1

CHAPTER 1 INTRODUCTION The term corporate governance indicates so many important things. Depending on its compliance level many important decisions is taken by different regulatory authority, potential investors and stakeholders. The word corporate governance has become a buzzword due to the Asian financial crises in 1997-98, the activities of the corporate sector affected entire economies, and deficiencies in CG endangered the stability of the global financial system. In general, CG deals with laws, procedures, practices and implicit rules that determine companys ability to take managerial decisions vis--vis its claimantsin particular, its shareholders, creditors, customers, the State and employees. However, a somewhat broader definition would be to define CG as a set of mechanisms through which a single country or firms within a country operates when ownership is separated from management. Therefore, corporate governance is the system by which companies are directed and controlled.

1.1 Problem Statement: Accurate and proper information helps different party to take the best decision for themselves and society and ensure greater return from the limited resources. Good corporate governance can make this flow of information much easier and reliable for the users. This report is to find out whether Southeast bank do the proper corporate governance or not?

1.2 Objectives of the Study: The main purpose of the study is to find out whether the mentioned bank discloses necessary and proper information regarding its corporate governance. Corporate governance is one of the major parts of the annual report. Investors take decisions to invest in the organization based on the compliance level. So they need reliable, relevant and comparable information. The study has been done for finding the nature and level disclosures of corporate governance.

Other objectives are: Find out the compliance of disclosure requirements by the commercial banks in Bangladesh. Finding the discrepancies between disclosures of the entity and the disclosure requirements. Helping users of the financial statements identify nature of the disclosures regarding corporate governance. Finding whether the organizations are providing financial information for the users who make economic decisions based on the information.

1.3 Scope of the study: This study has been done on Southeast Bank Bangladesh Ltd. Because all stakeholders cannot afford to get the information from the organizations, they have to be given appropriate information. So they have to depend on the only published documents. The main published document by the organization is annual report. Now- a-days banking business in our country is in upper trend. Most of the investors invest their large portion of their capital in this industry. To invest in an organization, the investor needs to know whether the organization will run for a long time or not.

1.4 Methodology of the study: Mainly, secondary data has been used for the study. Annual report of the bank has been collected from the bank. The annual report was for the year of 2010 as this was the most recent year for which annual report was available at the time of the study. The annual report is examined to find out level disclosures regarding corporate governance. For the purpose of the study literature review is done in some cases.

1.5 Limitations of the Study: Every researcher faces limitations during his research work. No exception has happened either in my case. As this study has some limitations the reader of this report should be informed about these limitations which are as follows: I did this type of work for the first time. Thats why lack of practical knowledge has created great difficulties. This kind of work needs expertise to analyze data. As a first practical work I found some difficulties in analyzing data. I tried my level best to analyze the data & tried to provide effective presentation. Time is very essential for case study for any particular organization. I tried very hard to make an effective report though facing those problems. A questionnaire survey might provide better result for the analysis but this has not been done due to short of time.

CHAPTER 2 LITERATURE REVIEW

2.1 Introduction: There is a global consensus about the objective of good corporate governance: maximizing long term shareholder value. Since shareholders are residual claimants, this objective follows from a premise that, in well performing capital and financial markets, whatever maximizes shareholder value must necessarily maximize corporate prosperity, and best satisfy the claims of creditors, employees, shareholders, and the State. Since the concept of government controlling the economy is gradually eroding, it has made the market a decisive factor in settling economic issues. This has also coincided with the thrust given to globalization because of the setting up of the WTO and every member of the WTO trying to bring down the tariff barriers. Globalization involves the movement of four economic parameters namely, physical capital in terms of plant and machinery, financial capital in terms of money invested in capital markets or in FDI, technology, and labor moving across national borders. The pace of movement of financial capital has become greater because of the pervasive impact of information technology and the world having become a global village. When investments take place in emerging markets, the investors want to be sure that not only are the capital markets or enterprises with which they are investing, run competently but they also have good corporate governance. CG represents the value framework, the ethical framework and the moral framework under which business decisions are taken. In other words, when investments take place across national borders, the investors want to be sure that not only is their capital handled effectively and adds to the creation of wealth, but the business decisions are also taken in a manner which is not illegal or involving moral hazard Corporate governance therefore calls for three factors: 1. Transparency in decision-making; 2. Accountability which follows from transparency because responsibilities could be fixed easily for actions taken or not taken, and; 3. The accountability is for the safeguarding the interests of the stakeholders and the investors in the organization. Over the last few years different country groups have been establishing their own common set of benchmarks for corporate governances, for instance, the OECD Council
6

called upon the OECD to develop a set of CG standards and guidelines and published in May 1999 a common set of guiding principles on corporate governance for all OECD member countries.

To institutionalize CG practice, OECD has introduced following principles are: Rights of shareholders: 1. Recognition of basic shareholder rights. 2. Shareholders have the right to participate in decisions concerning fundamental corporate changes. 3. Voting rights of shareholders. 4. Disclosure of disproportionate voting rights of certain shareholders to obtain a degree of control. 5. Markets for corporate control should be allowed to function. 6. Shareholders should consider the costs and benefits of exercising their voting rights. Equitable treatment of shareholders 1. All shareholders of the same class should be treated equally. 2. Insider trading and abusive self-dealing should be prohibited. 3. Board members and managers should disclose material interests. Role of stakeholders 1. Assure that rights of stakeholders are protected by law. 2. Stakeholders should have the opportunity to obtain effectiveness redress for violation of their rights. 3. Permit performance-enhancing mechanisms for stakeholder participation. 4. Stakeholders should have access to relevant information in the corporate governance process. Disclosure and transparency 1. Scope of material information to be disclosed 2. Information should be prepared in accordance with high accounting standards 3. Annual audit should be conducted by an independent auditor 4. Fair, timely and cost-effective means of disseminating information Responsibilities of the board 1. Board members should act on the best interest of the company with due diligence and care 2. The board should treat all shareholders fairly
7

3. The board should ensure compliance with the law and take account the interest of stakeholders 4. Definition of key functions of the board 5. The board should exercise objective judgment independent from management However, members of APEC considered that the OECD guidelines have the problem of one size cannot fit all and some may be applicable to some, but not all. APEC countries therefore called upon the Pacific Economic Cooperation Council (PECC) to develop a set of guidelines which were in line with the OECD principles. The APEC guidelines can be considered as a middle step for emerging markets to achieve a better practice of good corporate governance. This set of guidelines forms the standard for individual Governments, regulatory bodies and professional bodies to develop their agendas and with a view to setting up acceptable codes of practice. 2.2 Literature Review: Batra, Kaur and Dangwal (2007) argue that in order to achieve high standards of corporate governance, internal pressures such as peers and market competition should be more effective than enforcement by regulating agencies. It is also imperative that the regulators should expand their role and take effective measures to propagate the concepts of best practices in ushering an era of good corporate governance. Hoffman, Frederick and Schwartz (2001) tried to address whether a corporation has a conscience and how ethical governance and managed care can coexist. They stressed the need for corporate morality. Shah and Haq (2007) undertook an empirical study and found that in the cement sector of Pakistan, corporate governance structure variables such as percentage block holding by individual and family members, board size and firm size have a positive impact on firm performance. They concluded that the firms performance is adversely affected if the CEO also acts as chairperson of the board of directors; the percentage of block holdings by financial institutions has a negative relationship with performance; the size of the firm has a positive impact on firm performance and the expected leverage is an adverse signal for firm performance. Imam and Malik (2007) find in Bangladesh that foreign holdings are increasing in those firms that have good governance. They observe a positive relationship between institutional ownership and firm performance suggesting that institutional shareholders
8

have the incentive as well as the power to monitor and control the behavior of firms, and have played a significant role in corporate governance. The role of large institutions in corporate governance is particularly important in countries where legal protection of shareholders interest is weak for historical and institutional reasons. Jongsureyapart and Wise (2007) found that the roles and effectiveness of the board of directors of Thai listed companies have to the drive by the regulators to develop more independent boards. They commented that corporate governance in Thailand is generally regarded as having improved since financial crisis and outside directors are identified as playing leading role. Talukdar (2007) pointed out that Bangladesh Bank through issuance of its circular the chairman of the board of directors (or chairman of any committee formed by the board or any director) does not personally possess the jurisdiction to apply policymaking or executive authority, he shall not participate in or interfere into the administrative or operational and routine affairs of the bank. Whereas the CEO will be responsible to implement the policies taken by the board and look after administrative works. Bangladesh bank has directed the bank to establish an audit committee comprised by the board of directors. Ahmed, Alam, Jafar, Zaman (2008) argued that the weakest link among all corporate governance mechanisms adopted in Bangladesh is concentrated on ownership structure. The listed firms need to take greater efforts to streamline their ownership. Floating all shares and selling off government ownership stakes is the right way to go. The level of corporate governance is strictly subject to the level of public governance and the constraints of existing institutional infrastructure. Bangladesh should take concrete measures to reform the government and continue to build a solid institutional infrastructure. While these factors will make the markets more effective in disciplining the dominant shareholder, there are many things that the government and the regulators are yet to do to enhance this ability. Ahmed and Yusuf (2005) argue that there has been failure in most of the elements of CG. 20 Some of these individual elements can be portrayed with a view to seeing their weaknesses in implementing CG: Corporate ownership structures: All corporate governance systems revolve around four core principles: Fairness, accountability, responsibility and transparency. The specific challenges of upholding these principles depend on the ownership structure of the corporate sector.
9

However, in Bangladesh, general practice is that the corporate structure is dominated by family members. Such practice hinders the level of fairness, accountability and transparency. Most of the companies in Bangladesh depend on the banks as their major source of financing. Capital market in Bangladesh is still at an emerging stage with market capitalization amounting to only 6.5% of GDP with low investor confidence on corporate governance and financial disclosure practices in many companies listed in the stock exchanges. The neighboring countries are well ahead vis--vis Bangladesh in terms of depth of capital market. For example, in India, Pakistan and Sri Lanka, the market capitalization is 56%, 30% and 18% of their GDP respectively. Nevertheless, the past few years have witnessed a silent inclination towards CG due to a variety of forces that are acting today and would become stronger in years to come: Deregulation: Economic reforms have not only increased growth prospects, but they have also made markets more competitive. This means that in order to survive companies will need to invest continuously on a large scale. Disintermediation: Meanwhile, financial sector reforms have made it imperative for firms to rely on capital markets to a greater degree for their needs of additional capital. Institutionalization: Simultaneously, the increasing institutionalization of the capital markets has enhanced the disciplining power of the market. Globalization: Globalization of Bangladeshs markets has exposed issuers, investors and intermediaries to the higher standards of disclosure and CG that prevail in more developed capital markets. Inadequate Bankruptcy Laws: Bankruptcy laws and processes are inadequate in terms of provisions and not strong in terms of enforcement in Bangladesh. No country can have good CG standards with poor bankruptcy laws and processes. Besides, inefficient foreclosures and securitization processes have compounded the problems in Bangladesh. Lack of initiatives to drive for CG from the International Investor Community: Most companies in Bangladesh have a pessimist approach in attracting foreign investment. As a result, there is a lack of drive from the international investor community for better corporate governance. Level of penetration of Bangladeshi companies in the foreign stock exchanges is also very low. Lately though,

10

BEXIMCO Pharmaceutical Company has been given with the clearance by SEC for listing with the London Stock Exchange. Accounting standards, audit and disclosure: The scenario of internal audit; accounting standards and disclosure and its impacts on CG and management practices in Bangladesh are mixed. There are now elements of both positive scopes and new challenges and risk for the corporations in these areas. Following the tradition of English law, Bangladesh accounting standards are not based on codified law, but rely on Generally Accepted Accounting Principles (GAAP) developed by accounting profession. These principles are primarily shareholder oriented and are independent of tax considerations. In Bangladesh the companies have to make disclosure of information required by law. Disclosure requirements for Initial Public Offerings are defined by the Companies Act and the orders under the Securities and Exchange Ordinance, 1969. Periodic disclosure requirements are mentioned in the Securities and Exchange Rules, 1987. Inconsistency between Companies Act, BAS and SEC Requirements: The companies Act, 1994 provides, among others, provisions regarding preparation and publication of financial statements, disclosures and auditing. However, in many cases, the Act lacks clarity with regard to statutory requirements on disclosures in the financial statements of listed companies. Moreover some accounting requirements mentioned in the Act are incompatible with International Accounting Standards (IAS) which is required by the SEC. For example, contrary to IAS, the Companies Act requires capitalization of gains and losses arising from changes in foreign exchange rates under all circumstances. Another inconsistency is that the Companies Act does not require a consolidated balance sheet for a holding company but it is required under the IAS. Inconsistencies between IAS and the Companies Act need to be eliminated. Limited or No Disclosure regarding Related Party Transactions: Related party transactions are not disclosed properly in the financial statements. It is an impediment towards achieving good CG in Bangladesh. Weak Regulatory System: Bangladesh still follows the hybrid system of legal system inherited from the British administration. Currently, the Companies Act of 1994 is the law that governs the incorporated domestic corporations and institutions. The other significant laws which has important role in governing the corporate sectors are: Securities and Exchange Ordinance 1969, Bangladesh Bank
11

Order 1972, Bank Companies Act 1991, Financial Institutions Act 1993, Securities and Exchange Commission Act 1993 and the Bankruptcy Act 1997. Therefore, weak regulatory system along with board interference with the management retards the improvement of CG in the country. Capital Market Role: Capital market facilitates good governance through information production and monitoring. 28 The capital market of Bangladesh consists of two stock exchanges: Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE). Bangladesh does not have depth in its equity market. The capital market of Bangladesh is still a weak link in the movement towards strengthening CG. The overall performance measures of its stock market show low trading volume, intermittent bumps, not many new offerings and unsteady valuations more on the declining side than otherwise.29 The stock market scandals in 1996 have seriously eroded investor confidence in the stock market.30 One vital aspect is that capital market in Bangladesh does not react significantly to corporate performance in terms of higher stock valuation for accurate disclosure and poor stock price for failure of accurate and full disclosure. There is little incentive in becoming a public company and listing on the stock exchange in Bangladesh. Companies with good reputations can get bank financing relatively easily than through share issue. Moreover, there are no bonds, fixed income or debt instruments in the capital market. This means there are no pressure groups for enforcing CG principles. Unlike the private mutual funds, the state owned investment company Investment Corporation of Bangladesh (ICB) has not, until recently, been required to publish the net asset value of its mutual funds or submit performance reports to the SEC. General Meeting Scenario: General meetings of a company, in particular the Annual General Meeting (AGM) are the primary platform where shareholders can raise their concerns and make their influence felt over the management towards attaining good governance. Although a good number of provisions in the Act provided sufficient leverage to allow shareholders a voice in companies, most companies in Bangladesh, are closely held. Small groups of shareholders own or control the majority of shares, and by using that majority, control the decision making processes of the companies. 34 In number of studies it has been found that there is a negative correlation exists between good CG and defaulting in holding annual general meetings in due time.
12

 Board Committees: Board committees (audit, remuneration and nomination) are of critical importance in CG. Audit Committee is now being treated as a principal player in ensuring good CG and rebuilding public confidence in financial reporting. The roles of Audit Committee, among others are: monitoring integrity of financial statements, reviewing internal financial controls, recommending appointment of external auditor and reviewing auditor independence and objectivity and audit effectiveness. The Remuneration Committees responsibilities include establishment and review of the Managing Directors remuneration package and senior management salary packages. Remuneration Committee assists the Board to attract, retain and motivate high caliber executives and director through proposing remuneration that commensurate to their performance. Despite significant importance of the board committees (as described), few boards (except for banks) has Audit Committees and almost none have nomination or Remuneration Committees in Bangladesh. The Boards of Directors: The Companies Act, 1994 provides for many stringent rules in respect of any negligence, default, breach of duty or trust on the part of director, manager or officer of a company. However, experience suggests that these are more honored in the breach than observance. In an overwhelming majority of the non-bank listed companies, the board is heavily dominated by sponsor shareholders who generally belong to a single family. The boards are actively involved in management. Most independent directors represent current or former government officials or bureaucrats. They are appointed directors to assist company in getting licenses or as payback for previous favors. In the context of Bangladesh, independent directors do not act as an advocate for minority shareholders or as a source of innovative ideas. Lack of Shareholder Activism: Shareholder rights are today recognized in countries across the globe as relevant to efforts for improving and strengthening CG. The average non-controlling or minority shareholders do not possess significant level of education, understanding and sophistication required to exert pressure on a company to change behavior. The number of shareholders with sufficient knowledge and skills to understand company operations and to hold management and the board of directors accountable is very low. Moreover, general shareholders do not pay attention on issues of performance, business strategy, and future business plans, disclosures and processes that could give them
13

a greater voice in the policy decisions of a company. In fact, there is very little awareness about shareholders rights and responsibilities. Shareholders activism is still an illusion in Bangladesh. No Market for Corporate Control: A market for corporate control plays an important monitoring function in CG, as poorly managed companies will become takeover targets. In Bangladesh, there seems to have no market for corporate control. Weak Pressure Groups: Shareholders, investor associations, institutional investors and the financial press can play significant role in ensuring better CG. Each of these potential pressure groups is weak in Bangladesh. The numbers of journalists who possess knowledge on financial reporting are limited and there are lacks of investigative reports. Similarly public shareholders are not organized under a common platform (such as shareholder associations) to demand better corporate governance. Unlike institutional investors in most capital markets across the globe, the few State-owned Enterprises (SOEs) lack performance spirit and motivation to force companies to improve CG as well as performance. Lack of Auditor Independence: Auditors in Bangladesh are not considered independent or sufficiently qualified to attest to the validity of the financial statements of corporate entities. A study shows that 64.4 percent of the companies conduct regular audit for effective implementation of the core labor policies. Of the companies which audit the implementation of core labor policies, 91.1 percent meet their labor policy objectives. Only 2.2 percent of the companies confessed that they make unfair dismissals and 4.4 percent of the companies confessed that they violated labor laws in last 5 years. Around 67 percent of companies have a formal policy to ensure clean, healthy and safe working conditions. Procedures to implement policy and specific assignment to senior management for implementation are found only in 26.7 percent of the companies. Poor Audit Report: Audited financial reports are rarely reliable and free from the control of the owners. Despite irregularities (in respect of non compliance with the applicable IASs) in the audit report, the auditors issue unqualified audit report on the financial statements. Above scenarios suggest that for effective CG a clear understanding of the respective roles of the board and of senior management and their relationships with others in the

14

corporate structure. Removing these weaknesses requires appropriate reform and implementation thereof are highly necessary in Bangladesh. Following policy is intended to clarify these relationships and responsibilities and to promote effective CG: Disclosure of information should be the pre-requisite for the shareholders or for the capital market to act against errant managements. The regulator can enhance the scope, frequency, quality and reliability of the information that is disclosed. Regulatory measures that promote an efficient market for corporate control would create an effective threat to some classes of dominant shareholders as discussed earlier. Reforms in bankruptcy and related laws would bring the disciplining power of the debt holders to bear upon recalcitrant managements. Large blocks of shares in corporate Bangladesh are held by public sector financial institutions who have proved to be passive spectators. These shareholdings could be transferred to other investors who could exercise more effective discipline on the company managements. Alternatively, these institutions could be restructured and privatized to make them more vigilant guardians of the wealth that they control.

2.3 Significance of the Study Effective implementation of corporate governance helps the organization to gain the trust of the stakeholders. The information disclosed by organization in its annual report and other supporting documents helps the stakeholders to identify the level of corporate governance the organization is maintaining. Different regulatory authorities exist in our country to make things happen regarding the corporate governance in different organizations. The information disclosed in the annual report regarding corporate governance is used by different authorities for different purposes.

15

2.4 Conclusion Now the operations of different types of organization specially banking organizations are spreading and becoming more complex. Without proper implementation of corporate governance operating activities in the competitive world will become hard and difficult. So organization must try to comply with proper corporate governance. This report is to focus on how Southeast Bank maintains its corporate governance towards all the people connecting to its banking operations.

16

17

CHAPTER 3 AN OVERVIEW OF SOUTHEAST BANK LTD.. Southeast Bank Limited was established in 1995 with a dream and vision to become a pioneer banking institution of Bangladesh and contributes significantly to the growth of the national economy of the country. The Bank was established by leading business personalities and eminent industrialists of the country with stakes in various segments of the national economy. The incumbent Chairman of the Bank is Mr. Alamgir Kabir, FCA, Mr. M. A. Kashem a member of the Board and Mr. Yussuf Abdullah Harun were past Presidents of the Federation of Bangladesh Chamber of Commerce and Industries (FBCCI). Southeast Bank is run by a team of efficient professionals. They create and generate an environment of trust and discipline that encourages and motivates everyone in the Bank to work together for achieving the objectives of the Bank. The culture of maintaining congenial work - environment in the Bank has further enabled the staff to benchmark themselves better against management expectations. A commitment to quality and excellence in service is the hallmark of their identity. Southeast Bank takes pride for bringing women into the banking profession in a significant number for gender equality. At present, 32% of SEBL's employees are women that will rise to 45% over the next five years. The Board of the Bank believes that strong corporate governance is a priority for the bank, essential for good risk management and maximizing value to stakeholder

18

19

CHAPTER 4 CORPORATE GOVERNANCE OF SOUTHEAST BANK LTD.

At Commercial Bank the Corporate Governance framework is designed enabling it to deliver sustainable value, enhancing a culture of business integrity and investor confidence. In pursuit of the highest standards of Corporate Governance, the Board of Directors of Southeast Bank applies a governance approach structured to identify the key practical issues covering areas such as the rights and equitable treatment of shareholders and other financial stakeholders, the role of non-financial stakeholders, disclosure and transparency, and the responsibilities of the Board of Directors. This framework has also been structured based on the guidance provided in the good Corporate Governance practices recommended by the regulatory bodies such as the Bangladesh Bank, the Securities and Exchange Commission Bangladesh, the Dhaka Stock Exchange and The Institute of Chartered Accountants of Bangladesh. The Board of Southeast Bank also believes that strong Corporate Governance is a priority for the Bank as it presents opportunities to manage risks, add value to its stakeholders and in essence serves several other purposes including the following: To enhance shareholder value whilst being ethical, transparent, professional and accountable to the society and the environment. To establish and preserve management accountability to its stakeholders by appropriately distributing rights and responsibilities among the Board members, managers and shareholders. To provide a structure through which the Board and the management sets objectives and monitors performance. To strengthen and safeguard our culture of business integrity and responsible business practices. To encourage the efficient use of resources, and to require accountability for stewardship of those resources

20

Statement of Compliance The disclosures below demonstrate Southeast Banks adherence to disclosure requirements of the Banking Act Direction No. 11 of 2007 on Corporate Governance for Licensed Commercial Banks issued by the Bangladesh Bank, and subsequent amendments thereto and the Section 7.10 of the Continuing Listing Requirements issued by the Dhaka Stock Exchange. The following disclosures also indicate the level of conformance to the Code of Best Practice on Corporate Governance, issued jointly by the Securities and Exchange Commission of Bangladesh and The Institute of Chartered Accountants of Bangladesh in 2008. Further to the above, Board of Directors to the best of their knowledge and belief is also satisfied that all statutory payments due to the Government, other regulatory institutions and related to the employees, have been made on time. Corporate governance rules Banks Response

The Board of Directors of a listed company shall include at least (i) Complied With Two Non-Executive Directors; or (ii) Such number of NonExecutive Directors equivalent to one-third of the total number of Directors whichever is higher. The total number of Directors is to be calculated based on the Complied With number as at the conclusion of the immediately preceding Annual General Meeting. Any change occurring to this ratio shall be rectified within ninety Not applicable (90) days from the date of the change. The Board shall require each Non-Executive Director to submit a Complied With signed and dated declaration annually of his/her independence or non-independence against the criteria specified in the Code. The Board shall make a determination annually as to the Complied With independence or non-independence of each Non-Executive Director based on such declaration and other information available to the Board and shall set out in the Annual Report the names of Directors determined to be independent. In the event a Director does not qualify as independent against any Complied With of the criteria set out in 7.10.4, but if the Board, taking account all
21

the circumstances, is of the opinion that the Director is nevertheless independent, the Board shall specify the criteria not met and the basis for its determination in the Annual Report. In addition to disclosures relating to the independence of a Director Complied With set out above, the Board shall publish in its Annual Report a brief rsum of each Director on its Board, which includes information on the nature of his/her, expertise in relevant functional areas. The Remuneration Committee shall comprise a minimum of - Complied With (i) Two Independent Non-Executive Directors (in instances where a company has only two Directors on its Board); or

(ii) Non-Executive Directors a majority of whom shall be independent, whichever shall be higher. The remuneration committee shall recommend the remuneration Complied With payable to the Executive Directors and Chief Executive Officer of the listed company and/or equivalent position thereof, to the Board of the listed company, which will make the final determination upon consideration of such recommendations. The Annual Report should set out the names of Directors (or Complied With persons in the Parent Companys Committee in the case of a Group Company) comprising the Remuneration Committee, contain a statement of the remuneration policy and set out the aggregate remuneration paid to Executive and Non-Executive Directors. The term remuneration shall make reference to cash and all non-cash benefits whatsoever received in consideration of employment with the listed company (excluding statutory entitlements such as Employees Provident Fund and Employees Trust Fund). The Audit Committee shall comprise a minimum of: Complied With

(i) two independent Non-Executive Directors (in instances where a company has only two Directors on its board) or

(ii) Non-Executive Directors a majority of whom shall be independent, whichever shall be higher. One Non-Executive Director shall be appointed as Chairman of the Complied With Committee by the Board of Directors.
22

The Committee shall make a determination of the independence of Complied With the auditors and shall disclose the basis for such determination in the Annual Report. The Annual Report shall contain a report by the Audit Committee, Complied With setting out the manner of compliance by the Company in relation to the above, during the period to which the Annual Report relates. Tests carried out to determine independent status: (i) Whether a Director uses his position (e.g. long-standing position or other influential position) to influence the Board to take decisions, to his benefit or according to his wishes or against the wishes of the majority of the other Directors or against the interests of the Bank. (ii) Whether he uses his position to prevent the other Directors from expressing their views and opinions at the Board meetings or at any other discussions. (iii) Whether the views of the others (Directors, professionals etc.) are disregarded or ignored. (iv) Whether the matters are only referred to such Director for a decision, generally or as a practice, without referring these matters to other Directors. (v) Whether the other Directors feel that their presence and their contribution is immaterial. (vi) Whether the Directors are not given an opportunity to assess the performance of the Board, which includes the performance of every single Director. (vii) One reason for non-existence of team spirit is undue influence of one or more Directors. The test used is whether there is adequate team spirit in the Board. (viii) Whether there is a practice to refer matters, which can be dealt with at a lower level, to such Director. (ix) Whether third parties deal with such Director on matters which can be easily finalized by any other party at a lower level. (x) With regard to facilities given to any group (e.g. CIC Group), whether the Director concerned does not participates in the related Board decisions.

23

24

CHAPTER 5 CG PERFORMANCE EVALUATION OF SEBL

By observing the disclosure in the previous chapter, we can take the following decision about the corporate governance performance of Southeast bank Ltd. Evaluation of Boards Performance: Boards performance is evaluated annually, by each and every Director anonymously against the following criteria: Discharge of statutory regulatory duties. Discharge of other responsibilities of the Board. Corporate governance. Risk management monitoring. Seeking and contributing views and opinions on strategic decision making. Leveraging the skills, expertise of individual Board Members in furtherance of business. Understanding the compensation philosophy To retain and motivate staff in a manner appropriate for the business. Understanding the succession plans to ensure comprehensive staff succession To ensure talent availability and address expectations of high potential and high quality staff. Overall view of management of the business by the Board of Directors.

Corporate Behavior: In the broadest sense, Corporate Governance is concerned with maintaining the balance between economic and social goals and between individual and communal goals. Hence, the Bank being a responsible corporate citizen understands its commitment towards its stakeholders and society at large. Our strategies flourish a sustainable business beyond making a profit or being the best, and spell out that it will engage in ethical business practices and thereby seek to create value for a variety of stakeholders, including shareholders, employees, customers, service providers, communities, and the natural environment.

25

Responsibility to Environment: Social Responsibility is regarded as an integral part of our strategy execution and business decision making process and is prominently placed in the Banks corporate priorities and core values. For the first time, it was a great pleasure to present in this Annual Report, the Sustainability Supplement based on the Global Reporting Initiative (GRI) Guidelines. The Bank has implemented a Social and Environmental Management System which is more fully described in the Sustainability Supplement on the Annual Report of the bank.

Relationship with Shareholders: During the year under review, the Bank strengthened its enduring relationship with the Shareholders through provision of accurate and timely information. Such communications include publishing its quarterly results and periodical announcements released to the Dhaka Stock Exchange and continuous dialogues with institutional investors. Further, participation in a number of investor forums facilitated the Bank to promote investments from large private investors, locally and internationally. This Annual Report too is designed to serve as an effective means of communication and information of our business which will be amplified further with additional clarifications to be provided at the Annual General Meeting.

IT Governance: Information Technology Governance which forms an integral part of the Banks Corporate Governance, deals primarily with optimizing the linkage between Strategic Direction and Information Systems Management of the Bank. In this regard, implementation of the organizational structure with well defined roles for the responsibility of information, business processes, applications, infrastructure, etc, generates value for our stakeholders while mitigating the risks associated with incorrect deployment and use of Information Technology. The Bank arguably has implemented one of the best IT Governance across the industry.

26

Performance Governance: The Banks Target Driven Performance Culture has motivated our employees to push the bar higher and higher. The Banks strategy of rewarding its team members whenever targets have been met or exceeded has been highly successful. Compensation and benefit management differentiates between various levels of performance and motivates the Banks staff to exceed stated targets and to perform as a team. The goal is to produce a continuous superior performance through a highly motivated workforce. The sustainability of the Banks performance depends on an on-going optimum alignment between the passion of our staff to exceed targets and the Banks unceasing efforts to raise the performance bar. The Audit Committee assists the Board of Directors in fulfilling effectively its responsibilities relating to financial and other connected affairs of the Bank. The Committee has been empowered to: Examine in any manner issues relating to the financial and other connected affairs of the Bank Monitor all Internal and External Audit and Inspection Programmes, review Internal and External Audit/Inspection Reports and follow up all

recommendations Review the efficiency and the effectiveness of the Internal Control Systems and Procedures in place and the adequacy of such controls Review the quality of Accounting Policies, their adherence to Statutory and Regulatory Compliance and applicable Accounting Standards Review the Banks Annual Report and the Accounts and the Interim Financial Statements prepared for publication, before submission to the Board Ensure that the Banks policies are firmly committed to the highest standards of Good Corporate Governance practices and its operations conform to the highest ethical standards, accepted industry practices and in the best interests of the stakeholders. Regulatory Compliance: Compliance with Mandatory Banking and other Statutory Requirements and the procedures in place to monitor compliance requirements have been under close scrutiny. The Committee monitors all requirements through the Quarterly Reports submitted to the Committee by the Corporate Management.

27

Internal Audit and Inspection: With the concurrence of the Board of Directors, the Bank continued to engage the services of the firms of Chartered Accountants approved by the Bangladesh Bank supplement the Banks Inspection Department in carrying out branch inspections. The Program of Inspection has been formulated and the Committee regularly reviews and monitors the internal audit and the inspection functions. Over 320 audit and inspection reports on Branches and Head Office Departments were examined and the operational deficiencies and lapses observed and the recommendations followed up. Some of the Branches were visited by the Members of the Committee to get a better understanding of the Branch operations.

External Audit: The Committee assists the Board of Directors to implement the process of engaging external auditors and agreeing to their remuneration with the approval of the Shareholders, implementation of Bangladesh Bank guidelines issued to Auditors from time to time and the application of the relevant accounting standards. The Committee also reviewed the non-audit services provided by the Auditors to ensure that such functions do not fall within the restricted services and provision of such services does not impair the External Auditors independence and objectivity. The Committee met with the External Auditors prior to commencement and at the conclusion of the Annual Audit to discuss audit scope, approach and methodology adopted, findings and the significant issues arising out of the audit. Non-Executive Directors had separate meetings with Auditors without any executive being present, to ensure that they had the independence to express their opinion on any matter. The Auditors Management Letter together with the Managements responses thereto and the audited Financial Statements were reviewed with the Auditors.

Internal Controls: The Committee regularly examined the major decisions taken by the Assets and Liabilities Committee, Credit Policy Committee, Integrated Risk Management Committee, all exceptional items charged to the Income Statement, long outstanding items in the Banks Chart of Accounts, Credit Quality and adherence to classification of
28

non-performing loans and advances and provisioning requirements specified by the Bangladesh Bank. Credit monitoring and follow up procedures too were reviewed. The internal control procedures in place for selected processes were carefully studied and their effectiveness evaluated.

Good Governance: Highest standards in Good Corporate Governance and strict adherence to the Banks Code of Ethics are ensured. Through the Code of Ethics and a Whistle Blowers Charter all staff have been educated and encouraged to resort to whistle blowing, when they suspect wrong doings or other improprieties. The Committee also ensures that all appropriate procedures are in place to conduct independent investigations into all such reported or identified incidents. Maintenance of strict confidentiality of the identity of whistle blowers is in place.

29

30

CHAPTER 6 CONCLUSIONS & RECOMMENDATIONS

As a local bank Southeast bank has its own reporting and disclosure requirements. After conducting my study, I found that the bank is trying to concentrate on corporate governance more than that of other local banks because it may be considering the expansion of its operations throughout the country. Effective and efficient corporate governance helps to prevent any type of accounting scandals. The top level management is accountable to shareholders for proper usage of the resources of the firm. Top level management acts as agent appointed by shareholders. By nature, the management may try to act for own interest which in another way might not be best for shareholders. So, management should always be monitored by shareholders, related regulatory authorities. The Board of Directors operates its operations in Bangladesh through management committee which includes 15 members. Responsibility of the board members mentioned specifically in the annual report. Chairmans statement, Company prospect details are mentioned in the annual report. Southeast Bank operates under a double bottom line agenda where Banks sustained growth objectives and social responsibility go hand in hand as it strives towards a poverty free, prosperous Bangladesh. The Bank considers CG & CSR activities not as a voluntary service but incorporates this with core Banking operation as long term sustainable ongoing process with a view to increase Banks brand image. In other words, the Bank strives to establish corporate governance as a key strategy for corporate excellence in banking to maximize stakeholders benefit. Other activities, whether it is a donation to a hospital, providing fund for sporting events or a contribution during natural calamities, SEBL and its CV activities reach the elements of the society for helping the people.

31

BIBLIOGRAPHY Hossain, D. Mahboob and Khan, A. Rahman, (2006), Disclosure on Corporate Governance Issues in Bangladesh: A Survey of the Annual Reports, The Bangladesh Accountant, January-March, 2006, pp. 95-99.

Sanford, M. Jacoby, (2001), Corporate Governance in Comparative Perspective: Prospects for Convergence, Comparative Labor Law & Policy Journal, October, 2001.

Turnbull, S., The science of corporate Governance, Macquarie University, Sydney.

Wise, V and Ali, M. Mahboob, (2009), Corporate Governance and Corporate Social Responsibility in Bangladesh with special Reference to Commercial Banks.

Annual report, (2010), Southeast bank.

Corporate Governance in Bangladesh: How Best to Institutionalize it, Critical Practices and Procedures (Study report).

32