointed to act on behalf of the shareholders to run the day
to day affairs of the business. The board is directly accountable to the shareholders
and each year the company will hold an annual general meeting (AGM) at which the
directors must provide a report to shareholders on the performance of the company,
what its future plans and strategies are and also submit themselves for re-election to
the board.

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The board of directors' key purpose is to ensure the company's prosperity by
collectively directing the company's affairs, whilst meeting the appropriate interests of
its shareholders and stakeholders. In addition to business and financial issues,
boards of directors must deal with challenges and issues relating to corporate
governance, corporate social responsibility and corporate ethics. It is important that
board meetings are held periodically so that directors can discharge their
responsibility to control the company's overall situation, strategy and policy, and to
monitor the exercise of any delegated authority, and so that individual directors can
report on their particular areas of responsibility.

Every meeting must have a chair, whose duties are to ensure that the meeting is
conducted in such a way that the business for which it was convened is properly
attended to, and that all those entitled to may express their views and that the
decisions taken by the meeting adequately reflect the views of the meeting as a
whole. The chair will also very often decide upon the agenda and might sign off the
minutes on his or her own authority.

Appointment of directors

The ultimate control as to the composition of the board of director’s rests with the
shareholders, who can always appoint, and – more importantly, sometimes – dismiss
a director. The shareholders can also fix the minimum and maximum number of
directors. However, the board can usually appoint a director to his office as well. A
director may be dismissed from office by a majority vote of the shareholders, provided
that a special procedure is followed. The procedure is complex, and legal advice will
always be required.

Non-executive directors

Legally speaking, there is no distinction between an executive and non-executive

director. Yet there is inescapably a sense that the non-executive's role can be seen
as balancing that of the executive director, so as to ensure the board as a whole
functions effectively. Where the executive director has an intimate knowledge of the

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company, the non-executive director may be expected to have a wider perspective of
the world at large.

Shadow directors

In many circumstances, the law applies not only to a director, but to a 'shadow
director'. A shadow director is a person in accordance with whose directions or
instructions the directors of a company are accustomed to act. Under this definition, it
is possible that a director, or the whole board, of a holding company, and the holding
company itself, could be treated as a shadow director of a subsidiary.

ROLES OF THE BOARD OF DIRECTORS

Establish vision, mission and values

• Determine the company's vision and mission to guide and set the pace for its
current operations and future development.
• Determine the values to be promoted throughout the company.
• Determine and review company goals.
• Determine company policies

Set strategy and structure

• Review and evaluate present and future opportunities, threats and risks in the
external environment and current and future strengths, weaknesses and risks
relating to the company.
• Determine strategic options, select those to be pursued, and decide the means
to implement and support them.
• Determine the business strategies and plans that underpin the corporate
strategy.
• Ensure that the company's organisational structure and capability are
appropriate for implementing the chosen strategies.

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Delegate to management

• Delegate authority to management, and monitor and evaluate the

implementation of policies, strategies and business plans.
• Determine monitoring criteria to be used by the board.
• Ensure that internal controls are effective.
• Communicate with senior management.

Exercise accountability to shareholders and be responsible to relevant

stakeholders

• Ensure that communications both to and from shareholders and relevant

stakeholders are effective.
• Understand and take into account the interests of shareholders and relevant
stakeholders.
• Monitor relations with shareholders and relevant stakeholders by gathering and
evaluation of appropriate information.
• Promote the goodwill and support of shareholders and relevant stakeholders.

RESPONSIBILITES OF DIRECTOR

Directors look after the affairs of the company, and are in a position of trust. They
might abuse their position in order to profit at the expense of their company, and,
therefore, at the expense of the shareholders of the company.

Consequently, the law imposes a number of duties, burdens and responsibilities upon
directors, to prevent abuse. Much of company law can be seen as a balance between
allowing directors to manage the company's business so as to make a profit, and
preventing them from abusing this freedom.

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Directors are responsible for ensuring that proper books of account are kept.

• The directors must always exercise their powers for a 'proper purpose' – that
is, in furtherance of the reason for which they were given those powers by the
shareholders.
• Directors must act in good faith in what they honestly believe to be the best
interests of the company, and not for any collateral purpose. This means that,
particularly in the event of a conflict of interest between the company's
interests and their own, the directors must always favour the company.
• Directors must act with due skill and care.
• Directors must consider the interests of employees of the company.

Calling a directors' meeting

A director, or the secretary at the request of a director, may call a directors' meeting.
A secretary may not call a meeting unless requested to do so by a director or the
directors. Each director must be given reasonable notice of the meeting, stating its
date, time and place.

Duties

Directors hold a position of trust on behalf of shareholders and direct the company’s
operations on their behalf. They act through the Board, which usually controls
company business.

As a director, you have several duties:

• To act within your powers and make sure the company follows its constitution
as set out in the Memorandum and Articles of Association.
• To act in good faith to promote the success of the company for the benefit of
its members. You must also have take into consideration employees,
suppliers, customers, the environment and the community.

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 • To carry out your duties with reasonable care and skill. Higher standards may
be expected from executive directors who are responsible for an area in which
they have a specialist or professional qualification.
• To exercise independent judgement.
• To make sure that there is no conflict of interest and duty. You must not take
bribes, and must disclose any personal interests to the company. You must not
divert business opportunities to yourself that ought to be available to the whole
company.
• To make a declaration of interest where appropriate. You may not be allowed
to vote on matters if there is a conflict of interests.
• Not to benefit from a third party by reason of your being a director, or by doing
or not doing something.
• Not to act with intent to defraud creditors or for any other fraudulent purpose.
• Not to engage in wrongful trading, that is, allowing the company to carry on
trading when you know that it is insolvent. This can lead to personal liability.

Position of trust

Directors must be extremely careful if they want to take advantage of an opportunity

for private profit in an area of activity similar to that of the company – even if the
company has rejected the particular proposition. Shareholders’ approval is needed
before a director, or someone connected with the director, may acquire a substantial
company asset, or vice versa.

If a director profits personally from his or her position, even if the company itself
hasn’t suffered because of their action, a court can order him or her to pass on any
profits made to the company.

Legal duties of directors

In a company, you may have several roles – as well as acting as a director, you may
also own shares, lend the company money and guarantee loans. When there is a

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conflict of interests between your various roles, the courts will usually support you if
you can show you have acted honestly and reasonably.

A director’s liabilities

Although directors are responsible for making sure the company complies with the
law, you could become personally liable if there is fraud, or in some cases,
negligence.

Directors can be found individually liable if they act negligently or in breach of trust. Y
can get insurance which will protect against the financial consequences of such a
finding, but make sure double-check any exclusions on the policy. A company’s
directors are often asked to give personal guarantees for loans, overdrafts and other
financial liabilities

Liability for the company’s debts

Companies have limited liability. This protects directors and shareholders, except
when they may have undertaken to contribute capital to the company, or can be
called upon to do so – for example, with partly paid shares.

If the company gets into financial difficulties, seek professional advice immediately.
While directors normally have no personal liability for the company’s debts, there are
situations where it may be possible for creditors to claim from them personally.

Handling capital issues

Directors can only distribute the company’s profits after tax by way of taxable
dividends according to the rules laid down in the Articles of Association.

If you believe that the company is at risk of becoming insolvent, don’t put creditors or
guarantors at a disadvantage in recovering their debts from your company by
increasing the company’s liabilities or transferring or selling the company’s assets.

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Also, be careful when selling company assets – shouldn’t sell them for less than they
are worth and, in certain circumstances, will need to seek shareholders’ agreement
first.

Wrongful trading

If a company finds itself in financial trouble and carries on trading to the detriment of
its creditors, any director who should have concluded the “point of no return” had
been reached can be held personally liable for the debts if the company then goes
into liquidation. Directors must therefore be aware of the company’s financial status
and ensure that someone competent monitors its solvency.

However, a director can be cleared of this liability if a court is satisfied that when the
director realized that the company was not able to recover, he or she took reasonable
steps to minimize potential losses to creditors.

REFERENCES

Joshua Kennonofficial website www.beginnersinvest.about.com

Company law in Sri Lanka by Aritha R Wikramanayake, 1st Edition, 2007

Business World, way of directors 2009

MANAGING DIRECTOR, COMMERCIAL BANK SRILANKA

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 APPENDIX: COMMERCIAL BANK OF CEYLON PLC

Reporting and code of ethics given by managing director

• One of the benefits of abiding with a “Code of Ethics” is the timely detection
and reporting of malpractices.
• While all Senior Staff are essentially required to diligently involve in the
detection/reporting of malpractices, it is necessary to reiterate the importance
of “Whistle Blowing”.
• All employees at every level should be encouraged to report malpractices
observed to their Heads of Department/Senior Management or the Compliance
Officer. In such circumstances, total confidentiality pertaining to the reporter’s
anonymity and protection from any harassment should be assured.
• The Compliance Officer, when malpractices are reported to him, should draw
the attention to the issues at the appropriate levels of authority and if required,
take up the issues with the Managing Director and/or Chairman of the Bank.
• All employees should be prepared to “Blow the Whistle”, if and when they
come across any unethical activities which they are powerless to stop.
• Where unable to stop others from doing the wrong thing, staff must have the
courage to “blow the whistle” by bringing them to the notice of higher
authorities in the Bank.
• Upholding ethical behaviour should be a part of the Bank’s culture, where staff
members would not hesitate to “blow the whistle” when an unethical act is
observed, even though such act is strictly within the law.
• After reporting malpractices to the Department Heads/Senior Management or
the Compliance Officer, if adequate action is not taken, the employees are
further encouraged to refer the issues to the Managing Director and/or
Chairman of the Bank, if necessary.

Therefore, while it is important to avoid making frivolous allegations, staff should

report malpractices observed even if the evidence cannot be fully substantiated. They
should also check and follow the Bank’s procedure in making a complaint and confine
the complaint only to those who need to deal with it.

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