Introduction

Corporate Governance is the system by which business corporations are directed and
controlled. Its structure specifies the distribution of rights and responsibilities among
company’s different actors such as board, management, share holders and other stake holders.
Transparency and accountability are its major attributes. Beyond this there is a growing
recognition that a good Corporate Governance system actively adds value to the long run.
Viewed in this context, Corporate Governance is the enhancement of the long term
shareholders value while at the same time protecting the interest of other stake holders.

The frame work for Corporate Governance deals mainly with executive and non executive
directors, separation of CEO from chairmanship, rights of all shareholders including
minority, accountability forwards stake holders, internal control to deal with risk, director’s
remuneration to deal with shirking behaviour and statement of going concern. It can be
interpreted as a broad and somewhat vague term for a range of corporate controls and
accountability mechanisms designed to meet the corporate objectives.

The importance of corporate governance for transition economies like Bangladesh

Strong governance has long been considered crucial for enhancing the long term value of
stakeholders in the business environment. In the new technology driven information age,
strong corporate governance is more than good business practice. Recent demand from
investors and others for greater accountability from corporate boards and audit committees
will likely further enhance the quality of managerial stewardship and eventually lead to more
efficient capital markets.

In transition economies like Bangladesh development of positive corporate governance

through the adjustment of corporate control mechanisms is really a complicated task due to
the underdeveloped institutional infrastructure, complex corporate ownership between the
state and financial sectors, weak legal and judicial systems and scarce human resources
capabilities.

The recent experience of countries in transition shows that the assumption that a strong
system of corporate governance will appear automatically as a result of ownership
transformation is unrealistic. Even in developed market economies, differences in the
ownership structure and level of concentration or dispersion of owners influence the selection
and adjustment of corporate control mechanisms. For the countries in transition, the problem
of good corporate governance development becomes more complicated due to the
underdeveloped institutional infrastructure. For this reason there is a need for a careful
approach to governance restructuring so that a private sector can be formed, powerful enough
to realize successful economic transformations towards a market economy.
Efficiency of financial management in Bangladesh by follow code of corporate
governance 2006:
Board’s Size

The number of the board members of the company shall not be less than 5 (five) and

more than 20 (twenty): Provided, however, that in case of banks and non-bank financial
institutions, insurance companies and statutory bodies for which separate primary regulators
like Bangladesh Bank, Insurance Development and Regulatory Authority, etc. exist, the
Boards of those companies shall be constituted as may be prescribed by such primary
regulators in so far as those prescriptions are not inconsistent with the aforesaid condition.

Independent Directors

All companies shall encourage effective representation of independent directors on their

Board of Directors so that the Board, as a group, includes core competencies considered
relevant in the context of each company. For this purpose, the companies shall comply with
the following:-

(i)At least one fifth (1/5) of the total number of directors in the company’s board shall be
independent directors.

(ii) The independent director(s) shall be appointed by the board of directors and approved by
the shareholders in the Annual General Meeting (AGM).

(iii) The post of independent director(s) cannot remain vacant for more than 90 (ninety) days.

(iv)The Board shall lay down a code of conduct of all Board members and annual compliance
of the code to be recorded.

(v) The tenure of office of an independent director shall be for a period of 3 (three) years,
which may be extended for 1 (one) term only.

AUDIT COMMITTEE:

(i) The company shall have an Audit Committee as a sub-committee of the Board of
Directors.

(ii) The Audit Committee shall assist the Board of Directors in ensuring that the financial
statements reflect true and fair view of the state of affairs of the company and in ensuring a
good monitoring system within the business.

(iii) The Audit Committee shall be responsible to the Board of Directors. The duties of the
Audit Committee shall be clearly set forth in writing.
Appointment of independent auditors:
Independent auditing firms provide credibility to financial statements by examining the
evidence that underlies the information provided and then reporting on those findings.
Official oversight of the rules for this process is in the hands of the Public Company
Accounting Oversight Board (PCAOB) if the audited company issues securities to the public
and the Auditing Standards Board (ASB) if not. The role of the Securities and Exchange
Commission (SEC) is to ensure that this reporting process is working as intended by the
government. The SEC examines the filings of the various companies and can take
disciplinarian action if either the company or its officials fail to act appropriately.

General Meetings
The general meetings, in particular the AGM, are the primary for a for communication
between shareholders, management and the Board of Directors. Shareholders should be well
informed regarding general meetings and the meeting should be organized in a manner that
allows for maximum shareholder participation, subject to reasonable limitations, and
equitable treatment of shareholders. Shareholders have the right to receive information about
company resolutions, decisions, and operations described in a manner that can be understood
by a layperson. Companies should explain disclosures in detail and provide information about
the effect of such.

External Auditors
audit firms should not be engaged in accounting or non audit consulting in enterprises in
which they have been appointed as the statutory auditors. The exception is tax work, which
may be undertaken by the statutory auditors of a firm. If, however, any non-audit work is
performed by the statutory auditor, both audit and non audit fees paid to the audit firm should
be disclosed to shareholders. Auditors should not hold shares in companies they audit. If
auditors do hold shares in a company for which they are appointed as the statutory auditor,
the shareholding amount should be disclosed. A statutory auditor must not hold more than
1% of the shares of a company.

Internal Audit
All listed companies must have an internal audit function within the organization. Private
companies should consider establishing a system of internal controls if they do not have an
internal audit department. The internal audit department should have a broad scope of work
to investigate all levels of the organization and be independent from management, with direct
access to the Board of Directors and the Audit Committee. Directors must take adequate
action to protect the company and shareholders based on internal audit reports. The internal
audit department should have a letter from the board or chairman of the audit committee
giving it the authority to access any records in any location at any time.

Disclosures

The Board of Directors should present a balanced assessment of the company’s position and
prospects that may be understood by shareholders. All disclosures listed in this section should
be disclosed in a public announcement and made available to the public and to shareholders.
Quarterly unaudited results. Within 30 days after the end of the quarter, companies should
provide unaudited quarterly results. Interim announcements should be made available to
shareholders when a material event occurs. In addition to the material events required to be
disclosed by the Companies Act, Dhaka Stock Exchange, Chittagong Stock Exchange, and
SEC notifications, the following material events should be disclosed.

Responsibilities of Shareholders
Shareholders play an important role in the governing of any corporation. Shareholders should
take seriously their responsibilities. Shareholders should learn and exercise their shareholding
and voting rights in an appropriate and relevant manner. This includes the behavior of
shareholders and shareholder representatives at Annual General Meetings. Shareholders
should also be mindful of the legal rights and duties of directors and managing directors.

Responsibilities of Institutional Shareholders

Institutional shareholders are parties that control shares for the benefit of others, including
mutual funds, pension funds, other companies, and various government entities. Institutional
shareholders have a unique and important role to play in ensuring good corporate governance
and have an important responsibility to fiduciaries, the company, and other shareholders.
Institutional shareholders can be a powerful force for reform in company practices. In many
developed and emerging markets they play an important role in improving corporate
governance. Institutional investors have the key ingredients to motivate companies to change
practices: they should have staff qualified to evaluate financial statements, business strategy,
and company performance; they control large amounts of capital that must be invested; they
serve as a leading indicator to other investors; and they control blocks of shares which force
companies to take notice of their concerns.

Notice of Meetings
Meeting of the Committee shall be summoned by the Secretary of the Committee at the
request of any of its members or at the request of external or internal auditors if they consider
it necessary. Unless otherwise agreed, notice of each meeting confirming the venue, time and
date together with an agenda of items to be discussed, shall be forwarded to each member of
the Committee, any other person required to attend no later than [5] working days before the
date of the meeting. Supporting papers shall be sent to Committee members and to other
attendees as appropriate, at the same time.
Analysis

Corporate Governance is the major part in Bangladesh. Now a day’s corporate governance
has been emerged as an important issue for financial institutions in Bangladesh. In most of
the financial institution of Bangladesh, there is no employment contract, no agency
relationship. So day by day agency cost in increasing. To reduce the corporate problem,
corporate governance is now a major issue in financial institution. Performance of financial
public or private are directly related to economic development and social progress. Any
disruption in this area due to weak governance can cause misery and suffering to the people
in general and poor in particular. As such corporate governance has become a critical issue
closely related with the proper functioning of financial institution. Corporate governance
means a decision making process which maximizes value for the shareholders in a fully
transparent manner. For a group of people working in particular institution, CG is a culture
and for an individual it is an mindset. The concept of corporate governance mainly focuses on
transparency, accountability and fairness together with responsibility in making decisions for
the institution. In order to develop the society as well as the country sustainable development
of growth is necessary. Banks are playing a vital role in the financial sector. Corporate
Governance build confidence and trust among the depositors, investors. In order to get best
results in financial institutions particularly in bank corporate governance should include
accurate information in time on management activities good business practices, proper
accounting and central system and rigorous monitoring system. In corporate governance, the
Board will balance the interest of the shareholders with other stakeholders such as customers,
investors, suppliers and employees. There are three clearly defined areas in financial
institution such as shareholders, Board of Directors and Management. Globalization of trade
and commerce is also putting subtle pressure on local banks and other financial organizations
to adopt corporate governance which in turn help tap international market and expand their
business. IAS (International Auditing Standard) would help achieve quality in auditing to
reflect greater accountability of corporate management and transparency of published
financial information. In Bangladesh context, the application of IAS would not only benefit
the investors but restore financial discipline through more objective disclosures. Finally,
countries that fail to induce and implement corporate governance in financial institutions
particularly in Banks will remain prove and susceptible to potential crisis and place their
economy at significant disadvantage.
3. Conclusion:

One of the challenges faced by both corporate governance and by organizations that intend to
provide enabling frameworks for good corporate governance is the complexity of the
relationships that exist between companies on one side and their shareholders, stakeholders
and gatekeepers on the other side. This complexity seems to be one of the main reasons why
corporate scandals still occur, despite the existence of corporate governance and the sustained
efforts by national as well as cross-national regulators over the last decades to improve
corporate governance. The recent credit crunch is a reminder that corporate governance at
company and industry level, as well as regulation on corporate governance more widely, is
deficient in the sense that it does not properly deal with the complex nature of these
relationships and the potential conflicts of interests therein. Capital market over the last few
years has not only failed their shareholders, but also their customers, the taxpayer and society
at large. The fact that capital market failures have to a large degree been concentrated
corporate governance.