With globalization, the importance of good corporate governance has increased and in Sri Lanka the Institute of Chartered Accountants has published a “Code of Best Practice” for voluntary adoption by all companies quoted on the Colombo Stock Exchange. Although Sri Lanka Telecom is not a listed company, as one the largest corporate citizen in the country, Sri Lanka Telecom fully supports the concept of corporate governance. Thus, Sri Lanka Telecom is committed to achieving and maintaining high standards of corporate governance. This commitment is driven by the recognition that there is a need for a system by which our Company is directed in a manner that the Board of Directors are in a position to act diligently, transparently, honestly and independently to achieve an increase in shareholder value.

Effectiveness of the Board

A general principle is that the Board of Directors should be a combination of Executive Directors, who know the business, and Non-Executive Directors who bring a broader perspective. The Board of SLTL is composed of ten members. Of these ten, seven members are non-executive directors. Six of these are nominee Directors of the Government and one is a nominee Director of NTT. The Chief Executive Officer, the Chief Financial Officer and the Chief Operations and Technical Officer are Executive Directors and also nominees of NTT with whom the Company also has a management agreement.

The Chairman of the Board is separate from that of the Chief Executive Officer and therefore, the principle of separation of the two functions is maintained.

Directors’ Responsibility for the preparation of Financial Statements

The Directors’ Report on page 21 to 22 embodies the principle that the preparation of the financial statements is the responsibility of the Board of Directors and not that of the Auditors. The financial statements are reviewed and approved by the Board prior to publication.

Committee Structures for the Board

In order to fulfil the duties of the Board, the Board of Directors has from time to time appointed ad hoc Sub-Committee of the Board to address specific urgent matters. The Board has established an Audit Sub-Committee and Remuneration Sub-Committee

These Sub-Committees have well defined Terms of Reference. They meet regularly, and they make reports to the full Board as and when necessary. The Board and the Sub-Committee have obtained professional advice as needed in carrying out their respective functions.

The Audit Sub-Committee reviews the audited financial statements and makes its recommendations to the full Board for approval prior to publication and submission to the shareholders at the Annual General Meeting. The Audit Sub-Committee works closely with the External Auditors and the Internal Auditors in fulfilling its mandate on the review of internal controls. The Audit Sub-Committee also works with the management to streamline operations and internal controls.

The Remuneration Sub-Committee reviews proposals for adjustments to remuneration scales. It has also initiated various actions with a view to strengthening our human resource base.

Budgets

The Board of Directors is responsible for the strategic direction of the Company. Towards this, the management prepares an Annual Business Plan for the year along with rolling Financial Projections (budgets) for 10 years. The Annual Business Plan is carefully reviewed and once approved, management is responsible for implementing the Business Plan. The Board of Directors reviews progress at each Board Meeting. The Board also reviews the Business Plan on an on-going basis and makes necessary adjustments to the plan and the corresponding financial projections, as required.

Board Meetings and Secretary to the Board

The Board of Directors meets at least once a month. At these monthly meetings the financial performance and progress is evaluated. During the year there were sixteen (16) Board Meetings. All decisions taken at these meetings are recorded by the Secretary to the Board. The Secretary to the Board possess the qualifications required in terms of the law.