Governance

Presented By : S.M. Aminur Rahman

Governance is the act of governing. Government Vs. Governance? Governance is what a Government does

What is Corporate Governance?

It is the system by which companies are directed and controlled.

It deals largely with the relationship between all the stakeholders in a company.

Stakeholders in this case include everyone ranging from the BOD, management, shareholders to customers, employees and society. Management assumes the role of a trustee for all others.

Corporate Governance based on principles :Conducting business with all

integrity & fairness.Being transparent with all

transactions.Making all disclosures and decisions,

complying with all laws of the landAccountability and responsibility Commitment with ethical manner.

Three essential ingredients of Corporate Governance merit attention. Check & balances like audit committees, independent accounting, systems etc.

Clear demarcation of responsibilities for effective accountability.

Complete disclosure and transparency.

Principles of corporate governance:

Rights and equitable treatment of shareholders.

Interests of other stakeholders. Role and responsibilities of the BOD.

Integrity and ethical behavior.Disclosure and transparency.

Parties to Corporate Governance:

Government agencies and authorities.

Stock Exchange.Management.BOD

Internal corporate governance controls:

Internal corporate governance controls monitor activities and then take corrective action to accomplish organizational goals. Examples include:

Monitoring by the board of directors.Internal control procedures and internal auditors.Balance of power.Remuneration.Monitoring by large shareholders and/or

monitoring by banks and other large creditors.

External corporate governance controls: External corporate governance controls encompass the controls external stakeholders exercise over the organization. Examples include:Competition Debt covenants Demand for and assessment of performance

information (especially financial statements) Government regulations Managerial labor market Media pressure Takeovers

The need for good corporate governance:

A Responsible Corporate Citizen should not only enhance the shareholder’s wealth but also exhibit fairness to other stakeholders like consumers, employees and the community in general. Maximization of shareholder wealth has to be achieved by adherence to ethical values and transparency in dealings. The principles of corporate governance are developed to ensure that the companies do justice to all the shareholders, investors and society in general. It has also to be ensured that investors are not ‘enronised’ by corporates in future.

Corporate governance in Banking :

Contd…► Corporate governance in a service Industry like Bank is

Not only to ensure compliance with regulatory requirements but also to be responsive to the expectations of all the shareholders who deal with the Bank.

 ► Banks shall have strive for excellence with twin

objectives of enhancing customer satisfaction and shareholders value.

 ► The BOD shall support the broad principles of corporate

governance. ► The BOD should lay strong emphasis on transparency,

accountability and integrity.

Features of Good Corporate Governance Principles:

Openness, integrity and accountability must be the key elements of corporate Governance

Functioning of the Board needs to undergo qualitative change.

  A bifurcation of the role of the Chairman and

the Managing Director may ensure that the Chairman is free from operational chores and is able to give focused attention to the working of the Board.

Contd….

Composition of the Board should be broad based through the induction of independent Director and the Board should adopt code of corporate governance.

Code of best practices shall be evolved to achieve the necessary high standards of corporate behaviors.

Bangladesh Bank initiated various measures to improve Corporate Governances:Better disclosure and transparency standards have been introduced; fit and proper tests prescribed for Bank Directors, Chief Executives and Advisors; restriction imposed on the composition of the membership of the Board of Directors; the roles and functions of the Board and Management were clarified and redefined. Audit Committee has been mandated for all banks with clear guidelines and TORs. Besides Early Warning System (EWS) also been introduced.

Contd..

To strengthen the banking operation capital Adequacy measures (minimum CAR 9%) introduced.

 Introduced Secondary Market of

shares which depends on the quality of governance, vision of the Board, Earnings per share (EPS) Return on Assets (ROA).

Internal pressure to Adhere to good corporate Governance:The good practice followed by Corporate like

Banks to meet the representatives of the media and the investment analysts who dissect and discuss the details of performance at quarterly intervals puts internal pressure to prepare the organization for exposure in public.

Transparency in operations is the hallmark of a good corporate citizen. Access to information may be made a fundamental right of an investor in respect of the operations of every corporate.

A suggested Model code of Best Practice for Banks:

►Men of eminence who can contribute towards the vision, control and guidance should be chosen as Director.

► Bifurcation of the post of Chairman and MD, so that the Chairman is free from operational chores and able to give focused attention to the working of the Board.

► Boards should have a formal schedule of matters reserved for them for decision to ensure that the direction and control of the Bank is firmly in their hands.

► Non- executive directors should be Conversant with Bank accounts

Contd…► Reappointment of directors should be based

on appraisal of their contribution to the boards functioning. Directors who have not been present for at least 50% of the board meetings should not be considered for reappointment.

► Chairman & MD should have a minimum tenure of 2 years to ensure proper direction and continuity of policy.

► BOD should form a effective audit committee comprising non -executive directors and this committee should be given access to all financial information.

Contd…

► The Report of BOD should contain adequate MIS. 

► The quality of shareholders communication should be improved.

► Adoption of code of self-discipline will improve quality of governance.

► Directors should be paid reasonable fees.

Thank You