Pallab Biswas CG Checklist 220713

Corporate Governance in Emerging Countries: A Case Study of Bangladesh

By

Pallab Kumar Biswas

This thesis is presented for the degree of Doctor of Philosophy of

The University of Western Australia

UWA Business School Accounting and Finance Discipline

2012

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Appendix D Corporate Governance Checklist

Serial Governance Element Legal Reference Supporting Papers

I. Ownership Structure and Investor Rights

I.A Transparency of Ownership

1 IA1 Disclosure of ownership structure (% of equity held by Sponsors, Government, Institutions, Foreigners and

General Public)

LR No. 20(2) Bauwhede and Willekens (2008)

2 IA2 Name-wise details of aggregate number of shares held by parent/subsidiary/associated companies and other

related parties

CG Guideline 1.4 (k) Bauwhede and Willekens (2008)

3 IA3 Name-wise details of aggregate number of shares held by directors, CEO, Company Secretary, CFO, Head

of Internal Audit and their spouses and minor children

CG Guideline 1.4 (k) Perrini, Rossi and Robetta (2008)

4 IA4 Name-wise details of aggregate number of shares held by executives CG Guideline 1.4 (k) Chen et al. (2007a); Perrini et al. (2008); Yixiang

(2011)

5 IA5 Distribution schedule of each class of equity security for categories like less than 500 shares, 501 to 5,000

shares, ,over 1,000,000 shares LR No. 37(3)

I.B Ownership Concentration

6 IB1 The identity of shareholder(s) holding less than 10% of voting shares in total Chen et al. (2007a)

7 IB2 The number and identity of shareholders holding 10% or more CG Guideline 1.4 (k) Chen et al. (2007a)

I.C Shareholder Rights

8 IC1 Availability and accessibility of AGM agenda/disclosure of AGM Notice CA 1994 Sec. 85(1)(a) UNCTAD (2006b)

9 IC2 Date and location of AGM disclosed CA 1994 Schedule-I

10 IC3 AGM notice sent at least 14 days before the AGM CA 1994 Sec. 85(1)(a)

11 IC4 Availability and accessibility of proxy form/proxy form sent with annual report CA 1994 Schedule-I

12 IC5 There is no requirement for a proxy appointment to be notarize /signature by witness

13 IC6 Disclosure of the companys policy/strategy to facilitate effective communication with shareholders and other stakeholders

14 IC7 Disclosure of companys policy on ensuring participation of shareholders in the AGM and providing reasonable opportunity for shareholder participation in the AGM

15 IC8 Company has a formalized dividend policy and has disclosed of it

II. Financial Transparency and Information Disclosure in the Annual Report

16 II1 Statement of the Boards responsibilities regarding financial communication UNCTAD (2006b)

17 II 2 Statement of fairness of financial statements in the annual report CG Guideline 1.4 (a) World Bank (2009)

18 II 3 Statement of maintenance of proper books of accounts CG Guideline 1.4 (b) World Bank (2009)

19 II 4 Statement of consistent adaptation of appropriate accounting policies and estimates CG Guideline 1.4 (c) World Bank (2009)

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20 II5 Statement of compliance with International Accounting Standards, as applicable in Bangladesh and

disclosure of any departure therefrom

CG Guideline 1.4 (d) Garay and Gonzlez (2008); World Bank (2009)

21 II6 Principal accounting policies followed in preparing financial statements are disclosed

22 II7 Statement of significant changes in accounting and valuation principles and impact of alternative accounting

decisions

UNCTAD (2006b)

23 II8 Disclosure of risk and uncertainty in use of estimates and judgments UNCTAD (2006b)

24 II9 Disclosure of the companys ability to continue as a going concern CG Guideline 1.4 (f) World Bank (2009)

25 II10 Disclosure of significant deviation from last year operating results CG Guideline 1.4 (g) World Bank (2009)

26 II11 Financial and operating results for at least last three years have been disclosed CG Guideline 1.4 (h) World Bank (2009)

27 II12 Company has received an unqualified audit opinion Ammann et al. (2011)

28 II13 Companys financial statements are audited within 120 days from the financial year end date SECB Notification 16

Feb2000 Garay and Gonzlez (2008)

29 II14 Companys annual accounts are approved at an AGM within 9 months from the financial year end date LR No. 19

30 II15 Disclosure of related party transactions BAS 24 World Bank (2009); UNCTAD (2006b)

31 II16 There has been no related party transaction during the year Ammann et al. (2011)

32 II17 Dividend information and disclosure for non-payment CG Guideline 1.4 (i) World Bank (2009)

33 II18 Disclosure of information on financing and management of the staff pension fund/employee provident fund

34 II19 Disclosure of information about future plans

35 II20 Disclosure of events occurring after the Balance Sheet date LR No. 37(5)

36 II21 The company has a Corporate Governance Charter or Code of Best Practice

37 II22 The details of the Corporate Governance Charter or Code of Best Practice are disclosed Aggarwal et al. (2010); Aggarwal et al. (2011);

Ammann et al. (2011)

38 II23 There is a separate Corporate Governance statement/separate section for CG Klein et al. (2005)

39 II24 The company has complied with the SECB notification CG Guideline 5.0 Klein et al. (2005); Bauwhede and Willekens (2008)

III. Board and Management Structure and Process

40 III1 Disclosure of the number of directors on the board and the identities of board members Jackling and Johl (2009)

41 III2 Number of directors on the board is between 5 and 20

CG Guideline 1.1 Brown and Caylor (2009); Aggarwal et al. (2010);

Aggarwal et al. (2011); Ammann et al. (2011); Garary

and Gonzlez (2008)

42 III3 The board is reconstituted every year through the appointment and rotation of the board members CA 1994 Sec. 91(2) Brown and Caylor (2009); Aggarwal et al. (2010);

Aggarwal et al. (2011); Ammann et al. (2011)

43 III4 Disclosure of classification of directors as an executive or an outside director UNCTAD (2006b)

44 III5 Disclosure of the number of directorships held by individual board member Klein et al. (2005); Jackling and Johl (2009); Perrini et

al. (2008)

45 III6 Disclosure of the qualifications and biographical information of the board members Klein et al. (2005); Lazardies and Drimpletas (2011)

46 III7 Former CEO does not serve on the board Brown and Caylor (2009); Aggarwal et al. (2010);


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47 III8 Disclosure of the role and functions of the board UNCTAD (2006b)

48 III9 The company has clearly distinguished the roles and responsibilities of the board and management

49 III10 The company has appointed one or more independent directors to the board CG Guideline 1.2(i)

50 III11 The company has disclosed the number of independent directors

51 III12 Independent directors constitute at least 1/10th of the board CG Guideline 1.2(i) Klein et al. (2005)

52 III13 The Chairman and CEO positions are held by different individuals who are not from the same family CG Guideline 1.3 Black et al. (2006a, 2006b)

53 III14 The company has a non-executive director as the Chairman of the board

54 III15 An independent director is the Chairman of the board

55 III16 An audit committee has been established CG Guideline 3.0 Black et al. (2006a, 2006b); Garay and Gonzlez

(2008)

56 III17 Number of directors on the audit committee (AC) CG Guideline 3.1(i)

57 III18 AC has at least three members CG Guideline 3.1(i) World Bank (2009)

58 III19 Existence of non-executive directors on the audit committee

59 III20 Existence of independent director(s) on the audit committee CG Guideline 3.1(ii) World Bank (2009); Lazardies and Drimpletas (2011)

60 III21 Chairman of the audit committee is a non-executive director

61 III22 Chairman of the audit committee is an independent director Standard & Poors (2004)

62 III23 Chairman of the audit committee is not the Chairman of the board

63 III24 Disclosure of the professional qualification of the Chairman of the audit committee CG Guideline 3.2(ii) Black et al. (2006a, 2006b)

64 III25 Disclosure of the qualifications of audit committee members

65 III26 The audit committee has a formal charter/disclosure of audit committee's roles and responsibilities CG Guideline 3.0 Ammann et al. (2011)

66 III27 Audit committee reports its activities to the board of directors (BOD) CG Guideline 3.3.1(i) World Bank (2009)

67 III28 Audit committee immediately reports conflicts of interest to the BOD CG Guideline

3.3.1(ii)(a) World Bank (2009)

68 III29 Audit committee immediately reports suspect/presumed fraud/irregularity/material defect in internal control

system to the BOD

CG Guideline

3.3.1(ii)(b) World Bank (2009)

69 III30 Audit committee immediately reports suspected infringement of laws to the BOD CG Guideline

3.3.1(ii)(c) World Bank (2009)

70 III31 Audit committee immediately reports all other relevant matters to the BOD CG Guideline

3.3.1(ii)(d)

71 III32 Audit committee reports irregularities to the SECB if not addressed properly by the BOD CG Guideline 3.3.2 World Bank (2009)

72 III33 Disclosure of audit committee report to the shareholders in the annual report CG Guideline 3.4 Black et al. (2006a, 2006b)

73 III34 Disclosure of the number of audit committee meetings during the year Standard & Poors (2004)

74 III35 Audit committee meets at least two times during the year Black et al. (2006a, 2006b)

75 III36 Disclosure of the attendance in the audit committee meetings Klein et al. (2005); Standard & Poors (2004)

76 III37 Average attendance in the audit committee meetings is at least 75% Black et al. (2006a, 2006b)

77 III38 A remuneration committee has been established Garay and Gonzlez (2008); Standard & Poors

(2004); Lazardies and Drimpletas (2011)

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78 III39 Number of directors on the remuneration committee

79 III40 CEO/managing director does not sit on the remuneration committee Ammann et al. (2011)

80 III41 Existence of non-executive directors on the remuneration committee

81 III42 Existence of independent directors on the remuneration committee Klein et al. (2005)

82 III43 Chairman of the remuneration committee is a non-executive director

83 III44 Chairman of the remuneration committee is an independent director Standard & Poors (2004)

84 III45 The company has disclosed the roles and functions of the remuneration committee

85 III46 The company has disclosed the number of remuneration committee meetings during the year

86 III47 A nomination committee has been established Standard & Poors (2004); Lazardies and Drimpletas

(2011)

87 III48 Number of directors on the nomination committee

88 III49 Existence of non-executive directors on the nomination committee

89 III50 Existence of independent directors on the nomination committee Klein et al. (2005)

90 III51 Chairman of the nomination committee is a non-executive director

91 III52 Chairman of the nomination committee is an independent director

92 III53 The company has disclosed the roles and functions of the nomination committee are stated

93 III54 The company has disclosed the number of nomination committee meetings during the year

94 III55 The company has appointed a Chief Financial Officer (CFO) CG Guideline 2.1 World Bank (2009)

95 III56 The company has defined the roles, responsibilities and duties of the CFO CG Guideline 2.1

96 III57 The company has appointed the Head of Internal Audit (HIA) CG Guideline 2.1 World Bank (2009)

97 III58 The company has defined the roles, responsibilities and duties of the HIA have been defined CG Guideline 2.1

98 III59 The company has appointed a Company Secretary (CS) CG Guideline 2.1 World Bank (2009)

99 III60 The company has defined the roles, responsibilities and duties of the CS have been defined CG Guideline 2.1 Standard & Poors (2004)

100 III61 The company has disclosed the number of board meetings held during the year CG Guideline 1.4(j) Klein et al. (2005); Jackling and Johl (2009)

101 III62 The board meets at least four times during the year CA 1994 Sec. 96 Black et al. (2006a, 2006b)

102 III63 Disclosure of aggregate board attendance in the board meeting Klein et al. (2005); Standard & Poors (2004)

103 III64 Average board meeting attendance is at least 75% during the year Brown and Caylor (2009); Aggarwal et al. (2010);

Aggarwal et al. (2011); Ammann et al. (2011); Black

et al. (2006a, 2006b)

104 III65 The company has disclosed attendance of individual directors at board meetings CG Guideline 1.4(j) Standard & Poors (2004)

105 III66 The CFO and CS have attended board meetings during the year CG Guideline 2.2; World Bank (2009); Standard & Poors (2004)

106 III67 Disclosure of information on a regular review of the performance of the board Brown and Caylor (2009); Aggarwal et al. (2010);

Aggarwal et al. (2011); Ammann (2011); Black et al.

(2006a, 2006b)

107 III68 Disclosure of information on a succession plan Aggarwal et al. (2011); Aggarwal et al. (2010);

108 III69 Disclosure of director remuneration (cash) in the annual report SECB Rules 87: 4 Standard & Poors (2004)

109 III70 Disclosure of director remuneration (non-cash) in the annual report SECB Rules 87: 4 Standard & Poors (2004)

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110 III71 Disclosure of managing agent/officers remuneration (cash) in the annual report SECB Rules 87: 1G(8) Garay and Gonzlez (2008) 111 III72 Disclosure of managing agent/officers remuneration (non-cash) in the annual report SECB Rules 87: 1G(8) Garay and Gonzlez (2008) 112 III73 Disclosure of information about induction/orientation program for all new directors Standard & Poors (2004)

113 III74 Disclosure of information on the professional development and training activities for directors UNCTAD (2006b)

114 III75 Disclosure of information on the availability and use of advisors by directors during reporting period at the

companys expense Brown and Caylor (2009); Aggarwal et al. (2010);

UNCTAD (2006b)

115 III76 Statement of director's responsibility to establish appropriate system of internal control CG Guideline 1.4 (e) World Bank (2009)

116 III77 Disclosure of key features of the internal control system, and the manner in which the system is monitored

by the Board, Audit Committee or Senior Management

117 III78 Statement that the directors have reviewed the adequacy of the system of internal controls Standard & Poors (2004)

118 III79 Statement of business risks facing the organization/disclosure of the identification of risks the company is

exposed to both internally and externally

119 III80 Disclosure of information on risk management objectives, systems and activities in the organization UNCTAD (2006b)

IV. Corporate Responsibility and Compliance

120 IV1 Statement of corporate social and environmental responsibility UNCTAD (2006b)

121 IV2 Disclosure of information on social and environmental activities - qualitative Ammann et al. (2011); Bauwhede and Willekens

(2008)

122 IV3

Disclosure of information on social and environmental activities - quantitative (for example, scholarship

program, Zakat fund, Donations to charitable institutions, Direct philanthropic activities, Donations to Chief

Advisor's/PM's Relief fund etc.)

Ammann et al. (2011); Bauwhede and Willekens

(2008)

123 IV4 The company has complied with international and legal laws regarding environmental protection

124 IV5 The company has policies on recruitment and promotion of employees

125 IV6 The company explicitly mentions the safety and welfare of its employees Ammann et al. (2011)

126 IV7 The company provides a retirement plan/fund or its equivalent for its employees

127 IV8 The company provides a continuing training program for its employees

128 IV9 The company explicitly mentions its obligations (for example, creation and growth in value; stability and

long-term competitiveness) to shareholders

129 IV10 The company explicitly mentions its obligation to creditors

130 IV11 Disclosure of information on the companys contribution to the national exchequer and to the economy

131 IV12 The company has a code of business conduct and ethics/core values UNCTAD (2006b); Lazardies and Drimpletas (2011)

132 IV13 Disclosure of the contents of a code of business conduct and ethics/statement of ethics and values, covering

basic principles such as integrity, conflict of interest, compliance with laws and regulation etc.


133 IV14 Disclosure of information on dissemination/communication of the statement of ethics & business practices

to all directors and employees and their acknowledgement of the same

134 IV15 The company has disclosed the board's statement on commitment to establishing high level of ethics and

compliance within the organization

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135 IV16 Disclosure of information on effective anti-fraud programs and controls, including effective protection of

whistle blowers, establishing a hot line for reporting irregularities etc.

UNCTAD (2006b)

V. Auditing

136 V1 The company has a brand name auditor (audit firms with international linkage) Garay and Gonzlez (2008)

137 V2 Audit firm is rotated at the AGM Brown and Caylor (2009); Aggarwal et al. (2010);

Aggarwal et al. (2011)

138 V3 Auditor rotation takes place at least once every three years SECB Order of 03

January 2002

139 V4 The company has declared that external auditor has not been engaged in appraisal or valuation services or

fairness opinions CG Guideline 1.4 (e)(i) World Bank (2009)

140 V5 The company has disclosed that external auditor has not been engaged in financial information systems

design and implementation

CG Guideline 1.4

(e)(ii) World Bank (2009)

141 V6 The company has disclosed that external auditor has not been engaged in bookkeeping/accounting

records/preparing financial statements

CG Guideline 1.4

(e)(iii) World Bank (2009)

142 V7 The company has disclosed that external auditor has not been engaged in broker-dealer services CG Guideline 1.4

(e)(iv) World Bank (2009)

143 V8 The company has disclosed that external auditor has not been engaged in actuarial services CG Guideline 1.4

(e)(v) World Bank (2009)

144 V9 The company has disclosed that external auditor has not been engaged in internal audit services CG Guideline 1.4

(e)(vi) World Bank (2009)

145 V10 The company has disclosed that external auditor has not been engaged in any other services as determined

by the audit committee

CG Guideline 1.4

(e)(vii)

146 V11 The company has disclosed information on the amount of audit fees paid to auditors SECB Rules 87: 1(D) Klein et al. (2005)

147 V12 Disclosure of information on the amount of fees for non-audit service paid to auditors, if any SECB Rules 87: 1(D) Klein et al. (2005)

148 V13 Amount of audit fees is more than non-audit fees Brown and Caylor (2009); Aggarwal et al. (2010);

Aggarwal et al. (2011); Ammann et al. (2011)

This table presents the CG checklist. LR is the Listing Regulations of the DSE, 1996. CA is the Companies Act. SECB is the Securities and Exchange Commission Bangladesh.

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Pallab Biswas CG Checklist 220713