Presentation on Practices and Challenges of Corporate Governance in Bangladesh

Corporate Governance

Corporate governance (CG) is a broader issue than corporate management and includes concerns like efficient and transparent administration, ethical commitment, quality of financial and management disclosures, safeguarding legitimate interest of all shareholders, ensuring independence of the entity etc.

Principles of CG

—Ensuring rights of all shareholders,

—Integrity and ethical behavior,

—Appropriate disclosure and transparency and

—Proper role and responsibilities of the board and so on.

Issues involved in CG principles

—Management risk

—Internal control

—Oversight of preparation of the financial disclosures

—Independence of the external auditor and quality of audit

—Review compensation package of the Chief Executive Officer (CEO) and other top executives

— Nomination in the board

— Dividend policy and other related issues.

Practices of CG in in Bangladesh

—Most of the Bangladeshi companies have concentrated ownership structure with family orientation.

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—The board of directors, dominated by sponsor share holders often from the same family, control decision making process and annual general meetings (AGMs) are mostly ineffective.

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— The board is often enthusiastically involved in management and role of the CEO is marginal.

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—Independent directors- when there is any- can seldom act independently or play his role as an effective advocate for minority share holders or as a useful deterrent to irregular practices.

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—Share holder activism is still a far cry.

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—Lack of auditor independence frequently gets in the way of transparent financial disclosures.

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—In many of the companies, there is practically no accountability structure of the management to the board or share holders.

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—In absence of any structured government mechanism, there is no central authority to enforce even minimum practice of corporate governance.

Practices of CG in in Bangladesh (Cont.)

Corporate Governance Guidelines

—Sixty thousand registered companies under Register of Joint Stock Companies

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—Introduction of some measure of corporate governance among such large number of organizations is a formidable task.

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—Lack of sufficient legal, institutional and economic motivation makes the job even more intricate

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—Enforcing CG practice in the listed companies may be a convenient point

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—Securities and Exchange Commission (SEC) of Bangladesh introduced corporate governance guidelines in 2006.

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—The guidelines include areas like board size, independent directors, chairman and CEO, internal control and audit, function of company secretary, audit committee and appointment of external auditor.

Challenges of Corporate Governance: in the context of Bangladesh

The “ill-equipped” structure has been unable to address the corporate governance challenges.

The challenges are:

—Adoption of a standard framework

—Function of independent wings

—Transparent disclosures

—Protecting shareholders' interest

—Focus on short-term profit

Fighting Against Challenges

 A developing country like Bangladesh, fighting against challenges is really difficult due to (i) proprietorship or partnership or limited-liability company having capital market participation but wanting to hold family business control; (ii) government's political participation in the Board of state-owned banks and financial institutions or any other state-owned organizations; (iii) outdated laws to govern and cater to corporate governance framework and the failure to face the challenges on many grounds and to establish the rule of law, and (iv) substandard human resources or badly cultured workforce who fail to adopt the changes or accept challenges with professional integrity and ethical value.

Now, what to do?

Our laws should be updated to cater to corporate governance framework and make the Board of directors liable and committed to compliance of the Corporate Governance code meticulously. The regulators, Securities and Exchange Commission (SEC), Bangladesh Bank, Insurance Regulatory and Development Authority (IRDA) etc. have to be strict in enhancing their capacity to monitor the corporate governance compliance.