University of Dhaka

Department of International Business

Term Paper on

"Analysis of the Corporate Governance Regulations of Bangladesh and the Areas of

Improvement for Sustainable Governance Standards"

Course code: IB-517

Submitted to:

Dr. Chowdhury Saima Ferdous

Professor
Department of International Business
University of Dhaka

Submitted by:

Milon Murmu
ID: JN-030-093
Section: A
Batch: MBA 14th
Department of International Business
University of Dhaka

Date of Submission: October 1, 2022

i
 Table of Contents
Introduction......................................................................................................................................1

Discussion........................................................................................................................................2

1. The International Standards of Corporate Governance Regulations and the regulations

followed by the neighboring countries (India) of Bangladesh........................................................2

1.1 Corporate Governance International Standards and Regulations..........................................2

1.2 ISO/IEC 38500......................................................................................................................3

1.3 Key Pillars of Good Corporate Governance..........................................................................4

1.4 Corporate Governance practice in India................................................................................5

1.5 Indian Corporates Failure of Corporate Governance (Example)...........................................5

1.6 Lesson from Good and Weak Corporate Governance in Indian............................................6

2. The Corporate Governance Regulations in Bangladesh............................................................13

3. Policy recommendations for effective implementation of corporate governance regulations in

day-to-day practices.......................................................................................................................17

Conclusion.....................................................................................................................................21

References......................................................................................................................................22

ii
Introduction

Corporate governance is a set of procedures, rules, policies, and practices followed by the
Corporates considering the interest of various stakeholders so that the affairs are managed fairly
and transparently. Over the years, it has been seen that Corporates with better Corporate
Governance have excelled and created distinct Brand Equity in the eyes of the public and
whereas Corporates with poor governance have lost value, faith, and Brand Equity (Taylor,
2018). In today’s world, Corporate Governance plays an important role as it not only creates
value for the Corporates at the domestic level but also across the globe. It is also important for
the economy of the Country since the failure of Companies due to Corporate Governance issues
also affect the Economy and Image of the Country. Corporate Governance is one of the essential
factors for the long-term sustainability of a Corporate. Good Corporate Governance practices
cannot guarantee the success of an Organisation (Johnson, 2017). However, non-adherence to
Corporate Governance norms may lead to the collapse of a corporate due to sudden events like
the decline in revenue, loss of net worth, and inability to repay debt and business thereby
affecting the long-term sustainability of the Organisation.

On the other hand, good Corporate Governance practices not only creates a wealth of its
stakeholders but also help in the long-term growth of the Organisation which boosts investors’
confidence and well-being of the nation (Ali and Gregoriou, 2021). This study analyzes the
international standards of corporate governance and the corporate governance practice in India
and the neighboring country of Bangladesh. In addition, the corporate governance standards and
practices in day-to-day activities and some recommendations have been made to improve
corporate governance in Bangladesh.

1
Discussion

1. The International Standards of Corporate Governance Regulations and the

regulations followed by the neighboring countries (India) of Bangladesh.

1.1 Corporate Governance International Standards and Regulations

The EBRD endorses international standards, developed by international financial institutions to
promote transparent and efficient capital markets and sound corporate governance practices.

The 12 Key Standards for Sound Financial Systems

In February 1999, the Tietmeyer Report led to the creation of the Financial Stability Forum,
which has designated 12 key standards for sound financial systems, broadly accepted as
representing minimum requirements for good practice (Taylor, 2018).

The 12 Key Standards for Sound Financial Systems and Corporate Governance are:

1. Code of Good Practices on Transparency in Monetary and Financial Policies (IMF);

2. Code of Good Practices in Fiscal Transparency (IMF);
3. Special Data Dissemination Standard/General Data Dissemination System (IMF);
4. Principles and Guidelines for Effective Insolvency and Creditor Rights Systems (World
Bank);
5. Principles of Corporate Governance (OECD);
6. International Accounting Standards;
7. International Standards on Auditing;
8. Core Principles for Systemically Important Payment Systems (CPSS) and
Recommendations for Securities Settlement Systems (CPSS-IOSCO);
9. The Forty Recommendations of the Financial Action Task Force and Nine Special
Recommendations on Terrorist Financing (FATF);
10. Core Principles for Effective Banking Supervision (BCBS);
11. Objectives and Principles of Securities Regulation (IOSCO);
12. Insurance Core Principles (IAIS).

2
Successful implementation of international standards strengthens domestic financial systems and
encourages sound regulation and supervision, greater transparency, efficient institutions,
markets, and infrastructure.

1.2 ISO/IEC 38500

The worldwide standard for information technology corporate governance, ISO/IEC 38500,
offers direction to those advising, educating, or supporting directors on the efficient and
appropriate use of information technology (IT) inside the company (Maichel, 2022). The
management decisions and processes for an organization's information and communication
services are governed by ISO/IEC 38500.

It defines six principles:

1. Establish responsibilities
2. Plan to best support the organization
3. Make acquisitions for valid reasons
4. Ensure necessary levels of performance
5. Ensure conformance with rules
6. Ensure respect for human factors

This Standard was derived from the existing AS8015 Australian Standard. First released in early
2007, ISO/IEC 29382, Corporate Governance of Information and Communication Technology,
was formally renamed ISO/IEC 38500 in 2008 (Maichel, 2022).

Implementing ISO/IEC 38500

Even though ISO/IEC 38500 is a brief and uncomplicated international standard, it can be
difficult to apply an IT governance framework. To assist enterprises, visualize successful IT
governance, the Calder-Moir IT Governance Framework was developed alongside the
international standard (Maichel, 2022). It draws upon and integrates the many IT management
tools and systems already in use worldwide.

3
1.3 Key Pillars of Good Corporate Governance

Figure: Key pillars of Good Corporate Governance

Source: (Taylor, 2018)

Effective Corporate Structure: Build a simple and transparent processes-driven business

structure considering the needs of all the stakeholders.

Relationship with Stakeholders: Communicate frequently with stakeholders, including clients,

investors, shareholders, and stock markets.

Fairness and excellence: Be objective and ethical, and deliver the best to earn the trust and
respect of our stakeholders.

Integrity and transparency: Ensure transparency and maintain a high level of integrity.

The Board as Trustee: Safeguard the shareholder’s capital as trustee, and not as its owner.

Compliances: Satisfy both the spirit and the letter of the law in all our actions and disclosures.

Responsible leadership: Lead by example by ensuring the independence of the Board and the
effectiveness of the Management.

4
1.4 Corporate Governance practice in India
Origin:

Confederation of Indian Industry (CII) launched its first institutional initiative in the Indian
industry in 1996 with a particular initiative on corporate governance.

The main goals of the initiative by the CII were to address public concerns, safeguard the
interests of small investors, promote openness, comply with international disclosure standards
for the corporate sector, and increase public trust in the corporate sector's operations (Pillai,
2017). In addition, several events and developments occurred as a result of the management of
the Corporates abusing legal loopholes, cheating the system, and other wrongdoings. Corporate
Governance has strengthened over the years as mentioned below:

Year Event
1992 The government constituted the Securities and Exchange Board of India
(SEBI) for regulating the securities market.
1998 Confederation of Indian Industry (CII) released “Desirable Corporate
Governance – A Code” on Corporate Governance.
2002 Government Amended the Companies Act 1956 by the Companies
(Amendment) Act 2000.
2017 Kotak Committee was constituted by SEBI for improving the standards of
corporate governance of listed companies in India.
2019 Companies (Amendment) Act 2019 was notified MCA constituted Company
Law Committee to further amend the Companies Act 2013 which submitted
its report in November 2019.

1.5 Indian Corporates Failure of Corporate Governance (Example)

Here are a few instances of corporate governance mistakes that compelled organizations and
government bodies to reconsider their views on corporate governance:

Jet Airways (India) Limited)

One of the biggest airlines in India, Jet Airways had its headquarters in Mumbai. Jet Airways
was founded by Mr. Naresh Goyal. The company Jet Airways became heavily indebted. Lenders
5
refused to provide further money to keep the ship flying due to the ongoing rise in debt. Jet
Airways thus stopped accepting reservations for international services as of April 2019 and
thereafter discontinued all operations, claiming financial difficulties. Additionally, it has left
20,000 employees stuck.

Reasons for failure

 Poor Management
 Costly Purchase:
 Budget Airlines
 Failure to attract investors

Dewan Housing Finance Corporation Limited

With its headquarters in Mumbai, Dewan Housing Finance Corporation Limited is a well-known
provider of housing financing. The Founder of DHFL is Mr. Rajesh Kumar Wadhawan.

Failure factors include: The DHFL case is a flagrant example of poor corporate governance.
Promoters' actions in diverting loan funds to a shell business without due diligence or security
demonstrate a blatant disregard for corporate governance principles.

1.6 Lesson from Good and Weak Corporate Governance in Indian

The management of the Corporate shall always strive to include all the finest procedures and
policies above the law to ensure improved corporate governance practices, even though the
governance structure shall, at the very least, conform with applicable laws and regulations.

Good Corporate Governance of Indian Patterns in Governance Failures

Built a strong, qualified board of directors To differentiate between Owners versus
and evaluate performance: Board should controllers: It is the prime responsibility of
be comprised of directors who are the Board of Directors of the Company to act
knowledgeable and have expertise relevant as the trustee and to take care of the value of
to the business. Qualification, competency, the stakeholders. – Board of Directors of the
strong ethics, integrity, diversity, skill sets Company is in a fiduciary relationship with
and adequate time to commit duties shall the Company.

6
 be the key factors for the selection of Board
members.
Define clear roles and responsibilities: Ethical intention: The majority of the frauds
Establish clear lines of accountability or poor Corporate Governance of the Indian
among the Board, Chair, Chief Executive Corporates are due to unethical intentions of
Officer, Chief Financial Officer, Executive the top management of the Company. Instead
Officers, and management. Transferring of creating or focusing on personal wealth
certain responsibilities to a sub-group of creation, top management sees the long-term
directors. benefit of the organization and the economy
in which it operates.
Emphasize integrity and ethical dealing: Strong Corporate Governance Policy and
The Directors must not only declare any its implementation: Corporate should have a
conflict of interest but they shall also strong Corporate Governance Policy that
refrain from voting on interesting matters. clearly defines policies, procedures,
They shall maintain integrity in business accountability, etc.
dealing with respect and compliance with
laws and policies.
Evaluate performance and make Digital Solution: Digitization will enable to
principled compensation decisions: Do not access enterprise information from anywhere
create an appearance of conflict in a in the world thereby easy detection of
director’s independence or discharge of his reputational, legal, and security risks.
duties.

For India a Bombay Stock Exchange (BSE) and International Financial

Corporation (IFC) Initiative

The SEBI LODR 2015 and the Firms Act of 2013 both contain rules for corporate governance
that listed companies in India must follow. Some corporations have gone above and beyond the
statutory requirements to be more than compliant with the corporate governance requirements.
However, there is no comprehensive instrument available to assess the state of corporate
governance. Without a complete instrument, it is highly challenging for corporations to evaluate

7
their corporate governance practices and compare them to those of other businesses. Investors
also lack an approachable methodology that reveals a corporation's corporate governance
standing. BSE and the International Finance Corporation (IFC) Washington, a member of the
World Bank Group, worked together to build a "CG Scorecard" for Indian corporates as a project
for the general welfare to solve these challenges. Companies will be able to benchmark
themselves and understand the status of their corporate governance thanks to the CG Scorecard,
which will also give investors the information they need to comprehend the corporate
governance of any company (Deb and Dube, 2017). To create a questionnaire with the help of
IFC and BSE, it was also decided to use the skilled and knowledgeable services of Institutional
Investors Advice Services (IIAS), a top proxy advisory firm in India. The CG Scorecard is
developed based on four Organisation for Economic Co-operation and Development principles
for Corporate Governance namely:

 Enforcing rights and Equitable treatment of shareholders

 Role of Stakeholders
 Disclosures and Transparency
 Responsibilities of the Board.

Corporate Governance codes of India and GCC countries

Figure: Corporate Governance of India

Source: (Deb and Dube, 2017).

8
The Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India make
up the framework for corporate governance activities in India (SEBI). Through Clause 49, SEBI
oversees and controls corporate governance for listed firms in India. This clause is included in
the listing agreement between stock exchanges and firms, and listed companies are required to
abide by its terms. MCA facilitates the exchange of experiences and ideas between corporate
executives, policymakers, regulators, law enforcement agencies, and non-governmental
organizations through its numerous appointed committees and forums, such as the National
Foundation for Corporate Governance (NFCG), a not-for-profit trust (Deb and Dube, 2017).

Regulation

On August 29, 2013, the President of India gave his assent to the Companies Act, 2013, and on
September 12, 2013, it became law, repealing the previous Companies Act, 1956. Through
improved and expanded compliance standards, the Companies Act of 2013 establishes a formal
framework for corporate governance through improving disclosures, reporting, and transparency.
In addition, the industries (Development and Regulation) Act of 1951, the Monopolies and
Restrictive Trade Practices Act of 1969 (replaced by the Competition Act of 2002), the Foreign
Exchange Regulation Act of 1973 (replaced by the Foreign Exchange Management Act of 1999),
and other laws also have an impact on the corporate governance principles (Deb and Dube,
2017). Non-regulatory organizations have occasionally released codes and recommendations on
corporate governance in addition to the many laws and regulations that have been passed by
different regulators.

For instance, the Confederation of Indian Industries (CII) released its Desirable Corporate
Governance Code in 2009. With the report of the Kumar Mangalam Birla Committee (2000),
which was established by SEBI to recommend the inclusion of a new clause, Clause 49, in the
Listing Agreement to encourage good corporate governance, the topic of corporate governance
for listed firms came to light. The Naresh Chandra Committee was established by the Ministry of
Finance on August 21st, 2002, to investigate numerous corporate governance concerns, including
those of the interaction between auditors and companies, auditor rotation, and the definition of
independent directors (Deb and Dube, 2017). The Narayana Murthy Committee was established
by SEBI in 2003 as a result, and it made recommendations on matters such as the duties of the
audit committee, audit reports, independent directors, related parties, risk management,

9
independent directors, director compensation, codes of conduct, and financial disclosures.
Numerous of these suggestions were later included in the Revised Clause 49, which is regarded
as a crucial statutory necessity. Additionally, SEBI updated Clause 49 in 2013 to conform to the
2013 Companies Act after it was passed.

Board of Directors

The idea of independent directors for listed firms and the salary given to them was first proposed
in the Desirable Corporate Governance Code by the CII (1998). The Kumar Mangalam Birla
Committee (2000) then recommended that at least half of the board members for a business with
an executive chairman be independent, or at least one-third. The revised Clause 49, which was
based on the Narayana Murthy Committee's recommendations, further defines "Independent
Members" and mandates that listed businesses have the ideal ratio of executive and non-
executive directors, with the latter making up at least 50% of the Board.

An independent director and a woman director must be appointed, according to the 2013 Act.
According to the 2013 Act, "Key Managerial Personnel" includes the Chief Executive Officer,
the Managing Director, the Manager, the Company Secretary, the Whole-Time Director, the
Chief Financial Officer, as well as any additional officers that may be prescribed. New ideas, like
the performance review of the board, committee, and individual directors, have also been added
by the 2013 Act. The updated Clause 49 (in 2013) now adds that all non-executive director
compensation, including that paid to independent directors, must first receive shareholder
approval in a general meeting and that stock option grants to non-executive directors must be
subject to a cap. Such compensation and stock options must be mentioned in the company's
annual report. The independent directors must also abide by a "Code of Conduct" and reaffirm
their adherence to it every year.

Audit Committee

The board's supervisory role and delegation to various committees strongly influence the audit
committee's responsibilities. It serves as a regulatory authority to ensure accurate financial
reporting and transparent, effective fraud prevention and risk management systems (Pillai, 2017).
According to section 177 of the Companies Act of 2013, read with Rule 6 of the Companies
(Meetings of Board and its powers) Rules of 2014, every listed company and all other public

10
companies with paid up capital of Rs. 10 crores or more; or having turnover of Rs. 100 crore or
more; or having in aggregate, outstanding loans or borrowings, debentures or deposits exceeding
Rs.50 Crores or more, shall have an Audit Committee that shall consist of at least three directors
and such number of independent directors as the

The Chairman of the Audit Committee is also tasked with overseeing the operation of the
whistleblower mechanism as well as the organization's ethical and compliance systems. The
revised Clause 49 broadens the role of the Audit Committee by enhancing its duties in providing
robust internal audit and control systems, transparent and accurate financial reporting and
disclosures, oversight of the company's risk management policies and programs, the
effectiveness of anti-fraud and vigil mechanisms, and review and administration of related party
transactions.

Subsidiary Companies

The need for the board of the holding company to have some independent connection with the
board of the subsidiary and offer essential oversight was the justification for having distinct
provisions concerning subsidiary firms in Revised Clause 49. Therefore, the Narayana Murthy
Committee's recommendation to include provisions relating to the composition of the holding
company's board of directors to be made applicable to the composition of the boards of directors
of subsidiary companies and to have at least one independent director on the boards of directors
of both the holding company and the subsidiary company was incorporated into the revised
clause 49 of the listing agreement. Additionally, the holding company's Audit Committee
reviews the financial statements, paying particular attention to investments made by the
subsidiary and disclosures concerning key transactions to make sure that any potential conflicts
of interest with the company's interests can be avoided (Pillai, 2017). The Company Act of 2013
further broadens the definition of "subsidiary" to cover joint venture corporations and associate
companies.

Role of Institutional Investors

Rapidly developing nations like India have drawn substantial shareholdings from foreign
investors and sizable Indian financial institutions with international ambitions. The standards of
corporate governance in investee companies have significantly improved as a result. Numerous

11
studies released in recent years demonstrate that businesses with effective governance systems
have increased their shareholders' profits after adjusting for risk (Deb and Dube, 2017).
Therefore, a company must convincingly improve its corporate governance standards if it wants
institutional investors to participate. To compete globally, Indian businesses must embrace best
practices like the OECD Corporate Governance Principles (updated in 2004). All shareholders,
including domestic and foreign institutional investors, must be treated fairly in nations like India
where company ownership is still largely concentrated.

Institutional investors are anticipated to take an active role in the AGM voting on the shares they
own in portfolio firms, as well as to publicly disclose their voting history and the reasons behind
any non-disclosures. Their website must state the basis for their agreement or disagreement with
any Board Resolution of their portfolio firms.

Ethics In Corporate Governance in India

A code of conduct establishes a set of guidelines that become the norm for everyone involved in
the group and is created with the specific intention of promoting professional conduct among the
organization's participants (Pillai, 2017). For the first time, the Naresh Chandra Committee
suggested that businesses should adopt an internal code of conduct. A corporation should
establish a whistleblower program to report any unethical or improper behavior or code of
conduct violation, according to the Narayana Murthy Committee's report. The Audit Committee
would be responsible for overseeing the program's effectiveness.

The CEO must publish a statement to this effect in the Annual Report, and the Board members
and all senior management staff are obliged to confirm compliance with the code on an annual
basis. Clause 49 incorporates the Narayana Murthy Committee's recommendation that the Audit
Committee be charged with overseeing the operation of the whistleblower mechanism, provided
one exists. The 2013 Act and revised Clause 49 require creating a whistleblower mechanism to
allow employees and directors to report financial and non-financial wrongdoings. Additionally,
they mandate that this mechanism should protect the whistleblower from victimization and, in
exceptional circumstances, grant direct access to the Chairman of the Audit Committee (Deb and
Dube, 2017).

Executive Remuneration

12
The main rule governing directors' compensation is transparency, and shareholders have a right
to a complete and understandable list of the perks offered to directors. The creation of a
Nomination & Remuneration Committee with at least three members, all of whom must be non-
executive directors, and at least half of whom must be independent is required by the 2013 Act
and Revised Clause 49. (Deb and Dube, 2017). The Nomination and Remuneration Committee is
responsible for ensuring that the level and composition of compensation are reasonable and
sufficient, that the relationship between compensation and performance is clear and meets the
necessary performance benchmarks, and that the compensation for directors, key managerial
personnel, and senior management includes a balance between fixed and incentive pay reflecting
short- and long-term performance objectives appropriate to the working of the company and its
goals. Furthermore, all components of each director's compensation package, including salary,
benefits, bonuses, stock options, pension, etc., must be disclosed in the annual report's section on
corporate governance. Service contracts, notice periods, severance costs, stock option details, if
any, and whether provided at a discount, as well as the period over which accrued and during
which exercisable. Details of a fixed component and performance-linked incentives, together
with the performance criteria.

2. The Corporate Governance Regulations in Bangladesh

Corporate Governance is the set of rules, regulations, laws, or a process by which internal and
external factors of a company are directed, operated, monitored, and regulated to protect the
interest of outside investors and minority shareholders from the opportunistic behavior of the
board of directors or majority shareholders (Sharma and Sachdeva, 2019).

Bangladesh is a common law nation, as is well known. The foundation of the current legal and
judicial system is largely traceable to 200 years of British administration. However, it went
through several stages, and the process of development involved both native and alien elements.
The English and Indo-Mughal legal systems have influenced the framework, legal doctrines, and
conceptions of the modern legal system (Hossain, 2011). The Bangladeshi laws about CG have
some impact on both the British and Indian legal systems due to Bangladesh's mixed legal
system. Some legislative measures are in use to regulate the business climate in Bangladesh.
These are given below-

13
  The Securities and Exchange
Ordinance 1969,
 The Bangladesh Bank Order 1972,
 The Bank Companies Act, 1991,
 The Financial Institutions Act, 1993,
 The Securities and Exchange
Commission Act, 1993,
 The Companies Act, 1994,
 The Bankruptcy Act, 1997,
 The Insurance Act, 2010,
 The Corporate Governance
Guidelines, 2016,
 The Corporate Governance Code,
2018, etc.

Even though our nation has been independent for 50 years, the majority of businesses and
organizations in Bangladesh do not have adequate corporate governance standards. Numerous
corporate entities, such as the banking and jute industries, paper and textile factories, etc., have
given the nation a terrifying experience since its founding.

For instance, the largest jute mill in the world, Adamjee Jute Mills Corporation Ltd., failed to
uphold corporate governance due to mismanagement and corruption in 2002, losing the
employment of 17,000 people. The greatest financial fraud in Bangladesh's banking industry
occurred between 2010 and 2012 when "Sonali Bank Ltd," the country's largest state-owned
commercial bank, extended loans worth BDT 36.48 billion (US$460 million) unlawfully. Then,
in the BDT 200 crore loan scandal of the Bismillah Group, Shajalal Islami Bank, South-East
Bank, Jamuna Bank, Premier Bank, and Janata Bank were implicated (Samadder, 2020). The
Basic Bank fraudulently approved loans of BDT 4,500 crore without the required collateral or
documents. The bank's board of directors and upper management were found guilty because they
assisted the money thieves. Such unethical behavior points to poor company governance and
ineffective systems. Our rules surrounding corporate governance are theoretically based on the
Anglo-American model, which is one of the main causes of the absence of appropriate corporate
governance practices in Bangladesh. Since these rules were developed based on British and
Indian legislation, they represent the shareholder-outside investor approach to governance. For
instance, the English Firms (Consolidation) Act, 1908 is the model for the Companies Act, 1994,
which governs companies in Bangladesh. However, in reality, the majority of Bangladeshi
businesses adhere to the control-based paradigm since their boards, corporate structures, and
senior management are mostly dominated by families.

14
A few studies on the control-based model have been undertaken, and the majority of the writers
attempt to show that this model cannot guarantee corporate governance because the selection of
independent directors is optional on the board. Here, the executive directors have significant
discretion and control over the board's decision-making process, and they may alter the
governance structure to suit their demands, which ultimately compromises the interests of all
investors and undermines fairness, accountability, and openness. Another factor is that our
corporate legal system has certain gaps in it.

For instance, Bangladesh's Bank Company Act, 1991, which also offers certain tools for
fostering transparency, accountability, and better corporate governance in the banking industry,
primarily controls and regulates corporate governance practices in banking businesses (Hossain,
2011). While certain definitions, such as those for loans, money laundering, fiduciary duties,
financial crimes, and terrorist financing, are clearer than others and maintain an international
standard of practice and principle, others are vague and do not. The Nomination and
Remuneration Committee and the Ethics and Compliance Committee, which would deal with the
pertinent issues under the aforementioned Act, are not present. Before receiving a loan or
advance, there is no need for a personal guarantee or security. A few arbitrary elements of the
Act are also in direct conflict with the right to justice.

For instance, when police are allegedly accused of financial crimes, they are not permitted to
appeal the verdict in court. More importantly, it still reflects the nation's social and economic
environment from 1991 because there are insufficient requirements for the academic,
professional, and practical qualifications of the directors, no provisions for bankers who violate
the law to be prosecuted, and no strict punishment/penalties mechanisms. The Companies Act of
1994 is the primary law that governs companies in Bangladesh. It governs the relationship
between shareholders and a company, the audit system, transparency, disclosure procedure, and
the court's authority over companies, but it says nothing about ultimate share ownership, director
qualifications, age, board composition, and leadership structures, specifically. Instead, the
creation, administration, and dissolution of businesses are major concerns of the law (Sobhan,
2016).

Additionally, several accounting standards listed in the Act clash with International Accounting
Standards (IAS), which causes a dispute between the Act and IAS at the time of application. In

15
contrast to IAS, the Company Act, for instance, mandates capitalization of profits and losses
resulting from changes in foreign currency rates in all situations. Another discrepancy is that
while the IAS requires a holding company to prepare and submit a consolidated balance sheet,
the Company Act does not. Even though this Act has certain harsh provisions against violations
of a director or officer's fiduciary duty to the firm, these provisions provide a lot of room for
violations since they are more respected when violated than when they are upheld.

Under the authority granted to the commission by section 2CC of the Securities and Exchange
Ordinance, 1969, the Bangladesh Securities and Exchange Commission (BSEC) announced
amended Corporate Governance Guidelines 2016 for publicly listed businesses in 2016 (Sobhan,
2016). Although there was no provision for punitive penalties for non-compliance, the goal was
to improve the CG situation to better safeguard the interests of international investors and
minority shareholders and grow Bangladesh's capital market. To promote stronger governance,
the firms must adhere to the requirement that at least one-tenth (1/10) of its board of directors be
independent. However, the majority of Bangladesh's listed companies do not do so since the
standards do not give a way to comply with or explain how to do so.

Additionally, under the Corporate Governance Guidelines, 2016, the company is not required to
provide the shareholders with a brief resume of the director at the time of appointment, which
was required under the Corporate Governance Guidelines, 2012 (Sobhan, 2016). There is also no
information regarding the qualifications of independent directors, their terms of office, and their
compensation. However, the rights of minority shareholders are seldom mentioned in either the
Corporate Governance Guidelines, 2012, or the Corporate Governance Guidelines, 2016. The
Corporate Governance Code, 2018 was then implemented to fill in such gaps, raising several
important governance challenges. Nevertheless, due to its voluntary character, this code is also
not often followed. There are certain holes in it as well, such as the absence of an emphasis on
female representation on the board of directors. It excludes the creation of the Executive
Committee and Stakeholders Relationship Committee, environmental and social policies, and
rewards and penalties for good governance (Al Farooque, 2019). Even yet, no explicit clause
requiring the disclosure of risk category and risk tolerance cap exists. The best practice
guidelines for this code still need to take into account a few areas. More crucially, the Code and
the Guidelines were both created by the BSEC to regulate only listed firms, entirely ignoring the

16
presence of many State-owned Enterprises (SOEs), Small and Medium-Sized Enterprises
(SMEs), and Non-Governmental Organizations (NGOs) that are non-listed.

Therefore, non-listed firms should also implement the code and standards to improve
responsibility, transparency, and sustainability in the corporate sector. Bangladesh received
42.86 out of a possible 100 points on the Extent of Corporate Transparency Index, 2020,
nevertheless. The World Bank Report on the Observance of Standards and Codes follows.
According to Bangladesh, there should be four pillars supporting the corporate governance
structure. These are Responsibility, Accountability, Fairness, and Transparency (RAFT), yet
both accounting and auditing processes in Bangladesh have inadequate institutional foundations
when it comes to enforcing professional norms and regulations (Al Farooque, 2019). In addition
to these issues, Bangladeshi shareholders' rights also suffer from a lack of information
accessibility, a murky director election process, no rights to approve director compensation, no
limits on alerting shareholders before any linked party transactions, etc. In addition to all of
these, an independent survey was carried out in our domestic jurisdiction with the assistance of
the BSEC, which revealed that only about 33 percent of companies appointed independent
directors and that approximately 55 percent of companies did not comply with corporate
governance guidelines. The majority of the time, independent directors are influenced and
satisfied by executive directors due to their low compensation.

It is obvious from the conversation that corporate governance practice is not well-established.
Although it is still in its early phases in Bangladesh, the corporate sector is paying more and
more attention to it every day. Therefore, steps must be done to improve the situation and spread
knowledge of ethical corporate governance principles.

3. Policy recommendations for effective implementation of corporate

governance regulations in day-to-day practices.

There are several recommendations for effective implementation of corporate governance

regulations in day-to-day practice in Bangladesh-

Firstly, as a regulatory body, the Registrar of Joint Stock Companies and Firms (RJSC), the
Bangladesh Bank (BB), the Bangladesh Securities and Exchange Commission (BSEC), the

17
National Board of Revenue (NBR), and the Institute of Chartered Accountants of Bangladesh
(ICAB) must have extended its effective and strict watchdog mechanism in the corporate sectors
throughout the country to implement the Anglo-American Model for ensuring corporate
governance in their corporate environment because we know that Bangladeshi laws regarding
corporate governance theoretically follow Anglo-American Model, but it practically follows the
Control Based Model which ultimately curtails the main object of CG as under this family-
controlled model the board members are not regarded themselves as representing the interests of
the minority shareholders; instead, they customize the governance mechanism according to their
own needs or sometimes represent the interests of the controlling owners who appointed them
(Ali and Gregoriou, 2021). Even in the absence of proper monitoring by the regulators, many of
the companies are defaulting in holding Annual General Meeting (AGM) in due time and
submitting false reports of compliance. There is also a lack of proper appointment procedure of
independent directors and auditors and lack of independence, lack of shareholders’ active
participation, non-disclosure of material facts, and unavailability of information to investors for
the absence of their active and strict mechanisms.

Secondly, the practical implementation of the existing legal provisions relating to corporate
governance must be ensured. Although some loopholes exist in the existing regulatory
framework, these laws still contain some good provisions to ensure corporate governance
(Taylor, 2018). But these legal provisions are not properly implemented to govern Bangladeshi
corporate sectors.

Thirdly, existing corporate laws, especially the Bank Companies Act, 1991, the Companies Act,
1994, the Corporate Governance Guidelines, 2016, and the Corporate Governance Code, 2018,
should be revised following the International Accounting Standards (IAS) and Bangladesh
Accounting Standards (BAS) to eradicate all sorts of lacunas and best practice of corporate
governance culture since these laws are directly connected with the corporate environment of
Bangladesh (Taylor, 2018). So, removing lacunas there should include more issues in the
existing corporate legislation, such as the Companies Act, 1994 should include the definition,
qualifications, age, extent of power, roles and responsibilities of the chairperson, CEO, and
independent directors; the composition of the board and the leadership structures in the board
and management, audit practices, auditors’ independence, auditor’s pay; individual and overall

18
performance analysis and true independence of the board and independent directors; separate
nomination and remuneration committee, ethics and compliance committee, compensation
committee, audit committee, preparation and presentation of a Consolidated Balance Sheet,
ultimate share ownership, risk management and reporting system, tax management, and reporting
system, etc (Sharma and Sachdeva, 2019). In the same way, the Bank Company Act, 1991
should include the definition of the loan, deliberate loan defaulters, money laundering, fiduciary
duties, financial offenses, and terrorist financing; then, it should also incorporate the nomination
and remuneration committee and ethics and compliance committee, the formal requirement of
academic, professional, and practical qualifications of the directors, provisions for irregularities
of bankers to face criminal charges, strict punishment mechanisms for non-compliance, etc.
Similarly, qualifications of independent directors, tenure of office, remuneration of the directors,
including independent directors, minority shareholders’ rights, etc., should insert in the
Corporate Governance Guidelines, 2016. And then the Corporate Governance Code, 2018 also
should focus on some crucial issues like female participation in the BOD, the formation of the
Executive Committee and Stakeholders Relationship Committee, environmental and social
policies, and rewarding and punitive measures as per the governance performance (Johnson,
2017).

So, I think these issues need to be taken to overcome the inadequacies of the current legislation
and ensure a higher quality of corporate governance and transparency.

Fourthly, the separation of ownership and control mechanisms in the corporate structure of
Bangladesh should be ensured. It is said fairness, accountability, responsibility, and transparency
are the four core principles of corporate governance, but when the corporate structure like in 
Bangladesh is owned and controlled by family members or people of their close ties, this directly
affects the level of fairness, accountability, responsibility, and transparency because the family
board members can control the actual executive functions of the company here, as they do not
keep any scope for the independence of the board (Johnson, 2017).

Fifthly, a mandatory code and guidelines should be introduced in Bangladesh for both listed and
non-listed companies since the Corporate Governance Code, 2018 and the Corporate Governance
Guidelines, 2016 suggest a voluntary mechanism of compliance and comply-or-explain
mechanism of compliance, respectively, which are ultimately applicable only on the listed

19
companies and where the listed companies have the chance to escape easily from its obligations
just showing a simple ground as the Code and the SEC Guidelines both suggest non-binding
obligations on a company non-listed companies get actual benefits from here since these
companies do not fall under the purview of the Corporate Governance Guidelines, 2016, and the
Corporate Governance Code, 2018. So, the Code and the SEC Guidelines both need to be
revised.

Sixthly, academic and professional institutions should include corporate governance principles in
their syllabus to develop a good corporate governance culture by expanding the knowledge and
competence amongst top executives, middle-level managers, and the general workforce because
the absence of proper knowledge, competence, professional ethics, ineffective and poor quality
of professional education contribute to unsatisfactory corporate governance practice in
Bangladesh.

Seventhly, institutionalized corruption should be abolished from the corporate sector. In most
cases, independent directors are influenced and gratified by the executive directors as their
remuneration is low, which leads them to take bribes and do unlawful activities for extra income
to support their families. So, the appointment and remuneration of the independent directors
must be based on their impartiality, legal knowledge, expertise, foresight, management quality
and ability to understand financial statements, etc.

Whistleblower scheme: The board of directors should serve as the cornerstone for any
whistleblower program, maybe through the audit committee.

So, these are the policy recommendations to effectively implement to enhance corporate
governance in day-to-day practice in Bangladesh.

20
Conclusion

Corporate governance is seen as a crucial tool for listening to investors' complaints. Strong
corporate governance helps businesses have long-term sustainability in a competitive
environment by boosting investor confidence in addition to increasing shareholder value
(Sharma and Sachdeva, 2019). Numerous Indian corporations have failed in recent years as a
result of a weak compliance culture and flagrant violations of the legal and regulatory rules
governing corporate governance. Good corporate governance goes above and beyond what the
law has set down. Instead of only adhering to the legal requirements that would result in an
organization's long-term viability and growth, Indian corporations should embrace corporate
governance procedures that are in line with international norms (Johnson, 2017). Transparency
and disclosure in corporate reporting are the main factors that influence successful corporate
governance. Due to the failure of Indian corporations, there is a need to raise corporate
governance standards and ensure that they are vigorously implemented by Indian corporations.

The overall results of the study show that Bangladesh's corporate governance practice is fragile
and continues to develop since the country's businesses have not yet fully acknowledged the
corporate legal environment's many flaws. Adequate change is required to address these flaws,
and Bangladesh must do it quickly. Therefore, a stronger corporate governance environment
would exist in Bangladesh if policymakers embrace and then effectively execute the
recommendations described above, as those recommendations were given after taking the
nation's socio-economic factors into account.

21
References

1. Al Farooque, O., Van Zijl, T., Dunstan, K. and Karim, A., 2019. Corporate Governance
in Bangladesh: Link between Ownership and Financial Performance. Corporate
Governance: An International Review, 15(6), pp.1453-1468.
2. Ali, P. and Gregoriou, G., 2021. International corporate governance after Sarbanes-
Oxley. 4th ed. Hoboken, N.J.: John Wiley.
3. Deb, S. and Dube, I., 2017. Corporate Governance Disclosure for Complex Ownership
Structure in India. Indian Journal of Corporate Governance, 10(2), pp.143-175.
4. Hossain, M., 2011. Corporate Governance Practices in Bangladesh. SSRN Electronic
Journal, 96(55), pp.14-29.
5. Johnson, D., 2017. Corporate Governance. 7th ed. Bradford, West Yorkshire: Emerald
Publishing Limited, pp.56-101.
6. Maichel, G., 2022. ISO 38500 - International Standard for Corporate Governance of IT |
IT Governance USA. [online] Itgovernanceusa.com. Available at:
<https://www.itgovernanceusa.com/iso38500?fbclid=IwAR0Df46HJson4suqszKR-
Es7l_cnm-R_4F6lcAeMp5QiC0FSj2hIccWdOmI#:~:text=ISO%2FIEC%2038500%20is
%20the,(IT)%20within%20the%20organization> [Accessed 1 October 2022].
7. Pillai, K., 2017. Corporate Social Responsibility in India: A Journey from Corporate
Philanthropy to Governance Mandate. Indian Journal of Corporate Governance, 10(2),
pp.176-184.
8. Samadder, H., 2020. Law, Corporate Governance, and Corporate Scandal in an Emerging
Economy: Insights from Bangladesh. SSRN Electronic Journal, 37(58), p.14.
9. Sharma, J. and Sachdeva, G., 2019. Corporate Governance in India: Investors'
Perspective. Indian Journal of Corporate Governance, 4(2), pp.1-14.
10. Sobhan, A., 2016. Where Institutional Logics of Corporate Governance Collide:
Overstatement of Compliance in a Developing Country, Bangladesh. Corporate
Governance: An International Review, 24(6), pp.599-618.
11. Taylor, S., 2018. International Corporate Governance Standards and
Enforcement. Australian Accounting Review, 21(4), pp.315-316.

22