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Governance, Commitments and Engagement

Commercial Bank of Ceylon PLC is a business organisation in a position of national leadership. It is acutely conscious of its responsibilities and obligations to all stakeholders and to society at large. Among these it counts its environmental stewardship that is part of the present generation’s responsibility towards the future. The Bank’s systems of governance are designed to ensure that it discharges these responsibilities and obligations in full.

Management and control at Commercial Bank is based on the best contemporary principles and practices as well as on applicable laws and regulations. Policies are drafted, and plans and day-to-day operations undertaken, under the aegis of corporate governance principles that define the structure and responsibility of the Board of Directors, ensure legal and regulatory compliance, help protect stakeholder interests, and govern the quality of information disseminated and the practice of assessing and managing corporate and business risks. Detailed information on principles and practice is available in the Section on 'Corporate Governance'.

Governance Structure

The Board of Directors is the highest governance body of the Bank. Its Chairman is an Independent Non-Executive Director. As at December 31, 2011, the number of Directors on the Board stood at seven. They are persons drawn from a variety of industrial and financial backgrounds in which they have achieved eminence, and contribute to Board discussions and decisions through their ability, experience and specialist knowledge. The Bank’s Board Nomination Committee assesses the qualifications, experience and abilities of Board members and key management executives. The Bank’s strategic economic, environmental and social objectives are closely taken into account during the assessment process. For more details, please see the ‘Board Nomination Committee Report’ and Profiles of Board Members.

The Bank has in place a number of Board Sub-Committees to fulfil regulatory requirements and for better governance of its activities. These committees meet regularly to consider and discuss matters falling within respective Charters and the decisions/recommendations are duly communicated to the main Board. These committees consist of Executive and Non-Executive Directors in varying proportions, as shown in the table below:

Statements of Commitment, Affiliations, Charters and Codes of Conduct

The Bank operates according to well-defined and clearly articulated values, principles and rules, which define the conduct of its Board of Directors, key management personnel, executives and other staff in all foreseeable situations. This has enabled the Bank to assess economic, social and environmental impacts of its actions and thus effectively mitigate any risks. These values, principles and rules are articulated through a variety of means, including the following:

• The Vision and Mission statements of the Bank,
  as well as in the Bank's website: www.combank.net.
• The Social and Environmental Management System (SEMS) of the Bank, which is based on its social and environmental policy, as discussed previously.
• The Corporate Plan of the Bank, which sets out annual performance targets in terms of a number of indicators, including those relevant to sustainability.
• The Section on ‘Managing Risk at Commercial Bank’ which elaborates on the activities of the Integrated Risk Management Department.
• The Oath of Secrecy and Code of Conduct that binds every Bank employee from the time of recruitment, and continuing right through their term of employment.
• The Whistle-Blower’s Charter, which was adopted by the Bank based on the guidelines issued by the International Chamber of Commerce.

The Bank is already committed to a number of external charters, codes and standards regimes in which its operating values, principles and commitments to stakeholders and to society at large are embodied. These are:

• UNGC principles.
• IFC guidelines and performance standards that spell the Bank’s Social and Environmental Management System.
• Codes of Best Practice for Corporate Governance issued by the Colombo Stock Exchange, the Central Bank of Sri Lanka and issued jointly by The Institute of Chartered Accountants of Sri Lanka and the Securities Exchange Commission of Sri Lanka.

More information on the responsibilities, composition and activities of Board Sub-Committees are given in the Section on 'Corporate Governance'.

Shareholder and Employee Engagements with the Board

Communication with Shareholders

The shareholders of the Bank have multiple ways of engaging with the Board including the following:

• Annual General Meetings and Extraordinary General Meetings are forums to deliberate on matters which are relevant and of concern to the general membership.
• Investor comments through the Feedback Form found in the Annual Report.
• Access to the Board and the Company Secretary.
• Written correspondence from the Company Secretary to inform shareholders of new regulatory developments and other relevant matters.
• The Bank’s website which is accessible by all stakeholders and the general public.
• Road shows and one-to-one discussion with key shareholders.

Communication with Employees

The following channels provide opportunities to deliberate on matters connected to performance of the Bank, compensation and benefits, CSR initiatives, etc.,

• The Board of Directors of the Bank includes two employee Directors, namely, the Chief Executive Officer and the Chief Operating Officer, who bridge the communication gap between the rest of the employees and the Board.
• The Bank’s Board of Directors conducts effective dialogue with all members of Corporate Management on matters pertaining to the overall strategic direction of the Bank, particularly when the Corporate Plan and the Annual Budgets are reviewed, discussed and approved.
• The annual Managers’ Conference, which is attended by all executive Officers in the Manager grade and above, provides an ideal forum for employees to discuss matters of concern before the Board and Corporate Management.
• The two employee unions maintain close dialogue with the Board and the management of the Bank on matters of importance to both parties.
• The members of the Cross Functional Teams consisting of senior managers are provided with opportunity to bring their innovative ideas before the Board.

Linking Compensation to Performance and Board Evaluation

The Bank has a well-structured target-driven culture which is linked to its Corporate Plan. Members of the highest governance body, key management personnel and all executive officers are remunerated based on their level of achievement of the targets, which are set well in advance with mutual agreement. Specific criteria for determining the performance based compensation, including succession arrangements, are detailed in the ‘Board Human Resources and Remuneration Committee Report’.

As required by the Direction No. 11 of 2007 on ‘Corporate Governance for Licensed Commercial Banks in Sri Lanka’ and amendments thereto, the Bank has put in place a well-defined system to evaluate the performance of the members of the Board on their effectiveness of the Board’s Governance Practices. The Board intends to expand the assessment areas to cover the contemporary topics as needed.

Avoiding Conflicts of Interest

Conflicts of interest among the members of the Board of Directors are avoided by excluding those who have an interest on a matter under discussion from participating in the decision-making process; and also by not counting the presence of the Board member who has an interest of any sort when counting the quorum for such decisions. Further information is found in the Section on ‘Corporate Governance’.

In addition, the Bank actively seeks to avoid conflicts of interest among stakeholders and stakeholder groups. Measures include:

• Maintaining regular dialogue with employee unions;
• Agreeing performance targets and reward schemes in a transparent manner with every executive officer;
• Undertaking periodic pay surveys and adjustments to ensure that remuneration and compensation for employees remain in line with market best practice;
• Complying with the Codes of Best Practice on Corporate Governance issued jointly by The Institute of Chartered Accountants of Sri Lanka, the Securities Exchange Commission of Sri Lanka, the Colombo Stock Exchange and the Central Bank of Sri Lanka; and
• Retaining a Compliance Officer who reviews and ensures the Bank’s compliance with the requirements of statutory bodies such as the Central Bank of Sri Lanka on a monthly basis.

• ISO 27001 certification on information technology and operations of the Card Centre and e-banking centre (Commercial Bank was the first Sri Lankan bank to obtain this coveted international certification).
• The requirements of the Central Bank of Sri Lanka on single borrower limits, capital adequacy ratios, classification of non-performing advances and provisioning, liquid asset ratio, etc.

The Bank sustains commitments to a number of sectoral, industrial and professional organisations and associations. By end 2011 these were:

• The Ceylon Chamber of Commerce, Sri Lanka
• The International Chamber of Commerce, Sri Lanka
• The European Chamber of Commerce, Sri Lanka
• The National Chamber of Commerce, Sri Lanka
• The Society for International Development (SID)
• The Lanka Swift User Group (LSUG)
• The Institute of Bankers of Sri Lanka (IBSL)
• The Sri Lanka Banks' Association (Guarantee) Ltd.
• The Clearing Association of Bankers

Monitoring, Evaluation and Risk Assessment

During the preparation of the Corporate Plan, an analysis of strengths, weaknesses, opportunities and threats (SWOT) is carried out as a means of determining the Bank’s strategic position. This analysis also takes into account important sustainability-related issues. In addition, analyses and presentations are made by each business unit and the functional heads of service units. The outcome is communicated to the Board of Directors for their consideration and strategy development.

As befits a financial institution, much attention is paid to risks of all kinds, which are categorised and described in the Section on ‘Managing Risk at Commercial Bank’.

The Chief Risk Officer is required to conduct presentations on the risk management strategies to the Board Integrated Risk Management Committee on a quarterly basis. The action plans arising from such presentations are communicated to the main Board of the Bank within a week.

Maintaining statutory and regulatory compliance is an important part of managing risk and ensuring sustainable business. The Board of Directors receives a quarterly paper on compliance in respect of both the Sri Lanka and Bangladesh operations of the Bank. The content of this Board paper is validated by the Internal Audit Department of the Bank.

Particular notice is taken of social and environmental issues, with a dedicated Social and Environmental Coordinator and team being tasked by the Board of Directors with identifying and managing the Bank’s economic, environmental, and social performance, including relevant risks and opportunities, and compliance with internal circulars and regulatory requirements.

There are a number of procedures in place to monitor and evaluate the economic performance. The Bank works on an ongoing basis to identify possible bad debt provisions on loans and advances well ahead of them being classified as non-performing. A quarterly paper is submitted to the Board on suspense accounts balances, long outstanding balances and major debits. The Assets and Liabilities Management Committee (ALCO) assists the Board of Directors on how to realise the best yield on Bank assets and liabilities through timely re-pricing.

Precautions

The Bank understands that the development of any socially responsible strategy necessarily demands corporate governance that goes beyond legal boundaries, guaranteeing independent decision-making, ethical behaviour, transparency, effective risk management and long term business planning in order to have an ethical, legal and compliant organisation at every layer, as well as to ensure that no illegal or unethical business activities are undertaken. All critical processes and procedures of the Bank are well documented to ensure smooth functioning and to avoid multiple interpretations.

The Bank’s Business Continuity Plan (BCP) prepared in 2006 was sanctioned by the Management and validated by the Board of Directors. The Bank also has a Business Continuity Management Steering Committee (BCMSC) comprising members of the Corporate Management and the Senior Management who drive the Business Continuity Management efforts at the Bank. The BCMSC also provides overall guidance to the BCP Committee which consists of a group of Business Champions whose mandate is to develop and update the BCP covering all aspects of services offered by the Bank.

The BCP Committee has gathered wide knowledge in BCP documentation having attended training programmes conducted both locally and internationally. The Bank also has a Disaster Recovery Plan to supplement the BCP and to ensure the continuity and functionality of the Information System. The Business Continuity Management plays a pivotal role in creating a culture within the Bank to be in readiness to improve the chances of survival, safeguard human life, assets and stakeholders’ interest and to facilitate the continuation of essential services with minimum financial impact, loss of reputation, in the event of an interruption or disaster.

BCP includes a Staff Succession Policy, Crisis Communications Policy, Staff Travel Policy, Supply Chain Management Policy, Awareness and Training Policy.