an analysis of corporate governance

7/30/2019 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

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).

an analysis of corporate governance

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