WHAT IS CORPORATE GOVERNANCE?

Corporate governance refers to the structures and processes for the direction and control of companies. Corporate governance concerns the relationships among the management, Board of Directors, controlling shareholders, minority shareholders and other stakeholders. Good corporate governance contributes to sustainable economic development by enhancing the performance of companies and increasing their access to outside capital.

WHY IS CORPORATE GOVERNANCE IMPORTANT? For emerging market countries, improving corporate governance can serve a number of important public policy objectives. Good corporate governance reduces emerging market vulnerability to financial crises, reinforces property rights, reduces transaction costs and the cost of capital, and leads to capital market development. Weak corporate governance frameworks reduce investor confidence, and can discourage outside investment. Also, as pension funds continue to invest more in equity markets, good corporate governance is crucial for preserving retirement savings.

I.

Mission of the Board of Directors: The Board of Directors should lead and oversee

strategy and policy of the company and provide direction to the management. Board actions should be in the best interests of the company and shareholders. II. Independent Directors: All companies should 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. At least one tenth (1/10) of the total number of the companys board of directors, subject to a minimum of one, should be independent directors. III. Boards Size: The number of the board members of the company should not be less

than 5 (five) and more than 20 (twenty). However, that in the case of banks and non-bank financial institutions, insurance companies and statutory bodies for which separate primary regulators like Bangladesh Bank, Department of Insurance etc. exist, the Board of those companies should be constituted as may be prescribed by such primary regulators in so far as those prescriptions are not inconsistent with the aforesaid condition.

IV.

Separation of Chairman and CEO: The positions of Chairman of the Board and CEO

should be filled by different individuals since their functions are necessarily separate. A strong, independent chairman provides the appropriate counterbalance and check to the power of the Managing Director/ CEO. V. Board Composition: To ensure a well-functioning and involved board, the size of the

board should be large enough to include directors with diverse expertise and experience, but should not be too large to enable involvement by all directors. The board should periodically review its size and composition. VI. Board Compensation: Board compensation should be sufficient to compensate

directors for the time and effort required to complete their duties well. This is especially important to nurture professional directors. VII. Directors Report: The annual Directors Report, usually included in the organizations

Annual Report, is an important document for communication between shareholders and the Board of Directors. It should be a strategic document that explains both past results, board decisions, and the future direction of the organization. The guideline for inclusion of items in the Directors Report should be materiality to the companys operations and results. VIII. Code of Conduct: Boards should create a Code of Conduct for Directors detailing directors roles, responsibilities, and duties. Every year, directors should review and agree to abide by this Code of Conduct. The Code of Conduct should be included in the orientation for all new directors. IX. Access to Senior Management, Outside/Professional Advice: The board may seek out

or invite those in senior management positions, employees, other non-directors or outside professionals to board meetings, as required, for access to any information deemed appropriate or necessary in order to effectively deliberate on decisions and perform its duties. X. Evaluation of Board Performance: The board should evaluate its own performance,

both collectively and individually including the performance of the chairman, at least once a year, to ensure it is operating effectively and adjust its constitution and policies accordingly. Boards may also consider using an independent outsider to conduct an external evaluation of the board and its performance, which shall make recommendations based on its evaluation. XI. General Meetings: The general meetings, in particular the AGM, are the primary fore

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. XII. Voting Rights and Duties: In establishing the voting procedures and rights for public

companies, the principle of one share, one vote should guide every public company. Within a class of shares, all shareholders should have the same voting rights. Information regarding the voting rights of all classes of shares should be available to potential shareholders. XIII. Accounting Standards: Companies should ensure that their accounts conform to all

Bangladesh Accounting Standards (BAS) as adopted by the Institute of Chartered Accountants of Bangladesh (ICAB) and the implementation time frame given by ICAB. Companies that are striving to conform to international standards should prepare and have their accounts audited to conform to full International Accounting Standards (IAS). A company that is working to comply with IAS should establish a timeline by which time compliance will be achieved. XIV. Preparation of Accounts: Companies must employ qualified personnel with

professional accounting qualifications to prepare financial statements and accounts. Listed companies with turnover of at least Tk. 20 crore (Tk. 200 million) must employ qualified personnel with professional accounting qualifications with at least five years of experience in preparation of accounts and/or a Chartered Accountant, Cost and Management Accountant, or one having at least a masters degree or MBA in Commerce or Finance. The Balance Sheet and Profit and Loss Statement should be reviewed and signed off by the Chairman of the Board, MD/CEO11 and Chief Financial Officer (CFO) and the Chairman of the Audit Committee (if one exists) to certify that: XV. External Auditors: External auditors should be independent, well-qualified to carry out

their duties, and free of conflicts of interest. Auditors should be appointed by the shareholders. Shareholders should be provided an opportunity to nominate audit firms prior to the Notice for the AGM. XVI. 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. XVII. Disclosures: The Board of Directors should present a balanced assessment of the companys 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.