Benefits of institutional investors entering the Sri Lankan capital market

It was reported in the news today that the Colombo stock index ended at 6,292.94 on 7 April, its highest close since 14 December 2016. The index has climbed 5.32% in the last nine sessions through Friday. The key reason being  Foreign, institutional, and high-net worth investors are buying shares. Institutional investors specially foreign funds buying at the expense of retailers has many benefits and hope these investors will drive the governance agenda in the local companies, too.

Hope our local Boards will be challenged by the impact of changing pressures and dynamics that boards in the developed world face. These Institutional investors should continue their push for more uniform standards of corporate governance in Sri Lanka.

They should hopefully keep the local listed companies in check, in relation to:

* Company plans for sustained long term value creation,
* Avoiding short-term priorities that compromise long-term interests,
* Strengthening the process for Directors and CEO remuneration, so that it may not be an irresponsible action,
* Having appropriate key performance indicators to measure board and CEO performance,
* Improving focus on board composition and diversity,
* Setting up effective sub committees of the board,
* Paying attention to significant changes being introduced by new accounting standards,
* Ensuring related party transactions are on arms length basis.

If the institutional investors get adequate representation on the boards of local listed companies, some benefits will accrue not only to the company and its shareholders but also confidence in the capital market will grow. We would like to see these institutional investors pressuring boards to demonstrate that they are actively involved in guiding a company’s strategy for long-term value creation. They should also replace non performing board members with skilled members, rather than leave the existing old boys club to continue their marriage vow of ‘until death do us part’.

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About surenraj

“Views expressed are my own”
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