The Importance Of Corporate Governance In Bangladesh

Abstract

Corporate governance is a set of principles that should be incorporated into every part of the company to enusre proper accountability and responsibility. This study focues on the state of Corporate governance in Pharmaceutical industry to understand how it has been implied. Corporate governance ensures a sound and transperant business atmosphere where the executives can be held accountable for their actions. It is regarded to promote company’s fairness, transparency and accountability. It could be a field in economic science that inspects that companies are often created extra economical by the implification of organizational structures such as contracts, structure styles and legislation. Strong governance has been thought for accelerating the future price of the stakeholders within the business environment. Nowadays, corporate governance is quite updated that the companies follow.

In contrast, economies like Bangladesh, development of positive corporate governance by adjusting companies management mechanism is crucial task due to underdeveloped organizational infrastructure, complex possession between the poor legal, judicial systems and lack of human resource capabilities. Corporate governance requires coherent and strict legal regulations which is an important mission for the manufactures of economic policies of Bangladesh in transition. However, it is inevitable to recruit, train and reward slilled and qualified managers who will maintain high standards of competence, ethics and responsibility. Corporate governance is directly related to finance and investments creating managers disciplined by means is a dire need. The lack of domestic savings requires that capital should be directed towards the anticipated profitable corporations which is feasible in given principles of corporate governance. Smart corporate governance is a demanding issue for the steadiness of a money market where economical resources are allocated in a proper manner as an effort of reinforcing the market discipline for company managers.

Introduction

Corporate governace (CG) has become a mainstream issue for the policy circles around the world. During the asian financial crisis from 1997 to 1998, whole economies were affected by the actions of the corporate sector and the limitations in CG hampered the stability of international financial system. Afterwards, the economists, the corporate world and rulemakers began to recognize the potential consequences of poor CG systems. In this ground, this paper considers that a smart CG practice decreases risk and increases company performance, profitability and efficiency improving access to capital markets and enhancing the marketability of goods and services. It, moreover, maintains transperancy and social accountability.

This paper starts with a definition of coporate governance from Bangladesh’s perspective in pharmaceuticals industry of chosen companies such as Square Pharmaceuticals, ACI Pharmaceuticals, ACME Limited, Beximco Pharma and Renata Limited. It explains the reason for more attention required for CG in Bangladesh to provide an sharp overview of the weknesses and efforts at implementing a smart corporate governance. After analyzing the Bangladesh’s perspective, a specific policy outline for the companies has been formulated on the basis of imminant literatures and information available. Corporate governance has accomplished to attract a great deal of interest as it targets not only the long term relationship that has to cope with balances and communications between management and investors but also the transactional relationship involving disclosure and authority.

Objective of the study

The objectives of the study area unit are

a) Providing associate illustration of corporate governance.

b) Providing the hindrance in having smart corporate governance in Bangladesh.

c) To understand the corporate governance culture within the corporate sector in Bangladesh.

d) Analysing the assorted corporate governance limitations.

Methodology

The nature of corporate governance in Bangladesh are created and guided by company policies, government regulations and SEC requirements and peer pressure. However, this may not be considered as the best practice in the world of good corporate governance. But, some of these are regarded best and coded in the corporate laws and regulations and are expected to be incorporated in Bangladesh. The Dhaka Chamber of Commerce assisted through its members so that the companies cooperate with the study team. This paper has been prepared under the literature survey and secondary information regarding analysis papers, online journals and diagonostic study reports.

Limitations of the study

This paper has certain limitaions which required to be taken account while considering the suggestions and its use. This paper illustrates the assessment of this complicated phenomenon that has been studied from a narrow empirical scope. During the literature outline, it has come to a point that not a good amount of research done on this concern. There are imminent studies available on the CG of Bangladesh but there is profound scarce of empirical and practical studies. There is a lack of credible data and relevant information on the practical CG issues in Bangladesh.

Definition of Corporate Governance

Several authors explore the meaning of corporate governances in a different manner. For instance, one explained corporate governance as a system by which companies are controlled and directed. Another views it as a structure and process for decision making, accountibility, control and behavior of the governing body. In approx similarity, The World Bank refers that the framework of corporate governance should be based on four pillars of responsibility, accountability, fairness and transperancy. According to Kocourk, countering the governance issues, accounting and leadership, organizations are intending to implify corporate governance which might be counterproductive. The inspiration for more tight regulation of the membership of corporate boards has been encouraging to view corporate governance as a legal challenge. Corporate governance has become a top concern for the regulatory bodies with the intend to ensure efficient and effective protection to all stakeholders and to maintain a strong market position.

Therefore, CG maintains the legal infrastructure through organizing corporate law, security policies, accounting regulations, business ethic and overall business atmosphere. Smart corporate governance is deeply related with better performance and market standing of companies.by holding rights of the shareholders strongly, it enhances innovation and long term human investments as well as physical capital, Foreign Direct investment (FDI) and creating intellectual assets. Managers of the companies are directly monitored in both the financial and real sectors and holding them accountable for their actions to protect investors interest. This motivates the domestic and foreign investors to invest directly and in portfolio.

An overview of corporate governance in Bangladesh

Corporate gorvernance implification in Bangladesh had been quite absent in most companies in most companies in past few years. There were several reasons for this scarce situation. One reason was that most comoanies are family oriented and the impact was negetive for disclosing information and improvement of governance. The neighboring countries are more ahead in terms of depth of financial market. However, the awareness of the necessity of corporate governance in Bangladesh is increasing in a good manner. Securities and Exchange Commission of Bangladesh issued a notification on CG guidelines by section 2CC of the Securities and Exchange Ordinance in 1969. The CG guidelines were issued in a manner so that it provide enough breathing space for the companies to impliment on the basis of their capabilities. Nevertheless, the whole framework of CG for the investors protection has a number of limitations that hindered the financial market developments.

After the introduction of corporate governance in Bangladesh most of the companies including pharmaceutical industry adopted it. 66.7% of the whole companies adopted CG and 43.3% hace compliace policy with national and international benchmarks. A certain percentage of top management does not fully understand the idea of CG. However , Bangladesh has been lagging behind its neighbors and the global economy in CG. The reason behind the slow progress of adopting CG is that the most of the companies are family oriented which affects the effectiveness of the corporate governance mechanism. It has negetive feelings for motivation to disclose information and improve governance implification by companies. The current infrastructure in Bangladesh does not provide enough economic and organizational inspiration to encourage and implify CG.

Corporate government policies circles around four core principles such as fairness, accountability, responsibility and transperancy. Maintaining these principles at same pace relies on the structure of the corporate sector. As the top management of most companies are family oriented, general practice in Bangladesh is dominated by them that hampers these core the level of these four core principles. Moreover, audited financial reports are hardly reliable and free from the control of the owners. Because of the irregularities in the audit report, the auditors provide unqualified audit reports on the financial statements.

Importance of Corporate governance in Bangladesh

In transition economies like Bangladesh, development of smart corporate governance through the adjustment of company’s management mechanisms is actually an updated task because of the underdeveloped institutional infrastructure, complicated and biased company possession between the state and money sectors, weak legal and judicial systems and lacking human resources capabilities.

The corporation requires key establishments that drives economic transformation to market primarily based economy. Corporate governnance needs the organization of certain economy establishments inevitable for economic process. It requires strict legal rules which refers an imperative mission for the creators of economic policies of states in transition. As corporate governnance is directly related to finance and investments, making the managers disciplined will make the mechanism end up in proper use of resources. Capitals should be directed towards the most profitable corporations where the corporate governance has its feasibility. The standards of corporate governance in coutries in transition should bring the corporations at the international level so that a certain transfer of skills, technology and other resources can take place.

Its has great importance for the improvement for the barriers to accomplish a sustaining productivity growth. Moreover, corporate governance plays important role in establishing effective management practice guidelines where planning, controlling, leading the organization, improvment of the key performance and organizing the whole institution are the main purpose.