Major Changes in Revised Code of Corporate Governance ......7 an independent correspondent member of The G20/OECD Principles of Corporate Governance, first published as the OECD Principles

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an independent correspondent member of

Major Changes in Revised

Code of Corporate

Governance & ICAB

Recommendations

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Contents

CCG – Global and Bangladesh Perspective

Conditions of proposed CCG

Major changes in draft CCG and ICAB

recommendation

Reconciliation between 2012 and 2017

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Corporate Governance

Definition

Corporate governance is the system of rules,practices and processes by which anorganization is directed and controlled.

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CCG – Global Perspective

UK Code of corporate governance

Cadbury report 1992 Organizations monitoring & assessment

Greenbury report 1995 Director Remuneration

Hampel Report 1998 List of good corporate principles

Code of corporate governance 1998

Turnbull report 1999 & 2005 Framework for internal control

Higgs report 2003 Role of NED

Tyson Report 2003 Guidance on NED

Smith Report 2003 Role of auditors and Audit Committee

CCG 2003

CCG 2006

Corporate Governance in the UK

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After more than two decades of evolving corporategovernance in the UK, many of you may be thinking, isthere anything left to improve?

The economic, commercial and regulatory environmentscontinue to change, and governance practice andguidance must keep pace.

Simon Lowe, Chairman GT Governance Institute


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Corporate Governance in the USA

In the first half of the 1990s, the issue of corporate governance inthe U.S. received considerable press attention due to a spate ofCEO dismissals.

In the early 2000s, the massive bankruptcies of Enron andWorldcom as well as corporate scandals led to increased politicalinterest in corporate governance.

This was reflected in the passage of the Sarbanes-Oxley Act of2002.

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The G20/OECD Principles of Corporate Governance, first published as the OECDPrinciples in 1999

Revised in 2004

Revised again and endorsed by the G20 in 2015

This internationally agreed benchmark consists of more than fifty distinctdisclosure items across five broad categories:

Auditing

Board and management structure and process

Corporate responsibility and compliance in organization

Financial transparency and information disclosure

Ownership structure and exercise of control rights


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Blame the deluded board members for

Carillion's collapse- The GuardianResponsibility for Carillon collapse lies in the boardroom. It is the job of the directors to manage riskand the eight pages of Carillion’s last annual report devoted to the subject clearly only scratched thesurface.

Carillion directors were boasting in March last year of having “substantial liquidity with some £1.5bn ofavailable funding” yet the company ran out of money 10 months later.

As usual with the construction sector, the immediate cause of failure is a mix of badly priced contracts,badly managed risks plus too much debt. On a good day, contracting firms run on tight operatingmargins of 3%. If debt is too high, there is little room to absorb calamitous contracts. When threecontracts go sour in quick succession, the numbers can spiral out of control.

Carillion, outrageously, was declaring a fatter dividend for shareholders only last spring. Given what weknow now, the correct action would have been to go to those investors and ask for a big injection ofcapital via a rights issue. Half the board would have had to resign, but an over-stretched balance sheetmight have been repaired. Instead Carillion seems to have chosen to chase more low-margin contractsin a desperate attempt to keep its revenue line moving.

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CCG – Bangladesh Perspective

Introduced in 2006

Revised in 2012 with certain major improvements

Revamped in the draft of 2017 with six chapters 14

Conditions in 78 pages

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Conditions of revised CCG

Sl Condition Sl Condition

1 Board of Directors 8 Executive Committee

2 Governance of BoD of Subsidiary Company

9 Environment and Social Responsibility committee

3 MD/CEO/CS/CFO/HIAC/HICT 10 Financial Reporting and Disclosure

4 Board Committee 11 External/Statutory Auditors

5 Audit Committee 12 Exchange's Roles on compliance of CCG

6 Nomination and Remuneration Committee

13 Reporting and compliance of CCG

7 Risk Management Committee 14 Compliance of other laws

* Bold stands for 2012 conditions

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Major Changes in the Draft CCG and ICAB Recommendations

Composition of the Board

General shareholders representative will be included as a BoD from General

Shareholders portion

One of the BoD shall be female

ICAB Recommendations

1/10th of the BoD shall be young. If a listed company has got 5 directors

1/10th comes to 0.5. Hence a separate sentence to be added as “ Any

fraction shall be considered to the next integer/whole number for calculating

the number of such director. (1.1)(iii)

Change age bracket from 25 to 40 years to 30 to 40 years (1.1)(iii)

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Major Changes in the Draft CCG and ICAB

Recommendations

Independent Director

Cannot hold any shares

An individual can be appointed as Independent Director for 5 Listed

Companies

Prior approval from BSEC is required to appoint Independent Director

Cooling period proposed (1+1+0+1)


If a company appoints one Independent Director, he/she must be a

professional accountant. Remaining Independent Directors, if any, may

be selected from other categories of the panel. (1.2)(i)

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Recommendations


An Independent Director cannot be an executive for two years not only of

the entity but also its related company (Parent, Subsidiary, JV, etc.)

Number of Independent Directors in Banking Company should at least be

equal to non-banking company. Rather this number should be increased for

banking companies

Exclude members of extended family*. It will be difficult for the

Independent Director to determine shareholding by their extended family

*Spouse, son, daughter, father, mother, brother, sister, stepfather, step-mother, step-brother, step-sister, adopted son, adopted daughter, mother-in-law, father-in-law, son-in-law, daughter-in-law,brother-in-law, sister–in- law, grand- son, grand- daughter, grand-father, grand- mother, uncle, aunt,cousin, nephew and niece shall be considered as family members and extended family members

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Recommendations

Qualification of Independent Director

Business Leader, Corporate leader, Bureaucrat or Government

Official’s qualification has been well defined

Role of Board of Directors

Detailed code of conducts of the BoD and Senior Management

of the company introduced

The code must be posted in the company website

Annual signed compliance statement must be included in the

Annual Report

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Recommendations

Chairperson of the Board

The Chairperson/ MD/CEO of a Listed Company shall not hold the same

position in another listed company

Meetings of the BoD

Conduct the meetings and record the minutes in line with Bangladesh

Secretarial Standards (BSS)-1 and BSS -3

ICAB recommendations

BoD will be evaluated through self evaluation – define KPI (1.4)(ii)(k)

How BoD will be trained? (1.4)

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Responsibility of the Board

Former Chairman of the BoD of General Motors, John G. Smale wrote in

1995: "The board is responsible for the successful perpetuation of the

corporation. That responsibility cannot be relegated to management.

A BoD is expected to play a key role in corporate governance. The

board has responsibility for: CEO selection and succession; providing

feedback to management on the organization's strategy; compensating

senior executives; monitoring financial health, performance and risk;

and ensuring accountability of the organization to its investors and

authorities.

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Recommendations

Nomination and Remuneration Committee

NRC shall assist the BoD in formulation of the nominationcriteria or policy for determining qualifications, positiveattributes, experiences and independence of directors and keymanagerial personnel and senior management as well as apolicy for remuneration.

All members of the Committee shall be Non-ExecutiveDirectors, the majority of whom shall encourage beingindependent directors who shall be the Chairman of theCommittee

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Recommendations

Risk Management Committee

The RMC shall be responsible for the overall process of riskmanagement, such as framing, implementing and monitoring the riskmanagement plan, including the related system of internal control ofthe company

The RMC shall consist of at least 3 members who are appointed bythe BoD from its Non-Executive Directors together with the MD/CEO

ICAB Recommendation

The HIA and Auditor may be invited to assist RMC to make effectivedecisions – this will create advocacy threat

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Recommendations

Executive Committee

The EC shall assist the BoD or its sub-committees to deal withthe day-to-day activities of the company and to develop andimplement the business plans, policies, and budget of thecompany and report and recommend to the BoD and its sub-committees

The Committee shall comprise of at least top 5 executives

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Recommendations

Environmental and social responsibilities

ESRC shall be responsible for making Environmental Issues policy in line withprovisions /directives/ notifications/ requirements as per respective governmentauthority as applicable for the respective industry/service sector as well as theimplementation and monitoring of REI policy in compliance with the regulatoryrequirements.

ESRC shall also make a statement that the implementation and monitoring of REIpolicy is in due compliance with the regulatory requirements, which shall also bedisclosed in the Directors’ Report as annexed in the Annual Report of thecompany.

Need to comply with the above condition within 31 December 2020.

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Recommendations

Financial Reporting and Disclosures

Some existing conditions have been brought under this condition which already exist in DSE Listing Regulations 2015:

10.1 PREPARATION OF FINANCIAL STATEMENTS Regulation-14 of DSE Listing 2015

10.2 AUDITING OF FINANCIAL STATEMENTS Regulation-15 of DSE Listing 2015

10.3 ADOPTION OF QUARTERLY FINANCIAL STATEMENTS Regulation-16 of DSE Listing 2015

10.4 SUBMISSION OF QUARTERLY FINANCIAL STATEMENTS Regulation-17 of DSE Listing 2015

10.5 SUBMISSION OF ANNUAL FINANCIAL STATEMENTS AND OTHER REPORTS Regulation-18 of DSE Listing 2015

10.6 ADOPTION OF ANNUAL FINANCIAL STATEMENTS Regulation-19 of DSE Listing 2015

10.7 AUTHENTICATION OF FINANCIAL STATEMENTS Regulation-20 of DSE Listing 2015

10.8 POSTING OF FINANCIAL STATEMENTS IN THE WEBSITE Regulation-21 of DSE Listing 2015

10.9 SUBMISSION OF ANNUAL REPORT Regulation-22 of DSE Listing 2015

10.10 ANNUAL GENERAL MEETING Regulation-24 of DSE Listing 2015

10.12 WEBSITE Regulation-44 of DSE Listing 2015

10.13: E-FILING OF INFORMATION/DOCUMENTS Regulation-41 of DSE Listing 2015

10.14: DISCLOSURE OF PRICE SENSITIVE INFORMATION Regulation-33 of DSE Listing 2015

10.15 DECLARATION OF SPONSORS OR DIRECTORS FOR BUYING AND SELLING

OF SECURITIES

Regulation-34 of DSE Listing 2015

10.16 SUBMISSION OF STATEMENT OF MONTHLY SHAREHOLDING POSITION

AND FREE FLOAT REPORTING

Regulation-35 of DSE Listing 2015

Why are we making the code thicker?

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Recommendations

Role of Exchange’s on corporate governance

The exchange shall review the reports on compliance ofcorporate governance

The exchange shall inspect every listed company once inevery two years

The exchange will also make a pool of prospectiveindependent directors

Are they ready?

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Recommendations

Reporting related recommendations

Since BAS/BFRS will no longer be used amendment is required

in the following conditions:

1.6 (xv), Annexure D

Since BSA/BAPS will no longer be used amendment is required

in condition 10.2 (5).

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Recommendations

Reporting related recommendations Both basic and diluted EPS should be considered while adopting Financial

Statements in the following conditions:

10.3 (2)

10.6 (2)

Annual FS should be audited within 120 days instead of 90 days (10.5)

Exclude the following disclosure in quarterly FS (10.4)

Detailed break-up or composition of shareholders’ equity- paid-up capital, share premium and number of ordinary shares

with face value & date of issue, Preference Share Capital, number of preference shares with face value & date of issue,

conversion features of preference shares (if any) with conversion date, conversion features of any other securities (if any)

with conversion date, detailed break-up of reserve & surplus (10.4)(a)

In addition to disclosures on direct method of cash flows, a reconciliation of Net Income or Net Profit with Cash Flows

from operating activities- making adjustments of for noncash items, for non-operating items and for the net changes in

operating accruals. (10.4)(e)

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Recommendations

Reporting related recommendations

To exclude product-wise performance (1.6)(ii)

To include if any for clause (1.6)(xxxii). Compare such financial

performance/results and financial position as well as cash flow with

the peer company explaining industry scenario

To include notes to the Financial Statement as component of

Financial Statements (5.1 (v) (Explanation)

Define industry specific ratio and Exclude unnecessary ratio on the

FS as per Annexure-C (10.5)(2) (f)

Annexure-C.pdf

Annexure-C.pdf

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Recommendations

Hierarchy related recommendations

Senior management has been defined in the explanation of 1.2

(h). The hierarchy should be MD/CEO/CFO/CS/HIAC/HICT but the

same has not been followed in the following conditions:

1.6 (xxviii)(c) (e), (xxxii)

3.1 (i), (ii), (iii), (iv),(v)

3.2

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Recommendations

CFO related recommendation

No person shall be appointed as Chief Financial Officer (CFO) by

the BoD without being a Professional Accountant (3.1)(i)

CFO should be part of the Risk Management Committee (7.1)(1)

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Recommendations

External Auditor

Not only the Partners and employees of audit firm but also their

family members cannot hold shares of an audit client

Will be required to submit a signed declaration to the company

Will be required to be present during the AGM to answer the

queries of Shareholders

ICAB Recommendation (11.0)

Clause (1) (viii) should be re-numbered as clause (2) and (2) and

(3) should be re-numbered as (3) and (4)

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Recommendations

Other recommendations

In the terms of reference of the Audit Committee instead of writing the audit

committee shall it should be re-written like (5.4)

The Terms of Reference (ToR) of the Audit Committee shall be clearlyset forth in writing covering the areas of financial and other reporting,audit and internal control, and Corporate Governance in accordancewith best practices which shall include:

The company shall not get its FS audited by any firm of chartered

accountants who has been convicted by the Council of ICAB. (10.2)(6)

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Recommendations

The Company should disclose only material information onlitigation, conviction, violation of securities laws, loandefaulters etc. rather than all litigation, conviction, violationof securities laws, loan defaulters etc. (1.6) (xxxi)

The timeline for submission of Q1 financial statements ofcompanies other than life insurance company should beextended to 45 days from 30 days (10.4)

Since a company is required to upload annual report in theirwebsite, requirement of sending annual report through emailmay be made as optional (10.9)(2)

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Recommendations

Specific guidelines should be mentioned for whistle blowingpolicy (10.12)(f)

The BSEC should insert a Preamble/Preface to the Guidelinessetting out underlying principles of good corporate governanceas well as the purpose for formulating and reformingGuidelines.

CS will be part of all the committees including signing the FSbut in clause 3.3 (Duties of MD/CEO/CFO), CS has not beenincluded – lessons learnt prior to SOX. Sign in Annexure-D

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Reconciliation of CCG of 2012 vs 2017

Presentation\Recon of CCG of 2012 vs 2017.xlsx

Presentation/Recon of CCG of 2012 vs 2017.xlsx

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Questions

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Presenter Contact Details

Snehasish Barua, FCA (ICAB), ACA (ICAEW)

Partner

Snehasish Mahmud & Co

Chartered Accountants

+8801819319319

[email protected]

www.smac-bd.com

mailto:[email protected]

Documents

Major Changes in Revised Code of Corporate Governance ......7 an independent correspondent member of The G20/OECD Principles of Corporate Governance, first published as the OECD Principles