Sri Lanka Telecom PLC
Annual Report
2020
An organisation of repute
Corporate Governance
The Board and Management of Sri Lanka Telecom PLC (SLT) firmly believe that sound Corporate governance is vital for the sustainability of the Company’s business and performance. We are committed to continuously enhance the standards of Corporate Governance principles and practices so as to improve performance, accountability and transparency of the Company.
SLT is in compliance with the following frameworks of legislation, codes and voluntary practices as part of its Corporate Governance Guidelines adopted by the Board of Directors;
- Internal Company rules and processes and industry codes of practice and corporate ethics
- Articles of Association (AoA) of the Company
- Legislation, particularly the Companies Act No. 07 of 2007 and the Sri Lanka Telecommunications Act No. 25 of 1991 as amended by Act No. 27 of 1996
- Listing Rules of the Colombo Stock Exchange (CSE)
- Code of Best Practice on Corporate Governance issued jointly by the CA Sri Lanka and SEC
The illustration below shows the formal Corporate Governance Structure:
The Board of Directors
Composition of the Board
The Board of Directors during the year 2020 comprised one Executive Director and seven Non-Executive Directors, majority of whom are independent as the Board deems appropriate to function efficiently as a body, subject to the Company’s AoA.
Their biographies on pages 102 and 106 of the Annual Report demonstrate a breadth of experience, understanding of business and sufficient calibre to provide independent judgement on issues of strategy, performance, resources, and standards of conduct which is vital to
the Group.
Selection of Directors
In terms of the AoA of SLT, the Board of Directors has the authority to fill vacancies in the Board and appoint additional Directors subject to their re-election at the next Annual General Meeting. Accordingly, the two major shareholders, namely the Government of Sri Lanka acting through the Secretary to the Treasury, and Global Telecommunication Holdings N.V. recommend five and four Directors to the Board respectively. The Board appoints the candidates recommended by the two major shareholders to the Board, filling casual vacancies as provided by the AoA after deliberation of their experience, understanding of business and financial issues, ability to exercise sound judgement, diversity, leadership, achievements and experience in matters affecting business and industry.
The role of the Board
The Board is the highest decision-making body of the Company who provides strategic leadership to the Management. The Company’s business is managed under the direction of the Board of Directors. The Board delegates the Group Chief Executive Officer (GCEO) and Chief Executive Officer (CEO) of the Company, and through that individual to other Senior Management, the authority and responsibility for managing the Company’s business. The Board’s role is to oversee the Management and Governance of the Company and to monitor Senior Management’s performance.
The Board is accountable to shareholders for ensuring that SLT is appropriately managed and achieves the strategic objectives it sets.
Among the Board’s core responsibilities are to:
- Select, monitor, evaluate and compensate Senior Management.
- Assure that Management succession planning is adequate.
- Review and approve significant corporate actions.
- Review and monitor implementation of Management’s strategic plans.
- Review and approve the Company’s annual business plan, budgets and operating plan
- Monitor corporate performance and evaluate results compared to the strategic plans and other long-range goals.
- Review Company’s financial controls and reporting systems.
- Review and approve the Company’s Financial Statements and financial reporting.
- Review the Company’s legal compliance programmes and procedures
- Oversee the Company’s management of enterprise risk.
The following processes are in place in order to provide timely and accurate information to Directors to perform their responsibilities;
- All Directors receive accurate, relevant, timely, clear and balanced information.
- The Company Secretary act as the point of contact for the flow of information between committees, the Board and Directors, and other key managers
- The CEO along with the respective Chief Officers and the Heads of Divisions presents their submissions to the Board and provides the necessary clarifications requested by the Board.
- In addition, all Board Papers are made available in electronic format, in line with the Group’s sustainability initiatives.
The attendance of individual Directors at Board meetings and Committee meetings during the year is set out in the table below:
| Board Member | Status | Board | Audit Committee | Remuneration & Nomination Committee | Technology Subcommittee | Senior Tender Board | Related Party Transactions Review Committee |
| Mr Rohan Fernando, Chairman (Appointed w.e.f. 23 January 2020) | INED | 8/8 | – | 2/2 | – | – | – |
| Mr Chan Chee Beng | NED | 8/8 | – | 2/2 | – | – | – |
| Mr Lawrence Michael Paratz | INED | 8/8 | – | 2/2 | 3/3 | 11/11 | |
| Ms Lai Choon Foong | INED | 8/8 | 6/6 | – | – | 11/11 | 4/4 |
| Mr Lalith Seneviratne (Appointed w.e.f. 23 January 2020) |
ED | 8/8 | – | – | 2/3 | – | – |
| Mr Mohan Weerakoon (Appointed w.e.f. 23 January 2020) |
INED | 8/8 | 6/6 | – | – | 10/11 | 4/4 |
| Mr Ranjith Rubasinghe (Appointed w.e.f. 23 January 2020) |
NED | 8/8 | – | – | – | – | – |
| Mr Ananda Seneviratne (Resigned w.e.f. 12 November 2020) |
NED | 8/8 | 6/6 | – | – | 9/9 | 4/4 |
| Mr Saman Fernando (Appointed w.e.f. 10 December 2020) |
NED | – | – | – | – | – | – |
ED – Executive Director NED – Non-Executive Director INED – Independent Non-Executive Director
Board functions are supported by robust information technology, enabling Board members to access their Board papers via a secure connection and participate at meeting even remotely.
Delegation to Board Subcommittees
SLT has in place a number of mandatory and voluntary Board Subcommittees to fulfil regulatory requirements and for better governance of its activities. These committees comprise Directors who can bring their expertise and experience to the assigned committees, and the duties are set out in formal Terms of Reference.
The committees meet regularly to consider and discuss matters falling within their authority and accountability specified in the Terms of Reference. Their observations and recommendations are regularly reported to the Board.
The Subcommittee Chairmen and Members meet the Corporate Executive Team members as and when required to discuss and develop proposals collectively in relation to the Group’s strategy and key operational issues. Details of the responsibilities and operations of the subcommittees are given on pages 119 to 120.
| Committee | Composition and Role | Meeting Frequency |
| Audit Committee | The Audit Committee (AC) comprise Non–Executive Directors, majority of whom are independent. Ms. Lai Choon Foong, is a member of recognised accounting bodies.
The members of the Committee are:
Mr Mohan Weerakoon was appointed as the Chairman of the Committee w.e.f. 18 January 2021. The GCEO, CEO, Group Chief Financial Officer (GCFO) and the Group Chief Internal Auditor (GCIA) attend the meetings by invitation. The GCIA reports directly to the AC. The AC assists the Board in its oversight and monitoring of financial reporting, Group’s Risks Management, revenue assurance functions, and internal controls. The AC report on pages 126 to 128 of the Annual Report sets out in detail the Committee’s policies, practices, and areas of focus. |
A minimum of four meetings per annum and at such other times as the Chairman of the Committee shall require. |
| Remuneration and Nomination Committee | The Remuneration & Nomination Committee (R&NC) comprises Non–Executive Directors, majority of whom are independent.
The members of the Committee are:
Non-Executive Directors, GCEO, CEO and key senior officers, succession planning for the CEO and Senior Management, and review of Board composition, particularly in relation to the diversity of background, skills, and experience. It also provides support and guidance with regard to the Group’s policy for determining the fees for Non-Executive Directors and remuneration of GCEO, CEO, CEOs of subsidiary companies, and Senior Management. The GCEO and CEO attends meetings by invitation, as and when required by the Committee. |
Once a year and at such other times as the Chairman of the Committee shall require. |
| Related Party Transactions Review Committee | The Related Party Transactions Review Committee (RPT–RC) comprises Non–Executive Directors of whom two Directors were independent. The Chairman of the Committee is an Independent Director. The members of the Committee are:
|
A minimum of four meetings per year. |
| Technology Subcommittee | The Technology subcommittee (TSC) comprises Independent Non–Executive Directors.
The members of the Committee are:
|
As and when required. |
| Senior Tender Board | The Senior Tender Board (STB) comprises Non–Executive Directors.
The members of the Committee are:
18 January 2021. Mr Saman Fernando was appointed as a member and the Chairman of STB effective 18 January 2021. The CEO and the GCFO are appointed to the Committee by the Board to review the Group’s procurement needs. The procurement function involves a standard procurement process approved by the Board where, all common procurement processes are consolidated at the Group level for SLT and its subsidiaries. Therefore in order to increase efficiencies and reduce risk, the Board has delegated the approval limits for procurement as follows:
|
Prior to every Board meeting |
Indemnities to Directors
In accordance with the AoA of the Company, Directors are granted an indemnity from the Company to the extent permitted by law in respect to liabilities incurred as a result of the performance of their duties in their capacity as Directors to the Company. The indemnity would not provide any coverage to the extent the Director is proven to have acted fraudulently or dishonestly. The Company has maintained Directors’ and Officers’ Liability Insurance cover throughout
the year.
Role of the Chairman and Chief Executive Officer
Distinction between strategic and operational matters is clearly established in terms of division of responsibility of the Chairman and the Chief Executive Officer. The Chairman of the Board of SLT is a non-executive appointment and focuses on strategic issues and monitoring the business and executive team. He ensures Board procedures are followed and all Board members effectively participate during meetings.
The CEO is responsible for day-to-day management of the business and leadership of the executive team, and execution of the Group’s strategic and operating plans in consultation with the GCEO. The Chairman meets the GCEO and CEO regularly to discuss any issues pertaining to the Company’s performance, operational matters, and human resources.
CEO performance evaluation
At the beginning of each year, the CEO presents his performance objectives for the upcoming year to the R&NC for their recommendation to the Board. At the end of the year, the Board meets to discuss the CEO’s performance for the current year against his performance objectives. The Board of Directors and the CEO then meet to review the CEO’s performance evaluation and compensation.
The Company Secretary
The Company Secretary is responsible to the Board and is available to individual Directors in respect of Board procedures.
The Company Secretary supports the Chairman in delivery of the agenda, in particular the planning of the annual cycle of Board and Board Committee meetings, and ensures that information is made available to Board members in a timely fashion. He also advises the Directors on Board procedures and corporate governance matters.
He also functions as the Secretary to all the Board subcommittees as well. The Company Secretary is an Attorney-at-Law and an Associate Member of the Institute of Chartered Governance Institute, United Kingdom.
The appointment or removal of the Company Secretary is a matter for the Board as a whole.
Internal control and risk management
Internal control framework currently in place is set by the risk management framework, financial control, internal audit and supporting policies. The aim of SLT’s internal control framework is to assure that operations are effective and well aligned with the strategic goals. The internal control framework intends to ensure correct, reliable complete and timely financial reporting and management information. The framework endorses ethical values, good corporate governance and risk management practices.
SLT uses systematic risk management to develop the efficiency and control of business operations as well as their profitability and continuity.
Investment Governance Boards (IGB)
Strategic Governance Board comprising the CEO and the Chief Officers of each functional area are given the responsibility of studying the requirements of cross functional areas and introducing solutions in a transparent manner.
The six cross functional governance boards previously introduced have reduced to four in an attempt to improve in capital investment decision, enhance supply chain management and better utilisation of Group resources.
Corporate Ethics
SLT has adopted a Code of Ethics for Directors and a more detailed Code of Conduct for the employees, which extended to third parties who deal with the Company. The Code sets out principles to guide employees in carrying out their duties and responsibilities to the highest standards of personal and corporate integrity when dealing with SLT, its competitors, customers, suppliers, and the community. Processes and standards in the Code are intended to enhance investor confidence and rapport, and to ensure that decision-making is properly carried out in the best interests of the Group. The Code covers areas such as equal opportunity employment practices, workplace health and safety, conduct in the workplace, business conduct, protection of SLT’s assets, proprietary information and intellectual property, data protection, security, resilience, conflict of interest, and non-solicitation of customers and employees. The Code is posted on SLT’s internal website. Policies and standards are clearly stipulated to guide employees in carrying out their daily tasks.
Material contracts
There are no material contracts entered into by SLT or any of its subsidiaries that involve the interests of the CEO, any Director, or the controlling shareholders, Secretary to the Treasury and the Global Telecommunications Holdings, N.V.
Remuneration of Non-Executive Directors
The R & NC reviews and proposes the Non–Executive Directors’ fees based on experience and skills of the Directors and the complexity of the Group’s business and operations, for the approval of the Board.
The fees for Non-Executive Directors other than the Chairman comprised a fee for attendance at Board and Board’s subcommittee meetings.
The aggregate Directors’ fees paid to the Directors for the financial year ended 31 December 2020 is given in Note 7 of the Financial Statements.
Mr. Rohan Fernando, Chairman, who was appointed to the Board in January 2020 has declined to accept the fee due to him as the Chairman.
Remuneration of Senior Management
The remuneration framework and policy is designed to support implementation of the Group’s strategy and enhance shareholder value.
The following are the principles for remuneration to Senior Management:
- Set and link appropriate corporate and individual performance metrics based on the medium and long-term targets to the remuneration for evaluation of performance to support business strategies
- Offer competitive packages to attract and retain highly experienced and talented individuals
SLT’s CEO is the head of management and is, therefore, remunerated as part of Senior Management. The R & NC recommends the salary package of the CEO to commensurate with his qualifications and experience for the approval of the Board. The CEO’s performance is assessed against the key performance indicators agreed upon at the beginning of each year and compensate accordingly.
Constructive use of the Annual General Meeting
The Annual General Meeting is used for constructive engagement with investors, and all shareholders are encouraged to participate. Chairpersons of subcommittees will be available at the AGM to answer any questions from shareholders.
Major transactions
The Board of Directors, as required by Section 185 of the Companies Act,disclose to shareholders all proposed corporate transactions detailing all facts associated with such transactions that are of material value to SLT. There were no major transactions entered into by SLT during the year 2020.
Related party transactions
The Board of Directors has applied rules issued by the CSE on related party transactions throughout its decision-making process to avoid any conflicts of interest that may occur. The Board has recognised the importance of a Related Party Transactions Committee under the Board of Directors to enhance corporate transparency and promote fair transactions between SLT and its subsidiaries. Accordingly, a RPT- RC was formed comprising three Non-Executive Directors with the objective of ensuring that the interests of shareholders are taken into account when entering into RPTs.
The Company has a related party relationship with its subsidiaries as disclosed in Note 32 of the Notes to the Financial Statements. However, the Board believes those transactions are exempted in accordance with exceptions specified in the Code of Best Practices on Related Party Transactions issued by the SEC and Listing Rules. All these are recurrent transactions and are in the ordinary course of business of the Company.
Statement of Compliance
SLT is fully compliant with the requirements stipulated in Section 7.10 on “Corporate Governance” of the Continuing Listing Requirements of the CSE issued in 2010 and subsequent amendments/guidelines thereto. See the table on pages 123 to125 for the rules
on “Corporate Governance principles” and the degree of compliance to the
said rules.
In addition, the Board of Directors to the best of their knowledge and belief is satisfied that all statutory payments due to the Government, other regulatory bodies and those payments related to employees of SLT, have been made in a timely manner.
| Statement of Compliance under the Rules of CSE on Corporate Governance | |||
| CSE Rule Number | CSE Rule | Compliance Status | SLT Action |
| 7.10. a,b,c | Compliance | ||
| Compliance with Corporate Governance Rules |  |
SLT is in compliance with the Corporate Governance Rules |
|
| 7.10.1 | Non–Executive Directors (NED) | ||
| (a), (b), (c) | Two members or 1/3 of the Board, whichever is higher, should be NEDs. | |
As at 31 December 2020, seven out of eight Directors are Non-Executive Directors |
| 7.10.2 | Independent Directors (ID) | ||
| (a) | Two or 1/3 of NEDs, whichever is higher, should be independent | |
As at 31 December 2020, four out of the seven NEDs are Independent |
| (b) | Each NED should submit a declaration annually of his/her independence or non-independence | |
All NEDs have submitted signed declaration confirming their independence/non–independence |
| 7.10.3 | Disclosures relating to Directors | ||
| (a) | The Board shall annually determine the independence or otherwise of the NEDs Names of the IDs should be disclosed in the Annual Report | |
The Board annually determines as to the independence or non–independence of each NED based on the declaration submitted by them and the names of the Independent Directors are set out in the Annual Report |
| (b) | In the event a Director does not qualify as “independent” against any of the specified critera, the Board taking account all the circumstances, may determine the Director Independent and such basis of determination should be set out in the Annual Report |
|
Mr Lawrance Paratz has served on the Board continually from 2010. The Board believes that the independence of Mr Paratz is not compromised by him serving on the Board for a period exceeding nine years from his appointment |
| (c) | A brief résumé of each Director should be included in the Annual Report including the Director’s experience | |
A brief description of each Director is given in the Board of Directors Section of the Annual Report |
| (d) | Upon the appointment of a new Director a brief résumé of newly appointed Director be provided to CSE |
|
A résumé of Mr Saman Fernando who was appointed during the year has been submitted to the CSE along with the Announcement |
| 7.10.4 | Determination of Independence | ||
| (a-h) | Requirements for meeting the criteria to be an Independent Director | |
The independence of the Board of Directors has been determined in accordance with the requirements of the CSE Listing Rules. Accordingly, four NEDs are considered Independent as at 31 December 2020 |
| 7.10.5 | Remuneration Committee (“RC”) | ||
| Composition | |||
| (a) | Committee shall comprise a minimum of two IDs or of NEDs, a majority of whom shall be independent One NEDs shall be appointed as Chairman of the Committee by the Board of Directors | |
RC comprises three NEDs out of whom two are Independent Chairman of the Committee is a NED |
| (b) | Functions | ||
| RC shall recommend the remuneration of the EDs and CEO | |
The Board considering the recommendation of the R & NC determines the remuneration payable to the GCEO/ED and the CEO. Fees for Non-Executive Directors comprised a fee for attendance at Board and Board’s subcommittee meetings. |
|
| (c) | Disclosure in the Annual Report | ||
| Names of Directors comprising the RC | |
Refer Board Subcommittees under Corporate Governance. | |
| Statement of Remuneration Policy | |
Refer Board Subcommittees under Corporate Governance. | |
| Aggregated remuneration paid to EDs and NEDs | |
Refer Board Subcommittees under Corporate Governance and Note 7 to the Financial Statements | |
| 7.10.6 | Audit Committee (AC) | ||
| (a) | Composition | ||
| The Committee shall comprise a minimum of two IDs or of NEDs, a majority of whom shall be independent One NED shall be appointed as the Chairman of the Committee CEO and Chief Financial Officer (CFO) should attend AC meetings Chairman of the AC or one member should be a member of a professional accounting body | |
AC comprised three NEDs out of whom two NEDs are considered independent The Chairman of the Committee is an Independent Director. The GCEO, CEO, GCFO, GCIA and the External Auditors attended the Meetings by invitation Ms Lai Choon Foong, a member of the AC is a member of professional accounting bodies | |
| (b) | Functions | ||
| Overseeing of the preparation, presentation and adequacy of disclosures in the Financial Statements in accordance with Sri Lanka Accounting Standards | |
AC assists the Board in fulfilling its oversight responsibilities for the integrity of the Financial Statements of the Company and the Group | |
| Overseeing of the compliance with financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements | |
AC has the overall responsibility for overseeing the preparation of Financial Statements in accordance with the laws and regulations of the country and also recommending to the Board, on the adoption of best accounting policies | |
| Overseeing of the processes to ensure that the internal controls and risk management are adequate to meet the requirements of the Sri Lanka Auditing Standards | |
AC assesses the effectiveness of internal control and risk management | |
| Assessment of the independence and performance of the External Auditors | |
AC assesses the External Auditor’s performance, qualifications and independence | |
| Make recommendations to the Board pertaining to appointment, re-appointment and removal of External Auditors, and approve the remuneration and terms of engagement of the External Auditor | |
Committee is responsible for appointment, re-appointment and removal of External Auditors and also the approval of the remuneration and terms of engagement |
|
| (c) | Disclosure in the Annual Report | ||
| Names of Directors comprising the AC | |
Refer Board Subcommittees under Corporate Governance | |
| The AC shall make a determination of the independence of the Auditors and disclose the basis for such determination | |
Refer the Report of the AC in the Annual Report | |
| 9.2 | Related Party Transactions Review Committee (RPT – RC) |
||
| 9.2.1 | RPT – RC shall review all related party transactions except for transactions set out in Rule 9.5 of the Listing Rules | |
All related party transactions have been reviewed by the RPT RC except for transactions set out in Rule 9.5 |
| 9.2.2 | Committee shall comprise a combination of NEDs and INEDs. ED may also be appointed at the option of the Company | |
RPT – RC comprise three NEDs of which two are INEDs |
| INED shall be appointed as the Chairman of the Committee | |
Chairman of the Committee is a INED | |
| 9.2.3 | In the event where the parent and the subsidiary are listed entities the RPT – RC of the parent can function as the RPT – RC of the subsidiary If the Parent Company is not listed the subsidiary shall have a separate RPT – RC | |
The Company has appointed a RPT – RC |
| 9.2.4 | RPT – RC shall meet atleast once a calendar quarter. Minutes of all the meetings should be documented and communicated to the Board | |
Committee meet four times during the financial year The Minutes of the RPT – RC meeting are submitted to the Board |
| 9.2.5 to 9.2.7 | Members should ensure that they have access to enough knowledge and expertise to assess proposed related party transactions Committee may request the Board to approve related party transactions under review by the Committee A Director who has material personal interest in a related party transaction shall not participate and vote on the matter | Members have access to enough knowledge or expertise to assess all aspects of proposed related party transactions
Committee did not refer any related party transactions under their review to the Board for approval during the year Directors did not have material personal interest in any related party transactions carried out during the year |
|
| 9.3 | Disclosures | ||
| 9.3.1 | Immediate Disclosures | |
There were no related party transactions that required immediate disclosure to the CSE |
| 9.3.2 | Disclosures in the Annual Report | |
There were no Non–recurrent or Recurrent related party transaction that required disclosure in the Annual Report. Please refer Annual Report of the Board of Directors for an affirmative Statement of Compliance with the Rules on Related Party Transactions |