Sri Lanka’s organizations should recognize minority shareholder interest and pay sufficient dividends


Aug 03, 2015 (LBO) – Sri Lanka’s organizations should recognize minority shareholder interest and pay sufficient attention and dividends, a former head of Sri Lanka’s main business chamber and a company chairman said.

“In my view, the most important stakeholder is the shareholder,” Charitha P de Silva, a former chairman of the Ceylon Chamber of Commerce, said at a forum held in Colombo recently.

“All boards of governance do not pay sufficient attention to the needs and the desire of the shareholder.”

Industry experts say that most companies treat minority shareholders as if they have no rights at all.

But, pointing out “Code of Ethics for Business” published by the Chamber of Commerce in 1982, de Silva said that obligation of the companies should be to the owners of the business, that is the shareholders.

“To recognize that the owners of a business are entitled to expect that the business earns a reasonable level of profit and that the directors of a company should at all times be conscious of the fact that the company and therefore its profits, belong to the shareholders,”

“Expansion and diversification should therefore not be at the expense of reasonable, current cash dividends,”

It should also be accepted that undistributed profits should be capitalized at necessary intervals to the maximum extent possible and that shareholders should also be compensated for inflation by regular revaluation of assets followed by capitalization of the reserves created thereby.

“Directors should not view insight knowledge which is not available for shareholder for their personal enrichment,”

“They should avoid share transactions that could be considered as inside trading in developed countries.”

Very seldom the companies give recognition for shareholders who are entitled to this, de Silva said.

He says companies that pay poor dividends are oppressing the rights of minority shareholders.

“It is almost the dividends are paid as if the boards are doing a favor, but it should be viewed as an obligation,” de Silva said.

“The boards of directors tend to deprive the shareholders for reasonable dividends,”

“They prefer to minimize the dividends than maximizing it. They keep on talking about expansion and other needs.”

He added, having independent directors in board rooms is one way to secure the shareholder rights.

“I think one thing that lacks today is independent directors on the board who have the courage to question their chairman,”

“No directors do that today,”

“In my view, directors should stand by the minority shareholders and the other shareholders of the organization.”