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Shareholders will agree that long term value creation is the primary responsibility of a senior management team in a business. Often, however, incentives are misaligned. Nowhere else is this mismatch more apparent than in the baking sector. That misalignment is the short term focus on return on equity (ROE). It’s also significant because of the creeping crisis on banks following the shocks from rising dud loans, higher capital ratios, fierce new regulations and the economic slowdown.

A question for boards is, does short term ROE focus equate to medium term profitability and long term shareholder wealth creation?
No. Because ROE, as a headline measure, does not adjust for risk. The returns may come in the short term, but risks usually come much later. Second, a prospective investor should be more interested in risk-adjusted returns than the promise of short term ROE. Some capital will prefer higher long term returns for high risks, while other investors may prefer the opposite. Consider that banks with little equity are riskier than ones with a lot of it.

As the fallout of the Easter Sunday attacks spread, banks will realise that keeping medium to long term return goals aligned will be impossible if unexpected losses have eroded their capital base. If ever the ROE obsession was misplaced it would be so in the current crisis.

Echelon Magazine Description:

Intelligent Storytelling

The one thing that will define the Echelon magazine will be the quality of the storytelling. Echelon,published monthly, will cover in depth Sri Lanka’s most successful businesses, examine their winning strategiesand profile their leaders in immersive stories. Great stories are also never limited to words, and our approach includes rich photography, bold graphics and leading edge design which together will make for a compelling read.

But business doesn’t start and end in a boardroom;it extends to the golf club greens, to international travel and to pursuits that blurthe lines between commercial venture and sheer passion. The Echelon team will present the best in business and lifestyle coverage that will appeal to an exclusive and affluent readership: an otherwise hard to reach demographic.

Content will be developed by one of the most experienced and proven teams of editors, financial journalists, photographers and designers in the country.This team has already raised the bar for powerful and expertly crafted business news. Shamindra Kulamannage, will lead the editorial team.

The reputation of Echelon is being built on the separation between editorial and advertising. However we are also looking for the most creative and impactful new formats that can be applied in our magazines, iPad app as well as website to help our clients reach our audience. We are flexible and creative and we will have a solution for every single advertiser who wants to reach our audience.

We are passionate about creative results and about working with our advertisers to help them create bespoke multi platform creative solutions with our in house creative team and of course our sales team.

Echelon will be a great place to show off the products and capabilities of our clients because they will be surrounded by an editorial product that is expertly crafted, full of integrity and intelligence.