Code of Corporate Governance as issued by Bangladesh Securities Exchange Commission in 2006 and subsequent modifications to highlight measures aimed at better financial management
Introduction The recent waves of stock market crashes, unethical practices by the corporations, investor’s growing interest on the stock market has created the demand of more transparency and practices that could lead to better financial management. Keeping that in mind Bangladesh Securities and Exchange Commission (BSEC) issued Code of Corporate Governance 2006.Successful corporate governance largely depends on trade-off between the various conflicting interest groups like government, society, investors, creditors and employees of the organization.
Code of Corporate governance Under the guidelines, all the companies listed in the Bangladesh stock exchange must take comply or explain approach i.e companies need to comply with the code and if not they have to explain why not. Board of directors First category in the guidelines relate to the board of directors. The board of directors is considered as an active monitor of a company’s corporate governance system. The number of Board of Directors should not be less than 5 (five) and more than twenty. The Banks, non-bank financial institutions, insurance companies and statutory bodies shall follow the prescription of their respective primary regulators in this regard. Independent Directors Independent directors are those who do not hold any executive position in company or have any direct and indirect interest in the company. According to Agency theory independent directors enhance a board’s monitoring capabilities. Appointment of at least one-fifth of the total number of the company's board of directors should be 'independent non-shareholders directors' in the Board.
Separate role of chairperson and CEO The two most important posts are the Chair of the Board and the Chief Executive officer. The posts should be filled by different individuals since their functions are necessarily separate. The positions of chair significantly influences the outcome of the board decisions as the person controls board meeting, sets its agenda, makes committee assignments and influences the selection of directors. The position of CEO is also important as he is responsible for any operating and financial decision making. Appointment of the Chief Financial Officer, Head of Internal Audit and Company Secretary The Company is required to appoint a Chief Financial Officer (CFO), a Head of Internal Audit and a Company Secretary. The CFO and Company Secretary are required to attend the Board meeting. The CEO with the board provides overall leadership and vision regarding the company’s strategic direction, tactics and business plans necessary to realize revenue and earnings growth and increase shareholder value. The Directors' Report Prepared as per Companies Act may include additional statements on:The financial statement presents fairly company's state of affairs, the results of its operation, cash flows and change is equity. While preparing the financial statement The accounting estimates are based on reasonable and prudent judgement. Appropriate accounting policies have been consistently applied IAS is followed in preparation of the financial statements Proper books of accounts have been maintained Disclosure on company's ability as a going concern and if not so then the fact along with the reasons thereof, Explanation on the significant deviation from last year in operating results, if so happened, Summarize of at least last three years key operating and financial data, Reasons for non declaration of dividend (if not declared) for the year, Significant plans and decisions along with future prospects and risks Number of Board Meetings held during the year and attendance by directors,
Aggregate number of shares held by: Parent/Subsidiary/Associate companies, Directors, CEO, Company Secretary, CFO, Head of Internal Audit and their spouse and minor children, Top five salaried employs other than the above mentioned persons Shareholders holding ten percent or more voting interest in the company. Audit Committee The companies will form an Audit Committee comprising of at least three members including at least one independent non - shareholder director. The Audit Committee shall assist the Board in handling the issues, which might be overlooked and ensures a good monitoring system within the business. The Committee is required to make report on its activities to the Board. An immediate report have to made to the Board on the following findings: conflict of interest; suspected or presumed fraud or irregularity or material defect in the internal control system suspected infringement of laws.
Limitations There is no specific requirement for director’s educational and service background. Whereas it is assumed that director’s who are financially educated are likely to manage the business more efficiently.
Conclusion Good corporate governance can ensure effective financial practices in corporations as a result market is likely to be more efficient. On the other hand efficient market will definitely attract more investors which is very crucial for an emerging economy such as Bangladesh. The guideline is expected to increase level of efficiency, quality and competitiveness throughout the national economy. Therefore an up to date code of corporate governance carry innumerable importance.
References www.bdresearchpublications.com
www.csc.com www.sec.gov.bd
