Published:  05:22 AM, 12 October 2019

Corporate governance practices in Bangladesh

Corporate governance practices in Bangladesh

Corporate governance is the system of rules, regulations, practices, and processes, by which a company is directed, operated, monitored, controlled and reviewed with the lens of welfare being of stakeholders.

Corporate governance essentially involves balancing the interests of a company's many stakeholders such as financiers, shareholders, debenture holders, sponsors, management, suppliers, consumers, lender, borrowers, creditors, debtor's, political activists, pressure groups, free rider, CSR, government and the local community.

Corporate governance has come to light prominently over the world especially in business areas like banks, NBFIs, insurances, regulatory bodies, and autonomous bodies. The terms of corporate governance and its everyday usage is a phenomenon of the last fifteen years and so on. However, the development of corporate governance and its areas encompasses a variety of discipline including finance, banking accounting, management, and economics, law and organizational behavior.

Since corporate governance also provides the framework for attaining a company's objectives. It contains practically action plans, risk assessment, monitoring and internal control and compliance for performance measurement and smoothly functioning of corporate disclosure.

Corporate Governance practice in Bangladesh: The corporate governance practice in Bangladesh examines the major internal and external factors like legal framework, financial sector scenario, accounting standards and disclosures with regulatory requirements, the role of independent regulators and Judiciary and finally the role of a pressure group.

Companies and Corporate Laws: Companies of Bangladesh is incorporated and governed by the Company Act 1994, Bank Company Act 1991, Financial Institution Act 1993, Bangladesh Securities and Exchange Commission Act 1993 (2012 amended) and Bankruptcy Act 1997 which defines the rights and responsibilities of both majority and minority shareholders.

The act has specific provisions targeted at protecting the interests of minority shareholders at 10% of the shares. Moreover, the act provides certain supervisory functions to be undertaken by the shareholders through attending the meeting, appointing and removing directors and obtaining financial information before approval of the balance sheet.

Annual General Meeting (AGM) Scenarios: Shareholders are entitled to participate in the annual general meeting AGM which must be held once in a calendar year. Main duties of shareholders are approval of the annual report and audit accounts of the company. Appointment of auditors and approval of their honorarium, appointment, re-appointment, and removal of a director, the election of Board of Director, etc.

But it is seen that small groups of shareholders owned and control the majority of shares and by using the majority, they create pressure and muscle power to retain their own interest influencing decision-making process, like approval of the annual report, dividend directors appointment and removal and engagement of audit firms.

Financial Sector: The corporate governance practices in Bangladesh have been largely limited to financial Sector and the Banking sector can serve as a motivation for better corporate governance through its requirements and procedures for approving and monitoring loans.

These procedures have not provided sufficient oversight of credit assessment and asset management. The debt market is non-existed, and insurance market is not a major force in the financial sector in Bangladesh. Capital Market Role: Capital market facilitated good governance through information production and monitoring. In Bangladesh, fundamental spokes of an efficient capital market wheel are not in place.

The capital market does not react significantly to corporate performance in terms of higher stock valuation for accurate disclosure and poor stock price for the failure of accurate and full disclosure. A good number of shareholders do not possess a sufficient level of education, understanding and sophistication create to pressure on a company to change behavior and ensure corporate governance.

Accounting Standards and disclosure's: Accounting process is consists of recognition, measurement, segregation, and disclosure. But Accounting practices Bangladesh suffer from two major weaknesses. First, Accounting Standards are not compliant with International Accounting Standards in a number of material aspects. Corporate compliance with Bangladesh Accounting Standards is inconsistent.

Independent Regulators: The Primary independent regulators relevant to corporate governance in Bangladesh include government and non-government entities. Government regulators include RJSC, Bangladesh bank, BSEC and IDRA, Non-government regulations includes ICAB, DSE, and CSE.

Government regulators particularly do not provide efficient services or easily enable companies to fulfill their regulatory or statutory requirement, though they do not have a sufficient number of qualified, experienced personnel to oversee the industry.

The Judiciary: Judiciary suffers from a large backlog of cases and lack of specialist knowledge of the financial laws and corporate concerns. There is a company bench at the Supreme Court, which serves as the company court and attends to cases under Company Act. There is also Money Loan Court to hear cases of loan default; Proposal continues to be made for a separate bench at the High Court Division level to dispose of financial cases their appeals.

8. Board and its sub-committee: According to Cadbury Report, 1992s and OECD principles, the board comprises of the audit committee, Risk Assessment Committee, Remuneration Committee, Internal Control and Compliance and balance of Power between chairperson and CEO.

In Bangladesh, public corporations and private corporations best practices with the audit committee rather than others.Existence and Role of Pressure points: Shareholders, Investor association, business group, institutional investors, Medias and Civil Society can play a vital role in ensuring corporate governance.

Each of the group is weak and do not put enough clout to force large scale changes in the corporate sector of Bangladesh. Even most of the companies are not candidates of significant foreign investment. As a result, there is no pressure from the international economic community for better corporate governance.

Amendments of Bank Company Act, 1991: Bangladesh Bank followed by an internationally recognized code of conduct, practice and principle of corporate governance structure, Recently cabinet passed an amendment bill regarding the expansion of frequency and number of terms and times of Chairman and Directors of schedule bank and increased familial members from Two to Four from a single-family in to the board instead of note of decent placed by the central bank.

From the discussion above, it would like to say that deregulation, disintegration, and institutionalization are the main feature of corporate governance of Bangladesh. But due to the non-constitution of different committees, rapidly changes in different laws and actions.

Unethical pressure from the majority of shareholders while decision making, lack of political will and commitment to ensure sound corporate governance. Moreover, the corporate structure is dominated by family members over the board which practice hinders the level of fairness. accountability, and transparency.

The writer is Researcher, Faculty of Social Science, University of Dhaka and working as Evaluation
and Documentation Officer, Bangladesh Institute
of Bank Management (BIBM.  He can be reach
at: [email protected]

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