Comparative Analysis of Corporate Governance and Financial ...
An Analysis of Corporate Governance
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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.
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Other objectives are:
Find out the compliance of disclosure requirements by the commercial banks inBangladesh.
Finding the discrepancies between disclosures of the entity and the disclosurerequirements.
Helping users of the financial statements identify nature of the disclosuresregarding corporate governance.
Finding whether the organizations are providing financial information for theusers 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.
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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 knowledgehas created great difficulties.
This kind of work needs expertise to analyze data. As a first practical work Ifound 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 veryhard to make an effective report though facing those problems.
A questionnaire survey might provide better result for the analysis but this has notbeen done due to short of time.
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CHAPTER 2
LITERATURE REVIEW
2.1Introduction: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 hazardCorporate 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
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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
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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
onesize 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 conceptsof 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
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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.
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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, butthey 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 imperativefor firms to rely on capital markets to a greater degree for their needs of additional
capital.
Institutionalization: Simultaneously, the increasing institutionalization of thecapital 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 interms 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,
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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: Thecompanies 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 partytransactions 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 legalsystem 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
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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 throughinformation 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 theAnnual 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.
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Board Committees: Board committees (audit, remuneration and nomination) areof 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 stringentrules 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 incountries 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
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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 animportant 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 investorsand 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 consideredindependent 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 thecontrol 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
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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 forthe 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 wouldcreate an effective threat to some classes of dominant shareholders as discussed
earlier.
Reforms in bankruptcy and related laws would bring the disciplining power of thedebt holders to bear upon recalcitrant managements.
Large blocks of shares in corporate Bangladesh are held by public sector financialinstitutions 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.
2.3Significance of the StudyEffective 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.
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2.4ConclusionNow 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.
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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
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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 andaccountable to the society and the environment.
To establish and preserve management accountability to its stakeholders byappropriately distributing rights and responsibilities among the Board members,
managers and shareholders.
To provide a structure through which the Board and the management setsobjectives and monitors performance.
To strengthen and safeguard our culture of business integrity and responsiblebusiness practices.
To encourage the efficient use of resources, and to require accountability forstewardship of those resources
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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)
Two Non-Executive Directors; or (ii) Such number of Non-
Executive Directors equivalent to one-third of the total number of
Directors whichever is higher.
Complied With
The total number of Directors is to be calculated based on the
number as at the conclusion of the immediately preceding Annual
General Meeting.
Complied With
Any change occurring to this ratio shall be rectified within ninety
(90) days from the date of the change.
Not applicable
The Board shall require each Non-Executive Director to submit a
signed and dated declaration annually of his/her independence or
non-independence against the criteria specified in the Code.
Complied With
The Board shall make a determination annually as to the
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.
Complied With
In the event a Director does not qualify as independent against any
of the criteria set out in 7.10.4, but if the Board, taking account all
Complied With
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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
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.
Complied With
The Remuneration Committee shall comprise a minimum of -
(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.
Complied With
The remuneration committee shall recommend the remuneration
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.
Complied With
The Annual Report should set out the names of Directors (or
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).
Complied With
The Audit Committee shall comprise a minimum of:
(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.
Complied With
One Non-Executive Director shall be appointed as Chairman of the
Committee by the Board of Directors.
Complied With
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The Committee shall make a determination of the independence of
the auditors and shall disclose the basis for such determination in
the Annual Report.
Complied With
The Annual Report shall contain a report by the Audit Committee,
setting out the manner of compliance by the Company in relation to
the above, during the period to which the Annual Report relates.
Complied With
Tests carried out to determine independent status:
(i) Whether a Director uses his position (e.g. long-standing position or otherinfluential 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 expressingtheir views and opinions at the Board meetings or at any other discussions.
(iii) Whether the views of the others (Directors, professionals etc.) are disregardedor 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 isimmaterial.
(vi) Whether the Directors are not given an opportunity to assess the performanceof 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 moreDirectors. 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 lowerlevel, to such Director.
(ix) Whether third parties deal with such Director on matters which can be easilyfinalized by any other party at a lower level.
(x) With regard to facilities given to any group (e.g. CIC Group), whether theDirector concerned does not participates in the related Board decisions.
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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 amanner 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 balancebetween 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.
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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 ourbusiness 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.
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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 affairsof the Bank
Monitor all Internal and External Audit and Inspection Programmes, reviewInternal and External Audit/Inspection Reports and follow up all
recommendations
Review the efficiency and the effectiveness of the Internal Control Systems andProcedures in place and the adequacy of such controls
Review the quality of Accounting Policies, their adherence to Statutory andRegulatory Compliance and applicable Accounting Standards
Review the Banks Annual Report and the Accounts and the Interim FinancialStatements prepared for publication, before submission to the Board
Ensure that the Banks policies are firmly committed to the highest standards ofGood 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.
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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 donot 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 outstandingitems in the Banks Chart of Accounts, Credit Quality and adherence to classification of
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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.
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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.
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BIBLIOGRAPHY
Hossain, D. Mahboob and Khan, A. Rahman, (2006), Disclosure on Corporate
Governance Issues in Bangladesh: A Survey of the Annual Reports, The Bangladesh
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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).