Corporate Governance Practices in Bangladesh

Corporate Governance Practices in BangladeshAbstract: Corporate governance is a concept about the way in which boards oversee the running of the company by its mangers and how board members are in turn accountable to shareholders and the company. Good corporate governance has implications for company behavior towards employees, shareholders, customers and banks. The paper tries to identify best practices of corporate governance and the steps that organizations can take to improve the situation of corporate governance in Bangladesh. Improving corporate governance can provide sign rewards to both individual companies and the country. The paper also tries to identify critical areas where institutions, regulations or other economic factors could be strengthened to improve corporate governance. INTRODUCTION

Corporate governance has become increasingly important in todays global markets especially for the growing demand from businesses for external domestic and international capital. The rise in demand for and supply of private capital is broadening and deepening the markets for corporate finance and corporate control, and is providing investors with a wide array of choices. Providers of corporate finance - whether individuals, banks, institutional investors or other financial institutions- require assurances that their investments will generate reasonable returns and be protected. Increasingly they base their investment decisions not just on a companys outlook, but also on its reputation and governance. Recent financial scandals associated to accounting and other frauds allegedly blamed to top company managers (e.g. Enron, WorldCom) have brought into public light the recurring question of whether companies are managed in the best interests of shareholders and other company stakeholders, such as workers, creditors and the general community. A point that has been made frequently is that top managers may possess too much power inside their companies and that a general lack of accountability and control of their activities is prevalent in companies with wide ownership diffusion. (Farhina, 2003). Weak corporate governance has consistently been seen as a major contribution that needs to be addressed to revive investors confidence and decrease the impact and likelihood of future shocks from economic and financial crises. As the global markets have re-evaluated corporate governance practices in developed countries, awareness of the need for corporate governance in Bangladesh has gained momentum (Sobhan 2002). There needs to be a systematic effort undertaken to develop and improve the quality of corporate governance in the South Asian region.

CONCEPT OF CORPORATE GOVERNANCE

Agency theory, human behavior theory, market failure theory suggest that an organization must have control mechanisms that help mitigate agency costs and improve firms efficiency. Control mechanisms are necessary to reduce divergence of managers interests from shareholders interests. Corporate Governance (CG) is probably the widest control mechanism used for efficient utilization of corporate resources. It can be defined as an organizational control devise, which is a hybrid of internal and external control mechanisms with a view to achieving efficient utilization of corporate resources. It is a network among various corporate players such as shareholders, managers, employees, leaders, governments, suppliers and consumers for increasing the value of the firm (Chowdhury, 2004). In this report, we define corporate governance as ensuring that the business is run well and that investorsreceive a fair return. It is about giving overall direction to management and ensuring accountability to shareholders, other external providers of funds and stakeholders.In a proprietary firm, the owners-managers efforts are directed at maximizing the firms value. This relationship becomes complicated when corporations are owned by multiple shareholders (principals) but run by managers (agents). The need for corporate governance arises from the potential divergence of interests between those who have control over a firm and those who provide its external financing. This divergence can be described as a principal-agent problem (also known as agency costs). Without governance protections, capital providers (owners, creditors, or taxpayers) who lack control over the corporation will find it risky and costly to protect themselves from opportunistic behavior by managers or controlling shareholders. The objectives of the study are to (i) define best practices of corporate governance; (ii) identify the major features of the corporate governance scenario in Bangladesh, including its strengths and weaknesses; and (iii) specific steps and suggestions that organizations need to take in order to improve corporate governance in the country. The study is based on review of existing literature and published documents, periodicals, books, reports and other related materials. Corporate governance can be defined as a combination of fairness, precision, ccountability and sustainability of corporate behavior. Good Corporate governance is a key factor to achieve the improved performance of an organization. It is fundamental element to safeguard interest of shareholders. For continuous and sustainable growth of an organization, there is no alternative to effective Corporate Governance.The positive effect of corporate governance on different stakeholders ultimately is a strengthened economy, and hence good corporate governance is a tool for socio-economic development The modern era of Corporate Social Responsibility (CSR) concept was evolved in 1950s when it was more commonly known as social responsibility. CSR has been defined as the integration of business operations and values whereby the interests of all stakeholders, including customers, employees, investors, and the environment are reflected in the organizations policies and actions. By CSR practices an organization can improve communication with the community and other stakeholders, ensure accountability and transparency in its operation, improve internal decision making and cost saving, enhance corporate image, improve reputation and ability to enlarge market share and Enhancement of customer true worthiness, profitability and sustainable development.Objective of the studyPrimary ObjectiveTo observe the current status of Corporate Governance and Corporate Social Responsibility (CSR) and their relationship with organization performance.

Secondary Objective To see the Corporate Governance guidelines of Bangladesh

To see the Corporate Social Responsibility (CSR) practice by the listed companies.

To see the risk-return features of security stocks and their relationship with Corporate overnance practices.

To see the Corporate Governance practices of other countries.

Scope of the studyThe scope of the study has been the listed companies of Dhaka Stock Exchange (DSE) specifically banking sector. Corporate Governance and Corporate Social Responsibility (CSR) practices by the banks in the year 2008 were the main ingredient of the report. Stock performance of the bank for the sake of calculating return and risk has been taken up to 2014.

MethodologyType of researchThe research is both exploratory and descriptive in nature. To serve the objective to see the Corporate Governance practices and to explain the relationship between Corporate Governance and firms performance we have gone for descriptive discussion on corporate governance and corporate social responsibility disclosure. To see the relationship between return and corporate governance disclosure and risk and corporate governance disclosure we have used correlation study.

Data sourceSince the study was made on the listed banking companies in Bangladesh, it was conventionally correct to use the secondary sources of information. The study has been primarily based upon information extracted from secondary sources like published annual reports, data base of Dhaka Stock Exchange (DSE), websites, books, journals etc

Report DesignChapter one includes prefatory parts of the report. Chapter two includes definition and concept of Corporate Governance and Corporate Social Responsibility (CSR). Chapter three includes Corporate Governance practices around the world. Chapter four includes of Corporate Governance and Corporate Social Responsibility (CSR) disclosure by the Banks.LimitationThere were some limitations of the study among which non availability of data was the Most, especially for the non listed companies. Another limitation was least amount of disclosure regarding Corporate Governance. Corporate Social Responsibility (CSR) activities of the banks were very limited, as well as the disclosure regarding CSR.PRINCIPLES OF CORPORATE GOVERNANCE

Corporate governance can be viewed as the dynamic interplay of internal and external incentives that affect the performance of all corporations whether private, publicly traded or state-owned. Good corporate governance is important, because it not only protects the interests of shareholders of companies but it is essential for the efficient mobilization and allocation of capital and efficient monitoring of corporate assets. How a corporation is governed affects the efficiency with which a firm employs assets, its ability to attract lower cost of capital, its effectiveness in meeting societys expectations and its overall performance. The internal incentives are the organizational arrangements within a corporation that allows owners to direct managers to pursue goals the owners set. The external incentives are the regulatory structures, voluntary standards and competitive market forces that, while not under the direct control of owners, exert discipline on the performance of owners and managers from the outside.

Internal mechanisms for good governance: Any well-governed corporation needs to balance the roles of four groups which are an integral part of the organization: i) shareholders; ii) board of directors; iii) managers and iv) stakeholders. Shareholders provide (risk) capital in return for the opportunity to benefit from profits and increases in corporate value. Shareholders may have a range of rights and powers under laws and regulations that include (1) the right to elect and remove directors and auditors; (ii) to appoint and approve or disapprove of fundamental changes and (iii) allow shareholders to register and transfer shares in a corporation, protect shareholders rights, including their rights to buy, own, sell and transfer stocks.

The board of directors (BOD) represents the interests of shareholders and may have obligations to other stakeholders under various statutory and voluntary provisions. BOD is the core internal governance mechanism, because they provide the bridge between management and owners, other stakeholders and the outside world. The BOD need to be independent, particularly of management, and its members should be well-versed in the firms line of business.

Below are the best practices for board of directors: (a) Board-size should reflect the complexity of the corporation and the need for effective decision-making; 15 members is the upper limit for board effectiveness in most cases; (b) Boards should include a significant proportion of independent directors who are likely to make objective judgments because they have no ties with management; (c) Boards should meet often enough at least once a quarter to do their job effectively; (d) Agenda and briefing materials should be sent to the board members before meetings to give members time to prepare; and (e) Board meetings should be used for discussion, and not lengthy management presentations. Managers report to the board of directors and are responsible for day-to-day operations and for implementing strategy. Their business objectives include financial issues and such non-financial issues as environmental protection and employee training. Where the interest of managers, shareholders or public diverges, a governance problem arises. Stakeholders including workers, banks, creditors, suppliers, customers and communities also influence corporations. Stakeholdersinterests are reflected in a rich variety of formal and informal provisions, such as creditors rights and insolvency laws, labour policies, labour practices, consumer rights, legislation and environmental regulations. The OECD Principles

The OECD Principles of Corporate Governance provides specific guidance for policymakers, regulators and market participants in improving the legal, institutional and regulatory framework that underpins corporate governance. The OECD Principles were originally issued in 1999, and have since become the international benchmarks for corporate governance, forming the basis for a number of reform incentives, both by governments and the private sector. The Principles were revised in 2003 to take into account developments since 1999, through a process of extensive and open consultations and drawing on the work of the Regional Corporate Governance Roundtables for non-OECD countries. The new principles were agreed by OECD governments in April 2004. The major issues addressed by revised Principles include:

(i) New chapter on promoting transparency and effective performance; (ii) Stronger role of shareholders;(iii) Preventing conflicts of interest and self-dealing; and (iv) Role of stake-holders. The main areas of the OECD Principles are: a. Ensuring the basis for an effective corporate governance framework. The corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities. b. The rights of shareholders and key ownership functions. Protection of shareholders rights to share in company profits, receive information about the company and influence the firm through shareholders meetings and voting.

c. Equitable treatment of shareholders. The corporate governance framework should ensure the equitable treatment of all shareholders, especially minority and foreign shareholders, with full disclosure of material information and prohibition of abusive self-dealing and insider trading. All shareholders should have the opportunity to obtain effective redress for violation of their rights.

d. The role of stakeholders in corporate governance. The corporate governance framework should recognize the rights of stake holders established by law or through mutual agreements and encourage active co-operation between corporations and stakeholders in creating wealth, jobs and the sustainability of financially sound enterprises.

e. Disclosure and transparency. The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance. f. The responsibilities of the board. The corporate governance framework should ensure strategic guidance of the company, the effective monitoring of management of the board, and the boards accountability to the company and the shareholders.

The internal incentives are necessary for efficiency but they are not sufficient for good governance, and corporations in market economies need to be disciplined externally. The basic requirements of institutional and legal/regulatory framework needed to support effective corporate governance are an integral part of the Principles. It includes:The discipline of a well functioning regulatory system: Formal legal and regulatory obligations are part of the external incentive structure designed to ensure that competing companies abide by common standards of fairness, transparency, accountability and responsibility to protect shareholders, consumers, workers, the environment and competitors from abusive practices. Other external elements are developed by national and international bodies on best practices (quality of disclosure, accounting and auditing standards, labor rules, environmental standards,) and other areas of practices that are qualitative and evolutionary.

The discipline of competitive financial markets:

Both equity and debt markets impose substantial discipline on management. The day-to-day performance of a companys shares on stock exchange is a transparent reminder to management and owners of the companys perceived viability ad value. But, share prices can be an effective measure of performance only if equity markets are deep and wellregulated to ensure fairness, efficiency, liquidity and transparency. The discipline of other competitive markets: A competitive product market forces management to adopt the most efficient methods of production since competitive markets expose inefficient firms. Increasingly, firms must compete on price and quality with products and services produced internationally. Effective competition promotes accountability and transparency, and minimizes corruption, lobbying and rent-seeking which are there among the weaknesses of corporate governance in developing countries. Competition for corporate control (takeovers) creates the possibility of acquiring shares at a discount, replacing managers with more efficient ones and taking steps to maximize shareholders value can be done by providing incentives for efficiently managing corporations and by providing .a market mechanism for replacing underperforming management. The discipline of reputation agents: These are the broad array of professional watchdogs who report to the investment community and keep a close eye on corporate performance. They include lawyers, investment bankers, investment analysts, credit rating agencies, consumer activists, environmentalists and accounting and auditing professional. They exert enormous pressure on companies to disclose accurate information to the market, to improve human capital and to align the interest of managers, shareholders and other stakeholders. Their approval implies to the investing public that they have carried out due diligence and that the company is in compliance with regulations and standards of behavior and boosts its reputation.

APPLICATIONS OF THE PRINCIPLES - PUTTING PRINCIPLES INTO PRACTICE:

Through its Steering Group on Corporate Governance and the Regional Corporate Governance Roundtables, the OECD serves as the international nexus for policy discussions in corporate governance. In co-operation with the World Bank, the OECD Regional Roundtables have used the principles as a framework for policy dialogue to promote regional corporate reforms in Asia, Latin America, Eurasia, Southeast Europe, Russia and recently Middle East, North Africa. This activity has resulted in regional White Papers, which develop common policy objectives and highlight recommendations for policy action. The Asia Roundtable on Corporate Governance was launched in Korea in 1999, and has held regional meetings in Hong Kong (2000), Singapore (2001), Mumbai (2002), Kuala Lumpur and Tokyo (2003), Seoul (2004) and Bali (September 2005). The roundtable participants representing diverse interests agreed in 2003 on the Asia White Paper setting out six priorities and 36 recommendations specific to the region. The White Paper builds upon the original OECD Principles of Corporate Governance adopted in 1999. Solid enforcement, effective disclosure and proper functioning of boards are all essential for market integrity that encourages investment. In order to improve the general quality of Corporate Governance in Bangladesh, the Code of Corporate Governance for Bangladesh has been adopted in April 2004. Also applying the White Paper priorities and recommendations and the 2004 OECD Principles involves further prioritization which include:

(i) Enforcement;

(ii) Increasing board effectiveness(role of independent directors);

(iii) Improving information disclosure and(iv) Promoting shareholder activism.

In response to the growing interest in corporate governance in OECD countries and sparked by the Asian financial crisis, the OECD Principles have been formulated so that they are both applicable to OECD member countries and non-OECD member countries. Many countries have been applying these principles and following are some highlights of corporate governance practices by these countries.

Malaysia: Many improvements have been made regarding increased partnership between government and private sector with greater separation of ownership and management. Authorities have pressured boards to respect shareholders interests. Effective legal systems and adequate legislation have been implemented to protect private property and unique systems for training directors. Investors recognize improvements made by the government, regulators and corporations, but challenges still remain. A convergence in regulation, attitudes and pressures from institutional investors and shareholders needs to continue. Strong supervision and enforcement of the new and the standard is essential for success. Also, the market state of mind must firmly recognize and put into practice the precepts of accountability, transparency and integrity.

India: Corporate governance in India was not triggered by any serious nationwide financial crisis, banking or economic collapse, but rather the initiative was driven by the industry association, the confederation of India industry. The Indian listed companies have been legally mandated to follow fairly strict standards of corporate governance and disclosures. The standards in India are far stronger than all Asian countries, and in general stronger than most OECD countries (Goswami, Omkar, 2002).The Indian corporate sector regulators and companies have been quick to incorporate some of the best international corporate governance and disclosure practices. The need of the day is more training of directors, audit committees members and senior executives of companies. The challenge is to design and sustain a system that imbibes the spirit of corporate governance, and not merely the letter of the law. Indonesia: Indonesia has taken important steps since 2000 to address weaknesses in its corporate governance framework, and now has in place an elaborate system of formal corporate governance rules. But, efforts need to be taken by Indonesia to strengthen the independence and enforcement capacity of the securities regulator, clarify and reinforce the legal responsibilities of directors and company managers, improve the transparency and reliability of annual reports and financial statements and the quality of public company audits, strengthen the process for appointing independent board members and enhancing the rights of minority shareholders.

CORPORATE GOVERNANCE IN BANGLADESH This part is segregated into two sections. Firstly, a discussion is made on the state of corporate governance practices in Bangladesh. Corporate governance is a term that describes the interaction of the government regulators, shareholders, board of directors, independent observers, auditors, accountants and managers to provide quality information to shareholders, the market and society at large. Individual companies and the country as a whole can gain sufficient rewards from improving corporate governance. In the light of this, the present state of corporate governance of Bangladesh remains weak. One of the leading causes of the feeble state of corporate governance is the fact that the principles of corporate governance have not been approved, nor recommended by the Government of Bangladesh. In addition to this, there is a lack of stake holders awareness regarding CG issues. However, among different sectors banking sector is in a better position than others in this respect. Recently, a significant step was taken by Bangladesh Bank to begin to rationalize the banking sector and improve financial reporting by banks. From December 31, 2000, banks and financial institutions were required to comply with lAS 30 (BRPD circular no. 3 (March 18, 2000). On the contrary, insurance sector lacks sufficiently on these issues. Despite these shortcomings, awareness towards corporate governance has risen recently especially by the efforts made at the non-governmental level. It is generally accepted that good governance is vital for the economys basic development. One of the initiatives that have been taken recently to improve the present situation is the establishment of the Center for Corporate Governance and Finance Studies (CCGFS) at the University of Dhaka. This is a research institution with the objective to contribute to the process of strengthening and coordinating efforts through dissemination of new knowledge, and being an agent of change in the legal framework and governance structure. For the first time, an international conference was organized in Bangladesh on 30-31 July 2005 by CCGFS, Dhaka Stock Exchange (DSE), the OECD and the Asia Foundation. Another conference was held on this topic which was initiated by the Federation of Bangladesh Chamber of Commerce and Industries (FBCCI). Moreover, Bangladesh Enterprise Institute (BE!) has provided a set of Code of Corporate Governance for Bangladesh in April, 2004. This institute also publishes a quarterly newsletter in the name of BEI Corporate Governance. These steps taken at the non-governmental level have brought about awareness of the need for corporate governance and its implementation in the various sectors of the economy. Corporate Governance Practices in Bangladesh

The corporate governance landscape examines the major internal and external factors that affect it. Firstly, we examine the legal framework in which corporate entities operate. The financial sector scenario explains the market in which corporations and financial institutions operate in Bangladesh. The accounting standards and disclosures include both disclosures required by statutory requirements and level of disclosure in everyday practice. Also the function and role of independent regulators have been explored. The section of judiciary and existence and role of pressure points examines the external actors that can enforce or encourage good corporate governance practices.

i. Companies and Corporate Laws:

To understand the corporate environment of Bangladesh, a review of legal requirements relating to corporate entities is necessary. The Companies Act 1994 is the law which governs incorporated entities in Bangladesh. Companies Act 1994 defines the rights of both majority and minority shareholders. The act provides for certain supervisory functions to be undertaken by the shareholders in the form of these rights to attend meetings, appoint and remove directors and to obtain financial information as well as approve the balance sheet annually. It also provides for various mechanisms for shareholders to enforce these rights, the principal among them being a suit for minority protection under section 233 of the Act (Sobhan, Farooq, et al., 2002).

The Act has some inbuilt protection for shareholders in requiring companies to file periodic returns with the registrar of joint stock companies (RJSC.), failing which the directors and management of the defaulting company are liable to various penalties such as fines and some cases, imprisonment (World Bank, 2002). The right to dividends is perhaps the right that most concerns shareholders, and has recently been in public focus. In accordance with the law, dividends are declared by the shareholders in general meeting, but may not exceed the amount recommended by the directors. The Act has specific provisions targeted at protecting the interests of minority shareholders. Minority shareholders holding at least 10% of the shares may seek remedies in court, if they feel the affairs of the company are being conducted in a manner prejudicial to one or more of its members or the company is acting in a manner discriminatory towards any member or debenture holders. If the court is of the opinion that the interests of the applicant(s) are being prejudicially affected, it may pass any order it deems fit including canceling or modifying any resolution or transaction, regulating the affairs of the company in future as specified in the order or amending any provision of the memorandum or articles of the company. The primary avenue for companies to communicate with their shareholders is the annual general meeting (AGM). A company must hold at least one general meeting of its shareholders, normally called the AGM, in every calendar year. If an AGM is not duly called, then the RJSC or the court may authorize the holding of the meeting out of time. Articles of Association or holders of not less than 10% of the shares of a company can require an extra-ordinary general meeting to be called and held. In an AGM, the agenda must include the following items as necessary: (i) Approval of the annual report and audited accounts of the company; (ii) Appointment of auditors and (iii) Resignation by rotation and appointment of directors (as required). One function of AGM is to elect the companys board of directors. Members of a company elect the directors of a company from among their numbers in a general meeting. There is no further requirement of law regarding the composition of the board of directors, although the Securities and Exchange Commission (SEC) has recently been imposing a condition on public issues of shares that directors be elected in proportion to shareholdings of institutional investors. One issue of establishing good corporate governance is the inclusion of independent directors on the board of directors. In the context of Bangladesh, persons that would fit the definition of independent in Bangladesh are often current or former government officials or bureaucrats. They are appointed to help the company get licenses or as payback for previous favors. When boards need an independent opinion they rely on employing outside consultants or advisors (BE! Corporate Governance, January 2005). Therefore, in the context of Bangladesh, independent directors do not usually serve as an advocate for minority shareholders or as a source of new and different ideas.

Once elected to a board, the Act imposes certain responsibilities and rights upon directors who are interested in any contract or arrangement entered into by or on behalf of the company are required to disclose their interest and, in some cases, to desist from voting on any such decision. However, the penalty for contravention is a fine not exceeding Tk. 5,000, a fine which cannot be considered to be a sufficient deterrent to such actions. The Board of Directors of the company are obliged to submit to shareholders a balance sheet together with the profit and loss account at every AGM. The companys auditors must audit the financial statements and the auditors report must be attached. The Boards report must also be included, and it should provide information regarding the companys affairs, the amount the Board proposes to reserve in the balance sheet, the amount recommended to be paid out as dividend and any material change and commitments which may change the financial position of the company.

The information that is required to be disclosed by a company to its shareholders and to members of the public in accordance with the law is practically the only tool shareholders and investors have to judge the performance of a company and monitor the activities of the directors and management. A companys auditors, as per the Companies Act, must be Chartered Accountants and are appointed in the AGM. The auditors should have access to all books and papers whether kept at the registered office or elsewhere. The scope of inquiry of the auditors has been elaborately spelt out in the Companies Act as well as the nature of the certification the auditors must provide. An auditor must specifically state whether, in his opinion and to the best of his information and according to the explanation given to him, the said accounts provide a true and fair view of the companys affairs.

The CG practices in Bangladesh have been largely limited to financial sector. It is because of major modification in the Banking Companies Act.

ii. Financial Sectors:

The debt market is non-existent, and insurance market is not a major force in the financial sector. Therefore, primary stakeholders in corporate governance are creditors, particularly lenders because the capital market is not a preferred source of funds for corporations. The banking sector can serve as a motivation for better corporate governance through its requirements and procedures for approving and monitoring loans. Unfortunately, these procedures to date have not provided sufficient oversight of credit assessment and asset management.

Beginning in the year 2001, banks were required to comply with the International Accounting Standard-30 (IAS-30). The accounting standard requires banks to classify their loans (sub-standard, doubtful, or bad) based on their default activity and make a loan loss provision especially for classified loans, as well as make a general provision for loans that are unclassified. Full and accurate compliance with the disclosure requirerncm of IAS-30 will begin to provide more information to bank stakeholders and hopefully create a consensus for reform. (Saha, et al 2002).

Bangladesh Bank (BB) is the central bank of Bangladesh, and the primary regulator of banks and non-banking financial institutions. BB has taken a number of recent steps to improve the health of the banking sectors, but the central bank still suffers from a lack of personnel possessing adequate formal training and education in banking and central bank functions. Recently, the Governor has been a professional from the private sector and, for the first time, an outsider and a former CEO of a foreign bank has been appointed as a Deputy Governor. These steps are measures to inject experienced professionals into Bangladesh Bank and gradually instill appropriate managerial skills in running what is essentially a bank. Although BB has introduced a Lending Risk Analysis (LRA), procedure for loans above a certain amount, smaller loans do not require mandatory credit assessment before sanction or disbursement of credit facilities, which is a recognized factor contributing to difficulties in recovery of defaulted loans. Although there are dedicated courts for debt recovery by banks and financial institutions, Money Loan Courts, as well as Bankruptcy Courts, the implementation of creditors rights in Bangladesh remains weak. Money Loan Courts suffer from a shortage ofjudicial officers and delays in executing decisions. In Bangladesh, the fundamental spokes of an efficient capital market wheel are not in place. The average non-controlling shareholders in this country are an individual who does not possess sufficient level of education, understanding and sophistication required to exert pressure on a company to change behavior. Institutional investors like mutual funds and pension funds are too small or disinterested to adopt a strong activist position. One of the necessary conditions of effective CO is adoption of lAS and disclosure of accounting information.

iii. Accounting Standards and Disclosures:

Accounting practices in Bangladesh suffer from two major weaknesses. First, accounting standards are not in compliance with international standards in a number of material aspects. Second, corporate compliance with Bangladesh Accounting Standards (BAS) is inconsistent. The Institute of Chartered Accountants of Bangladesh (ICAB) has adopted 30 of the 41 International Accounting Standards ( as BAS. However, in many cases, the lAS has been adopted in its original from, and subsequent amendments have not been adopted. As a result, lAS and BAS differ in a number of material aspects. Accounting standards in Bangladesh allow for considerable discretion by the company and do not require disclosure of the financial and non-financial details necessary for a full assessment of a companys operations, financial situation and prospects. Standards regarding accounting for investment in subsidiaries, associates and the lack of consolidated accounts are particular shortcomings (Sayeed, Yawer 2002). A review of available literature and annual reports suggest that compliance with disclosure requirements under the relevant laws and BAS is inconsistent. Here the culture of disclosure by corporate body is mainly influenced by the requirements of the Companies Act and the regulations of the Security and Exchange Commission (Mahboob et al. 2004). The consequences for non-compliance are virtually non-existent, and weak auditing and regulation allow this situation to continue unabated. Even companies that do comply with statutory requirements often do not provide other relevant and material information. Reforms in laws and disclosure requirements are not effective unless there are independent regulatory agencies. iv. Independent Regulators:

The primary independent regulators relevant to corporate governance in Bangladesh include government and non-government entities. Government regulators include the RJSC, the SEC and Bangladesh Bank. Government regulators include ICAB, Chittagong Stock Exchange (CSE) and Dhaka Stock Exchange (CSE).

Government regulators particularly do not provide efficient services or easily enable companies to fulfill their regulatory or statutory requirements. As it is the case with many Government agencies, government regulatory agencies do not have sufficient number of qualified, experienced personnel to oversee companies actions. Regulators also expand their scope of authority and actions through regulation and practice, which companies feel has led to misuse of their powers and to unfair harassment. (World Bank, 2002). The SECs interventions have forced listed companies to be much more regular in holding annual general meeting, declaring dividends and disseminating price sensitive information. The ICAB is a non-governmental regulatory agency which certifies and oversees accountants and auditors. ICAB must ensure that accountants and auditors prepare and audit financial statements that provide full and true disclosure of a companys financial position and operations.

vi. The Judiciary: As a support mechanism to enforce or impose regulations or rulings that support corporate governance, the judiciary suffers from a large backlog of cases and lack of specialist knowledge of 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 the Companies Act. There is also Money Loan Court to hear cases of loan default. Proposals continue to be made for a separate bench at the High Court Division level to dispose of financial cases and their appeals. (Mahmood, Wahiuddin, 1999).

vii. Existence and Role of Pressure Points:

External pressures that often demand information and more transparent corporate governance practices are lacking in Bangladesh. (CPD, 2002). There are few financial media outlets or knowledgeable financial journalists. Apart from a few enterprising journalists, the financial press consists mainly of press releases from companies. Shareholders do not join together in shareholders associations to demand better company performance or to assert their share holders rights. In Bangladesh, there are only a few institutional investors, most of which are state-owned enterprises. A few private investors do not put enough clout to force large scale changes in the corporate sector. Most companies are not candidates for significant foreign investment; so, there is no push from the international economic community for better corporate governance.

ANALYSIS, FINDINGS AND CONCLUSION

Failings in institutions, government agencies, legal enforcements and market behavior have resulted in weak corporate governance in Bangladesh. In many cases, the current system in Bangladesh does not provide sufficient legal, institutional or economic motivations for stakeholders to encourage and enforce good corporate governance practices. As a result, there are few rewards for companies that institute good corporate governance practices and no penalties for failing to do so.

Targeted reforms in institutions or sectors can begin to provide the internal and external motivation for transparency and accountability that will lead to better corporate governance. The institutions or sectors should be examined to develop reform. Recommendations: Formulate a complete code of corporate governance at the governmental level to improve disclosure standards and ensure transparency in the corporate sector. A legal framework promotes the emergence of credible and effective governance practices for the benefit of the economy and society as a whole.

Independent regulators in Bangladesh relevant to corporate governance consist primarily of the RJSC, SEC, Bangladesh Bank, CSE, DSE and ICAB. The RJSC and SEC are two government agencies which should be studied further to develop recommendations for reform. These regulatory bodies should exercise the enforcement of standards for accounting, audit and non-financial disclosure. These bodies should have authority to impose appropriate sanction for non-compliance. Regulatory bodies should take a tough stance against public listed companies to bring back public confidence. They should send the right signal through exemplary punishment. Honest and good work should be positively reinforced, and dishonesty punished that should be the basic principle of business. For instance, Saifur Rahmans initiatives to convert black money put honest people who have pail their taxes so far at a disadvantage. Proper mechanism should be developed for monitoring the management of the board and monitoring of the board by the shareholders. AGMs should be an effective forum for communication between boards and shareholders. Directors should be educated, qualified and independent. Furthermore, there should be an outline for professional qualification requirements or prerequisite training for directors, although banks have begun to introduce some requirements. There should be requirements that allow boards to include independent directors.

Conclusion:Finally, business ethics and corporate awareness of the environmental standards and other societal interests of the communities in which they operate sometimes called good corporate citizenship - also can have an impact on the reputation and long-term success of a company.

Corporate governance issues are receiving greater attention in both developed and developing countries as a result of the increasing recognition that a firms corporate governance affects both its economic performance and its ability to access long term, low cost investment capital. The ultimate impetus for better corporate governance must come from domestic forces and institutions. Unlike some other developing countries, pressure from international portfolio investors or the hope of assessing international equity market is not a realistic objective for a majority of corporate bodies in Bangladesh. Corporate governance reform can only take place where there are powerful champions. While it is unrealistic to expect that all members of the business community will endorse CG reforms, government leaders are unlikely to pursue reforms without some backing from business community. Social activities need to recognize the importance of capital and the efficiency of its investment for poverty alleviation and support reforms that aim for transparency and non-discrimination.

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Government of Bangladesh, December 1999 Mahmud, Parveen CPE Seminar on Microfinance - Governance and Reporting, ICAB, November 6, 2001PAGE 14