Abstract

This term paper delves into the corporate governance landscape in Bangladesh, exploring the
historical evolution of its Code of Corporate Governance (CCG) and assessing its effectiveness
in addressing governance issues. The study also investigates notable corporate governance
scandals in Bangladesh and neighboring countries, namely India, Pakistan, and Sri Lanka.
Through an analysis of regulatory responses and reforms, the paper evaluates the impact of
governance frameworks on restoring confidence in the business environment. Constructive
criticism is provided, focusing on enforcement challenges and the need for greater board
diversity. The conclusion emphasizes the global significance of robust corporate governance
structures and suggests potential areas for future research.
 1.INTRODUCTION
The term "corporate governance" pertains to a set of policies, guidelines, and practices ensuring
responsible and efficient corporate management. Its objectives include safeguarding shareholder
interests, fostering transparency and accountability, and establishing a sustainable business
environment. This study investigates the shortcomings of Bangladesh's Code of Corporate
Governance and its effectiveness in addressing corporate governance issues.
To address deficiencies in a country's corporate governance framework concerning shareholder
protection, Corporate Governance (CG) codes represent a collection of "best practices"
guidelines governing a company's board of directors' behavior and composition (Aguilera and
Cuervo-Cazurra 2004, 415). These policies cover various aspects, including the appointment,
removal, and compensation of senior managers and directors, shareholder-upper management
communication, information disclosure, auditing, and the structure and responsibilities of the
board of directors. Aguilera and Cuervo-Cazurra (2004) assert that these rules primarily aim to
enhance board governance standards and increase corporate accountability to minority
shareholders while maximizing shareholder or stakeholder value. Code content varies globally
due to differences in institutional, social, cultural, and economic characteristics.

Public concerns about inadequate governance standards emerged following crises like the Enron
disaster and other major corporate failures worldwide in the early 2000s. In response, affected
economies enacted corporate governance-related laws, rules, codes, guidelines, or regulations.
International Financial Agencies (IFAs) incorporated corporate governance into their
development objectives, leading emerging economies, including Bangladesh, to enact laws to
strengthen financial markets, gain IFA support, and attract continuous foreign investment. The
Securities and Exchange Commission of Bangladesh, or "the Commission," serves as the market
regulator and introduced CG Guidelines in 2006, incorporating a "comply or explain" clause.
Responding to widespread adoption and identified shortcomings, the Commission released
revised CG rules on a "comply" basis on July 3, 2012.
1.1. Report Origin
In fulfillment of course requirements, this document was generated to investigate the "Code of
Corporate Governance." Oversight for the report's development was provided by Dr. Chowdhury
Saima Ferdous, professor in the Department of International Business at the University of
Dhaka. The submission deadline for this report is December 16, 2023, and it involves a unique
assignment.

1.2. Study Objectives

This paper delves into the potential and impact of the CCG, with primary objectives including:
Understanding the origins and evolution of the CCG: Analyzing the historical context leading to
the formulation of the code and subsequent updates.
Scrutinizing the fundamental principles of the CCG: Examining the core tenets of the code and
their significance in promoting effective governance.
Assessing the effectiveness of the CCG: Evaluating the impact of the code on corporate
governance practices in Bangladeshi companies, outlining its advantages and disadvantages.
Identifying areas for potential improvement: Highlighting aspects where the CCG may be
lacking and proposing suggestions for enhancement.
 2. Overview of Code of Corporate Governance
Corporate governance codes serve as comprehensive frameworks that articulate the principles
and practices companies should adopt to ensure effective, transparent, and responsible
management. Understanding the intricacies of these codes is essential for promoting
transparency, accountability, and ethical conduct within organizations.

2.1 Key Components of Code of Corporate Governance:

a. Board Structure and Responsibilities:
The composition of the board of directors is a critical aspect of corporate governance. A
balanced mix of executive and independent directors ensures diverse perspectives in decision-
making. The board is responsible for strategic decision-making, risk management, and
overseeing the performance of the executive management team.

b. Transparency and Disclosure:

Transparent reporting is paramount in corporate governance. Companies are obligated to provide
timely and accurate disclosures of financial information, conflicts of interest, and other relevant
matters. This transparency enhances trust among stakeholders and contributes to informed
decision-making.

c. Shareholder Rights and Relations:

Corporate governance codes emphasize the protection of shareholder rights. This includes
provisions for voting procedures, information dissemination, and mechanisms for facilitating
shareholder engagement, such as annual general meetings. Upholding these rights fosters a sense
of ownership and responsibility.

d. Ethical Business Conduct:

Maintaining high ethical standards is a cornerstone of corporate governance. Codes of conduct
are established for board members, executives, and employees. Additionally, mechanisms are in
place for reporting and addressing ethical concerns, ensuring a culture of integrity within the
organization.

e. Risk Management and Internal Controls:

A robust risk management framework is integral to corporate governance. Codes outline
guidelines for identifying, assessing, and mitigating risks. Internal controls are established to
safeguard assets, maintain accurate financial records, and ensure compliance with laws and
regulations.

f. Remuneration Policies:
Corporate governance codes provide guidelines for determining executive compensation. These
guidelines typically link remuneration to performance, aligning the interests of executives with
the long-term success of the company. Transparency in disclosing remuneration policies is
crucial for maintaining stakeholder trust.

g. Board Diversity and Independence:

Diversity on the board enhances its effectiveness. Corporate governance codes encourage
diversity in terms of gender, experience, and skills. Independent directors play a crucial role in
objective decision-making, free from conflicts of interest. Their independence contributes to the
board's ability to provide effective oversight.

h. Stakeholder Engagement:
Effective stakeholder engagement is a hallmark of good corporate governance. Companies are
encouraged to engage with various stakeholders, including employees, customers, and the
community. Mechanisms for obtaining and considering stakeholder input in decision-making
processes are outlined to ensure a holistic and inclusive approach.
By comprehensively understanding and implementing these key components, companies can
establish a governance structure that not only complies with regulatory standards but also
contributes to their long-term sustainability, builds trust among stakeholders, and ultimately
enhances overall corporate success.
 3. The History of Code of Corporate Governance
Corporate governance codes have undergone a transformative journey, evolving to meet the
dynamic challenges of the business landscape. The history of these codes reveals a commitment
to transparency, accountability, and responsible business practices.The history of corporate
governance principles can be traced back to the early 20th century when the need for effective
management oversight became apparent. The initial focus was on the separation of ownership
and control in large corporations. In the United States, the 1933 and 1934 Securities Acts laid the
foundation for transparency and accountability by requiring companies to disclose relevant
financial information.

However, it was not until the latter half of the 20th century that the concept of corporate
governance gained prominence globally. The Cadbury Report in the United Kingdom in 1992
marked a significant milestone by emphasizing the importance of an independent board of
directors and the need for clear distinctions between the roles of executives and non-executives.

Following the Cadbury Report, other countries developed their own codes of corporate
governance, each tailored to their unique economic and cultural contexts. The Sarbanes-Oxley
Act of 2002 in the United States was a response to corporate scandals, such as Enron and
WorldCom, and aimed at restoring investor confidence through enhanced financial disclosures
and stricter internal controls.

In 2004, the OECD (Organization for Economic Co-operation and Development) released its
Principles of Corporate Governance, providing a comprehensive framework applicable to a
diverse range of economies. The principles emphasized transparency, accountability, and the
rights of shareholders.
The 2008 global financial crisis further underscored the importance of robust corporate
governance practices. Governments and regulatory bodies around the world responded by
revisiting and strengthening their corporate governance frameworks. The emphasis shifted
towards risk management, ethical behavior, and sustainability.

In recent years, corporate governance has continued to evolve with increasing attention to
environmental, social, and governance (ESG) factors. Stakeholder engagement and responsible
business conduct have become integral components of modern governance frameworks.

Today, various international bodies, such as the International Corporate Governance Network
(ICGN) and the World Economic Forum, contribute to the ongoing development of corporate
governance guidelines. The history of the code of corporate governance reflects a continual
adaptation to changing business landscapes and a growing recognition of the importance of
ethical, transparent, and sustainable business practices.

3.1 Journey of the Code of Corporate Governance in Developed Countries:

The evolution of corporate governance codes in developed countries has been marked by
significant changes over the years.
In 2006, a pivotal moment occurred with the recognition of the need for more stringent
governance standards. This led to the establishment of comprehensive codes that emphasized
transparency, accountability, and shareholder rights.
In 2012, there was a notable shift towards addressing emerging challenges, such as the global
financial crisis. Corporate governance codes were revised to incorporate lessons learned, with an
increased focus on risk management, ethical conduct, and the role of the board in ensuring long-
term sustainability.
In 2018, another wave of refinement occurred. Corporate governance codes evolved to address
emerging challenges, incorporating elements such as board diversity, stakeholder engagement,
and the integration of environmental, social, and governance (ESG) factors. This evolution
showcased adaptability and a commitment to aligning governance practices with contemporary
demands.
3.2 Journey of the Code of Corporate Governance in Developing Countries:
The development of corporate governance codes in developing countries has followed a
distinctive trajectory.
In 2006, many developing nations recognized the importance of aligning with international
governance standards to attract investment and foster economic growth. Initial codes focused on
foundational principles, adapting them to the unique challenges and contexts of these countries.
By 2012, a maturation process was evident, with developing countries refining their corporate
governance frameworks. This period saw an increased emphasis on enforcement mechanisms,
capacity building, and addressing specific challenges prevalent in these regions. The codes
became more tailored to local needs while upholding global best practices.
In 2018, a more holistic approach emerged as developing countries sought to align with evolving
global standards. Corporate governance codes incorporated a broader perspective, encompassing
social responsibility, sustainability, and the empowerment of marginalized stakeholders. This
reflected a nuanced understanding of the role corporations play in societal development.

3.3 Journey of the Code of Corporate Governance in Bangladesh (2006-2018):

In Bangladesh, the evolution of corporate governance codes between 2006 and 2018 reflects the
nation's commitment to enhancing business practices and fostering investor confidence.
In 2006, the initial code laid the foundation for governance principles, emphasizing transparency
and accountability.
By 2012, Bangladesh witnessed a refinement of its corporate governance framework, with a
focus on strengthening enforcement mechanisms. The code incorporated lessons from both
domestic and international experiences, addressing specific challenges faced by corporations
operating in the country.
The period leading up to 2018 saw Bangladesh further advancing its corporate governance
standards. The code embraced a more comprehensive approach, incorporating elements of
sustainability, stakeholder engagement, and risk management. This evolution aimed to align the
nation's corporate governance practices with global expectations, contributing to the sustainable
growth of the business environment.
 4. Corporate Governance Scandals in Bangladesh

4.1 Some corporate governance scandals in Bangladesh:

Hallmark Group Scandal (2019):

The Hallmark Group scandal in 2019 involved fraudulent activities related to trade financing.
The company was accused of fabricating export documents and inflating the value of exports to
obtain higher loans. The impact was severe, leading to financial losses for banks involved and a
dent in investor confidence. The scandal underscored the vulnerability of financial systems to
fraudulent practices.

Bismillah Group Scandals (2011):

The Bismillah Group scandals in 2011 encompassed instances of financial mismanagement,
embezzlement, and irregularities in financial reporting. These activities had a profound impact
on the credibility of the group and raised concerns about the oversight mechanisms within the
company. The scandal highlighted the need for stronger internal controls and governance
practices.

Oriental Bank Scandals (2017):

The Oriental Bank scandals in 2017 revolved around allegations of loan irregularities, corporate
governance lapses, and inadequate risk management. The impact was felt across the banking
sector, leading to a loss of trust among stakeholders. The scandal prompted a reevaluation of risk
management practices within financial institutions.

Padma Bridge Scandals (2013):

The Padma Bridge scandals in 2013 involved allegations of corruption and bribery in the
construction of a major infrastructure project. The scandal had far-reaching consequences,
tarnishing the reputation of the involved parties and raising questions about ethical standards in
project execution. It emphasized the need for stringent anti-corruption measures and ethical
guidelines in large-scale projects.

Destiny Group Scandal (2012): Destiny Group, an investment company, faced allegations of
operating illegal financial schemes. It collapsed, leaving thousands of investors in financial
distress. This scandal underscored the need for stricter regulatory measures.

Grameenphone Audit Issue (2012):

There were concerns about the auditing practices of Grameenphone, a leading
telecommunications company. The controversy highlighted the importance of transparent
financial reporting and auditing standards.

Nitol-Niloy Group Scandal (2014): Nitol-Niloy Group faced accusations of tax evasion and
financial irregularities. The scandal prompted discussions on the need for robust tax compliance
and corporate governance practices.

Basic Bank Loan Scam (2015):

Basic Bank, a state-owned bank, was embroiled in a loan scam involving mismanagement and
corruption. The scandal led to concerns about the governance of state-owned financial
institutions.

4.2 How Bangladesh Addressed These Scandals Based on Its Codes of

Corporate Governance:
Bangladesh responded to these scandals by implementing reforms and strengthening regulatory
frameworks measures included:
Enhanced Regulatory Oversight: The government took steps to strengthen regulatory bodies
overseeing financial institutions and businesses to prevent such scandals.

Legal Reforms: Changes in laws and regulations were introduced to hold individuals and
corporations accountable for financial mismanagement and fraud.

Corporate Governance Guidelines: Stricter corporate governance guidelines were

implemented to ensure transparency, accountability, and ethical conduct in business operations.

Improved Auditing Standards: Efforts were made to enhance auditing practices, ensuring that
financial statements accurately reflected the financial health of companies.

Educational Initiatives: Programs and initiatives were launched to educate businesses and
stakeholders about the importance of ethical business practices and corporate governance.

Bangladesh responded to these scandals by reinforcing its commitment to corporate governance.

Measures included enhanced regulatory oversight, stricter enforcement of governance codes, and
legal actions against individuals involved. The country also revised and strengthened governance
frameworks to prevent similar occurrences, emphasizing the importance of transparency,
accountability, and ethical conduct.

4.3 Constructive Criticism of Corporate Governance in Bangladesh:

Enforcement challenges in Bangladesh's corporate governance landscape include issues with
regulatory compliance, insufficient penalties for violations, and the need for more effective
monitoring mechanisms. Board diversity remains a concern, with calls for greater representation
of women and individuals from diverse backgrounds to ensure a broader range of perspectives.

4.4 Justify the Effectiveness of the Code of Corporate Governance in

Bangladesh:
The effectiveness of Bangladesh's corporate governance code is evident in the corrective actions
taken post-scandals. Improved regulatory oversight, amendments to governance codes, and legal
measures demonstrate a commitment to strengthening governance practices. Enhanced
transparency, increased accountability, and a focus on ethical conduct collectively contribute to
rebuilding trust and fostering a more resilient corporate environment.

5. Handling Corporate Governance Scandals in Bangladesh’s

Neighboring Countries:

Bangladesh's neighboring countries, including India, Pakistan, and Sri Lanka, have encountered
their share of corporate governance scandals. In response to these challenges, each country has
taken a multifaceted approach to address the issues and strengthen governance frameworks.
Regulatory bodies, such as India's Securities and Exchange Board and Pakistan's Securities and
Exchange Commission, played pivotal roles in investigating wrongdoings, implementing
reforms, and enhancing enforcement mechanisms. Legal actions, amendments to corporate
governance codes, and increased regulatory scrutiny were common strategies employed to
restore confidence in the business environment. These neighboring nations collectively
underscore the importance of proactive measures to mitigate corporate governance risks and
promote transparency and accountability in their respective business landscapes.

5.1 Corporate Governance Scandals in India and how India handled these
scandals:
India has witnessed several corporate governance scandals that have raised concerns about
ethical practices and transparency. Here are five notable scandals, along with brief details on
how India handled them:

Satyam Scandal (2009):

Satyam Computer Services' founder, Ramalinga Raju, confessed to inflating the company's
profits and assets over several years.
Handling: The Indian government stepped in to prevent a collapse, appointing a new board and
initiating legal proceedings against Raju. The scandal led to regulatory reforms, including
changes in corporate governance norms and the establishment of the National Financial
Reporting Authority (NFRA) to oversee auditors.

Vijay Mallya and Kingfisher Airlines (2012):

Kingfisher Airlines faced financial troubles, with allegations of fund diversion and financial
mismanagement by its owner, Vijay Mallya.
Handling: Mallya left India to avoid legal action, and extradition proceedings were initiated.
The scandal highlighted the need for stricter lending practices and prompted reforms in the
banking sector, emphasizing the accountability of corporate borrowers.

NSEL Scam (2013):

The National Spot Exchange Limited (NSEL) faced a payment crisis, revealing a massive fraud
where certain commodities were not backed by physical stock.
Handling: Regulatory measures were implemented to strengthen commodity exchanges and
prevent such incidents. The Forward Markets Commission was merged with the Securities and
Exchange Board of India (SEBI), consolidating regulatory oversight.

Punjab National Bank (PNB) Fraud (2018):

Nirav Modi, a jeweler, and his uncle, Mehul Choksi, were involved in a fraud at PNB, where
fraudulent Letters of Undertaking (LoUs) were issued, causing a significant financial loss to the
bank.
Handling: Measures were taken to enhance the vigilance and control mechanisms of public
sector banks. The incident led to increased scrutiny of banking procedures and the
implementation of reforms to prevent similar frauds.

IL&FS Financial Crisis (2018):

Infrastructure Leasing & Financial Services (IL&FS) faced a liquidity crisis, revealing
mismanagement, excessive leverage, and corporate governance failures.
Handling: The government took control of IL&FS, and a new board was appointed. This crisis
prompted a reassessment of the regulatory framework for non-banking financial companies
(NBFCs) and infrastructure financing, with efforts to enhance oversight and risk management.
India responded to these scandals by introducing regulatory reforms, strengthening oversight
mechanisms, and emphasizing the importance of corporate governance. The incidents
underscored the need for continuous vigilance and proactive measures to maintain the integrity
of the corporate sector.

5.2 Corporate Governance Scandals in Pakistan and how Pakistan handled

these scandals:
Here are five notable scandals, along with brief details on how Pakistan handled them:

KSE Crisis (2005):

The Karachi Stock Exchange (KSE) faced a crisis in 2005 due to irregularities and manipulation
in stock trading.
Regulatory authorities took measures to investigate and punish those involved, and reforms were
introduced to enhance transparency and oversight in the stock market.

Pakistan Steel Mills Scandal (2008):

Corruption and mismanagement allegations surrounded the Pakistan Steel Mills, a state-owned
enterprise.
Investigations were launched, and attempts were made to restructure and improve the
governance of the Pakistan Steel Mills.

NICL Corruption Scandal (2010):

The National Insurance Company Limited (NICL) was involved in a major corruption scandal in
2010, where officials were accused of embezzlement and fraud.
Legal proceedings were initiated against the individuals involved, and efforts were made to
strengthen regulatory frameworks to prevent such incidents.

OGDC Controversy (2012):

The Oil and Gas Development Company Limited (OGDC) faced controversy regarding alleged
irregularities in appointments and governance practices.
Investigations were conducted, and steps were taken to enhance transparency and accountability
in the management of state-owned enterprises.

Axact Fake Degree Scandal (2015):

Axact, a Pakistani software company, was exposed for running a massive fake degree mill,
selling fake academic credentials worldwide.
Legal actions were taken against the company and its executives, leading to arrests and a
reevaluation of regulatory frameworks to prevent such fraudulent activities.

Pakistan generally addresses corporate governance scandals through legal and regulatory
measures, investigations, and reforms to improve oversight. The Securities and Exchange
Commission of Pakistan (SECP) plays a crucial role in regulating and overseeing corporate
entities to ensure compliance with governance standards. Additionally, the government may
implement policy changes and introduce reforms to strengthen the corporate governance
framework in the country.

5.3 Corporate Governance Scandals in Sri Lanka and how sri lanka handled
these scandals:
In 2017, Panasian Power faced allegations of financial mismanagement and irregularities.
Shareholders raised concerns about the company's financial reporting, leading to investigations
by regulatory authorities.

Takko Holdings PLC:

In 2018, Takko Holdings faced scrutiny for alleged market manipulation. The company's stock
prices experienced unusual fluctuations, prompting investigations by the Securities and
Exchange Commission of Sri Lanka.

The Finance Company PLC:

The Finance Company faced a significant crisis in 2009 when it failed to meet its financial
obligations, causing distress to depositors. This led to regulatory intervention, and the Central
Bank of Sri Lanka took over the management of the company to stabilize the situation.
Blue Diamonds Jewellery Worldwide PLC:
In 2019, Blue Diamonds Jewellery faced accusations of financial irregularities, with concerns
raised about the accuracy of its financial statements. The Colombo Stock Exchange (CSE)
initiated investigations into the matter.

Ceylinco Consolidated:
The Ceylinco Group faced a high-profile scandal in the mid-2000s involving the Golden Key
Credit Card Company, a subsidiary of the group. The collapse of Golden Key led to financial
losses for depositors, triggering legal and regulatory actions.

In response to these scandals, Sri Lanka has taken various measures to enhance corporate
governance practices. The Securities and Exchange Commission of Sri Lanka (SEC) plays a
crucial role in regulating and overseeing capital market activities. The Central Bank of Sri Lanka
and other regulatory bodies collaborate to enforce compliance and ensure transparency.

Sri Lanka has also worked on improving corporate governance frameworks and standards,
emphasizing the importance of accountability, disclosure, and ethical conduct. The government
and regulatory authorities continue to address issues promptly to maintain investor confidence
and protect the integrity of the financial markets.Sri Lanka addressed corporate governance
scandals through regulatory reforms and legal actions. Reforms in governance codes and
increased regulatory scrutiny aimed to restore confidence in the financial sector.

These neighboring countries, like Bangladesh, faced challenges in handling corporate

governance scandals. Their responses included regulatory reforms, legal actions, and a renewed
emphasis on transparency and accountability to strengthen governance frameworks.
 6. Conclusion:
In conclusion, the exploration of corporate governance in Bangladesh and its neighboring
countries has revealed crucial insights into the evolution, challenges, and responses within the
realm of governance frameworks. The analysis of corporate governance scandals in Bangladesh,
such as the Hallmark Group, Bismillah Group, Oriental Bank, and Padma Bridge incidents,
highlighted the need for stringent regulatory oversight and emphasized the critical role of
effective governance in preventing such crises.
Examining neighboring countries, it is evident that India, Pakistan, and Sri Lanka have grappled
with similar governance challenges, responding with regulatory reforms, legal actions, and
increased scrutiny. The collective experience underscores the global significance of robust
corporate governance structures. Constructive criticism in Bangladesh focused on enforcement
challenges and board diversity, highlighting areas for improvement. However, the effectiveness
of Bangladesh's corporate governance code is demonstrated by its proactive responses to
scandals, encompassing regulatory enhancements and legal measures.
In moving forward, potential areas for future research could include a deeper investigation into
the long-term impacts of governance reforms, comparative studies on regulatory frameworks
among South Asian countries, and exploring innovative approaches to addressing enforcement
challenges and improving board diversity.
Overall, this term paper illuminates the dynamic landscape of corporate governance in South
Asia, emphasizing the continual need for adaptability, transparency, and accountability.
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