Corporate Governance In South - Asia

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 -

Transparency

Accountability

Control

Trusteeship

Ethics

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
At least one third (1/3) of the total number of the company’s board of directors, shall be independent directors.	At least one tenth (1/10) of the total number of the company’s board of directors, should be independent directors.
Important clause like “The position of independent director cannot remain vacant for more than 90 (ninety) days	These clause are absent in this code.
Qualification of Independent Director (ID) is included in the revised code.	These clause are absent in this code.
At least 15 (fifteen) years of corporate Management/professional experiences which are needed for Professionals are included.	These are not included in this code.
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.	There is no such implication of these clauses in this code.
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.	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.
All members of the audit committee should be “financially literate” and at least one member shall have accounting or related financial management experience.	There is no such obligation in this code.
Company secretary shall act as the secretary of the Committee.	These clause are absent in this code.
Chairman of the audit committee shall be present in AGM to answer shareholders queries.	The Chairman of the audit committee should have a professional qualification & experience in accounting or finance

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

Insider Trading

Fraud & Corruption

Asset Stripping

Indecent Disclosure

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 -

Legal system	Common law
Investor protection	Medium
Ownership concentration	High
Typical owners	Families and business groups
Board system	One tier
Managers on board	Yes
Chair = CEO	Yes
Employees on Board	No
Bank influence	Medium to high

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

PSU	##  Public sector units ##  Government as the dominant shareholder
MNCs	##  Multinational Companies ##  Parent company as the dominant shareholder
Family Business	##  Private sector ##  Family owned companies & business groups.

Present Corporate Governance in India

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.

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.

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.

Legal Framework of Corporate Governance in India

The Process of Mergers and Takeovers & Major Challenges to Corporate Governance in India involves:

Process of Mergers and Takeovers	Major Challenges to Corporate Governance
# Approval of board of directors. # Information to the stock exchange. # Application in the high court. # Shareholders and creditors meeting. # Sanction by the high court. # Filing the court order. # Transfer of assets and liabilities. # Payment by cash and securities.	# 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.

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.

Legal system	Common law
Investor protection	Medium (Seem to be the best in South Asia)
Ownership concentration	High
Typical owners	Families and business groups
Board system	One tier
Managers on board	Yes
Chair = CEO	Yes
Bank influence	Medium to high

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……