Corporate Governance in Bangladesh

Topics: Corporate governance, Board of directors, Non-executive director Pages: 64 (20897 words) Published: December 6, 2012
Chapter Title: Corporate Governance in Bangladesh

5.1 Prelude
Corporate Governance, the most talked about phrase of today around the world, is a relatively new concept in South Asia. The extremely impressive growth rates from the mid 1980s to 1996, effected by prudent fiscal policies, booming export trade, high savings and investment and relatively good infrastructure of South-East and East Asian Corporate entities have left little to bother about governance. It was the financial crisis of 1997-98 that brought the issue of corporate governance to Asia. The corporate governance movement began in most of Asia in 1998 and continued at various places right up to 2001. By the middle of 2001, when the most of the Asia was getting back to a concerted growth phase then came the Enron, Tyco, Healthsouth, World Com, Adelphia, Qwest Global Crossing and other corporate failures (Majumdar, M. A.K., 2006, p. 23).

In Bangladesh, though no such remarkable corporate scandals emerged yet, the stock market crash of 1996 is worth mentioning part of which is believed to have been caused by the greed of some influential corporate houses. The DSE all share price index rose to 3648.7.5 on 5th November, 1996 starting from 865 on 1st June 1996- 322% increase within a spate of only 158 days. The market capital that was Tk. 56.52 billion by end 1995 reached Tk. 168.11 billion (137)% increase) by the end of 1996. In view of high demand arising out of limited quality script a number of companies capitalized the situation by issuing IPO or right shares. The year 1995 saw the biggest public issue of Tk. 20.63 billion 36% of the total IPOs over last ten years (Majumdar, M. A.K., 2006, p. 24).

Generally, the corporate governance system that now exists in Bangladesh can be described to belong to the Anglo-American corporate governance family. Some reasons for this labeling are: the ownership structure here is tending to be dispersed, big public companies are trading on the stock markets, and shareholders stay in the arm’s length of the management and the pivotal issue that concerns those responsible to ensure that the corporate management is accountable to shareholders. Moreover, law has been discouraging concentration of ownership of the shares in the hands of few people or family members which was a dominant trend in the country’s corporate sector in the recent past. For example, the Banking Companies Act 1991 forbids holding of more than 10% shares in any bank by any person, company or members of a family either personally or jointly or both (the Banking Companies Act 1991, Section 14A).Also, the courts seem to be sympathetic to the statutory goal of the diffused share ownership (Muzzaffar Ahmed V Bangladesh Bank, 2000).

Despite the above features, corporate governance in Bangladesh contains some features of control-oriented system. To take an illustration, protection of minority shareholders even in the public companies still demands special treatment. More so, unlike in the USA and UK, large shareholders are prevailing in disguise and the corporate sector is often dominated by the family business group this way or the other. What is more, the institutional investors are yet to emerge as a strong element in corporate governance in Bangladesh. However, this is not to deny that there are institutional investors in some companies, but those are limited in number and hence are less likely to be effective corporate governance monitors (Hoque, R. 2000, p51). On balance, the existing corporate governance system can be described as Anglo-American type with some features of the other model.

5.2 Rationale of Corporate Governance for Bangladesh
The main objective of corporate governance in Bangladesh is establishing transparency and accountability throughout in the organization. The practice of effective corporate governance, therefore, benefits everyone entrepreneurs, investors, suppliers, lenders, managers, auditors regulators. Corporate...

References: Chandra Report (2002), “Chandra Report on Corporate Audit Governance”, India, On line available at:
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Combined Code Guidance (2003), “Audit Committees: Combined Code Guidance” a Guidance by FRC – The Group chaired by Sir Robert Smith Submitted to Financial Reporting Council (FRC) London in Dec. 2002 and Published in Jan, 200.
Combined Code of the UK (2003), Available at: Smerdon, R. “A Practical Guide on Corporate Governance”, 2nd Edition, Sweet and Maxwell, UK
Companies Act (1994), Bangladesh, Available at, Zahir, M
Hoque, R. (2000), “Corporate Governance: Mapping the Territory for Bangladesh’s visit”, Chittagong University Journal of Law, Vol. V. Bangladesh.
The Insurance Act 1991, Act No IV of 1938, Bangladesh Code, Volume No IX, Ministry of Law, Justice and Parliamentary Affairs, Government of Peoples Republic of Bangladesh, Bangladesh Secretariat, Dhaka, 2007, Pp.13-228
Majumder, A.K
Mallin, C.A. (2007), “Corporate Governance”, 2nd Edition, Oxford University Press, UK
Muzzaffar Ahmed V Bangladesh Bank 2000 HCD 235
Securities and Exchange Ordinance 1969, Available at, Zahir, M. (2005), “Company and Securities Law”, The University Press Limited, Dhaka, Bangladesh

Smerdon, R. (2004), “A Practical Guide to Corporate Governance”, 2nd Edition, Sweet and Maxwell, UK
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