1.

Corporate Governance Concerns and Legal Action Against Alhaj Textile Mills MD : The
Securities and Exchange Commission (BSEC) of Bangladesh is planning to take legal action
against Md Bakhtertiar Rahman, the Managing Director of Alhaj Textile Mills. Rahman is
accused of providing false information, violating laws, and engaging in improper signing of
shareholding documents. The BSEC is responding to shareholder concerns by appointing new
independent directors, and the company is facing a court case that is affecting its financial
standing. As of July 31, 2023, the distribution of shares includes sponsors and directors
(25.63%), institutions (19.73%), and the general public (54.63%). This situation underscores the
current corporate governance issues, emphasizing the importance of transparency and
accountability in business practices.

2. Financial Distress and Restructuring Challenges at Apollob Ispat Complex: Apollob Ispat
Complex, renowned for its "Rani Marka Dheutin" corrugated iron sheets, is grappling with a
substantial debt of Tk1,100 crore due to mismanagement by former employees. In a letter to the
Bangladesh Securities and Exchange Commission (BSEC), Vice Chairman Mohammad Shoeb
outlines the company's challenges and requests a waiver of surcharges, fines, and listing fees as
part of its efforts to attract strategic partners or investors for a comprehensive restructuring.
Despite a successful IPO in 2013, the company has faced financial decline since 2017.
Leadership issues, including the demise and departure of key members, have led to the company
remaining dormant for over two years, resulting in legal action against former executives. With
total liabilities now reaching Tk1,100 crore, there is an urgent need for both financial and
corporate restructuring.

3. Government's Initiative: Drafting Corporate Governance Guidelines for Insurance Companies:

The Bangladeshi government is planning to introduce corporate governance guidelines aimed at
ensuring compliance with laws and regulations and fostering good governance practices within
insurance companies. The Insurance Development and Regulatory Authority (IDRA) unveiled a
draft of these guidelines on September 19, inviting feedback from stakeholders and the public
until September 24. The proposed guidelines cover various facets of corporate governance,
including environmental awareness, ethical behavior, corporate strategy, compensation, and risk
management. Core principles involve accountability, transparency, fairness, responsibility, and
risk management.
According to the draft, the maximum number of directors on an insurer's board should be limited
to 20, with two neutral directors. The appointment and reappointment of directors will follow a
well-defined procedure. Individuals declared bankrupt or identified as loan defaulters are
ineligible for directorship, and disqualification extends to those convicted of criminal offenses or
engaged in fraud or illegal activities. The chairperson must be elected from non-executive
directors, and in their absence, the remaining members can elect one, with the reason recorded in
the minutes.

Directors are mandated to disclose details of shares held in any insurance company and report
family members holding director or senior executive positions elsewhere within 15 days of
appointment. The primary role of the board is to guide and supervise management effectively,
developing policies and corporate governance mechanisms to achieve long-term goals.

The guidelines also propose the creation of a code of conduct overseen by the nomination and
remuneration committee, covering officers, employees, and executives. An investment sub-
committee will oversee overall investments, and a risk mitigation sub-committee will address
emerging risks. Additionally, the guidelines stress the establishment of a whistle-blowing policy
to report undesirable behavior.

Sheikh Rakibul Karim, CEO of Guardian Life Insurance Ltd, praises the guidelines as a
framework promoting integrity and sustainability in the insurance industry. He expects that these
regulations will bolster trust, credibility, and transparency in the sector, positioning them as the
bedrock of Bangladesh's insurance industry. The anticipated implementation of these guidelines
is poised to contribute to the ethical conduct and overall governance of the insurance industry.

4. BSEC Imposes Fines on Violators of Securities Rules: The Bangladesh Securities and
Exchange Commission (BSEC) imposed fines totaling Tk10.30 crore on various individuals and
entities for violating securities rules, as of September. Banco Securities' chairman and five
directors each received fines of Tk1 crore, while Appollo Ispat's vice chairman faced a Tk1 lakh
penalty. The chairman and managing director of Meghna Condensed Milk were individually
fined Tk1 crore, with three directors receiving fines of Tk50 lakh each. Dhanmondi Securities
was fined Tk5 lakh, and its former CEO received a Tk2 lakh fine. Additionally, the head of
finance and accounts, along with the IT in-charge, were fined Tk1 lakh each. Investors Shifat
Mahmood Abdullah, KTS Fashions, Shahanara Akhter Chowdhury, and Abul Kashem Bhuiyan
received fines ranging from Tk5 lakh to Tk35 lakh.

Banco Securities faced penalties for embezzling Tk66 crore of investors' funds, Appollo Ispat for
delayed financial report submission, and Meghna Condensed Milk for concealing price-sensitive
information and providing false statements in financial reports. Dhanmondi Securities was fined
for providing false information about investors' payable amounts and failing to provide data
required by the BSEC inquiry committee.

The BSEC report highlighted that four investors manipulated Anlimayarn Dyeing shares,
resulting in violations of securities rules. Banco Securities owners, accused of violating
depository rules by not refunding investor funds taken under credit facilities, did not respond to
BSEC summonses. Banco Securities' trade was suspended by the Dhaka Stock Exchange due to
embezzlement, and the High Court barred the chairman from traveling abroad.

The report further revealed that Meghna Condensed Milk suspended production since October
2019 without disclosing it as price-sensitive information. The company provided misleading
information about the value of assets and violated rules by offering unsecured loans to its sister
concern despite deteriorating financial conditions. Meghna Condensed Milk did not provide
supporting documents for calculating loan liabilities from Sonali Bank. The BSEC's actions aim
to uphold regulatory standards and ensure compliance within the securities market.

5. Founder's Demise and Corporate Governance Challenges in Bangladeshi Companies:

Bangladeshi companies frequently encounter challenges, including decline or stagnation,
following the death or retirement of their founders, primarily due to a lack of robust corporate
governance. One notable case is the Islam Group, established in 1964, which was the country's
largest conglomerate until it underwent a breakup into three entities following the founder's
demise. This breakdown was attributed to an overreliance on a single individual and a deficiency
in corporate governance practices.

In Bangladesh, the concept of a company possessing its own legal identity is not widely
understood, and there tends to be a perception that a company is owned by an individual.
However, a company is an entity with perpetual succession, with shareholders, creditors, the
board, and management all playing distinct roles in its growth. Corporate governance, although a
relatively recent concept in the country, establishes rules and regulations for smooth operation,
encompassing principles such as fairness, accountability, transparency, and responsibility.

Despite the introduction of corporate governance practices in Bangladesh over the past two
decades, their implementation remains lax, with many companies finding ways to maintain
effective control within family members. The Bangladesh Securities and Exchange Commission
issued Corporate Governance Guidelines in 2006, made compulsory in 2012, and updated in
2018. The guidelines include regulations such as the appointment of independent directors,
mandatory audit reports, and the establishment of Nomination and Remuneration Committees.

However, compliance with these corporate governance codes is not deeply ingrained in the
culture of Bangladeshi companies. Anecdotal evidence suggests that directives exist primarily on
paper, indicating a need for increased compliance, identification of loopholes, and enforcement
to ensure the prosperity of businesses and the enrichment of the country's economy. The absence
of robust corporate governance often contributes to the challenges faced by Bangladeshi
companies following the departure of their founders.

6. BSEC Investigation Reveals Irregularities in Meghna PET Industries: An investigative team

from the Bangladesh Securities and Exchange Commission (BSEC) conducted a probe into
Meghna PET Industries Limited, a listed pet bottle-maker, uncovering several irregularities.
Following visits to the company's factory premises and head office, the team discovered that
Meghna PET's production had been suspended since 2004, a crucial piece of information not
disclosed as price-sensitive. Despite the factory being closed for almost two decades, the
company's FY21 annual report indicated Tk6.34 crore as property, plant, and equipment, and the
company failed to conduct an impairment test, leading to a misleading valuation.

The report also pointed out Tk2.26 crore worth of inventories shown in the report, despite the
absence of actual inventories in the factory. The management of the company was unable to
provide evidence authenticating loans and deposits. Additionally, the inquiry team found a
violation of BSEC orders, as the company appointed the same individual as both chief financial
officer and company secretary, yet the financial statement had signatures from two different
persons in these roles.
In response to the findings, the BSEC summoned the owners and management of Meghna PET
for a hearing. The company's Director, Alamgir Hossain, and the Company Secretary provided a
written statement citing complexities arising from two participations within the Meghna Group
—Ka and Kha. The statement mentioned harassment from the Kha group, occupation of land
without handover, and a capital crisis hindering business operations. However, the commission
deemed this explanation unsatisfactory, resulting in fines of Tk1 crore each for Chairman
Muhammad Zakaria and Managing Director MF Kamal, and Tk50 lakh each for three directors
—Wali Ullah, Kabir Ahmed, and Abu Taher—for violating securities laws.

7. Illegal Sand Mining Scandal Involving Selim Khan and Alleged Political Influence: Selim
Khan, a prominent figure in Chandpur, Bangladesh, is facing accusations of engaging in illegal
sand mining in the Meghna River, a practice that has been prohibited since the middle of the
previous year. Khan, who reportedly has close connections to Education Minister Dipu Moni,
highlights the lack of regulation and governance in the sand mining industry. Starting as a
rickshaw-puller in the 1980s, Khan is now alleged to own at least 50 dredgers, extracting an
estimated 3 crore cubic feet of sand monthly. Local residents claim that Khan's dredgers operate
clandestinely at night, transporting the extracted sand to various locations, including Harinaghat,
Munshiganj, Sonargaon, Narayanganj, and Dhaka.

An investigation has revealed that, despite substantial profits from the sand business, Khan has
not paid any royalties to the government exchequer. The Chandpur district administration has
issued an order for him to pay Tk 267.33 crore in overdue royalties for sand lifting between 2018
and 2022, but Khan has not complied as of the latest update. The inquiry indicates that Dipu
Moni played a significant role in supporting Khan's sand business, submitting at least 15 Demi
Official letters between 2015 and 2021 to various government offices, advocating for the
continuation and expansion of Khan's sand mining activities. Documents obtained by The Daily
Star suggest Dipu Moni's persistent efforts to advance Khan's cause.

The sand mining scandal raises serious concerns about environmental degradation, the absence
of regulatory oversight, and the misuse of political influence in Bangladesh. Despite Khan's
expulsion from the Awami League and facing corruption charges, the connection between
influential figures and illicit practices underscores the challenges of enforcing governance in
certain sectors. This issue underscores the imperative for stronger regulatory measures and
ethical business practices to safeguard natural resources and prevent unauthorized activities that
negatively impact the environment and local communities.

8. Corporate Reshuffling: Three Companies Exit Islami Bank Bangladesh : Three companies,
Armada Spinning Mills Ltd, Kingsway Endeavors Ltd, and Uniglobe Business Resources Ltd,
have collectively sold their entire shareholdings, comprising over 14 crore shares (9.07%), in
Islami Bank Bangladesh. Consequently, they have exited the board of directors of the bank. The
sell-off has resulted in a decrease in the sponsors' or directors' shareholding from 50.97% to
41.90%, as per the shareholding report dated June 30, 2023, compared to the previous month.
The information, available on the Dhaka Stock Exchange (DSE) website, also disclosed the
appointment of Ahsanul Alam, nominated by JMC Builders, as the shareholder director and
chairman of the bank. Alam is the son of Mohammed Saiful Alam, the Chairman of S Alam
Group, which acquired Islami Bank Bangladesh in 2017.

This transaction coincides with a significant increase in the trading of Shariah-based bank stocks
in the block market in recent months. The block market allows the trading of a large number of
stocks in a single transaction at a negotiated price without affecting the overall market index. The
stocks of Islami Bank, which were traded at Tk 145 crore in the block market over the last two
trading days, have witnessed heightened activity.

According to market analysts, the three companies involved in the share sell-off are likely
controlled by a prominent Chattogram-based group. Islami Bank, being the largest private bank
in terms of deposits and loans, continues to play a crucial role in Bangladesh's financial sector.
The corporate reshuffling and change in shareholding could potentially impact the bank's
strategic direction and governance structure.

9. Decline in CSR Spending by Banks Amid Economic Challenges : During the initial six
months of this year, banks in Bangladesh witnessed a 9.22% decline in corporate social
responsibility (CSR) spending, dropping from Tk 629 crore to Tk 571 crore compared to the
corresponding period last year, as per data from Bangladesh Bank. The reduction in CSR
expenditure is attributed to decreased profits amid the ongoing economic crisis. The profits of 35
listed banks in Bangladesh fell by 9% year-on-year to Tk 4,160 crore during the first half of this
year. Banks in the country are currently facing challenges such as elevated non-performing loans
(NPLs), liquidity shortages, and a deficiency in corporate governance, contributing to the
decrease in CSR spending.

Dutch-Bangla Bank emerged as the leader in CSR spending during the first half of this year,
allocating Tk 61.32 crore. However, Islami Bank Bangladesh reduced its CSR-related expenses
to Tk 46 crore compared to Tk 202 crore in the same period last year. Other banks engaged in
CSR activities included Al-Arafah Islami Bank, Shahjalal Islami Bank, Jamuna Bank, Mercantile
Bank, United Commercial Bank, and Exim Bank.

Financial challenges led to 10 banks refraining from spending any funds on CSR initiatives.
According to Bangladesh Bank guidelines, banks are required to allocate 30% of their CSR
funds to education, 30% to healthcare, and 20% to disaster management and climate change
adaptation. Additionally, 5% of CSR funds must be allocated to the Prime Minister's Education
Assistance Trust. In the first half of this year, banks directed Tk 216 crore towards healthcare, Tk
90 crore towards education, Tk 49 crore towards disaster management and climate change
adaptation, and Tk 214 crore towards other sectors.

10. Bank Company Act Amendments and Impact on Corporate Governance in Bangladesh :Over
the past ten years, the Bank Company Act in Bangladesh has undergone three amendments,
ostensibly aimed at improving corporate governance in the banking sector. However, instead of
achieving this objective, these amendments are believed to have exacerbated the default loan
crisis and weakened governance in the sector. Each amendment appears to have favored bank
directors, enhancing the control of their families over the boards while overlooking the interests
of depositors.

The most recent amendment, passed in June 2023, extends the tenure of board directors from
nine to 12 years, continuing a trend that began in 2013. This has raised concerns about influential
directors exploiting banks for personal gain, potentially jeopardizing depositors' funds.

Furthermore, the amendment introduces changes that permit individuals or companies deemed
unwilling defaulters to obtain additional loans with prior permission from the Bangladesh Bank.
These modifications come at a time when the International Monetary Fund (IMF) has identified
the substantial volume of default loans as a significant risk to Bangladesh's banking sector.
Dr. Ahsan H Mansur, the executive director of the Policy Research Institute, suggests that poor
governance in banks is rooted in the fact that the majority of directors are individual
businesspeople seeking to maintain control. He proposes that improving governance could
involve granting licenses to professional groups or representatives of institutional investors
rather than individual businesspeople.

The practice of directors holding their positions for extended periods is seen as contributing to
malpractices and an increase in default loans. The 2018 amendment, which extended directors'
tenure from six to nine years, resulted in a surge in default loans in private banks, reaching a
record high in March 2023.

In contrast, successful banks in India, such as HDFC Bank and ICICI Bank, demonstrate strong
depositor confidence with part-time chairmen, boards primarily composed of independent
directors, and a focus on best practices in corporate governance.