Assignment

Strategic
Management
MBA-550
SEC 01
Submitted To:
Prof Dr. Lt. Gen.(Ret.)
Mohd. Aminul Karim
Submitted by
Meskat Hassan Khan
ID-2022901
Submission Date :10-3-2021

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Topic: the problem or challenged of corporate governance in Bangladesh

Corporate governance is a significant challenge to ensure accountability and responsibility and is

a set of principles, which should be incorporated into every part of the organization. It is refers to
the relationship among the board of directors, top management, and shareholders in determining
the direction and performance of the corporation.

Corporate Governance is based on several critical principles. They include an independent,

active and engaged Board of Directors which has the skill to properly evaluate and oversee the
business process, business and financial performance, internal control and compliance structure
and direct management on strategic and policy issues. On the other hand, the Board has to ensure
that the management headed by Chief Executive Officer (CEO) fully discharge their day to day
administrative responsibilities prescribed by Board itself and necessarily refrain themselves from
micro management of the management interaction. Organization should respect the rights of
shareholders and help them to exercise those rights by effectively communicating information
that is understandable and accessible and encouraging shareholders to participate in general
meetings. Organizations should recognize that they have legal and other obligations to all
legitimate stakeholders. Organizations should develop a code of conduct for their directors and
executives that promotes ethical and responsible decision making. Organizations should clarify
and make publicly known the roles and responsibilities of the board and management. Company
should create stronger and purposeful boards, enhance the scope, accuracy, and timings of
financial reporting, and pay more regards to the rights and interests of minority shareholders.
Proper corporate and security laws, tough accounting standards, effective regulators, efficient
judicial system together can ensure the foundations of good corporate governance. Without
greater transparency, new governance codes will do little to build investors’ confidence. The

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internal corporate governance controls should be implemented and monitored and corrective
action should be taken to accomplish organizational goals.

Present scenario of corporate governance in Bangladesh

 The corporate governance practices by the Bangladeshi firms are just emerging. So,
knowledge of the governance mechanisms employed in Bangladesh and how to improve
their effectiveness is still limited. In Bangladesh set up of a governance framework is
based on the principles of "fairness, justice, and open access". The control-based
governance model practiced by the Bangladeshi listed firms is damaging the investors'
confidence and thus is hurting the development of the stock market.
 In Bangladesh, most of the listed companies, excepting multinationals and a few large
companies, are owned and managed by family members and their peers. The owners
make the policy decisions as board members and dispose of the executive functions of the
company, leaving no scope for separation of ownership and independence of the board.
Board meetings are restricted to papers only to comply with the legal requirements.
 For effective corporate governance, in the context of the business environment in
Bangladesh and style of (family controlled) management, the following important
measures should be undertaken. Board members should be elected from all groups of the
shareholders to their proportion of their shareholdings. The maximum term of
chairmanship should be specified and rotated amongst the directors. The board should
appoint the top 5 Managers including the CEO, who will remain accountable to the
board. Auditors have an important role regarding compliance to the guidelines of
corporate governance.
Problem of Corporate Governance in Bangladesh
 Corporate ownership structures are dominated by family members: All corporate
governance systems have four core principles: Fairness, accountability, responsibility and
transparency. In Bangladesh, general practice is that the corporate structure is dominated
by family members practice hinders the level of fairness, accountability and transparency.
 Accounting standards and disclosure and its impacts on CG and management
practices in Bangladesh are mixed: Following the tradition of English law, Bangladesh
accounting standards (BAS) are not based on codified law, but rely on Generally
Accepted Accounting Principles (GAAP) developed by accounting profession.
 Inadequate Bankruptcy Laws: Bankruptcy laws and processes are inadequate in terms
of provisions and not strong in terms of enforcement in Bangladesh.

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 Inconsistency between Companies Act, Bangladesh Accounting Standard and
Security Exchange Commission requirements: In many cases, the Act, 1994 lacks
clarity with regard to statutory requirements on disclosures in the financial statements of
listed companies.
 Weak Regulatory System: Bangladesh still follows the hybrid system of legal system
inherited from the British administration. Therefore, weak regulatory system along with
board interference with the management exists in CG in the country.
 Weak Capital Market Role: Capital market facilitates good governance through
information production and monitoring. The capital market of Bangladesh consists of two
stock exchanges: Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE).
Bangladesh does not have depth in its equity market. The capital market of Bangladesh is
still a weak link in the movement towards strengthening CG.
 No Market for Corporate Control: A market for corporate control plays an important
monitoring function in CG, as poorly managed companies will become takeover targets.
In Bangladesh, there seems to have no market for corporate .most companies in
Bangladesh are closely held and a negative correlation exists between good Corporate
Governance and defaulting in holding annual general meetings in due time.
 Independent directors do not act as an advocate for minority shareholders or as a
source of innovative ideas: The Companies Act, 1994 provides many rules in respect of
any negligence, default, breach of duty or trust on the part of director, manager or officer
of a company. In the context of Bangladesh, independent directors do not act as an
advocate for minority shareholders or as a source of innovative ideas.
 Lack of Shareholder’s Activism: General shareholders do not pay attention on issues of
performance, business strategy, future business plans, disclosures and processes that
could give them a greater voice in the policy decisions of a company. Therefore, the
respondents pointed out that 50% shareholders‟ activism are still an illusion in
Bangladesh.
 Weak Pressure Groups: Shareholders, investor associations, institutional investors and
the financial press can play significant role in ensuring better CG. Each of these potential
pressure groups is weak in Bangladesh.

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  Lack of Auditor Independence: The auditors in Bangladesh are not considered
independent or sufficiently qualified to assess the validity of the financial statements of
corporate entities.

 Poor Audit Report: Audited financial reports are rarely reliable and free from the
control of the owners. Despite irregularities (in respect of non compliance with the
applicable IASs) in the audit report, the auditors issue unqualified audit report on the
financial statements.

Challenges of Corporate Governance in Bangladesh

In the context of Bangladesh, the "ill- equipped" structure has been unable to address the
corporate governance challenges to make it effective and efficient. We should first identify the
challenges before pointing out the ill- equipped structure.

Adoption of a standard framework: The primary challenge is to adopt corporate

governance in line with standard framework making the management accountable and
responsible to the Board and the Board to the shareholders/stakeholders.
Function of independent wings: Within corporate governance framework, there are
some independent internal and external wings for ensuring accountability in managing
resources and reporting thereof. How far the independent director(s) works independently
in the Board? The selection and appointment of independent directors stems from the
requirement of Securities and Exchange Corporate Governance Guidelines, where the
Board appoints such director(s), subject to approval at the Annual General Meeting
(AGM).
Transparent disclosures: The highest challenge in Bangladesh to implement corporate
governance is to disclose the adequate and appropriate information in the financials. Few
companies as listed with Stock Exchanges excepting some large reputable companies
disclose information correctly.
Protecting shareholders' interest: In Bangladesh challenges arise in order to ensure
compliance of laws and policies. The nomination committee may be biased to nominate
any directors instead of someone who may act for the interest of shareholders. The

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 company meets for exercising their right on time, protection of related party transactions
and disclosures.
Focus on short-term profit: The Board has a trend to gain profit. Therefore, it moves
with a strategy to capture and sustain market position in any situation with diversified
products and service qualities and other strategies attaining competitive advantage.
Bangladesh fight 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.

Recommendation for corporate governance Bangladesh

 Bangladesh needs to have a “Code of Corporate Governance and Best Practice
Recommendations” which can be either rule based or principles based. Bangladesh
Enterprise Institute, Corporate Governance Committee of ICAB, and SEC have
developed separate Codes for Corporate Governance for Bangladesh.
 Bangladesh needs to formulate a Competition Policy which will ensure a culture of good
corporate governance to thrive. Competition policy helps bring about efficiency, reduce
price distortions, lower the risk of poor investment decisions, and promote greater
accountability and transparency in business decisions, and lead to better corporate
governance.
 Public and private sector institutions should continue to raise awareness among
companies, directors, shareholders and other interested parties of the value of good CG.
To achieve the desired CG framework in Bangladesh, a strong national commitment to
CG is essential.

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 Directors must improve their participation in strategic planning, monitoring of internal
control. There is a need for director training, voluntary codes of conduct to expect
professional behavior. The most vital thing that can ensure good CG is high standards of
ethical and personal behavior. This can only be ensured if the value system of society
imposes this on their people as the norm in every aspect of life
 Directors must improve their participation in strategic planning, monitoring of internal
control. There is a need for director training, voluntary codes of conduct to expect
professional behavior. The most vital thing that can ensure good CG is high standards of
ethical and personal behavior. This can only be ensured if the value system of society
imposes this on their people as the norm in every aspect of life
 In Bangladesh, quality of financial reporting needs to be improved. This requires a
regulatory regime and effective enforcement of the accounting and auditing standards.
True independence of the auditor is at the crux of good CG. Auditors need to be able to
function with real independence and without fear or favour.
 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.