Corporate Governance
Corporate
Governance is nothing but a step towards strengthening of the organization so
as to face the challenges. Also can be said as, the process and mechanisms by
which the capital market monitors the actions of corporate management.
It is
a safeguard against corruption and mismanagement, while promoting fundamental
values of a market economy in democratic society. Corporate of a firm must establish
a practice of equitable treatment of shareholders and amicable settlement of
conflicts.
Why Corporate Governance
is Important
In today’s world the term
corporate governance has become a burning question .The reason is that there
has been occurred so many corporate scandals in the recent years. The collapse
of those major, corporate institutions in the world added a new era for
thinking about the corporate governance.
Corporate governance is very
significant for following purposes -
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Transparency
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Accountability
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Control
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Trusteeship
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Ethics
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The Historical Root of
Corporate Governance
Ò Worldwide
privatization wave
Ò Mergers
and takeovers.
Ò Deregulation
and capital market integration.
Ò Scandals
and failures at major corporations.
## Corporate governance is of two types around the
world –
1) Anglo-Saxon
Countries (UK & USA) - Pursues the interest of shareholders.
2) Japan,
Germany & France – Pursues the interests of all Stakeholders,
employees, customer as well as Shareholders
Corporate
Governance in Bangladesh
Bangladesh
is a common law country. Its Corporate Governance is constituted by the Anglo-Saxon model. The
main regulatory authority for Corporate Governance is Bangladesh Securities
& Exchange Commission (BSEC). Bangladesh is in ORIENT governing system.
It’s natural and comparatively less powerful than many OXIDENT nations.
Bangladesh is mainly Bank & Shareholder capitalized.
Elements of Corporate
Governance of Listed public companies in Bangladesh:
There should be 20 directors and of them 20% must be
independent directors. Independent director will have no financial transaction
and blood relation with owner parties. They will only get payment based on
their attendance
Audit committee:
The audit committee should
include members who are all financially literate (are able to read and
understand financial statement). The company should structure the audit
committee with non-executive director, a majority of independent director, an
independent chairperson.
Nomination
committees:
The nomination committee should
be: consist of a minimum three directors with a majority of independent
directors. Be chaired by the chairperson of the board or an independent
director. Nomination committee will review the succession plan of the board’s
performance, recommendation for the appointment and removal of directors.
Remuneration
committees:
The remuneration committee should: Consist of minimum three members,
the majority being independent directors. Be chaired by an independent
director. The responsibility of the remuneration committee includes a review of
the recommendation to the board, Executive remuneration and incentive policies,
the remuneration package of senior management.
Some Common Scenarios of
Corporate Governance in Bangladesh
- Minority is not getting their rights properly
- Although annual report must be submitted in 120
day many listed firms are violating these rules
- Insider trading & corruption is seen
available.
- Indecent disclosure is deceiving many investors
Differences between 2012
& 2006 Corporate Governance Ordinance
A corporate governance act 2006
is revised to make the new CG acts. These differences are -
2012 |
2006 |
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At least one third (1/3) of the total number of
the company’s board of directors, shall be independent directors.
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At least one tenth (1/10) of the total number
of the company’s board of directors, should be independent directors.
|
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Important
clause like “The position of independent director cannot remain vacant for
more than 90 (ninety) days
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These
clause are absent in this code.
|
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Qualification of Independent Director (ID) is
included in the revised code.
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These
clause are absent in this code.
|
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At least 15 (fifteen) years of corporate Management/professional
experiences which are needed for Professionals are included.
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These
are not included in this code.
|
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Industry,
segment, product wise performance, Risks and concerns, Discussion on Cost of
Goods sold, Gross Profit Margin and Net Profit Margin, continuity of any
Extra-Ordinary gain or loss, related party transaction are included.
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There
is no such implication of these clauses in this code.
|
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The Board of Directors shall appoint members of
the Audit Committee who shall be directors of the company and shall include
at least two independent directors.
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The Board of Directors should appoint members
of the Audit Committee who should be directors of the company and should
include at least one independent director.
|
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All members of the audit committee should be
“financially literate” and at least one member shall have accounting or
related financial management experience.
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There
is no such obligation in this code.
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Company
secretary shall act as the secretary of the Committee.
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These
clause are absent in this code.
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Chairman
of the audit committee shall be present in AGM to answer shareholders
queries.
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The
Chairman of the audit committee should have a professional qualification &
experience in accounting or finance
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Corporate Governance in Pakistan
Pakistan is a common law
country. The Pakistan market regulator is
Pakistan Institution of Corporate Governance (PICG) who sets the corporate governance rules in Pakistan.
Pakistan is the follower of Anglo-Saxon Model –
Recent Corporate Governance Acts in Pakistan
- All financial statements are prepared in accordance with the
requirements of the Companies Ordinance, Companies Ordinance of 1984.
- The Ordinance provides for the protection of investors, Securities and Exchange Ordinance, 1969.
- The Ordinance deals with taxation aspect of the companies.
- These regulations are issued by the Stock Exchanges and are
applicable to all companies listed on the exchanges.
- Security of transactions should be smooth and risk free
settlement, Central Depository Act,
1997.
- Listed companies are managed in compliance with best practices
and in exercise of the powers conferred by the Securities and Exchange Ordinance, 1969.
Board Structure &
Committees
The board shall have a reasonable number of members and shall include a
balance of executive and non-executive directors (including an independent
non-executive director) to facilitate effective and objective board management.
- The
board should comprise a minimum of five directors & vacancy must be
filled by remaining directors.
- Non-executive
directors should be identified by the family council and elected by the
shareholders.
- The
chairperson of the company ideally will be other than the chief executive.
This person is responsible for providing leadership to the board of
directors.
- The
board meetings held at least once each quarter. Written notice, including
an agenda
Common
Scenarios in CG of Pakistan
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Insider Trading
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Fraud
& Corruption
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Asset Stripping
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Indecent Disclosure
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Corporate Governance in India
India is a common law country. The Indian market regulator, the Securities and
Exchange Board of India (SEBI)
set the corporate governance in India.
In
general India is following the Anglo-Saxon
model -
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Legal system
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Common law
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Investor protection
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Medium
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Ownership concentration
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High
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Typical owners
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Families and
business groups
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Board system
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One tier
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Managers on board
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Yes
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Chair = CEO
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Yes
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Employees on Board
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No
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Bank influence
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Medium to high
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Major
Corporate Governance Frameworks in India
Companies
Act, 1956 provides for basic framework for Corporate Governance regulation of
all the companies. Certain provisions were incorporated in the Act itself to
provide for checks and balances over the powers of Board: (All the sections of CG laws are on the basis of Indian Law)
- Loan to directors or relatives or associated
entities (need CG permission) (Sec 295)
- Interested
contract needs Board resolution and to be entered in register (Sec 297)
- Interested directors not to participate or vote
(Sec 300)
- Appointment of director or relatives for office
or place of profit needs approval by shareholders. If the remuneration
exceeds prescribed limit , CG approval required (Sec 314)
- Audit Committee for Public companies must have
paid-up capital of Rs. 5 Crores (Sec
292A)
- Shareholders holding 10% can appeal to Court in
case of oppression or mismanagement (397/398).
Key Issues of Corporate Governance in India
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PSU
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## Public
sector units
##
Government as the dominant shareholder
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MNCs
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##
Multinational Companies
## Parent
company as the dominant shareholder
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Family Business
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## Private
sector
## Family
owned companies & business groups.
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Present Corporate Governance in
India
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Primarily concerned
with administration of companies Act 1956 & other allied Acts.
It had appointed Naresh
Chandra Committee on Corporate audit & Governance in 2002.
It has setup National
Foundation for corporate Governance (NFCG) in association with the CII, ICAI
& ICSI as a not for profit trust.
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SEBI was established on
12th April 1992 in accordance to the provision of SEBI act 1992.
SEBI monitors &
regulates corporate governance of listed companies in India according to the clause
49 of listing companies.
Clause 49 was
introduced in 2000-2001 based on the recommendation of Kumar Mangalam Birla
Committee.
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The CII has been at the
forefront of the corporate governance movement in India.
In April 1998 CII
India’s Premier Business Association unveiled India’s first code of corporate
Governance.
Most of the CII code
was subsequently incorporated in SEBI’s Kumar Mangalam Birla Committee report
& thereafter in clause 49 of the listing agreement.
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Legal Framework of Corporate Governance in
India
The Process of Mergers and Takeovers &
Major Challenges to Corporate Governance in India involves:
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Process of Mergers and
Takeovers
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Major Challenges to
Corporate Governance
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Approval of board of directors.
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Information to the stock exchange.
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Application in the high court.
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Shareholders and creditors meeting.
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Sanction by the high court.
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Filing the court order.
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Transfer of assets and liabilities.
# Payment by cash and
securities.
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# Power of the dominant
shareholder.
# Lack of incentives for
companies to implement corporate governance reforms.
# Underdeveloped
external monitoring systems.
# Shortage of real
independent directors.
# Weak regulatory
oversight including multiple regulators.
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Corporate
Governance in Sri Lanka
Sri Lanka is a common law
country. Its market regulator, the Securities
and Exchange Commission of Sri Lanka (SECS)
set the corporate governance in Sri Lanka and falls under the Anglo-Saxon
model of corporate governance.
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Legal system
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Common law
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Investor protection
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Medium (Seem to be the
best in South Asia)
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Ownership concentration
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High
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Typical owners
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Families and business
groups
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Board system
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One tier
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Managers on board
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Yes
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Chair = CEO
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Yes
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Bank influence
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Medium to high
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Corporate
Governance Rules for Listed Companies
# The
board of directors of a listed company shall include at least two non-executive
directors; or such number of non-executive directors equivalent to one third of
the total number of directors whichever is higher.
# The
total number of directors is to be calculated based on the number as at the
conclusion of the immediately preceding annual general meeting.
# Any
change occurring to this ratio shall be rectified by SEC within 90 days from
the date of the change.
# There
will be 2 non-executive directors and they must be independent.
Different committees those Play the vital Role in Corporate Governance
of Sri Lanka
Nomination
Committee: The Chairman and members of the Nomination Committee should be
identified. This committee elects the Board of Directors.
Remuneration
Committee: This committee deals with the remuneration of board of directors. The
nomination committee should consist of a minimum of three directors with a
majority of independent directors.
Audit
Committee: The Board Audit Committee functions to
strengthen the process of corporate governance. The Audit Committee meets
minimum once a quarter and reviews internal audit reports Some Special Role that the
Directors Must Play According to the CG Rule of Sri Lanka.
HR
Committee: HR Committee provides
recommendations to the Board relating to the regulation of the organization
structure, salary increments, distribution of bonus, amendments to salary
scales, changed to company HR policies or major changes to HR procedures and
the final selection of candidates for Senior and Corporate Management positions.
Recommendations & Conclusion
# Good corporate governance may not be the engine of economic
growth, but it is essential for the proper functioning of the engine.
# Securing foreign and national investments is crucial for the
rapid development of South - Asian economy; however, this is only possible when
a sound Corporate Governance Code and Conduct is adopted.
# The achievement of this goal depends strongly on a solid legal
system binding the companies.
# Monitoring of companies’ actions has to be improved to avoid
information problems.
# This can only be done when the auditor’s professionalism is
verified
# Political unrest and biased course of actions must be
prohibited.
# Corruption must be
stopped to make a flourish change in Corporate Governance.
# Total transparency has to be secured at all levels
Thank You……
