HAVE YOUR SAY
THE CORPORATE SECTOR
How would you assess the strengths and weaknesses of Sri Lanka’s corporate sector?
Sri Lanka Business Magazine
How would you assess the strengths and weaknesses of Sri Lanka’s corporate sector?
When we take a look at the corporate sector during the past decade, we can see a lot of development, where new business entities have emerged. There is a shift from the conventional business processes and young entrepreneurs pursue challenging and diversified models. New markets have been identified, particularly with the advancement of the information technology systems. IT services are being offered by Sri Lankan companies to global clients at a lower cost, thus enhancing our foreign exchange earnings. This has also created new job opportunities to the youth of our country.
However on the other hand, the growth in the corporate sector has been stunted with the bureaucratic issues and corrupt practices that currently exist in the state sector. With negative signals being transmitted, the foreign direct investments (FDIs) have been stalled. This has slowed down the economic growth in the country. The corporate entities have also to face labour issues with blue collar workers, particularly in the manufacturing, tea plantations and the apparel industries, who are quick to resort to strike action to win their rights. The high labour turnover in these industries, along with the lethargic attitudes of the labour force, has also affected the quality of the final product.
In light of the above, it is vital for state sector and the private sector to go hand in hand, in order to reap the benefits.
Our corporates appear to lack certain essentials and project rather a lame outlook when looking for solutions to teething problems and root causes of operational issues. What is meant here is that often the managerial level employees who are supposed to exemplify outstanding performance, often tend to pick up the inaccurate points as the base for the solution (i.e. inability to properly identify what caused the issue). Instead of searching for the real root cause, they are misguided by symptoms.
The other side of the coin that are weaknesses connected to the above, fall under the responsibility of corporate management including senior members. Many instances are reported where companies make massive investments to implement and upgrade its IT and reporting systems. Obviously, this creates lot of confusion with redundant data, reports that are not considered and overloading of information. As such, corporate staff have limited capacity to identify and pick and choose on what reports and information matter to them the most. Thus, prevents them from grasping the overall peripheral vision and misleads them.
Sri Lanka needs corporates that have people with sharp mindsets; sharp for what is right and proper.
Since all of us live in this island nation, the fellow citizens would also agree that conducting a position audit with constructive feedback would be worthwhile. Sri Lanka moved from the 109th place to 110th in this year’s World Bank survey on ‘Ease of Doing Business’. Countries are ranked in terms of regulations that have to be followed when setting up or running a small/medium scale business, where government bodies that grant approval are also part of the big picture.
As such, generalising that the corporate sector is weak, is baseless and leads nowhere. Another fact is that Sri Lanka has been in the habit of adopting fixes that are copied from other countries simply because a particular concept or practice proved to be successful elsewhere. The local corporate sector should possess the capacity to undertake the painstaking task of localising such concepts
Again, groupthink must not stand in the way. Regulatory intervention should see that in a given industry there is limited room for unnecessary expansion or fragmenting (mushrooming) and over supply/demand. Private-public partnerships will be more effective in this backdrop.
The growth of the corporate sector is not sufficient to meet the demand of the country, but there is potential since Sri Lankans have high literacy levels. However, the rules and regulations, taxes and etc., have downsized in the level of growth.
Also, employees are unable to tackle the stress caused by too many expectations and unmet needs. Employees come across peers with demanding attitudes, authoritarian bosses, unpleasant work conditions and tight deadlines, which are not compensated by their salary or any other rewards. As a result, the enthusiasm of employees towards the corporate sector has lessened. The corporate sector could be strengthened by understanding the employees’ and customers’ needs and assisting them to solve their problems immediately.
In our lives, the workplace is where we spend most of our time. Nowadays, there is a school of thought that employees themselves should be motivated – which cannot be agreed with. Through our experiences and observations, we know that the ‘suck up’ culture prevails in the corporate sector. This destructive practise – that is pleasing those at senior management levels to get to the top – is not an exception in the private sector and is passed down from one generation to another. This creates a work atmosphere that is virtually toxic.
Where suck up cultures dominate work cultures, the organisational fabric that connects people and their aspirations to the corporate objectives, happens to be weak. Such firms lack reasonable and independent viewpoints and decision making. Many innocent employees who do an honest job and yet do not fit into suck up culture, are penalised by supervisors.
Furthermore, such companies are breeding grounds for resentment, hatred and anger, which make the working environment unpleasant. This build frustration in employees’ minds overtime and finally result in them quitting. This way, organisations lose honest, trained (using company funds) and committed employees. When corporates accept such faults, rectify them and go ahead, should be a mutual concern.
It is plausible to say that the growth of Sri Lanka’s corporate sector is not fast paced to facilitate the growth of the nation. Majority of the top level stakeholders and senior corporate staff are merely keeping up with the status quo. Day by day, the leadership traits put into practice are becoming frail. Transparency and ethics are less likely to be discussed.
Many of the directors too mostly tend to hold onto and limit themselves to assumptions. Some of them are of the view that it is indecent to talk about the negative aspects. Therefore, they are reluctant to bring out issues such as employee conflicts, exploitation or harassment to the board level or the discussion table – hence they prefer to keep mum.
Many do not openly discuss problems or even good ideas – probably due to the fear that if they do so, the entire burden of implementing those ideas or resolving issues may fall upon their shoulders and they may be held entirely responsible for it. Many companies operate with chaotic procedures, and even small scale organisations are far from being streamlined in operations. In this context, plans for restructuring or expansions would turn out to be complex and be a hassle for the particular organisations.
The assessment of where local corporates stand is associated with evaluation of the strengths and weaknesses of those companies. One strength is that corporates have access to a wide base of skilled workforce within the country who are quick learners and adapters.
On the other hand, there are some organisations which can be tagged as ‘out-of-the-box’ performers that turnout to be creative and economically and commercially viable, by deploying resources that are available within the country.
One weakness is that, despite the availability of talented people, organisations are not capitalising on them to perform to be innovative, but instead they impose ‘red tapes’ and rules. Another weakness is that these organisations seem not to have grasped the true essence of social responsibility, thus limiting it to a standard procedure. A more ‘altruistic’ approach to the ‘people’ asset would gain remarkable returns.
To begin with, in the case of PLCs, I take that the issue with the board of directors because the so-called independent directors may not act as independently as they’re supposed to. If the independent directors remain either indifferent or give outright consent to risky corporate decisions that could jeopardise the company’s future and squander the shareholders’ money, while lining the pockets of the some board members and the related parties, it could potentially lead a company either into bankruptcy or into costly legal entanglements.
The composition of the board should be such that there should always be a sound check and balance system to avoid groupthink in the main. Optimism should definitely be there, but there should be contrarians who defy and question certain decisions over critical corporate matters such as M&A, amalgamation, outsize investment risks, long-term partnerships, capital allocation, responding to hostile or takeover attempts, LBOs, debt-financed expansions, making a product recall, downsizing, restructuring, shuttering an existing SBU or opening a new one, lobbying with the government for or against impending legislation, dismissal of a CXO, and so on and so forth.
I’m sceptical about the degree of independence and objectivity in the boardrooms of corporate Sri Lanka in general. But, I certainly admit that there’re some brilliant exceptions that are worth emulating. My scepticism mainly stems from the automatic deference towards the moneyed and the powerful and the reluctance to openly confront on the matters of serious importance so prevalent in the Asian cultures such as ours. My intention here is to call for further improvement and not to question the efficiency of the well-functioning boards, at all.
The corporate sector represents the sect that adds value to an economy, being the producers or entrepreneurs of the market. Corporate sector is key to a country as they drive the economy. In my opinion, independent corporates flourish as opposed to corporates in a close or restricted environment.
Furthermore, closer proximity to markets, access to resources and educated professionals is key for a corporate to stand out. On this light, the Sri Lankan corporate sector is rich and full of potential. Yet, it is relatively exposed to interferences from regulators, compared with other developed nations, giving it less room to create more value.
The corporate sector was badly hit by the recent VAT hike, compelling corporates to take austerity measures such as cutting costs and downsizing to survive. Moreover, the agenda of the new regime to control certain commodities, goods and material has affected the businesses that has been in existence for decades. With regulations that get changed more often and the introduction of regulations such as Transfer Pricing, Sri Lankan corporates are currently finding it difficult to consistently grow their operations and maintain annual targets.
This is not new to the Sri Lankan corporate sector, as the scenario was similar during the previous regime as well. Growing businesses were on the watch and absorbed by the family members of the head of the country. This drove most of the growing businesses to trim their growth in order to stay off the radar.
With one of the highest literacy rates, Sri Lanka is one of the economies with talented and educated professionals. However, with the controlled environment created by the regulators, the talent is underutilised and exported to countries that has realised the importance of educated professionals.
To sum it up, Sri Lanka has a high potential to grow its corporate sector with its strategic location in the world map, access natural resources and educated professionals. However, the restricted grounds created by governments has resulted in underutilisation of the said resources. And this is the biggest weakness of the Sri Lankan corporate sector.