ICSB Journal (Jul-Dec) 2011 by ICSB Bangladesh

ISSN : 1998-1597

Volume : XIII

Issue : 3

July - December 2011

CORPORATE GOVERNANCE

Institute of Chartered Secretaries of Bangladesh A Statutory Body Under an Act of Parliament

CONTENTS Institute of Chartered Secretaries of Bangladesh (ICSB) Institute of Chartered Secretaries of Bangladesh (ICSB), established under an Act of Parliament i.e. Chartered Secretaries Act 2010, is the only recognized professional body in Bangladesh to develop, promote and regulate the profession of Chartered Secretary in Bangladesh. The affairs of the Institute of Chartered Secretaries of Bangladesh (ICSB) are managed by a Council consisting of thirteen elected members and five nominees of the Government. The major contribution of a Chartered Secretary is in the corporate sector. Chartered Secretary is a requisite qualification to become a Company Secretary. Company Secretary is an important professional, aiding the efficient management of the corporate sector. Company Secretary is a statutory officer under the Companies Act 1994. According to Securities and Exchange Commission (SEC) all the listed companies should have a Company Secretary. Company Secretary is the compliance officer of the company, who has to interact, coordinate, integrate and cooperate with various other functional heads in a company.

THE COUNCIL : 2010-2013 Mohammad Sanaullah FCS

: President

Md. Shahid Farooqui FCS

: Senior Vice President

M. Naseemul Hye FCS

: Vice President

Md. Monirul Alam FCS

: Treasurer

Mohammad Asad Ullah FCS Itrat Husain FCS N.G.Chakraborty FCS Md Abdus Salam FCS Safiar Rahman FCS Md. Selim Reza FCS

: Councilor : Councilor : Councilor : Councilor

THE COUNCIL 2010-2013

EDITORIAL

FROM THE PRESIDENT

INSTITUTE NEWS

ARTICLES 24

Role of Independent Directors Mohammad Sanaullah FCS

Good Governance in Pharmaceutical Industry Md. Shahid Farooqui FCS

Governance in The Apparels Sector M. Naseemul Hye FCS

33 44 48 54

: Councilor : Councilor

A.K.M Mushfiqur Rahman FCS : S. Abdur Rashid FCS : Gopal Chandra Debnath FCS : Md. Shawkat Ali Waresi Joint Secretary, GoB : Moinul Islam Joint Secretary, GoB : Nasreen Begum Joint Secretary, GoB : Prof. Md. Helal Uddin Nizami Member, SEC : Ahmedur Rahim Registrar, RJSC, GoB :

EDITORIAL BOARD Editor Itrat Husain FCS Members Mohammad Sanaullah FCS M. Naseemul Hye FCS Kazi Ashiqur Rahman FCS Hossain Sadat FCS

Design & Production

(A Concern of Tradex BD)

Councilor Councilor

Councilor Councilor Councilor Councilor Councilor Councilor

Corporate Governance for the Insurance Companies Md. Selim Reza FCA, FCS Paying Tax in Bangladesh: Compliance Tax Payment Kazi Asiqur Rahman FCS Key Findings of Corporate Governance Practices in Bangladesh Bipul Kumar Bhowmik FCMA, FCS Corporate Governance â&#x20AC;&#x201C; The views and opinions expressed in the articles Recap And Reform Initiatives published in this Journal are those of the writers only Muhammad Hasanur Rahman Rakib ACS Corporate Governance: Streamlining Business, Advancing The Economy Zakiullah Sayeed Munshi

So, What Exactly is Re-branding? Riyad Shahir Ahmed Husain

Knowledge Bank Compiled by Itrat Husain FCMA, FCS

Notifications

Standing & Sub Committees

CS Regulations 2011 Gazette

Published by the Institute of Chartered Secretaries of Bangladesh (ICSB) 107 Kakrail, 1st Floor G.P.O. Box : 3100, Dhaka-1000, Bangladesh Phone : 880 2 934 9578 & 933 6901 Fax : 880 2 933 9957 E-mail : secretary@icsb.edu.bd icsb@icsb.edu.bd Web : http://www.icsb.edu.bd

Subscription Rate For Students : per copy Tk. 100; per year Tk. 350 Others : per copy Tk. 150; per year Tk. 560

The Council

THE COUNCIL : 2010-2013

President Mohammad Sanaullah FCS

Senior Vice President Md. Shahid Farooqui FCS

Vice President M. Naseemul Hye

Immediate Past President & Councilor Past President & Councilor Mohammad Asad Ullah FCS Itrat Husain FCS

Councilor Safiar Rahman FCS

Councilor Md. Shawkat Ali Waresi Joint Secretary, GoB

Councilor Md. Selim Reza FCS

Treasurer Md. Monirul Alam

FCS

Councilor N.G. Chakraborty FCS

FCS

Councilor Md Abdus Salam FCS

Councillor A. K. M. Mushfiqur Rahman FCS

Councilor S. Abdur Rashid FCS

Councilor Gopal Chandra Debnath FCS

Councilor Moinul Islam

Councilor Nasreen Begum

Councilor Prof. Md. Helal Uddin Nizami

Joint Secretary, GoB

Member, SEC

Councilor Ahmedur Rahim Registrar, RJSC, GoB

Secretary to the Council

Dr. A. K. M. Delwar Hossain

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

EDITORIAL GOOD GOVERNANCE New Year Greetings to all our readers. This issue of the journal includes many articles on the issue of “Good Governance” which is the need of the hour. We hope you will find the articles informative. We are now quite familiar with the concept of “Corporate Governance” which has received a lot of attention during the last decade due to a lot of high profile scandals. Corporate Governance is concerned with discipline within an organization. It includes relationships between internal stakeholders (Board of Directors, Employees) and external stakeholders (Shareholders, Creditors). It lays stress on policies and processes within an organization which affects the way an organization is directed, administered or controlled by the management.

ministries, etc. There always seems to be “Crisis Management” due lack of proper planning and control. Good governance in the public sector will ensure that there is proper use of funds which in turn will inspire confidence among the stakeholders and donors of “Corporate Bangladesh”. A recent example is where a donor agency is holding back funds for repair of roads and highways due to lack of transparency and possible corruption. Who are the losers? Good governance will also encourage FDI, which is desperately needed by the country. The other positive example is where the NBR has been increasing its revenue collections at a higher rate than the previous periods. Some good governance must be functioning there, which can be improved further.

A well defined Corporate Governance system works for the benefit of all the stakeholders and will increase the wealth of the stakeholder. Hence there should be no reason for delay in its implementation in all the organizations. Synergy can also be achieved through good governance.

All the organizations in the private and the public sector must initiate steps for installation of Corporate Governance systems in Bangladesh without any further delay. To be competitive in the age of “globalization”, we do not have much option.

In the context of Bangladesh, a country with scarce resources, it is imperative that good CG systems should be set up in the public sector as well. Government Ministries and other Public Sector Organisations lack transparency and accountability which is a direct cause of corruption, inefficient use of public funds and shoddy work. This is quite evident from the activities of the Dhaka City Corporation, Roads and Highways Department, Energy Sector, various

We believe that a change in mind set is essential for incorporating good governance practices in any organisation. ICSB has been playing a positive role and working towards this end relentlessly by organising training programmes and workshops from time to time.

Itrat Husain FCMA, FCS Editor

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

FROM THE PRESIDENT Dear Professional Colleagues, The position of the President of ICSB is not only prestigious but also necessitates the acceptance of responsibility towards the society and obviously the ICSB members as well. I have tried to work with such a frame of mind ever since I took over the responsibility as the President of ICSB. There have definitely been challenges along the way; but there have been successes too. The third and fourth quarter of 2011 were eventful and witnessed significant progress in our activities and now we are in a position where we are acknowledged from different corners as well as by the Government. In the second quarter I had mentioned a few issues for your concentration i.e. Chartered Secretaries Regulations 2011, finalization of Service Rules, Institute’s own campus and Government funding for the Institute. CS Regulations After shouldering the responsibility of the President of the newly constituted ICSB it was not an easy job to step into the new path. For want of an approved "Chartered Secretaries Regulations" no committee could be formed except "Regulations Committee" and "Examination Committee". In the absence of standing and functional committees, the year was a difficult time for the office bearers. But we were enthusiastic and gave our best efforts to ensure the proper functioning of the Institute. Yes, we have finally got our result; we have been able to get the "Chartered Secretaries Regulation 2011" approved by the Government. I am pleased to report that the Chartered Secretaries Regulation 2011 has already been notified by gazette. It is a great achievement for us.

Several events and activities took place during the last two quarters. Heartfelt thanks to the Regulations Committee Members, Office Bearers, Council Members, members of ICSB and Government officials who were involved with the whole process, without which there would not have been these regulations. ICSB included in the National Budget Allocation Since inception to date, the main sources of income of the Institute were students’ tuition fee and income from training. I am pleased to inform you that this is the first time that the Institute has received Tk. 20 Lakhs as grant from the Government. At the same time your Institute has been included in the government funding in the National Budget of Government of Bangladesh. Strategic Planning The Council at its meeting held on September 26, 2011 approved an action plan to commence the strategic planning for the sustainable growth of the Institute. With this thinking in mind your Council has constituted seven standing committees and thirteen sub-committees to run the Institute smoothly and professionally. I do believe that team spirit is one of the important factors for any success. As the President I have tried my level best to engage the right person in the right place. I am sure our members’ active participation in the decision making process will help us to maintain a world class professional Institute in the country. CPD Programme One of the important agenda of the Council is to develop its members. With this objective in mind during the year your council conducted the following CPD programmes for the development of our members:

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

From The President

• Implication of Finance Act 2011 • Convention against Corruption • Chartered Secretaries Act and Regulation We are planning to organize more CPD programmes in 2012 on the current topics of the corporate world. Waiver of Annual Membership Fees I am very pleased to inform you that the Council has given waiver of annual subscription to our senior members who have reached the age 65 and above. The main objective of such a decision is to encourage our members, to actively participate in the activities of the Institute. Review of the year 2011 2011 was a successful year for your Institute. The Key achievements of 2011 were: • Chartered Secretaries Regulations 2011 promulgated. • Students’ enrollment rose by 66% from 2010.

• Organized an Iftar party and Dua Mahfil. • Held the first Annual General Meeting of the Institute. • Developed and introduced a new logo of the Institute. • Council approved the Institute’s Service Rules. • Decided to take permanent membership of Corporate Secretaries. International Association (CSIA); Outlook for 2012 We all want success. But surely success does not come with the efforts of a single person. I on behalf of the council request you all to extend your hands towards the development of the Institute and work hand in hand as we have the following tasks ahead of us for 2012: • To establish Institute’s new campus in Dhaka. • To increase Government funding for ICSB.

• Inducted 25 new members as Associate Members.

• To find out a suitable place/ land for ICSB’s own campus.

• Commerce Minister visited the Institute and inaugurated the official website of the Institute.

• To develop the Secretarial Standards. • To hold National Convention in April 2012.

and

• To include the profession in various statutes.

• ICSB included in the Government Budget allocation.

• To take vigorous programme for developing our members through CPD programme.

• Formed Standing Sub-Committees.

Committees

• Two new projects included in the development programme of the Government. • For the first time the Institute has been included in the Law Reform Committee. • ICSB included in different Committees of the Government as a member to participate in enactment of new Companies Act and review /amend/ Laws like, Trade Organization Ordinance 1961,

Societies Registration Act 1860, and Trade Organization Rules 1994 and frame a new law on MLM.

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

• To implement Secretarial Practice. I wish you all a pleasant time reading through the journal and remain at your service for suggestions and comments. Wishing you all a very happy new year. May Allah always be with us.

Mohammad Sanaullah FCS President

Institute News

INSTITUTE ACTIVITIES July - December 2011 The 3rd & 4th Quarters were very significant for the Institute. The Institute accomplished its long cherished Chartered Secretaries Regulations 2011 during this period and there were various other activities as mentioned below.

of other Office Bearers and Secretary of the Institute to discuss various issues like: 2nd Campus of ICSB, finalization of draft Service Rules, selection of Faculties, Ad-hoc Journal Committee, preparation for CPD programme and various emerging issues.

MEETINGS INTERNAL Council Meeting During third and fourth quarter the council met four times on July 17, 2010, August 13, 2011, September 26, 2011 and December 05, 2011 with the participation of most of the council members. The members took the following important decisions in the meetings: 1. Reviewed the existing website of the Institute and up dated the site as found appropriate to meet the present need. 2. Prepared and finalized the budget of the Institute for 2012. 3. Reviewed the latest position of pending issues with Government of Bangladesh. 4. Reviewed position.

the

Membersâ&#x20AC;&#x2122;

subscription

5. Approved Action Plan for the year 2011 & 2012. 6. Inducted S.A. Rashid FCS and A.K.M. Mushfiqur Rahman FCS as Council Members. 7. Formed Seven Standing Committees and Thirteen Sub-Committees Meeting of the Office Bearers of ICSB The first meeting of the Office Bearers was held on Thursday, July 21, 2011 at 6:00 p.m. at the council room of ICSB. Mohammad Sanaullah FCS President of the Institute presided over the meeting with the presence

A Council meeting in progress

The second meeting of the Office Bearers, held on Saturday, August 06, 2011 at 5:00 p.m. at the council room of ICSB, discussed various issues like: holding AGM and finalization council report, fixing the date of Iftar Party, next issue of Journal and other relevant issues. The third meeting of all the Office Bearers of ICSB was held on Thursday, August 25, 2011 at 4:30 p.m. at the council room of the Institute. Mohammad Sanaullah FCS President of the Institute chaired the meeting. M Naseemul Hye FCS Vice President, Md. Monirul Alam FCS, Treasurer and Raja Mahmudul Haque ACS, Deputy Secretary of the Institute attended the meeting. Thereafter some important decisions regarding 1st AGM of ICSB after the enactment of Chartered Secretaries Act 2010 took place and various pending issues were considered for immediate implementation. The fourth meeting of the Office Bearers of ICSB was held on Wednesday, September 07, 2011 at 6:30 p.m. at the council room of the Institute to discuss issues like: review of the Annual Report 2010, placing proposal on new logo of ICSB before the AGM, Membership

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

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for CSIA, Election preparation, CS Regulation 2011, etc. The fifth meeting of the Office Bearers for the quarter was held on Saturday, September 17, 2011 at 6:30 p.m. to discuss issues like: review of the 1st AGM, CS Regulation 2011, 2nd Campus of the Institute and pending issues with the Government. The last meeting of the Office Bearers for the year was held on Saturday, October 29, 2011 at 6:30 p.m. There were discussion on Members’ Directory 2012, Members’ ID card and Members’ Register.

Mohammad Sanaullah FCS, President of ICSB, Mohammad Asad Ullah FCS, Immediate Past President and Councilor, Md. Shahid Farooqui FCS, Senior Vice President, M Naseemul Hye FCS, Vice President, Md. Monirul Alam FCS, Treasurer and Dr. A K M Delwar Hossain, Secretary of the Institute called on Honorable Commerce Minister Ghulam Muhammed Quader, MP at his office at the Secretariat on December 28, 2011. The Hon’ble Minister assured that all possible co-operation to the Institute would be given. He was all praise for the ICSB for its efforts to establish good corporate governance in Bangladesh.

Meeting of the Executive Committee The first meeting of the Executive Committee of the Institute was held on Saturday, October 1, 2011 at 6.30 p.m. Mohammad Sanaullah FCS, President of the Institute presided over the meeting with the presence of members of the committee and various decisions were taken such as to form editorial board, prepare action plan for the year 2012, recruit new employees for the Institute, etc. The second meeting of the Executive Committee of the Institute was held on Saturday, December 3, 2011 at 6.30 p.m. to review the pending issues with Government, activities of various sub-committees under this committee, annual budget of the Institute, etc. Meeting with Staff and Management A meeting among office staff of ICSB was held on Saturday, October 22, 2011 at the Council room of the Institute. The meeting was presided over by the President of the Institute and it was consultative one. The President heard them and asked them to perform their respective duties effectively and efficiently.

Meeting in progress with hon’ble Commerce Minister

Training Programmes The Institute arranges training programmes for the corporate professionals throughout the year on different corporate professionals’ issues as a part of its social responsibility as well as to develop professionalism. Several programmes were arranged during the quarter. The first one was on “Corporate Affairs Management-1st batch” during July 02, 2011 to July 30, 2011 with a good number of participants.

MEETINGS EXTERNAL Meeting with Hon’ble Commerce Minister A team of six members including Office Bearers of the Institute comprising

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

Participants shown in Corporate Affairs Management

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The second programme was on “Tax Management - 2nd Batch” from July 18, 2011 to July 21, 2011 with participants from different corporate bodies The third programme was on “Customs and VAT Management” held from September 24 to September 28, 2011. Good number of corporate nominees and practicing professionals handling Customs and VAT participated in the training course. The course was inaugurated by Mohammad Sanaullah FCS President of the Institute.

Participants shown in “Company Secretarial Practice Training Programme”

The sixth one was on “Standardization of Annual Report -2nd batch” during November 28, 2011 to December 1, 2011 with many participants.

Participants shown in “Custom and VAT Management

The fourth programme was on “Corporate Affairs Management - 2nd batch” during November 12, 2011 to December 10, 2011 with a good number of participants.

Participants shown in “Standardization of Annual Report Training Programme”

The seventh one was on “Internal Audit and Controlling Environment -3rd batch” during December 12, 2011 to December 15, 2011 with good number of participants.

Participants shown in “Internal Audit and Controlling Environment Training Programme” Course Director is seen with the participant

The fifth one was on “Company Secretarial Practice” during November 20, 2011 to November 24, 2011 with good number of participants.

The eighth was on “Management of Provident Fund, Profit Participation Fund and Gratuity Fund” during December 18, 2011 to December 20, 2011with a good number of participants.

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

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Mohammad Sanaullah FCS, President of ICSB and Director Corporate Affairs & Company Secretary, Singer Bangladesh Limited inaugurated the workshop. After the inauguration the President conducted the session –I and described about ICSB and its statutory status. President also discussed why the Chartered Secretary is a Challenging Profession and its future in local and global market. Participants shown in “Management of Provident Fund, Profit participation Fund and Gratuity Fund”

Workshop held in Chittagong The Institute organized a day long Professional workshop at Conference Hall, Chittagong Chamber of Commerce and Industry held on Saturday, December 17, 2011. Participations were from various renowned Corporate Houses and also students from different Universities of Chittagong.

Second session was on “Management of Company Meetings”. Resource Person was Monirul Alam FCS, Treasurer of ICSB and Company Secretary, Dutch-Bangla Bank Limited. Third session was on “Procedure for Conducting Board / Committee Meetings”. Conducted by M.Naseemul Hye FCS, Vice President of ICSB and Executive Director & Company Secretary, Bashundhara Group. Fourth session was on “Procedure for conducting General Meetings including Statutory, EGM and AGM”. This session was conducted by Mohammed Sanaullah FCS. After that session there was a Question and Answer session.

President with other members in Chittagong workshop

In the Professional Workshop four topics were discussed in four sessions. The topics were as follows:

The participants of that session asked various questions regarding Chittagong Campus, Mandatory appointment of ACS and FCS in various corporate bodies, Reciprocal exemption procedure, etc.

1. Chartered Secretary as a Challenging Profession. 2. Management of Company Meetings. 3. Procedure for conducting Board/Committee meetings. 4. Procedure for Conducting General Meetings including Statutory, EGM and AGM.

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

Participants shown in Chittagong Workshop

The President, gave a patience hearing and answered them queries. President also

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assured that in the near future ICSB will open its Chittagong Branch. For this purpose Chittgong Regional Chapter has the opened. This Chapter is trying its best to find resource persons to conduct the classes. The concluding “Vote of Thanks” was given by M. Nurul Alam FCS, member Chittagong Regional Chapter, ICSB and Company Secretary & Senior General Manager, Orascom Telecom Bangladesh Limited (Banglalink). Orientation of 28th Batch ICSB organized an orientation programme on July 29, 2011 to welcome the 28th batch students of Chartered Secretaries course at the BIAM auditorium, Dhaka. Mohammad Sanaullah FCS President of the Institute inaugurated the orientation programme. M. Naseemul Hye FCS, Vice- President of the Institute, Mr. Monirul Alam FCS, Treasurer of the Institute and Dr. A.K.M Delwar Hossain Secretary of the Institute were present on the occasion. The President in his welcome speech suggested the freshers to build a prosperous society in “Corporate Bangladesh” in line with global practice. M. Naseemul Hye FCS and Monirul Alam FCS also spoke on the occasion. More than one hundred and fifty students got themselves admitted after passing both written and viva test.

Associates Elevated to Fellows Sl. Mem. Fellowship Name of ACS No. No No. Md. Anwar Hossain Chowdhury F-0117 01 A-0116 CFO, EEP/SHIREE Manzurul Ahsan 02 A-0129 Senior Officer, Board Secretariat F-0118 ONE Bank Limited Salim Ahmed 03 A-0136 Company Secretary, Shurovi Group F-0119 Md.Samsul Alam Mallick F-0120 04 A-0063 Managing Director New Zealand Milk Bangladesh Ltd. Elected Associate Member A-0243 Myeen Uddin Mazumder ACS Deputy Manager - Srcretarial and Taxes Hoda Vasi Chowdhury & Co.

A-0244 Mirza Laila Ferdous ACS Senior Accounts Manager SHIREE

A-0245 Md. Shafiul Azam ACS Deputy Manager BEXIMCO Group of Companies

A-0246 MOHAMMAD HURMOT SHAH ACS Company Secretary Bengal Group

A-0247 Hossain Ahmed Bhuiyan ACS General Manager (A & F) &Company Secretary DEKKO Group

A-0248 Amit Kumar Roy ACS Principal Officer, Finance Lankabangla Finance Limited

Mohammad Sanaullah FCS, President of the Institute delivering his speech at the orientation programme

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A-0249 Prantush Chandra Shaha ACS Deputy Company Secretary Bangladesh Development Group

A-0250 Darul Awam Tuhin ACS Assistant Company Secretary Rakeen Development Company (BD) Ltd

A-0251 Masudur Rahman Bhuiyan ACS Company Secretary Doreen Power Generations and Systems Ltd

A-0252 Md. Abu Sayeem ACS Manager, Business Administration SIEMENS Bangladesh Ltd

A-0253 Md. Abu Sukkur ACS Vice President and Head of Finance Phoenix Finance and Investment Ltd.

A-0132 Jashim Uddin ACS has recently been promoted to the position of Company Secretary at Delta Brac Housing Ltd. Prior to that he was the Manager, Corporate Affairs in the same organisation.

A-0140 Md. Jakir Hossain ACS has recently been appointed as Group Company Secretary of Bio Pharma Ltd. Prior to this Mr. Jakir served United Airways, HP Chemicals Ltd. and Bashundhara Group.

A-0145 Md. Hasan Imam LL.M, PGDPM, MBA, ACS has recently been promoted as AGM at BASIC Bank Ltd. Prior to that he was the Manager, Board Secretariat & Company Affairs Division of the same Bank.

A-0181 Mohammad Akram Hossain ACS has recently been promoted as Senior Officer at Premier Bank Ltd.

A-0205 Tahmiduzzamzn ACS has recently been promoted as Vice President at United Commercial Bank Ltd.

A-0214

SUCCESS GREETINGS

Munirul Hoque ACS has recently been appointed as Company Secretary of BRAC Net Ltd. Earlier he was the Company Secretary in Diganta Media Corporation Ltd.

F-0113

A-0241

Mohammad Bul Hassan FCS has recently taken charge as Company Secretary in addition to his present portfolio of Chief Financial Officer in SIEMENS Bangladesh Ltd.

Md. Mokammel Hoque ACS has recently been appointed as Deputy Company Secretary of Trust Bank Ltd. Earlier he was a Senior Executive in Grameenphone Ltd.

F-0114

A-0247

Gopal Chandra Debnath FCS has recently been appointed as Company Secretary at Energypac Power Generation Ltd. Earlier he was the Company Secretary at Apex Tannery Ltd.

Hossain Ahmed Bhuiyan ACS has recently been promoted as Company Secretary and General Manager (A&F) of Dekko Group.

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A-0251 Masudur Rahman Bhuiyan ACS has recently been appointed as Company Secretary at Doreen Power Generation and Systems Ltd. Earlier he was Manager Finance and Accounts in Giant group.

A-0252 Md Abu Sayeem ACS has recently been promoted as Manager, Business Administration of SIEMENS Bangladesh Limited.

Session Chairman Suhel Ahmed Choudhury is seen addressing the participants

Implications of Finance Act 2011 Continuing Professional Development (CPD)

Session Chairman and Paper Presenter with the President

Keeping the members of ICSB updated with the ever changing practices in a profession like Chartered Secretaries a CPD programme was held at BIAM auditorium, Dhaka on July 29, 2011. The topics of the programme were: a) Implications of Finance Act 2011 (1st session); and b) Convention against Corruption Bangladesh Perspective (2nd session).

The first session was conducted by the Session Chairman Md. Aminur Rahman, Member ((Income Tax Policy), National Board of Revenue (NBR), Government of Bangladesh. Sadhan Chandra Das FCA, FCS, Principal, Sadhan & Co. Chartered Accountants made the presentation on â&#x20AC;&#x153;IMPLICATIONS OF FINANCE ACT 2011â&#x20AC;?. Official discussants were Mohammad Sanaullah FCS and N. G. Chakraborty FCS. Convention against Corruption - Bangladesh Perspective The second session of the programme was conducted by the Session Chairman Suhel Ahmed Choudhury, former Secretary, Ministry of Commerce, Government of Bangladesh. Keynote speaker of the second session was Nasreen Begum, Joint Secretary, Ministry of Law, Justice and Parliamentary Affairs, Government of Bangladesh. Official discussant was M. Naseemul Hye FCS. A good number of members attended the CPD programme and also took pat in the question and answer sessions on the current and relevant perspective. The members appreciated the efforts of the Institute for arranging such a CPD programme and expected more such programmes in future. Iftar and Dua Mahfil 2011

Session Chairman Md. Aminur Rahman is seen addressing the participants.

The Institute every year arranges Iftar and Dua mahfil for the Members of the Institute to maintain the sanctity of the Ramzanul Mubarak and accordingly a Iftar and Dua Mahfil was held on August 13, 2011 at THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

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“Senate Bhaban” Dhaka University. The Office Bearers, Council Members, Past Presidents, Fellow and Associate Members and Employees of the Institute attended the event.

View of Members at the 1st AGM

The President is addressing at Iftar Party 2011

1st AGM OF ICSB The First Annual General Meeting of ICSB, after the enactment of Chartered Secretaries Act 2010, was held on Saturday, September 10, 2011 at Hotel Purbani International, Dhaka. Mohammad Sanaullah FCS, President of the Institute presided over the meeting. He presented the Council Report 2010 while Monirul Alam FCS, Treasurer highlighted the Auditors’ Report and Audited Accounts of the Institute for the year ended December 31, 2010. Dr. A.K.M. Delwar Hossain, Secretary of the Institute conducted the AGM. The office Bearers, Councilors and a large number of Members of ICSB attended the AGM. Members present, in their deliberation, appreciated the various steps that were taken by the Council for upholding the standards of the ICSB as a leading professional Institute of the Country in the field of corporate management and governance.

1st AGM of the Institute in progress

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Members of the Institute are seen for casting vote

View of Members at the 1st AGM

Members of the institute are seen for casting vote

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Election to the vacant posts of the Council Immediately after the AGM, the election to the vacant position of the council was held under the sub-section (2) of section (9) of the Chartered Secretaries Act 2010. Newly constituted Election Commission comprising of Md. Rafiqul Islam FCS, Chairman, Mohammad Mohashin FCS, member and Abdus Salam Khan FCS, member conducted the election. A large number of Members of ICSB voted for electing their representative to the Council. S. Abdur Rashid FCS and A.K.M. Mushfiqur Rahman FCS were elected as councilors in the vacated position.

078, 080, 081, 083, 084, 085, 087, 090, 091, 092, 093, 094, 096, 098, 099, 101, 103, 104, 107, 111, 112, 114, 115, 117, 122, 123, 124, 126 and 129 Total = 65 (Sixty Five) only C.S. Inter.Level-II: Roll No.: 132, 133, 135, 136, 141, 144, 145, 147, 151, 154, 158, 160, 161, 162, 164, 165, 167, 168, 170, 177, 179, 182, 186, 187, 191, 192, 194, 195, 196, 197, 204, 205 and 206 Total = 33 (Thirty Three) only

New Logo of ICSB

C.S. Inter. Qualified :

The new logo was approved by the members.

Roll No: 207, 208, 209, 211, 213, 214, 215, 216, 217, 218, 219, 220, 221, 224, 225, 227, 228, 229, 232 and 235 Total = 20 (Twenty) only C.S. Final Group I :

Result of winter 2011 Session Examination

Roll No.: F-01, F-02, F-03, F-04, F-06, F-08, F-12, F-13, F-14, F-16, F-17, F-18, and F-22

The Examination Committee of the Institute of Chartered Secretaries of Bangladesh (ICSB) announced the results of the Chartered Secretary Winter Session-2011 examination held from July 15, 2011 to July 23, 2011.

Total = 13 (Thirteen) only

F-25

Md. Kamrul Hasan

A total of 290 Candidates took part in different levels/groups. The Examination was held under direct supervision of the Examination Committee of the Council. The results are as follows:

F-27

Mohammad Khasru Noman

F-28

Partha Protim Das

F-29

Rajib Saha

F-32

Muhammed Moshiur Rahman

F-33

Ahmed Zia Haider

F-36

Mohammad Jafar Ali

F-39

A.T.M. Muniruzzaman

F-44

Md. Zillur Rahman

F-48

Md. Masud Billah

F-51

Mohammad Abdul Qudir Bhuiyan

Roll Nos. of the successful candidates are as follows: C.S. Inter.Level-I: Roll No. : 001, 032, 048, 065,

002, 035, 049, 067,

005, 037, 050, 069,

006, 038, 051, 070,

010, 040, 056, 071,

015, 041, 058, 072,

022, 042, 060, 073,

028, 045, 063, 076,

029, 046, 064, 077,

C.S. Final Qualified: Roll No. & Name:

Total - 11 (Eleven)

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CPD Program on Chartered Secretaries Act & Regulations Md. Ruhan Miah ACS The Institute of Chartered Secretaries of Bangladesh (ICSB) organized a CPD program on the Chartered Secretaries Act 2010 & Chartered Secretaries Regulations 2011 on October 08, 2011 in order to increase the knowledge and proficiency of its members. Mohammad Sanaullah FCS, President, ICSB presented the keynote papers. He focused on the recently promulgated Chartered Secretaries Regulations 2011. He also highlighted different important aspects of the Chartered Secretaries Act 2010 as well the Chartered Secretaries Regulations 2011. The Act and the Regulations would work as guidelines for the Chartered Secretary professionals as well as to develop, promote and regulate the profession of Chartered Secretary in Bangladesh.

The background as well as the salient features the Chartered Secretaries Act & Chartered Secretaries Regulations 2011 was demonstrated in the program. The contents of the Act & Regulations enlightened the participants of the CPD program. Concentrating on the impact of the topics, some important issues were raised and interactive discussions were made as reflective tool for the Chartered Secretaries profession. During the open floor discussion, a significant number of members demonstrated their commitment to continued competent performance in a framework that is fair, transparent and formative. The presenter highlighted the objectives and some important provisions of the Chartered Secretaries Act 2010 as mentioned below:

The objective of the Act is to promote, develop and regulate the profession of Chartered / Company Secretaries in Bangladesh. The Chartered Secretaries Act 2010 consists of 7 Chapters and 35 Sections. Making regulations In exercise of the powers conferred by section 33 of the Chartered Secretaries Act 2010, the Council of the Institute of Chartered Secretaries of Bangladesh, with prior approval from the Government of Bangladesh, has framed the Regulations. These Regulations are called the Chartered Secretaries Regulations 2011. This has come into effect from September 12, 2011. The CS Regulations 2011 consists of 5 Chapters and 44 Regulations. Nasreen Begum, Joint Secretary, Ministry of Law, Justice and Parliamentary Affairs and a council member mentioned that with many limitations it was a great task for us and hopefully that has been done accordingly. However, the implementation of the concerned Act and Regulations will help the professional members to provide their services in the relevant field. She also assured that ethical practice to ensure corporate governance will bring the consistency in all aspects. At the end of the program Mohammad Sanaullah FCS, President of the Institute highly appreciated the contribution of the participants for discussion on various issues relating to the topics. He also expressed his sincere gratitude to the distinguished Members present and discussants for their active participation in the program. He thanked all concerned for organizing the CPD program in a befitting manner. The writer is an Associate Member, ICSB and Assistant Company Secretary, Transcom Group THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

Institute News

VISION FOR NEW COMPANIES ACT: CREATING GOOD GOVERNANCE A. T. M. Tahmiduzzaman ACS Chartered Secretary is the requisite qualification to become a Company Secretary. Mohammad Sanaullah FCS, President of Institute of Chartered Secretaries of Bangladesh emphasized this point during his presentation on the draft of new Companines Act. A consultation session between ICSB and Lead Drafter Barrister Tanjib Ul Alam, organized by the Investment Climate Fund (managed by IFC in partnership with DFID) was held on Tuesday October 11, 2011 at Ruposhi Bangla Hotel, Dhaka. The President of ICSB opined that the new law should be simple and entrepreneur friendly which would enable all to meet the challenges of global digitalized citizens. He appreciated the initiatives taken jointly by Ministry of Commerce, RJSC & IFC to go through a consultative process for a comprehensive review of the Companies Act 1994 and to draft a new Company Law to meet the requirements of the countryâ&#x20AC;&#x2122;s growing economy and needs. Mohammad Sanaullah in his Presentation pointed out following issues:

4. The new law should allow forming One Person Company (OPC) with a simpler legal regime through exemptions. The Small and Private Companies should be provided greater flexibility and freedom and given exemptions/relaxations in respect of disclosures relating to financial statements. 5. There should not be any differentiation between Government & Non- Government Companies; they should be treated at par.

1. The company incorporation process should be in a simplified form but compact, speedy (maybe within 24 hours), optimally priced and compatible with e-Governance initiatives which might be confirmed through harmonious operation of all Government and regulatory agencies to lead to one stop services from RJSC.

6. There should be provision under the law to take punitive measures against Companies/Directors that vanish with the investorsâ&#x20AC;&#x2122; funds.

2. All registration process and statutory filings should be made compatible to the electronic medium. Regular filing should be made easy efficient and cost effective. Companies should be allowed to use electronic means for circulation of financial statements.

8. The Prime duties and responsibilities of Directors should be specified in the Act in an inclusive manner and the qualification share of a Director needs to be spelt out in the new Law at a reasonable level say Tk. 25,000/- worth of share or a certain percentage. Chairman, Managing Director or CEO must be separate persons. The Managing Director and Executive Director (ED) should be in the full-time employment

accountability through disclosures to stakeholders in line with Global best practices considering local context. The Act should provide a more elaborate regime of corporate governance along with disclosures. The new Law should provide an appropriate framework of governance that should be complied with by all companies.

The new company law should create the scope of self regulation but impose greater

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7. Law should require transparency in functioning of charitable and licensed companies.

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of only one company at a time. One person should not be Director for more than seven companies. Board meetings should be held every three months with a minimum of four meetings to be held in a year. The gap between two meetings should not exceed four months. Meetings by electronic means should be allowed. 9. For listed companies there is a need for the presence of Independent Directors in the Board having significant role to protect public interest. As such there should be a mandatory obligation to have a minimum number of Independent Directors in the Public Companies. Independent Director shall be the head of certain committees to be constituted to ensure good governance, protect shareholders’ interest and HR management. Independent Directors’ remuneration to be fixed based on the business turnover. 10. There should be a mandatory provision for appointing a full time Company Secretary in a company where paid-up capital is more than say Tk. Five crore or in a public company. The Company Secretary should be a qualified Chartered Secretary and resident in Bangladesh whose appointment and removal shall be made by the Board of Directors. The Company Secretary shall hold responsibilities for ensuring compliance of all statutes and shall be functionally responsible to the Board of Directors and administratively reportable to the Chairman or Managing Director. The Secretary shall be an authorized Company signatory for all types of Agreements with third parties by virtue of a “Power of Attorney”. The key duties and responsibilities of a CS should be clearly mentioned in thelaw. 11. IFRS/Accounting Standards should be notified under the Companies Act. Consolidation of financial statements should be made mandatory in the new Law. Books of accounts should be preserved by a company for a period of 5

years instead of 12 years. Electronic Record Management should be endorsed by the law. 12. Auditor should be prohibited from performing certain non-audit functions/ services and this is to be specified in law. There should be provisions for empowering the Government to order Secretarial audit in certain cases as and when required. 13. Company shall pay dividend only from free reserves upon adjusting past losses which should be paid within 30 days of approval. Company should not pay interim dividend from past profits without holding a general meeting. Barrister Tanjib said the new Companies Act of the country will be drafted considering the need of the nation. “Yes, we will get references from different countries but we will only address those references which are relevant for our perspective. We have to think ‘Out of the Box’ to draft the new Act” he added. Barrister Tanjib also mentioned that the worthy recommendations of ICSB shall be accommodated considering the benefits for the Country. Registrar of Joint Stock Companies and Council member of ICSB Ahmedur Rahim, Past President of ICSB, Md. Asadullah, Sr. Vice President Shahid Farooqui, Vice President Naseemul Hye, Treasurer Monirul Alam, Council Member N G Chakraborty and a large number of Fellow and Associate Members of the Institute were present on the occasion and shared their views and opinion about the drafting of new Company Law.

The writer is an Associate Member of ICSB and Deputy Company Secretary, United Commercial Bank Ltd.

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ROLE OF INDEPENDENT DIRECTORS Mohammad Sanaullah FCS

Introduction An Independent Director is a non-executive member of the Board of Directors of an incorporated company, who apart from receiving director's remuneration, does not have any material interest in the company. Independent Directors are appointed on the Board to protect the interest of all shareholders and ensure that any fraudulent or incompetent action on the part of the management does not go unnoticed. Independent Director is not a new concept in Bangladesh. Securities and Exchange Commission of Bangladesh (SEC) in their corporate governance guideline issued on February 20, 2006 inducted the concept of Independent Director. According to SEC guideline for the listed companies at least 1/10th of the Board (but not less than 1) must be Independent Director.

compliance with financial, regulatory and corporate laws and make a meaningful contribution towards the business. Global Practice Independent Director means Non-Executive Director of the Company who apart from receiving Directors remuneration; -

The primary objectives for appointing Independent Directors is to ensure that any action for wrong doing by the majority Directors is brought under check and also as a value addition on the board of companies. It is the opinion of law makers that Directors who are free of any interest in the company will be in a position to objectively judge the management process and decisions being taken by them. For this purpose, many countries in their Companies Act and Listing Agreement have laid down the criteria for deciding whether a particular director is Independent or not. Ideally, independence means independence of mind and the ability to judge a matter without any prejudice or bias towards any relivant interest. Prerequisites for Independent Directors Independent Directors should have business acumen, i.e. knowledgeable individuals, of proven integrity who are able to ensure

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does not have any material pecuniary relationships or transactions with the company, its promoters, its senior management or its holding company, its subsidiaries and associate companies; is not related to promoters or management at the Board level or at one level below the Board; has not been an executive of the company in the immediately preceding financial years; is not a partner or an executive of the statutory audit firm or the internal audit firm that is associated with the company and has not been a partner or an executive of any such firm for the last three years. This will also apply to legal firms and consulting firms that have a material association with the entity; is not a supplier, service provider or customer of the company: is not a substantial shareholder of the company; is not affiliated with a not- for- profit entity that receives significant contributions from the company; within the last five years did not has any business relationship, with the company (other than service as a director);

Board Independence Accountability

â&#x20AC;&#x201C;

Cornerstone

â&#x20AC;˘ Board Independence is the cornerstone of accountability. Global best practice suggests that substantial majority of the Board should consist of Directors who are Independent.

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• Independent Directors should meet periodically, without the CEO or Executive Directors. • Audit Committee, Remuneration Committee, Nomination Committee and Compliance and Ethics Committee to comprise of Independent Directors. Who are eligible Directorship?

for

Independent

Following persons are eligible for such appointment : unless they are disqualified under the law. -

Business Leaders Bureaucrats with long exposures in management Professionals with vast knowledge in business, finance, legal and corporate management, like  Chartered Secretaries  Professional Accountants  Barristers /Lawyers

This will enable them to participate in the decision making process in an objective manner, uninfluenced by promoter or other Directors.

• The powers of Independent Directors are not merely persuasive. Statute bestows upon them the power of the vote which is much more effective than mere persuasive power of words. • Independent Directors have a large role to play in shaping the board’s agenda and decisions. They are in a position to direct the board’s attention to matters which require detailed analysis and review. • Independent Directors can ensure that the tone and tenor of the board’s discussions and decisions are in conformity with the stewardship function of the board and management. • Independent Directors needs to stand up to management if necessary. They should never be the rubber stamp authority. • Independent Directors should also conduct periodic executive sessions without management being present so that they can discuss and debate issues in an open and frank manner. • Corporate Governance will continue to be the primary responsibility of Independent Directors.

This is possible, if the Independent Directors have the business acumen, the ability to look ahead of our times in terms of emerging trends in business etc., as the corporate boards are business boards. This calls for considerable experience and exposure.

• The actions of the Independent Directors should demonstrate ethics, integrity, honesty and transparency.

As the Independent Directors enter Corporate Boards with different backgrounds and exposure, an intensive training should be undertaken for enhancing their capabilities. The professional bodies like ICSB will have to take a lead in this respect.

• Independent Directors can play a very important part in the area of compliance. They should play a watchdog role in the compliance area.

Role of Independent Directors • The Independent Directors can provide guidance for management’s decisions and ensure a focus on the investors’ interest over those of the management.

• Executive compensation is another area where leadership of Independent Directors is sought.

• Independent Directors should also facilitate confidential and anonymous channels for employees to submit complaints about questionable practices in the company. • Independent Directors should also liaise with regulators and provide inputs on compliance challenges and emerging compliance issues. THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

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• The Independent Directors have a great responsibility to create, preserve and strengthen the ethical and moral fabric of the company.

companies in a similar manner in order to bring uniformity in law and professionalism and independence in the management of such companies.

• Independent Directors should serve as Independent watchdogs serving the interests of shareholders.

• Independent Directors, like all other board members, work in the interest of shareholders. There is always an inherent conflict of interests between the company's owners and management (managers take short view of the company's interests, while shareholders are interested in long-term growth of the company). Independent Directors are appointed to safeguard the interest of the shareholders in this conflict and must make sure that the management does not override the firm's long-term sustainable growth with short-term gains.

Effective Instrument of Governance • Induction of Independent Directors is expected to qualitatively change the composition of the Board. • Helps to improve the standard of Corporate Governance with better accountability to stakeholders. • Transparency in the operational activities by adequate and meaningful disclosures. Conclusion • Rules and regulations alone cannot ensure that companies are clean and honest. There should be an atmosphere of ethical conduct and a proper mind set to do the right thing. • The Independent Directors have a great responsibility to create, preserve and strengthen the ethical and moral fabric of the company. • Shareholders rely on Independent Directors to protect their interests, address conflicts of interest and to ensure that shareholders and the business is managed properly by management. • Provision for appointing an Independent Director in a listed company should also apply in all non-listed public companies by appointing Independent Director. Also the provision should apply to government

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• Bringing Independent Directors is definitely a good move in the direction of a more holistic approach towards good corporate governance. However, the concept is not full proof and the success totally depends on the capability / quality of an individual. • For the better management of effective control over the Board, Independents Director number should be increase at least 1/3rd of the total Board members. References 1. ICSI Journal 2. ICSA publications 3. Internet The writer is the President of ICSB and Corporate Affairs Director & Company Secretary, Singer Bangladesh Limited

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GOOD GOVERNANCE IN PHARMACEUTICAL INDUSTRY MD. Shahid Farooqui FCS

Pharmaceutical

industry of Bangladesh is one of the fast growing sectors and has established itself as the second largest foreign exchange earner next to RMG. Nevertheless, this demands a world-class corporate management and manufacturing control system in the sector. Designing an effective production control system requires knowledge of the techniques and a sound understanding of principles of good governance so that these techniques are understood and implemented properly. Let us discuss some governance issues of a Pharmaceutical Industry. Medicines are related to the life and happiness of mankind. So the product formulation, production, quality control, storing, dispensing of medicines require top priority in abiding by the good governance principles. A good corporate management in a pharmaceutical industry should consider the following aspects. 1. 2. 3. 4. 5.

Forecasting Planning Inventory Levels Planning Production Levels. Well documented compliance system. Work for the benefit of everyone concerned. 6. Ensure adherence to accepted ethical standards and good manufacturing practices (GMP)/Total Quality Management (TQM). 7. Compliance to prevailing formal laws.

M M M M

= = = =

Man Machine Materials Methods

The "4–M" principle is explained in terms of the following management system. Human Resource Management: Man is the first important factor in factory management. It involves the management of workers participation & welfare, recruitment, promotion, termination, retirement, leave management, training etc. Workers Welfare: A well defined & enforced corporate governance provide benefit to all concerned. Workers are the prime team to enjoy the benefits. Their woe & sorrows have to be understood well in order to develop them as a motivated workforce. Health Check: Good health is the precondition of a good work force. Regular health check and providing treatment to all employees stands as a pillar for a good governance. Leave Management: A systematic leave management is an important factor of personnel management. “Too strict” or “too loose” leave management may harm a corporate governance environment.

Factory Management:

Engineering & Technology Management:

Factory Management is a very important part of Pharmaceutical Industry corporate governance. A good factory management can be judged on the basis of the "4–M" principle.

As a pharmaceutical company is based on latest and innovative technology, the company should have a proper Engineering & Technology Management System.

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These include1. Selection and installation of right machinery in right time. 2. Qualifications such as design qualification (DQ), Installation qualification (IQ), and Performance qualification (PQ) to be assured in time. 3. Calibration and Validation of production and testing machinery and equipment at the right time. 4. Maintenance schedule & revalidation needs planned and continual efforts. 5. Operating Procedure is an important requirement for pharmaceutical industry. A well defined standard operating procedure (SOP) has to be formulated and maintained for every machine and process. 6. Power Supply and Utility Management should be monitored very closely. Materials Management: Good warehouse practice (GWP) should be framed out in advance for better materials management. Some points are given below: 1. Receiving goods from validated vendorsâ&#x20AC;&#x2122; source: A list of validated vendors to be available at receiving point and received goods to be checked carefully before issuing good receiving note (GRN). 2. Correct storage of Materials: Correct storage of materials prevent contamination and maintain desired potency, efficacy & quality. 3. Proper Labeling: Labels indicating storage conditions, shelf life, expiry etc. in addition to normal information. 4. Assuring storage condition: A list indicating storage condition and segregated storage area as per the condition must be available. 5. Specialized Storage Area: The areas include narcotic drugs, steroids, cold storage and aseptic items such as penicillin, Cephalosporin, etc 6. Quarantine Area: There must be quarantine area for incoming materials and finished products. 7. Packing materials control: This is very important, especially the label control.

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Pigeon hole cabinets are required for label control. Temperature effect is also to be monitored for the packing materials. Production Management: Production Management in a pharmaceutical industry must be done in compliance with the Good Manufacturing Practices Regulation (GMP). Good Manufacturing Practices are guidelines or regulations whose purpose is to ensure that products are consistently manufactured to meet specified quality appropriate to their intended requirements of identity, purity and safety. The combined efforts of industry and government are reflected in the GMP regulation. The ten basic rules of Good Manufacturing Practice (GMP) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Write procedures Follow written procedures Document or record your work Validate your work Use appropriate facilities and equipment Maintain facility and equipment Be trained to be updated Be clean and tidy Be quality alert Periodic Audit for compliance

Aspects of GMP 1. 2. 3. 4. 5. 6. 7. 8.

Personnel Premises Equipment Sanitation & Hygiene Production Quality Control Self Inspection Documentation

The GMP regulations state that personnel should have adequate information concerning the reason for the application of pertinent provisions of the GMP to their respective function. Training A well documented system and standardized procedures not only help personnel training, but also provide a basis for the development of a self inspection programme that will

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permit auditing of operations by production management from time to time to ensure continuing compliance.

Functions of some important departments in the Pharmaceutical industry is mentioned below:

Quality Assurance Management

Quality Control Management: All the in-coming raw, bulk, finished goods and packing materials are tested in the QC department. Collection of the samples, test and analysis of the samples, record keeping, validation, calibration, stability study & certificate issuing etc are the main functions of this department.

Excellence in pharmaceutical manufacturing can never be achieved in isolation. The philosophy is known as the total quality approach and its environment led to the concept of total quality management. Total Quality Management enhance the following benefits of the company• Better quality • Lower cost • Higher productivity • Consumer satisfaction • Timely manufacture • Better image

Product Development Procedure: This is also a vital department of the Pharma Industry where the main work are as follows •

New products formulation, development and its documentation, preparation of standard operating procedures. Existing products stability study & record keeping Complaint analysis and problem solution. Existing product quality improvement & cost reduction etc Preparation of specifications and development of analytical method etc.

Practically, quality assurance activates through total quality management of the company. It focuses on the following parameters• Right product • Right quality • Right time • Right cost

•

Therefore, it may be said, having followed the quality assurance activities in the pharmaceutical industry, we can achieve consumers’ satisfaction.

Compliance department: There is a saying “No amount of testing can improve quality, it must be built into product in the manufacturing floor”. Many quality related works are done in the production floors like processing, filling, cleaning, temperature and humidity control, weight, volume, hardness checking etc done by the compliance department until final release of finished goods for marketing.

Actually the main goal of an organization is customer satisfaction. To achieve the customer satisfaction, it needs quality products. To develop quality of the product, it needs supports, motivation of all stages of workers as well as qualified human resources. For getting maximum benefit out of quality assurance department, to deliver quality products and achieve customer satisfaction, a management policy should be followed according to following diagram.

Quality Quality

Management

•

In conclusion, it may be said that the Pharmaceutical industry can be developed to the desired standard of operation and give quality medicine for the benefit of the people through a good corporate management. This is imperative in a competitive market. The writer is Senior Vice President of ICSB and General Manager & Company Secretary, Ibn Sina Pharmaceutical Limited

Man/People

Materials

• •

Quality

Method

Quality Plant

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GOVERNANCE IN THE APPARELS SECTOR M. Naseemul Hye FCS

Historically the Apparels Sector was basically

tailoring shops, operating on a low scale to meet local demands. They were owned by individuals who were sometimes themselves involved in the production process. These businesses often operated as sweat shops with low paid workers and without caring for any compliance. However with the passage of time some large Garments Industries were set up to meet the increasing local demand. We will not be discussing these Industries. Everything started to change in the early 70’s when entrepreneurs started thinking about exports. The Apparel Sector is an extraordinary success story of Bangladesh! From a small beginning in the early 70’s the Ready Made Garments (RMG) sector which initially contributed only 1.1% of the total export of the country, in 2010-2011 fiscal it contributed 78.14% (US$ 17.91 billion) of the export earnings of the country compared to 77.12% (US$ 12.50 billion) in fiscal 2009-2010, i.e. an increase of 43.28 %. The industry provides 10.5% of the country’s GDP and 40% of its manufacturing output. With the increase in the volume of exports of the RMG, opportunities were created for associated industries such as Textiles, Dyeing, Labels, Buttons, Zippers, Packaging, etc. The Apparels Industry also contributed to the expansion of the Banking, Insurance and Transport Sectors. The overall effect has been an increase in employment. This was possible because of the vision and determination of the entrepreneurs to take advantage of the low cost structure in the country and they succeed in their mission. This is another example of the private sector led growth and success in the country. The sector was able to bring about a revolution by creating jobs, mainly for women. Presently the sector employs approximately 900,000 men and 2,100,000 women. All the new Industries started as family owned concerns and by and large still remain so.

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Therefore they have been running as per the desires of the “owners”. In the 70’s and 80’s little attention was paid to the employees’ welfare, working conditions, wages, compliance issues, etc. when the main focus was on production, export and profit. This was acceptable for some time but gradually due to pressure from the buyers changes had to be brought about in the way these organizations were operating. Compliance issues were taken up seriously. Therefore governance issues were raised and resolved successfully in the following areas: 1. Human Resources Management 1.1 Child Labour In 1992 the Harkins Bill (Child Labour Deterrance Act) in USA banned importation of goods from those countries which use child labour. In 1996 ILO, UNICEF and US government also put pressure to eliminate child labour. These had a significant effect in eliminating child labour in the “Garments Industry”. The issue was taken up by the buyers seriously and after exerting pressures on the manufacturers significant progress was made. 1.2 Health and Safety aspects Sometimes fires were the cause of deaths in the factories. The working conditions were also bad. These concerns have been addressed with much better working conditions and installation of safety measures such exclusive emergency staircases, fire drills for possible evacuations, etc. The working environment is much cleaner and the temperature in the factories is also controlled now. Drinking water is provided to the workforce. There is now widespread use of Personal Protective Equipment (PPE) amongst the workers such as metal gloves, masks, needle guard, etc. which has contributed to reduction in injuries.

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1.3 Treatment of Female Employees In the past there was a lot of discrimination against the female employees. They were abused and mentally harassed. But gradually this attitude changed due to increase in education, training and awareness among the female employees. They are now empowered and decision makers in their family. 1.4 Medical Facilities

factories have improved. There is proper ventilation and sufficient lighting in the factories. Each worker is allocated about 9.5 cubic meter space on an average and passages for movement are clearly marked to avoid accidents. Insurance policies are also provided for the workforce. 4. Working Hours

Nowadays there are doctors and nurses on duty in most factories to provide first aid take care of any medical problems which may arise.

The normal working period is now eight hours per day with one day rest. Overtime is worked only as an exception when deadlines for large orders have to be met and they are paid at double the normal rate.

1.5 Child Care

5. Social and Environmental Factors

In most factories there is a “Creche” for the children who cannot be left alone at home by the working mothers. They play there while the mothers work to earn their living.

Social awareness and pressure from the stakeholders is forcing the manufacturers to take into account the effect of their operations on the environment. Therefore actions such as tree plantations and installation of Effluent Treatment Plants (ETP) are being taken to ensure that the environment is not polluted due to waste effluents being sent to the drainage system.

1.6 Training Training is provided at various levels. Initially there is the orientation programme followed by on the job training, including factory rules, mid management development, compliance issues, etc. Some training is also provided by NGO’s. 2. Remuneration Regulatory actions by the government have forced the employers to address the anomalies in the wages structure which was lop-sided. At present all employers comply with the regulations which stipulate the minimum wage levels in the industry. There is no discrimination in the wages of the male and female workforce. Most employers also make an effort to pay wages and bonus on time these days. This ensures better industrial relations. Collective bargaining has also been introduced in many factories where worker welfare committees also function. This in the long run will lead to “Industrial Peace”. 3. Working Conditions Over the years the working conditions in most

6. Transparency and Accountability Manufacturers are under pressure from buyers to maintain Transparency and Accountability. For instance when costs go up and the manufacturer wants to increase the price, he has to justify to the buyer in details regarding the increases. Records of scrap have to be maintained. Daily production and quality control reports are also prepared. Third party audits are carried out by the representatives of the buyers. This ensures that compliance issues are addressed adequately by the entrepreneurs. 7. Central Bank Regulations As a result of the regulations of the Central Bank the Commercial Banks have also introduced stringent lending policies such as compliance which in the long run is leading to better governance within the Apparels Industry.

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Article 8. Second Generation Entrepreneurs The second generation entrepreneurs are better informed and enlightened. As a result of their awareness they are able to accept changes more easily. As such these entrepreneurs are initiating changes in their respective organizations to improve the governance situation although their numbers are still low. Corporate Governance (C G) principles with we are familiar are not applied strictly in the Apparels Sector. Rather the focus is mainly on â&#x20AC;&#x153;Compliance issuesâ&#x20AC;?. However it does not mean that issues relating to transparency, accountability, developing and strengthening the management, delegation and empowerment, procurement, etc. can be ignored. Issues relating to the Environment and Corporate Social Responsibility has to be addressed seriously. The Human Resources Management should be improved and the gap between the owners and the workers should be bridged through more discussions and motivation so that suspicion and mistrust is removed. All systems should be improved further so that better control and monitoring can be established. The procurement procedures can also be reviewed to ascertain whether further improvements can be made.

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Awareness has been created in some of the organizations but no major steps are being taken to bring about changes. Although a lot of issues have been dealt with there is need for more proactive actions. Application of CG principles will be a win-win situation for all concerned- the employer, the employee and all the stakeholders. Efficiency and productivity will increase due to lower labour turnover. This will result in less product waste and production of quality products leading to higher profits which can be used for investment in assets and employee welfare. The country will also be benefited due to better use of resources. With good governance the foreign buyers will also be inspired resulting in increase in the volume of business which is transacted and consequently a higher growth rate can be achieved by the individual organizations and the industry as a whole.

The writer is the Vice President of ICSB and Executive Director & Company Secretary, Bashundhara Group.

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CORPORATE GOVERNANCE FOR THE INSURANCE COMPANIES Md. Selim Reza FCA, FCS

CORPORATE GOVERNANCE Corporate Governance is understood as a system of financial and other controls in a corporate entity and broadly defines the relationship between the Board of Directors, senior management and shareholders. INSURANCE INDUSTRY As regards the insurance sector, the regulatory responsibility to protect the interests of the policyholders demands that the insurers have in place, good governance practices for maintenance of solvency, sound long term investment policy and assumption of underwriting risks on a prudential basis. The emergence of insurance companies as a part of financial conglomerates has added a further dimension to sound Corporate Governance in the insurance sector with emphasis on overall risk management across the structure and to prevent any contagion. The Insurance Development and Regulatory Authority (IDRA) has the responsibility to take steps required to adopt sound and prudent principles and practices for the governance of the insurance company. CORPORATE GOVERNANCE STRUCTURES IDRA may address covering the following requirements of Corporate Governance in the insurance companies: • Governance Structures • Board of Directors • Control functions • Senior management: - CEO & other senior functionaries - Role of Appointed Actuaries - External audit – Appointment of Statutory Auditors • Disclosures • Outsourcing • Relationship with stakeholders • Interaction with the Supervisor • Whistle blowing policy

GOVERNANCE SRUCTURE The composition of the Boards of the insurance sector is laid down by the Government in the Insurance Act, 2010. The insurance companies are as yet unlisted but the Authority advises all insurers to familiarize themselves with Corporate Governance structures and requirements appropriate to listed entities. Subject to the above, the insurance companies presently could have different structures with the Board of Directors headed by a Full-Time or Part-Time Chairman with distinct executive and oversight responsibilities among the other Directors and Senior Management. It is expected that whatever form is taken, the broader elements of good Corporate Governance should be present. BOARD OF DIRECTORS Composition The Insurance Act stipulates that insurance companies would be public companies and hence, would require a properly constituted Board. 1.

It is expected that the shareholders of the companies elect or nominate Directors from various areas of financial and management expertise such as accountancy, banking, insurance, economics etc., with qualifications and experience that is appropriate to the Insurance company.

Insurers should ensure that the Board comprises of competent and qualified Directors to drive the strategies in a manner that would sustain growth and protect the interests of the stakeholders in general and policyholders in particular.

The size of the Board in addition to being compliant with legal requirements (where

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applicable), should be consistent with scale, nature and complexity of business. The size and composition should ensure that they collectively provide knowledge, skills experience and commitment along with independence. Further, the Board Members should be in a position to dedicate sufficient time and commitment to fulfilling their responsibilities. 4.

The Role and responsibility of the Board 1)

The Board should ensure that the Governance principles set for the insurer comply with all relevant laws, regulations and other applicable codes of conduct.

The Board should formulate the following policies as indicated.

The Directors possess the knowledge of group structure, organizational structure, process and products of the insurer and the Board generally complies with the following requirements:-

a) Define and periodically review the corporate business policy.

- The Board of Directors and Senior Management understand the operational structure of the insurer and have a general understanding of the lines of business and products of the insurer, more particularly as the insurer grows in size and complexity.

c) Determine the retention and reinsurance policy and in particular, the levels of retentions of risk by the insurer and the nature and extent of reinsurance protection to be maintained by the insurer.

b) Define the underwriting policy of the insurer.

d) Define the policy of the insurer in investment of its assets consistent with an appropriate asset liability management structure.

- The Board of Directors of an insurer should understand the material risks and issues of the insurer. •

The Board of Directors is required to have a significant number of “Independent Directors” (as generally understood). The optimum contribution of Independent Executive and Non-Executive Directors enhances the quality of business judgment and benefits the shareholders and policyholders.

•

The Chairman of the Board is non-executive; the Chief Executive Officer should be a full time Director of the Board.

•

e) Define the insurer’s policy on appointments and qualification requirements for staff at all levels and for fixing their remuneration and benefits; the remuneration policy should not include incentives that encourage imprudent behaviour. 3)

a) Define the standards of business conduct and ethical behaviour for directors and senior management.

As a matter of prudence, not more than one member of a family or a close relative or an associate (partner, director etc) should be on the Board of an Insurance Company. Procedures concerning election, re-election, removal and retirement of members of the Board of Directors should be set out and documented.

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The Board should define and set the following standards:-

b) Define the standards to be maintained in policyholder servicing and address the grievances of policyholders. 4)

The Board would be responsible to provide strategic guidance for implementation of business policy and structure a management information system for review and correction.

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As an integral part of the proper implementation of the CG, the Board should take action as under:a) Establish appropriate systems to regulate the risk appetite and risk profile of the Company. It will also enable identification and measurement of the significant risks to which the company is exposed in order to develop an effective risk management system. b) Ensure that all supervisory/regulatory directions are submitted to the Board and the supervisor’s recommendations are utilized in the assessment of the performance of the senior management in implementation of Board philosophy. c) Define the role of the Appointed Actuary and the degree of his involvement in the design and pricing of products and in determination of liabilities. d) Ensure that the Appointed Actuary has direct access to the Board and reports on important matters to the Board in a timely manner. e) Ensure that the IT systems in the company are appropriate and have built-in checks and balances to produce data with integrity. f) Ensure that the company has in place a robust compliance system in place for all applicable laws and regulations. g) Prescribe the forms and frequency of reporting to the Board in respect of each of the above areas of responsibility.

In the discharge of the above and other Governance functions, the Board should delegate the responsibilities to mandated/ other recommended Empowered Committees of Directors while retaining its primary accountability.

The Board should ensure that the insurer is compliant with its directions and all statutory provisions and regulations

framed there under through: a) A sound system of internal controls and audit in respect of all aspects of the insurer’s activities and accounts, including financial, operational and compliance controls and such systems should be annually reviewed by the Board for their effectiveness. b) The Internal Audit function should perform in an objective, independent and risk oriented manner, with timely feedback to the Board. c) Prescribing and reviewing all delegations of authority to various levels of management, especially in underwriting, claims, reinsurance, investments and general financial transactions. Fit and Proper Criteria In line with the international and domestic norms, the Directors of insurance companies have to meet the “fit and proper” criteria. The criteria to be satisfied, at a minimum, would relate to integrity demonstrated in personal behaviour and business conduct, soundness of judgment and financial soundness. The Insurance Act prohibits (i) a life insurance agent to be the Director of the life insurance company; and (ii) the common directorship among life insurance companies. It is desirable that the Boards constitute a Nomination Committee to scrutinize the declarations of intending applicants before the appointment/reappointment/election of directors by the shareholders at the General Meetings. The Nomination Committee could also make independent/ discreet references, where necessary, well in time to verify the accuracy of the information furnished by the Director. The Directors are also required to enter into a Deed of Covenant with the insurance company, duly approved by the Board, pursuant to their terms of appointment to ensure that there is a clear understanding of the mutual role of the company and the Board in Corporate Governance.

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Conduct of Meetings The Board should also lay down systems that would make the Company Secretary responsible for proper conduct of the Board meetings and with adequate time to deliberate on the major issues in detail. The Minutes should be recorded as soon as possible after the meeting and get circulated. There should be a system of familiarizing new Directors with the background of the company’s governance philosophy, duties and responsibilities of the Directors, etc. Well structured arrangements should be in place for ongoing briefing of Directors on dynamic changes in the insurance in particular and in the financial sector in general and for updating the Directors through formal and informal programmes covering regulatory systems, market growth trends, future strategic plans/operations, etc. CONTROL FUNCTIONS Given the risks that an insurer takes in carrying out its operations, and the potential impact it has on its business, it is important that the Board has in place: •

•

appropriate processes for ensuring compliance with the Board approved policy, and applicable laws and regulations;

•

appropriate internal controls to ensure that the risk management and compliance policies are observed;

•

an internal audit function capable of reviewing and assessing the adequacy and effectiveness of, and the insurer’s adherence to its internal controls as well as reporting on its strategies, policies and procedures; and Independence of the control functions, including the risk management function, from business operations demonstrated by a credible reporting arrangement.

•

robust and efficient mechanisms for the identification, assessment, quantification, control, mitigation and monitoring of the risks;

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- The responsibility for the oversight of control functions of an insurer should be entrusted to Directors possessing the appropriate integrity, competence, experience and qualifications, and they should meet the fit and proper criteria initially and on an on-going basis. - For insurers within a group, appropriate and effective group-wide risk control systems should be in place in addition to the control systems at the level of the insurer. It is essential to manage risks appropriately on a group-wide basis as well as at the level of the insurer. Delegation of Functions With a view to providing adequate Board time for discharge of the significant corporate responsibilities, the Board can consider setting up of various Committees of Directors by delegating the overall monitoring responsibilities after laying down the roles and responsibilities of these Committees to the Board. In particular, the following aspects need to be defined in respect of the role and functions of the Committees: • • • • • •

Constitution Objectives Responsibilities Frequency of meeting / quorum requirements Appointment and removal of members Reporting to the Board

The company can establish several Committees to undertake specific functions depending on the size and level of the complexity of the operations. The role and responsibilities of the Committees would generally be as detailed below:Audit Committee 1.

The Audit Committee shall oversee the financial statements, financial reporting and disclosure processes.

The Chairman of the Audit Committee should be an independent Director of the

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Board and should ideally be a professional Chartered Accountant or a person with strong financial analysis background. The association of the CEO in the Audit Committee should be limited to eliciting any specific information concerning audit findings. 3.

The Audit Committee will oversee the efficient functioning of the internal audit department and review its reports. The Committee will additionally monitor the progress made in rectification of irregularities and changes in processes wherever deficiencies have come to notice.

The Audit Committee shall be directly responsible for the appointment, remuneration, performance and oversight of the work of the auditors (internal/statutory/Concurrent).

The Audit Committee shall establish procedures to attend to issues relating to maintenance of books of account, administration procedures, transactions and other matters having a bearing on the financial position of the insurer, whether raised by the auditors or by any other person.

Any work other than audit that is entrusted to the auditor or any of its associated persons or companies shall be specifically approved by the Board who shall keep in mind the necessity to maintain the independence and integrity of the audit relationship. All such other work entrusted to the auditor or its associates shall be specifically disclosed in the annual accounts of the insurer.

•

The Committee’s role in managing the investments out of the policyholders’ funds is crucial and hence the constitution of the Investment Committee should be approved by the Board of Directors.

•

The Committee shall be responsible for laying down an overall investment policy and operational framework for the investment operations of the insurer. The policy should focus on a prudential asset liability management (ALM) supported by robust internal control systems. The investment policy and operational framework should, inter alia, encompass aspects concerning liquidity for smooth operations, compliance with prudential regulatory norms on investments, risk management / mitigation strategies to ensure commensurate yield on investments and above all protection of policyholders’ funds. It is also responsible for a periodic review of the Investment policy based on the performance of investments and the evaluation of dynamic market condition.

•

Members of the Committee should be fully conversant with the various responsibilities cast on them by the IDRA as amended from time to time.

•

All Investments made are to be approved by investment committee the delegated and authorized operational staff to facilitate urgent and day-to-day Investment operations.

•

The members of the Committee should not be influenced by the credit rating agencies and should independently evaluate their recommendations on investment decisions duly supported by the due diligence process.

•

It shall also put in place an effective reporting system to ensure compliance with the policy set out by it apart from Internal / Concurrent Audit mechanisms for a sustained and on-going monitoring of Investment Operations.

Investment Committee •

The Board of every Insurer shall set up an Investment Committee comprising of at least two Non Executive Directors, the Chief Executive Officer, Chief of Finance, Chief of Investment Division and wherever an appointed actuary is employed, the Appointed Actuary.

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•

The investment committee shall at least meet once in a quarter and look into various aspects of investment operations and monitor them. The investment committee shall furnish a report to the Board on the performance of Investments at least on a quarterly basis and provide analysis of its Investment portfolio and on the future outlook to enable the Board to look at possible policy changes and strategies.

Risk Management Committee It is now well recognized that the sound management of an insurer as in the case of other financial sector entities, is dependent on how well the various risks are managed across the organization. In pursuit of development of a strong risk management system and mitigation strategies, insurers shall set up a separate Risk Management Committee to lay down the company’s Risk Management Strategy. The insurers can, however, presently organize the function appropriately to the size, nature and complexity of their business keeping in view the need for operative independence of the Head of the risk management function.

ALM is an ongoing process of formulating, implementing, monitoring and revising strategies related to assets and liabilities to achieve an organization’s financial objectives, given the organization’s risk appetite, risk tolerances and business profile. The need for ALM cannot be over-emphasized as it lays down the framework to ensure that the insurer invests in a manner which would enable it to meet its cash flow needs and capital requirements at a future date. The responsibilities of the ALM Committee shall include: •

Setting the insurer’s risk/reward objectives and assess policyholder expectations.

•

Quantifying the level of risk exposure and assessing the expected rewards and costs associated with the risk exposure.

•

Formulating and implementing optimal ALM strategies and meeting risk/reward objectives. The strategies must be laid down both at product level and enterprise level.

Broadly, the Risk Management Committee shall:

•

Laying down the risk tolerance limits.

•

assist the Board in effective operation of the risk management system by performing specialized analyses and quality reviews;

•

Monitoring risk exposures at periodic intervals and revising ALM strategies where required.

•

maintaining an group-wide and aggregated view on the risk profile of the insurer in addition to the solo and individual risk profile; report to the Board details on the risk exposures and the actions taken to manage the exposures;

Placing the ALM information before the Board at periodic intervals.

•

Asset Liability Management Commitee ( Life insurers)

advise the Board with regard to risk management decisions in relation to strategic and operational matters such as corporate strategy, mergers and acquisitions and related matters.

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Policyholder Protection Committee The Authority places significant emphasis on the protection of policyholders’ interests and on the adoption of sound and healthy market conduct practices by insurers. With a view to addressing the various compliance issues relating to protection of the interests of policyholders, as also relating to keeping the policyholders well informed of and educated

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about insurance products and complaint-handling procedures, each insurer shall set up a Policyholder Protection Committee which shall directly report to the Board.

statutorily in the Insurance Act and Rules framed there under in order to protect the interests of the policyholders.

Thus, the responsibilities of the Policyholder Protection Committee shall include:

The setting up of a Remuneration Committee should keep the above requirements in view. Further, the envisaged role of the Committee includes the following aspects:

•

Putting in place proper procedures and effective mechanism to address complaints and grievances of policyholders.

•

Ensure compliance with the statutory requirements as laid down in the regulatory framework.

The Remuneration Committee is required to determine on behalf of the Board and on behalf of the shareholders with agreed terms of reference, the insurer’s policy on specific remuneration packages and any compensation payment, for the CEO and the Executive Directors of the company.

•

Review of the mechanism at periodic intervals.

•

Ensure adequacy of disclosure of “material information” to the policyholders. These disclosures shall, for the present, comply with the requirements laid down by the Authority both at the point of sale and at periodic intervals.

The remuneration package shall be closely connected with the performance objectives laid down for the senior management.

•

Review the status of complaints at periodic intervals to the policyholders.

To avoid conflicts of interest, the Remuneration Committee, which would determine the remuneration packages of the executive directors may comprise of at least three directors, all of whom should be non-executive directors, with the Chairman of the Committee being an independent director.

•

Provide the details of grievances at periodic intervals in such formats as may be prescribed by the Authority.

•

Provide details of insurance ombudsmen to the policyholders

The Chairman of the Remuneration Committee could be present at the Annual General Meeting, to answer the shareholders’ queries. However, it would be up to the Chairman to decide who should answer the queries.

Other Committees

Ethics Committee (not mandatory)

The other Committees which are optional, which can be set up by the Board, include the Remuneration Committee, Nomination Committee and the Ethics Committee.

Responsibilities of the Ethics Committee typically include: • monitoring the compliance function and the insurer’s risk profile in respect of compliance with external laws and regulations and internal policies, including the insurer’s code of ethics or conduct

Remuneration Committee (not mandatory) Remuneration of CEOs/Whole-time Directors of insurance companies is subject to statutory approval of the IDRA. Further, the overall management costs of the insurer are also additionally governed by the limits prescribed

•

receiving reports on the above and on proactive compliance activities aimed at increasing the insurer’s ability to meet its legal and ethical obligations, on identified THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

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weaknesses, lapses, breaches or violations and the controls and other measures in place to help detect and address the same •

supervising and monitoring matters reported using the insurer’s whistle blowing or other confidential mechanisms for employees and others to report ethical and compliance concerns or potential breaches or violations

•

advising the board on the effect of the above on the insurer’s conduct of business and helping the board set the correct “tone at the top” by communicating, or supporting the communication, throughout the insurer of the importance of ethics and compliance

•

approving compliance programmes, reviewing their effectiveness on a regular basis and signing off on any material compliance issues or matters.

CEO & OTHER SENIOR FUNCTIONARIES The Chief Executive Officer of the company and other key functionaries are responsible for the operations and day to day management of the company in line with the directions of the Board and the Committees set up by the Board. Insurance Act, 2010 requires prior approval of the Authority for appointment, re-appointment or termination of the Chief Executive Officer and the Whole Time Directors. The Authority expects the CEO to be responsible for the conduct of the company’s affair in a manner which is not detrimental to the interests of the policyholders and is consistent with the directions of the Board. The Board should, therefore, carry out effective due diligence to establish that the new incumbent is ‘fit and proper’ before recommending the name for Authority’s approval. In case the CEO resigns, the Authority should be kept informed of such resignation and the reasons therefor. The Insurance Act also prohibits the CEO of a life insurance company from being a Director in any other insurance company/bank/investment company.

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As the appointment of the CEO is made with the prior approval of the IDRA, the Board should take proactive steps to decide on the continuance of CEO well in time before the expiry of his tenure or to identify the new incumbent. The Authority requires the proposal to be submitted with the approval of the Board at least a month before the completion of the tenure of the incumbent. As a corollary, the Board should also have practices in place for succession planning for the key senior functionaries through a process of proper identification and nurturing of individuals for taking over senior management positions. Role of Appointed Actuaries The Act and Regulations also stipulate that prior approval of the Authority shall be taken for eth appointment of the Actuary. The Board should ensure that the requirements are scrupulously complied with. In brief, it is reiterated that a)

A procedure for appointment of Appointed Actuary should be put in place.

The Appointed Actuary should qualify and satisfy the ‘Fit & Proper’ criteria.

The insurer shall clearly set forth the Actuary’s responsibilities and any advisory role vis-à-vis the Board or the management as well as his/her rights and obligations.

The Board shall interact directly with the Appointed Actuary wherever it considers it expedient to secure his advice.

The Appointed Actuary shall provide professional advice or certification to the board with regard to: a)

estimation of technical provisions in accordance with the valuation framework set up by the insurer

identification and estimation of material risks and appropriate management of the risks

financial condition testing

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DISCLOSURE REQUIREMENTS

solvency margin requirements

appropriateness surrender value)

allocation of bonuses insurance contracts

management of participating funds (including analysis of material effects caused by strategies and policies)

product design, risk mitigation (including reinsurance) and other related risk management roles.

premiums to

(and

with-profit

While the areas of certification listed above are with specific reference to life companies, the appointed actuaries in case of non life insurance companies shall provide such advice/certification to the extent applicable. In order to facilitate the Appointed Actuary in discharge his responsibilities, he shall at all times be provided access to the information as required. External Audit - Appointment of Statutory Auditors The IDRA may issue directions/guidelines on appointment, continuance or removal of auditors of an insurance company. These guidelines/directions may include prescriptions on qualifications and experience of auditors, their rotation, period of appointment, etc., as may be deemed necessary by the Authority.

IDRA should make additional disclosure requirements in addition to the financial disclosures outlined by BAS. All insurers would be required to ensure compliance of the followings: a)

The Board should disclose in the annual accounts of the insurer, information on the following including the basis, methods and assumptions on which the information is prepared and the impact of any changes therein: Quantitative and qualitative information on the insurer’s financial and operating ratios, namely, incurred claim, commission and expenses ratios.

Actual solvency margin details vis-à-vis the required margin.

Life insurers shall disclose policy lapse ratio.

Financial performance including growth rate and current financial position of the insurer

A description of the risk management architecture

Details of number of claims intimated, disposed of and pending with details of duration

All pecuniary relationships or transactions of the non-executive directors vis-à-vis the insurer shall be disclosed in the Annual Report.

All elements of remuneration package of individual directors summarized under major groups such as salary, benefits, bonuses, etc shall be disclosed.

All related party transactions.

Any other matters, which have material impact on the insurer’s financial position.

Access to Board and Audit Committee The Audit Committee should have discussions with the statutory auditors periodically about internal control systems, the scope of audit including the observations of the auditors and review the quarterly/half yearly and annual financial statements as the case may be before submission to the Board of Directors and also ensure compliance of internal control systems. The statutory auditors should also have access to the Board of Directors through the Audit Committee.

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RELATIONSHIP WITH STAKEHOLDERS

INTERACTION WITH THE SUPERVISOR

A stakeholder is any person, group or organization that has a direct or indirect stake in an insurer. The stakeholder can affect or be affected by the insurer's actions, objectives and policies. The key stakeholders in case of an insurer include shareholders, employees, policyholders and supervisors. Other stakeholders could include creditors, service providers, unions, rating agencies, equity analysts and the community at large. The stakeholders are interested in the operations of the insurers in terms of:

Effective corporate governance practices in the office of the insurer will enable IDRA to have greater confidence in the work and judgment of an insurer’s board, senior management and control functions. In assessing the governance practices in place, the IDRA would:

•

its profitability and thus its capacity to provide a return on capital to shareholders, hire employees, expand its operations and contribute to economic and social activity its ability to meet its obligations to the various stakeholders as they come due, thereby also promoting trust and confidence in the financial system

Towards protecting the interests of the various stakeholders the insurer must ensure complete transparency in operations and make periodic disclosures. The disclosures stipulations must at the minimum address the following: •

financial statements accurately and fairly represent the financial condition of the insurer; and

•

the insurer is running its business soundly and will be viable over the long term.

In particular, the disclosure requirements of the participating policyholders and the unit linked policyholders must be duly addressed. In case of a situation arising whereby there is a possibility of conflict of interests, the board plays an important role and balances and resolves the conflicting objectives. The board must be guided by clear and understandable principles. It must ensure protection of the interests of both current and prospective policyholders.

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•

Seek confirmation that the insurer has adopted and effectively implemented sound corporate governance policies and practices;

•

assess the fitness and propriety of board members;

•

monitor the performance of boards;

•

assess the quality of insurers’ internal reporting, risk management, audit and control functions;

•

evaluate the effects of the insurer’s group structure on the governance strategies;

•

assess the adequacy of governance processes in the area of crisis management and business continuity.

The IDRA would, at periodic intervals, also bring to the board’s and senior management’s attention problems which have been detected through supervisory activities. Reporting to IRDA Insurers should examine to what extent they are currently complying with these guidelines and initiate immediate action to achieve compliance (where not already in compliance) within a period of six months from the date of these guidelines. Where such compliance is not possible for any specific reason, the insurer should write to the IDRA for further guidance. Each insurer should designate an officer as the Compliance officer whose duty will be to monitor continuing compliance with these guidelines.

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WHISTLE BLOWING POLICY The insurers are well advised to shall put in place a “whistle blowing” policy; whereby mechanisms exist for employees to raise concerns internally about possible irregularities, governance weaknesses, financial reporting issues or other such matters. These could include employee reporting in confidence directly to the chairman of the board or of a committee of the board or to the external auditor. The Policy illustratively covers the following aspects: •

•

awareness of the employees that such channels are available, how to use them and how their report will be handled handling of the reports received confidentially, for independent assessment, investigation and where necessary for taking appropriate follow-up actions

•

a robust anti-retaliation policy to protect employees who make reports in good faith

•

Briefing of the board of directors.

The appointed actuary and the statutory/internal auditors have the duty to ‘whistle blow’, i.e., to report in a timely manner to the IDRA if they are aware that the insurer has failed to take appropriate steps to rectify a matter which has a material adverse effect on its financial condition. This would enable the IDRA to take prompt action before policyholders’ interests are undermined.

The writer is a Council Member of ICSB and Deputy Managing Director (F & A), BAIRA Life Insurance Co. Ltd

Training Program for 1st Quarter of 2012 Sl No.

Name of the Program

Date & Time

Fees

Internal Audit & Control Environment Standardization of Annual Report Management of Initial Public Oﬀering (IPO) Management of PF, Gratuity & WPPF Management of Company Meetings Finance for Non- Finance Executives Internal Audit & Control

January 7-10, 2012 (1 Week Program)

8,000

February 11-14, 2012(1 Week Program)

8,000

February 25-29, 2012(1 Week Program) March 03-06, 2012 (1 Week Program)

10,00 0 8,000

March 10, 2012 (Day Long Program)

4,000

March 10-14, 2012 (1 Week Program) March 17-20, 2012 (1 Week Program)

10,00 0 8,000

March 24, 2012 (Day Long Program)

4,000

March 27-30, 2012 (1 Week Program)

8,000

02 03 04 05 06 07

Environment [2nd Batch]

Eﬀective Audit Committee

Board Management

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PAYING TAX IN BANGLADESH: COMPLIANCE TAX PAYMENT Kazi Asihqur Rahman FCS

It is widely believed that a person who enjoys

paying taxes probably also enjoys hitting himself on the head with a hammer. Paying taxes is like going to the dentist for a root canal. It's something that has to be done but it's oh, so painful! As the saying goes, two things are certain in human existence, death and taxes and people will do anything they can to avoid both.

only the tax payers supposed to comply with the different provisions of the Income Tax Ordinance 1984? Don’t the tax authorities also need to comply for which they are liable? Yes, there are provisions in the Income Tax Ordinance 1984 and it reserves tax payers’ right though tax payers are kept miles away and even they are not aware of their rights. Those are:

Yes, it’s obvious that paying from hard earned income is always painful. But honest citizens are always paying tax voluntarily though it’s considered “Paying taxes is not voluntary; rather it’s required by law.”

•

A Taxpayer is entitled to receive professional service and assistance from the Tax office including supply of forms and brochures; -- tax payers hardly receive such service.

In this article, the writer does not seek to address in detail the various elements of tax laws in Bangladesh. There is sufficient body of studies and reports - nothing new can be said. It addresses the concepts of tax compliance, highlighting the inconsistencies which take place towards tax compliance.

•

A Taxpayer is entitled to have access to his own tax records held by the Tax office; -it’s so difficult that tax payers can never be close to it.

•

The Tax Authorities are required to act impartially and use their powers in a fair and professional manner; -- it becomes a dream in true sense.

•

Burden of proof is shifted to the DCT in figuring admissible disallowance or deduction [sec. 30A]; -- it shifts to the shoulder of tax payers.

•

The taxpayer has a right to be heard before a penalty is imposed [sec. 130]; -officials consider this as their right not the tax payers’.

•

The taxpayer is entitled to instant refund as soon as it becomes due [sec. 135(1A)]; -reality is that it’s near to impossible.

•

A taxpayer is entitled to 7.5% interest per annum on the unpaid refund if refund due is not paid within 2 months [sec. 151]; -- it simply impossible.

•

Collection cannot be enforced on a taxpayer

Tax compliance Tax compliance activities are those activities which include the functions or obligations according to the provisions of various fiscal statutes. When a business entity or individual seeks to be tax compliant it does the following: •

seeks to comply with tax laws;

•

makes full disclosure of all information on all its tax claims;

•

seeks to pay the right amount of tax required by law (but no more) at the right time and in the right place.

relevant

Many business entities and individuals do practice it. They need to comply with relevant provisions of Income Tax Ordinance 1984 and the tax authority makes them comply. Big question from the side of tax payers – are

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so long as his appeal is not disposed of [sec. 135(3)]; -- tax officials create pressure for collecting tax. •

In certain situations, taxpayer may avail installment payment of arrears [sec. 135(2)]; -- usually tax officials aren’t used to consider such requests.

•

The taxpayer enjoys a confidentiality privilege [protection of information] [sec. 163]; -- in many cases it doses’nt exist.

•

A taxpayer applying for a TIN in a prescribed manner becomes entitled to be registered with the tax authority [sec. 184B]; -- it is not difficult to have a TIN.

•

A taxpayer is protected from unilateral authoritarian action of the Revenue under a specific law enacted for the purpose [sec. 84]; -- sounds better but evidence has never been seen.

•

Taxpayers performing as withholding agents are indemnified for deduction or retention or payment of tax on behalf of other taxpayers [sec. 181]. -- can be considered as effective.

Business Financial year versus tax year difficulties Timing of financial year of businesses and tax/assessment year creates problem in tax planning of many organizations in Bangladesh. Business entities whose accounting years fall in between September to March, their tax year obviously will be in the next year and have to submit tax return by 15th of July. In Bangladesh, fiscal year starts from the 1st July and ends on 30th June. Usually Finance Bill is passed in the Parliament around the 29/30th June of every year and Finance Act become effective in the 2nd week of July. Moreover, Circular (Paripatra) is published in the last week of July or in August. International Accounting Standard (IAS-12) has suggested exploiting tax planning opportunities

but all the income tax related fiscal issues come into effect form the 1st July and become effective from the immediate tax/assessment year. Then tax planning would have no effect for those business entities who are supposed to submit income tax return by 15th of July. Besides, tax planning/projections require predicting a series of unknown future events. There are still questions regarding: •

how the assesses can submit their tax returns by 15th July in the absence of updated tax laws and their interpretations?

•

How can they go for tax planning for coming year where they don’t know about the increase/decrease, incentives, exemptions, even tax rates?

•

if tax increases in the fiscal policy, there is possibility of giving less advance tax then who will be liable for the consequences?

•

if tax decreases in the fiscal policy and offers incentives/exemptions, how can the assesses get back the excess payments made as it is near to impossible getting back excess tax?

Tax laws lead towards non compliance Tax law by its very nature is subject to frequent changes. Every year the annual budget introduces new provisions, procedures, amendments, or simply cancels existing provisions. These frequent changes have contributed to making the laws very confusing as well as complicating the tax structure. After many years of these changes and amendments it has become very difficult for taxpayers to know and understand which provisions are applicable. Estimation of Gross Profit (GP) Margin In absence of any clear guideline on gross profit margin, tax officials always go for unjustifiably estimation of gross profit; even they don’t consider industry profit margin. And they also make disallowances disregarding the guideline of the National Board of Revenue on standard formula for gross profit consideration, THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

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(Ref.no. 3(1)/Tax-4/Parixan/2008/03 (19) dated 01/01/2009). Tax officials also believe their unjustifiable estimation as convention and act accordingly. Assessment u/s- 82BB Authorities frequently assess the returns submitted under section 82BB without holding any audit and audit report thereon, which is the mandatory requirement of section 82BB (3) of the Income Tax Ordinance 1984. How can tax payers comply with tax laws where tax authority does not believe/practice in relevant provisions? Final settlement u/s 82C Tax deducted at sources is treated as final discharge of tax liability under section 82C; but such provision is not desirable for losing business enterprises and absence of any provision may be utilized as a tax loophole to exploit its benefit. Absence of provisions to set off capital loss We do not have any provision in the Income Tax Ordinance 1984 to compute capital loss. Absence of provision to compute ‘loss under the head capital gains’ can be used to never show a capital loss, which cannot be set off against other income. Absence of provision for inventory/bad debt write off Income Tax Ordinance 1984 does not have any provision for inventory or bad debt writes off for manufacturing or business entities. There are a few provisions for setting off bad loans and interest for banks which don’t cover today’s huge and wide range of banking transactions. Absence of specific provisions thereon, this fully depends on the tax officials desire and lead towards unjustifiable disallowances. Subsidizing tax evader It is estimated that around 40% of economic activity of Bangladesh is completely untaxed.

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What is the impact on economic activity, growth, investment, employment, government revenues, social spending and development if government is unable to collect about 40% of revenue? Again, triggering to the honest tax payers; they are bearing the financial burden of those who do not pay what they owe. In a reality therefore the honest taxpayers are subsidizing those who evade their taxes. Tax Payers’ administration

perception

the

tax

In 2003 a group of experts including retired members of NBR, a local advertising company and foreign experts conducted a survey on NBR. 1,830 respondents ranging from small taxpayers to tax professionals identified the following problems in the tax administration: •

The behavior of the tax officials;

•

Harassment by the tax officials;

•

Lack of knowledge of the tax laws;

•

Inefficiency of the system and officials;

•

The lack of information for tax officials to refer to when seeking guidance; and

•

Corruption.

Though these were identified in the survey, tax payers are well aware of these flaws and have the bitter experience in every step in dealing with the revenue administration. Crowd in tax fairs Huge crowd in the recent tax fairs indicate that most of the people are willing to pay tax; but they don’t know how to pay, when to pay and where to pay. They also want to get relief from unnecessary harassment and deserve respect from tax officials instead of arrogant behavior. Conclusion Very first reading of this article may seem to give an idea that we are against tax laws and are not willing to pay tax. Obviously we are not

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against the tax laws rather this is an individual opinion on various inconsistencies based on the reality. No matter what the tax evaders keep telling, good citizens pay the taxes in time at the appropriate rate. Tax payers only deserve friendly environment in the revenue offices so that they can go through with a view to avoid unnecessary difficulty. Various inconsistencies in the tax laws and non-compliances in approaching the tax payers have been identified. These inconsistencies require to be reviewed by the revenue body (NBR) in consultation with relevant departments of the government. We look forward to have more effective tax laws and

administration to ensure tax payers’ rights should be eradicated the fear of tax payment. Bibliography -

Income Tax Ordinance 1984 National Board of Revenue (NBR) Survey Report on NBR 2003 Reports, Reforms in Revenue Administration (RIRA)

The writer is a Fellow Member of ICSB and Corporate Affairs Manager, Singer Bangladesh Limited

How to become a Chartered Secretary Successfully complete the ICSB qualifying examination Entry Level Duration

: Graduation with 6 points : 18 months : Intermediate Examination (10 Papers) : Final Examination (8 Papers)

 Gain relevant work experience at least 3 years as Executive in Corporate Management.  Two grade of membership, Associate (ACS) and Fellow (FCS)  Continuing Professional Development (CPD)

How to become a Member Continuing Professional Development

Pre-Membership/Management Training

Final Examination (8 Papers)

Intermediate Examination (10 Papers)

Entry level: Graduation with 6 points

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KEY FINDINGS OF CORPORATE GOVERNANCE PRACTICES IN BANGLADESH Bipul Kumar Bhowmik FCMA, FCS

INTRODUCTION As for the country context, there are numerous potential benefits and rewards for Bangladesh by improving corporate governance practices. The primary and most important benefit from implementing the good corporate governance practices, however, probably lies in attaining and sustaining development goals; strengthening corporate governance could, at the national level, lead to a process of revitalisation of the Bangladeshi economy. If the CG practices can be implemented successfully, in public corporations, joint stock (private) companies, state-owned enterprises (SOEs), and non-governmental organisations (NGOs), the reputation of Bangladesh as a destination for investment and aid will be greatly enhanced. Producing a national harmonized corporate governance practice sends a message to investors and observers that Bangladesh has recognised the importance of corporate governance and is taking definite steps to improve its corporate governance performance. As such, implementation of a programme of corporate governance can make significant contributions to economic growth. First, an economy with sound systems of corporate governance will be rewarded with more investment and higher quality investors. Quite simply, improving corporate governance will improve the overall reputation of Bangladesh as a place to do business. This in turn will improve the investment climate and the prospects for economic growth. Good corporate governance practices, will lead to well governed, more profitable companies that are candidates for both foreign and domestic investment. It is well established that international investors, especially portfolio investors, consider corporate governance a necessary prerequisite for investment. Second, corporate governance systems can

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better enable the capital market, private investors, international donors and financial institutions to identify and fund successful enterprises. Through full and transparent disclosures such enterprises can better be identified, and by applying the concepts of accountability their performance can be more accurately measured. This can but result in a more efficient allocation of capital to profitable enterprises. Third, by identification of better performing enterprises, and thereby more efficient allocation of capital, corporate governance can lead to greater economic growth by enabling the country to maximise the resources it has. Corporate governance can therefore lead to higher levels of efficiency, quality, and competitiveness throughout the national economy, which in turn will enable Bangladesh to reach its goals for poverty alleviation. Fourth, a culture of corporate governance will begin to address the pervasive corruption that is crippling the Bangladeshi economy and development as a whole. The Principles, Guidelines and practices underlying the corporate governance practices are absolutely incompatible with any systematic practice of corruption, bribes and kickbacks. And by application of these, both the instigators and recipients of corruption will be targeted. This is not to suggest that the corporate governance practices can simply eliminate a deep-rooted culture of corruption â&#x20AC;&#x201C; many other complementary reforms are necessary, of course. However, corporate governance can begin the reform process. In short, corporate governance can be a catalyst for change, for higher economic growth, for a more efficient use of resources, for a private sector that is accountable to investors and society, for a reduction in corruption, and for a healthy inflow of funds from domestic and foreign investors.

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MENACE TO THE EFFORTS TO IMPROVE CORPORATE GOVERNANCE PRACTICE When there is a conflict of interest between the company and its principal shareholder or the promoter group the dilemma is compounded. We should remember that there are a large number of companies in Bangladesh which are managed by the promoter/founder family who may be holding significant voting power. Historically these companies have operated with the interest of the promoter/founder family in mind. In this scenario enforcement of corporate governance norms will indeed pose great difficulty. Only when the culture and mindset of the management gets changed (which indeed is a time consuming matter) the standard of CG practices will improve in such companies. Therefore even though in terms of framing rules and regulations we in Bangladesh may not be lagging far too behind developing/developed countries in so far as corporate governance norms are concerned what is actually practiced by the Bangladeshi corporates will have to be seen as time passes (ticking boxes apparently, year over year comply or explain basis). Here again change of mindset and culture of the organizations originally founded by a Family which has over the years been converted into a public limited company will be the key factor to bridge the gap between regulatory standard of corporate governance and what actually happens in the organization. Now we should examine what we see in real life with regard to Bangladeshi corporates. Consider the following statements and think whether they are appropriate for Bangladeshi corporates. Are these the general rule or exceptions only? 1. Corporates are run like Chairman/Managing Director/CEO’s personal dominion. 2. MD/CEO/powers that be, do not care at all for welfare of all shareholders but only care for promoter/principal shareholders’ interest – any benefit that may flow to other shareholders is only incidental.

3. Majority of directors are unaware that they are agents of shareholders and not of promoters and their position is one of trust and faith. 4. Failure by the boards of direction to understand the risks their firm is taking. 5. Conflicts of interest and lack of ‘independence’ (and even more importantly, independently minded) Board members or senior executives. 6. Boards entering or allowing transactions that benefited a few at the expenses of the many. 7. Weak or non-existent internal controls or controls which appeared to be adequate on paper but which were not implemented in practice. 8. Internal and external audit failure, either through negligence or incompetence or through aiding and abetting fraudulent or inappropriate behavior. 9. Transactions and organizational structures, designed to reduce transparency and prevent market participants and regulators from gaining a genuine picture of the company’s condition 10. ‘Short term’ thinking – in particular by companies that might only be surviving for the moment of a continuation of poor corporate governance within that entity or the market in which that entity operates; in other words where higher standards could put them out of business. 11. A culture that sees a company as proprietary to one or more directors or shareholders with minorities, the public, other stakeholders, simply being ‘along the ride’. 12. A feeling that the system is working as usual and that there is no real pressure to change.

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13. A feeling that there is a lack of sound legal, judicial and regulatory structure providing sufficient incentives and disciplines for good corporate governance even if there is a will within particular firms to change. Such lack also means that companies with, or aspiring to, good corporate governance may view them at a competitive disadvantage in the particular market. 14. Another menace is impediments arising because of the nature of a particular sector, i.e., the state-owned enterprise sector, which is severely underperforming. Much of that underperformance can be attributed to poor corporate governance, with specific issues relating to their position in the public sector. 15. Lack of commitment and leadership driving change at political, regulatory, and Board and executives levels. 16. Participation of a non-executive director in meetings – whether of the board or any committee thereof is inversely proportional to the health of the bottom line – better the bottom line lesser the participation. 17. Most of the cases directors are far away from formal induction program (sufficiently and appropriately). 18. Most directors of companies do not consider it necessary to update themselves on changes in laws, regulations etc. which affect responsibilities and liabilities of directors. 19. So long as the financial results/performance of the company is satisfactory, directors will not object or refuse to approve any proposal that the management may put up for approval. 20. Non-executive directors do not see themselves as watchdog of all categories of shareholders. 21. Board rooms are invariably filled up with yes men who do not raise relevant questions and assent to whatever proposal

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the management puts up. 22. No one can join a board unless the appointment is endorsed by promoter/principal shareholder or by the Chairman/CEO – how can any such director be independent if he/she will have to look for the support of the principal shareholder for his election as a director. A person is invited to become director of a company only if he/she enjoys the confidence of Chairman/CEO through old school connection/social circuit or golf club etc. 23. Except in a crisis even nominee directors tend to play a passive role at board meetings and do not dissent to the proposals of management! The principle which they follow perhaps is ‘do not rock the boat when the company is having a smooth sailing’. 24. The general rule followed by Bangladeshi corporates is that what you preach need not necessarily be practiced in your own company. 25. Some non-participating directors can become extremely inquisitive and start questioning the moment financial performance of the company becomes unsatisfactory. HOW TO IMPROVE GOVERNANCE PRACTICE

CORPORATE

All of the above barriers can be overcome if there is a sufficient will and an appropriate approach and program for implementation. It is very important to have an integrated approach to any corporate governance reforms. Laws themselves, for example, are insufficient without also a will and culture at senior government and business levels to have them work. Conversely statements of aspiration and good intent are insufficient without strong and robust, regulatory and enforcement structures. It is also very important to recognize that ‘one size fits all’ approach does not work. The US

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model for example is highly prescriptive and rules based; the UK/European model is more principle based; there are hybrids e.g. the ‘comply or explain why not’ approach. At present SEC is in hybrid mode.

superiors and subordinates – others do not. To be effective, any corporate governance reforms must recognise the circumstances of the particular country and determine how best to address them.

In particular it is important to recognize the cultural, legal and structural issues existing in different countries. There needs to be a programme which will achieve the objective of improved corporate governance, but by recognizing and addressing those differences. For example, some countries have high percentage of major companies with a dominant or family shareholding, other countries have a very wide spread of shareholders. Some countries have a history, and widespread practice, of using litigation to address disputes, in other countries litigation is not at all common, with disputes frequently being settled privately. Some jurisdictions have by now a well understood and accepted approach to public disclosure of information; in others it is the reverse. Some jurisdictions have a culture of free and vigorous debate between

Government as well as market regulators are playing key roles in the development of corporate governance in the recent years. International bodies and agencies are also playing a key role as they have a major interest in good corporate governance standards. In many cases those bodies are issuing standards themselves or monitoring firms and regimes against particular corporate governance benchmarks. Rating agencies have a key role, in corporate governance and the market itself has a key role, for example in relation to listing requirements, professional association and very, importantly, the approach that companies and other entities take to their own corporate governance.

KEY ROLES IN THE DEVELOPMENT OF CORPORATE GOVERNANCE GOVERNMENT have a major role  Providing the overall legal and regulatory regime with appropriate incentives and sanctions for good corporate governance and robust and independent and regulatory and judicial structures, with appropriate enforcement mechanisms.  Addressing the having appropriate mechanisms to address market crises or failures. critical interface of corporate governance with company, securities, insolvency and criminal laws; and

MARKET REGULATORS have a key role  In relation to issuers of securities, and oversight of exchanges: (1) disclosure requirement (2) listing rules requirements (3) monitoring and enforcement  In viewing corporate governance as a criterion for authorization.  In developing relevant and appropriate rules for market sectors

 Having appropriate mechanisms to address market crises or failures.

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Some of the visible changes that CG norms have brought into the lives of listed companies in Bangladesh are: 1. Setting up of Audit committee and holding of at least 4 meetings of the committee in a year. 2. Changes in composition of the Board in some companies in order to meet the requirement of Corporate Governance Code. 3. Greater disclosures in annual reports including a separate report on corporate governance. 4. Introduction of Code of Conduct, whistle blowing policy and annual declaration on compliance from Directors and senior executives. 5. Risk assessment and minimization. 6. Review of legal compliances by the Board. 7. Review of financial statements of subsidiaries by the Audit committee of the parent company. 8. More emphasis is given to the internal audit functions. 9. Review of related party transactions and transactions not on arms length basis by the Audit committee. ROLE OF COMPANY SECRETARIES CORPORATE GOVERNANCE

ICSB having its tag line as “Promoting Governing Excellence” is a strong proponent as far as Corporate Governance (CG) is concerned in Bangladesh. Company secretaries who are members of ICSB especially those working in or for PLCs are living and breathing life into the CG Code in ensuring effective functioning of the board. At present, considering the dynamism in corporate environment and liberalized economy, the position of company secretary is

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essentially required now for publicly listed a company which is also supported by the Corporate Governance Guideline issued by SEC notification dated on 20th February, 2006. The Board of Directors of PLCs appoint a company secretary usually to carry out the statutory and compliance functions of the company. The company secretary serves as the key contact person or conduit of communication between the Board of Directors and the company management. He or she advises the Board of Directors and management of the legal, regulatory and corporate good governance matters. He or she also works closely with the public or investor relations section of the company in disseminating company information. In the context of Corporate Governance system, ministerial and administrative roles and strategic functions of corporate secretaries will protect the interests of all the stakeholders. At present, it is visible and crystal clear in general that recognition as well as proper application of the professional services of chartered/company secretaries under the umbrella of legislative framework will enhance corporate as well as national economic development. CONCLUSION It is important that the subject of corporate governance does not turn into fashionable business-speak or a concept devoid of meaningful application. Corporate governance phrases might be less and less comfortable – not because of its content but because it has been so widely used that it may become meaningless. There is a danger it will be recited as a mantra, without regard to its real import. If that happens, the tendency will be for those who have to pay regard to it to develop a tick the box mentality. The attitude might be, yes we have a state of the art corporate governance model; yes it is committed to writing; and yes, the company secretary has checked that each item is in place and has included a statement to that effect in the annual report. Therefore there could be no problem in the company. So the importance of focusing not only on the models or systems

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themselves, but also the practices by which that exercise and control of authority is in fact effected. So, continuing development of good corporate governance can capitalize on and leverage the unique opportunities, developments and leadership which Bangladesh has, and is already demonstrating, in the region and internationally.

(3) The Companies Act-1994, The Government of Peoples’ Republic of Bangladesh. (4) Published annual reports of PLCs listed to DSE and CSE. (5) Relevant Acts, Rules and Regulations of Securities and Exchange Commission of Bangladesh, DSE & CSE Listing Regulations etc.

REFERENCES (1) MAICSA, 2011, “Malaysian Institute of Company Secretaries and Administrator”, Kuala Lumpur, 30 August 2011.

The writer is a Fellow Member of The Institute of Cost & Managment Accountants of Bangladesh (ICMAB) & ICSB

(2) Sen, Dilip Kumar, 2010, “Corporate Governance Norms for Listed Indian Companies – Have They Changed Corporates?, Company Secretary (Journal of ICSI, New Delhi).

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CORPORATE GOVERNANCE – RECAP AND REFORM INITIATIVES Muhammad Hasanur Rahman Rakib ACS

Prelude:

Business is like a moving wheel. But as it moves it expands, and as it expands it draws more attention to business. This attention is what settles down to governance. The stronger the governance, the flourishing is the business. Governance when meant for any corporate body, it is Corporate Governance (CG). Modern day business means dealing with its numerous stakeholders. And the stakeholders will invest where governance is stronger and ensures their participation as well. Thus Corporate Governance is a two-way traffic - it involves stronger attention to business and invites larger involvement of stakeholders. Now, as it makes its headway ahead, it is universally accepted that Corporate Governance mechanisms are established not only to ensure a satisfactory return on investment for Shareholders, but also to contribute positively to the society at large. Good Corporate Governance in a corporate set up leads to maximizing the value of the Shareholders legally, ethically and on a sustainable basis, while ensuring equity and transparency to every stakeholder i.e. the company’s customers, employees, investors, vendor-partners, the government & regulators and the community as well. Though there are various definitions of Corporate Governance, but the simplest and widely quoted one as provided by the Cadbury Report (U.K.) is “Corporate Governance is a system by which business operations are directed and controlled.”

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The Organisation for Economic Co-operation and Development (OECD) Principles in its preamble also provides a definition of Corporate Governance which is notable: “Corporate Governance involves a set of relationship between a company's Management, its Board, its Shareholders and other stakeholders. Corporate Governance also provides the structure through which the objectives of the company are set and the means of attaining those objectives and monitoring performance are determined.”

Historical Arena:

Development

International

The well-known corporate failures in the nineties of the last century have raised serious concerns about whether the Corporate Governance environment of firms is sufficiently transparent and whether detached shareholders have the necessary information and power to insist on good governance mechanisms. Efforts to articulate standards for Corporate Governance took roots in countries like the United States and the United Kingdom and have subsequently spread to other countries.

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The OECD countries took early initiatives to address governance issues in 1999. The OECD principles provide practical guidance for Corporate Governance best practices, including protection of Shareholder rights and Board responsibilities, to stock exchanges, investors, corporations, and others. Updated in 2004, following a spate of corporate scandals, the principles now contain even stronger recognition of the importance of stakeholders in Corporate Governance as well as emphasizing the need for timely, accurate, and transparent disclosure mechanisms and communication. Instances of company collapses, corporate corruptions or the domination of companies by individuals have often been responded by further development in Corporate Governance thinking and practices. The original U.K. Cadbury report followed unacceptable excesses in the Guinness and Maxwell companies. The U.S. Sarbanes-Oxley Act was a response to the collapses of Enron and WorldCom. The failure of the Carrion Group led to the first corporate Governance codes in Hong Kong. South Asian Perspective Corporate Governance in South Asia is not so matured like U.S. or U.K. In India, the effective initiative for Corporate Governance came from the listed companies and industrial association, Confederation of Indian Industry (CII) in 1997. In 1999, the Securities and Exchange Board of India (SEBI) made it mandatory for all listed companies in phases. Then in 2001, the listing agreement requirements of all the stock exchanges included the clause for CII codes. From April 2003, all the listed companies were brought under mandatory requirements to follow the SEBI Corporate Governance codes. In Pakistan, the reform initiatives came jointly from the Securities and Exchange Commission of Pakistan (SECP) and Institute of Chartered Accountants of Pakistan (ICAP) in 2002. They have adopted some codes and those were incorporated in the listing regulations of stock exchanges. In Sri Lanka, the first initiative to codify the principles of corporate governance

came from the Institute of Chartered Accountants of Sri Lanka (ICASL) in 1997. Bangladesh Scenario Since early 1990s, Corporate Governance (CG) has been receiving increasing attention from regulatory authorities and practicing professionals. Corporate sectors are still in its initial stage; nevertheless awareness of the importance of CG is growing. However, when compared to those in the sub continental partners, Thailand and Malaysia, CG in practice and philosophy have up till now remained relatively at the lower level in Bangladesh. One reason for this slow progress in adopting CG is that most companies are family oriented. This concentrated ownership structures affects the effectiveness of Corporate Governance mechanisms. Such built-in weaknesses cannot be rectified merely by laws and regulations. Motivations to disclose information and improve governance practices by companies are also viewed negatively. There is neither any value judgment nor any consequences for lapses in CG practices. The current system in Bangladesh does not provide sufficient legal, institutional and economic motivation for stakeholders to encourage and enforce CG practices. However, the first initiative was taken by a private consulting firm, Bangladesh Enterprise Institute (BEI), in August 2003 when it conducted a diagnostic study in this field. Based on the study, the BEI has published the 'Codes of Corporate Governance' for Bangladesh in March 2004 (Bangladesh Enterprise Institute, 2004). In 2006, the Securities and Exchange Commission (SEC) issued a notification on Corporate Governance Guidelines (CG Guidelines) for the public listed companies of Bangladesh under the power vested on the Commission by Section 2CC of the Securities and Exchange Ordinance, 1969. The CG Guidelines were issued on a ‘comply or explain’ basis, providing some ‘breathing space’ for the companies to implement on the basis of their capabilities. But the disclosure depths and quality of explanations published by companies in the event of lapses from the

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corporate governance guidelines is - in most cases - not satisfactory due mainly to lack of or negligence in monitoring by the regulators. Major Contributors to Corporate Governance The most influential parties involved Corporate Governance are as follows:

i) Shareholders The Shareholders role in Corporate Governance is to appoint capable Directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. Periodic assessment of governance performance of the Board by means of disclosure tools and thorough discussions on those at the Annual General Meeting (AGM) is a way by which the Shareholders can asses the performance of the Board of Directors. For good Corporate Governance every company

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should have a Shareholder communication policy for the company. A high quality, ongoing dialogue and the communication with Shareholders helps to build trust and understanding in the relationship between the company and its Shareholders. ii) Board of Directors A high performing and effective Board is essential for good Corporate Governance. This means that Board members should have diverse views, skills and appropriate experience. Such members must also be willing to invest sufficient time in the work of the Board. The role of Chairman of the Board is particularly important. The success of the Board in fulfilling its oversight responsibility depends on its size, composition, and leadership qualities. In establishing an effective Board, a company may take the key five steps as illustrated below:

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iii) Company Secretary

v) Chief Financial Officer (CFO)

“The Company Secretary has to ensure that Board procedures are both followed and regularly reviewed. The Chairman and the Board will look to the Company Secretary for advice on their responsibilities and how they should be discharged. Strong support from the Company Secretary will ensure effective functioning of the Board.

Traditionally, the primary function of the CFO was that of 'finance' wherein the CFO's responsibility was to ensure that the company stayed financially healthy and could meet its obligations at any time – the CFO was in other words the "guardian of the books". While this responsibility still remains an important one today, the evolution of the CFO's role has embraced a wider range of responsibilities such that today's he has to be sensitive to many factors other issues such as Corporate Governance, risk management and the maintenance of effective systems of internal control.

Clearly, the Company Secretary can play a significant part in taking many of the steps to improve Corporate Governance such as: in advising the Board on its structure, membership, and processes; in improving Directors’ access to the information they need, in exploring relations between the company and its Shareholders, regulators, auditors, and other stakeholders; and, in developing business ethics. Company Secretary is a statutory officer under the Companies Act 1994 as also SEC's CG Guidelines. According to the Securities and Exchange Commission (SEC) all the listed companies should have a Company Secretary, who would be the compliance officer of the Company. He has to interact, co-ordinate, integrate and cooperate with various other functional heads in a company. Considering the above, it is clear that the Company Secretary plays an important role in Corporate Governance. iv) Chief Executive Officer (CEO) Although the prime responsibility for issues relating to Corporate Governance within an organization falls under the Board of Directors, whose primary task is to understand and approve risk taking of the company at any stage in its development, the CEO has a pivotal role to play in ensuring compliance at the working level. The CEO is the authoritative head of daily management for company and is responsible for its overall success. The CEO should respect the rights of Shareholders and help Shareholders to exercise those rights by effectively communicating information that is understandable and accessible and encouraging Shareholders to participate in General Meetings.

vi) Internal Auditor The Corporate Governance requires a strong Internal Control System which reinforces the Corporate Governance. One of the main characters of the Internal Control System is Internal Auditing activity. Its mission states that it has to provide independent, objective assurance and consulting services designed to add value and improve the operations of the Company. It must also help the Company accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. New Dimensions in Corporate Governance – Need to address i) Secretarial Standards Studies for further development in CG initiatives revealed that there should also be minimum parameters for the in and outside Board room practices. Such practices need to be harmonized to attain a minimum of standard for improved performance of the Board. For sound and efficient functioning of Corporate Governance, accounting systems, information notes and Board room practices need to be standardized. The Secretarial Standard and Accounting Standard serve this objective. The Institute of Chartered Accountants of Bangladesh (ICAB) issues Accounting THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

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Standards and guidance notes. Secretarial Standards are formulated as policy documents relating to various aspects of secretarial systems in the corporate sector. These systems lay down a set of principles which companies are expected to adopt and adhere to in discharging their corporate responsibility. Unless the secretarial practices are standardized, uniform level of performance of the Board cannot be ensured. In this respect, the Institute of Chartered Secretaries of Bangladesh (ICSB) can play a significant role in formulating a standard system of secretarial practices to be followed by the corporate sector, mainly the listed companies.

forward in this respect and play its pioneering role in introducing and establishing the practice of Secretarial Audit in Bangladesh. iii) Green Initiative for Sustainability – Going Paper-less

ii) Secretarial Audit Once the system of secretarial practice has been standardized, it has also to be ensured that the system is actually followed in practice and that it yields the desired result. Moreover, though the Board of Directors is primarily responsible for governance and compliance, but it has to essentially depend on its management organs to ensure such governance and compliance. It is also the Board’s responsibility to check, monitor and control that sufficient mechanism is in place to ensure governance and compliance. In order to scrutinize that such systems are in work and governance by the Board is sufficient to meet the desired result, a system of special audit, known as Secretarial Audit is a need of the day. In the international scenario, along with financial audit, ‘Secretarial Audit’ is conducted by competent professionals, which is concerned with periodic check, scrutiny and examination of the statutory secretarial records and documents. The Board should give its comments on the Secretarial Audit in its report to the shareholders. A company has also to abide by a number of other regulatory rules and obligations. Secretarial Audit ensures that the company has practiced all statutory and regulatory laws and rules required under Companies Act, Securities Laws and other relevant rules and regulations. Such Secretarial Audit, of course is not there in Bangladesh context. However, the Institute of Chartered Secretaries of Bangladesh (ICSB) may come

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As mentioned earlier that Corporate Governance has also to ensure that the corporate organizations do play their due roles in the wider domain i.e. to the society at large. Every company should have a commitment to ethical behavior in business strategy, operation, culture and environment. In today’s globalized and interconnected world, investors and other stakeholders have come to recognize that environment, social and governance responsibility of a company are integral to its performance and long-term sustainability. The developed countries are introducing modern technology based corporate culture which on the one side reduces the time gap & cost and on the other help improve the global environment. Recently in India, the Ministry of Corporate Affairs (‘Ministry’) has taken a “Green Initiative in Corporate Governance” by allowing paperless compliances by companies through electronic mode, such as - Virtual Board meeting & General Meeting and allows companies to send various notices /documents / Annual Report to their shareholders through electronic mode. That has to a great extent added to address the environmental issues. Recent Developments in Bangladesh

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i) Chartered Secretaries Act 2010 The government has passed the long-awaited Chartered Secretaries Act 2010 (CS Act) on June 10, 2010, recognizing the profession of Company Secretaries in Bangladesh. The bill had been pending since 1998. With the passage of the law, Chartered Secretaries or Company Secretaries have come under a legal framework like Chartered Accountants and Cost and Management Accountants. It is a great boost for the Chartered / Company Secretaries to render professional services in a more dedicated way. Even, going further in-depth, the CS Act has paved the ways for professional Secretaries to serve the corporate community autonomously and thereby the nation, by rendering their professional services as Practicing Company Secretaries remaining outside any employment. Now the corporate Boards will have dedicated professionals, both employees and practitioners, to assist them in discharging their various governance, regulatory, disclosure and compliance responsibilities. On the other, the professional secretaries will be able to play their due roles in a more meaningful way in the management of companies, discharging regulatory obligations on behalf of corporate, to the capital market and thereby to the national economy by ensuring better, improved and more accountable good Corporate Governance. ii) Initiative to draft New Companies Act The Companies Act -1994 governs companies in Bangladesh. The evolution of Companies Act in this part of the world is a long old history which has come through various reforms and developments from time to time. The present Act has in the mean time become obsolete, especially in the emerging electronic era. The Ministry of Commerce has meanwhile formed a 17-member public-private committee to submit a draft Companies Act to the Government. Consultative talks are under way and the committee has already organized several counseling meetings with different stakeholders in this regard.

iii) SEC initiative to Governance and Regulation

review Corporate Insider Trading

In order to further improve the governance standard and to counter any lapses in it by means of breaches, such as by insider trading, the Securities and Exchange Commission (SEC) has also taken initiatives to streamline the guidelines. On 24th October 2011 the SEC has formed two separate committees to suggest possible changes to modernize Corporate Governance and insider trading rules which will further improve the Corporate Governance practices by the listed companies and also to prevent insider trading in a better way. These two committees are to submit their reports by November, 2011. iv) Bangladesh Bank Directives on Audit Committee for Financial Institution In line with its Internal Control and Compliance (ICC) framework, the Bangladesh Bank (BB) has recently issued a directive (DFIM Circular No. 13 dated October 26, 2011) to expand the areas of responsibility of the Audit Committee to strengthen its capacity and performance in supervising the activities of financial institutions. The directive has spelled out detailed guidelines on the responsibilities of the Committee. It provides that the three-year Committee would have five members including a Chairman. Most importantly, the directive has expressly assigned the Company Secretaries of the financial institutions to perform as the secretary of the concerned Audit Committee. Concluding Thoughts Given the globalization of business and improvement in monitoring of Corporate Governance, stakeholders of all sorts are willing to invest in companies which have demonstrated track record of good Corporate Governance practice. As an imperative to that, we need a sequential and gradual move from ‘soft’ to ‘hard’ laws. Good Corporate Governance may also matter to Shareholders

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in unlisted companies both private and public. While certain Corporate Governance issues are already addressed by the Companies Act on private companies, many areas are not yet covered. Accordingly, improved Corporate Governance guidelines for unlisted companies have to be encouraged. Sufficient, efficient and adequate governance is important also for the unlisted companies, especially taking into account the economic importance of certain very large unlisted companies. The listed companies must also be covered by modernized means of governance for a sustainable corporate growth. There are several Corporate Governance structures available in the developed world. But, there is no “one size fits all” structure for Corporate Governance. As the business environment globally is rapidly changing, technology shortens the distance and speeds up communication; the environment in which companies operate in Bangladesh also changes. In this dynamic environment, implementing and enforcing sound Corporate Governance systems and practices is essential for Bangladesh.

References 1. Corporate Governance (Modules of Best Practices), ICSI, India 2. Corporate Governance Voluntary Guidelines 2009 by Ministry of Corporate Affairs, India 3. Corporate Governance Guide, BURSA, Malaysia 4. The EU Corporate Governance Framework – Green Paper 5. Research Paper on Corporate Governance of Corporate Secretaries International Association (CSIA) 6. Various Journals of ICSB 7. DFIM Circular No. 13 of Bangladesh Bank dated October 26, 2011 8. SEC Corporate Governance Notification dated 20 February, 2006 9. Various articles on web

The writer is an Associate Member of ICSB, and Deputy General Manager, Grameenphone Ltd.

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CORPORATE GOVERNANCE: STREAMLINING BUSINESS, ADVANCING THE ECONOMY Zakiullah Sayeed Munshi

Businesses in Bangladesh are on the radar of

global market players, and corporate governance is one of the most important keys for attracting foreign investors to Bangladesh Bangladesh today is the 70th largest exporter and the 3rd largest( Ready Made Garments) RMG exporter in the world, boasting the 21st fastest growing economy. The world’s two top credit rating agencies, Standard and Poors (S&P) and Moody’s Investor Service, for the first time, assigned sovereign credit ratings to Bangladesh. S&P assigned BB- and Moody’s Investors Service assigned Ba3 to Bangladesh and termed the macroeconomic outlook of the country ‘stable’, putting Bangladesh at par with Philippines, Vietnam, and Turkey. In the South Asian context, Bangladesh is positioned higher than Pakistan and Sri Lanka. Several global financial institutions have also identified Bangladesh as one of the potential economies of the world. Leading US investment bank Goldman Sachs has included Bangladesh as one of the rising economies of the world, the so-called Next 11 (N11), after the BRIC nations of Brazil, Russia, India and China. Similarly, JP Morgan, another global leader in investment banking has included Bangladesh in its ‘JP Morgan Frontier Five’. And, in a recent update of their 2006 report on “The World in 2050 – Price Waterhouse Coopers” extended their analysis to include 13 other emerging economies, including Bangladesh, in their new ‘ PWC 30 list’ as one of the long term potential growth economies by 2050. JP Morgan in its “Ho Chi Minh Trial to Mexico” research report states that it is the demographics that justify the inclusion of Bangladesh in the “JP Morgan Frontier Five”. Their report identifies that: • The country ranks fourth in growth in economically active population. • Five year economic growth is strong at 6.1% per annum.

• Progress has been made over the last few years to reduce poverty, increasing literacy levels and moderating population growth to a more sustainable level. • There is an assertive judiciary • An active civil society • A relatively free media which has increased public accountability. While these are all extremely positive for Bangladesh, the big question now is what will ensure that this growth trajectory remains consistent and ensure Bangladesh becomes a middle income country by 2030? Sustained long-term economic growth is fuelled mainly by investments, employment and technology and good corporate governance is the sustainability factor that will ensure the consistency of this growth. A good corporate governance framework is one that is Accountable (ensures strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders), Fair (protects shareholder rights, treats all shareholders, including minority shareholders, equitably; provides effective redress for violations), Transparent (provides timely and accurate disclosure of all material matters of the corporation including financial situation, performance, ownership and governance) and Responsible (recognizes legal rights of shareholders & encourages active co-operation corporations and shareholders in creating wealth, jobs, and the sustainability of financially sound enterprises). The good news is that the public and private sectors in Bangladesh have taken steps to improve corporate governance in recent years. The Securities and Exchange Commission issued Guidelines on Corporate Governance in

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2006 and the creation of a Central Depository has made share ownership and transfers more secure. International standards for accounting and auditing have been partially incorporated into local standards and the development of the accounting and auditing profession has been assisted by a wide-ranging donor-supported programs. Bangladesh Enterprise Institute, Institute of Governance Studies, Bangladesh Bank Training Academy and, more recently, Bangladesh Institute of Capital Market have championed corporate governance efforts in Bangladesh. However, obstacles remain. In spite of the above achievements, the basic legal framework for corporate governance in Bangladesh is dated, and there are a number of contradictions and points of confusion between the various rules and regulations that apply to listed companies. Building on current efforts, more needs to be done to raise the quality of accounting and auditing. Greater independence and professionalism is required in the boardrooms of both listed companies and state-owned enterprises and, neither the Registrar of Joint Stock Companies nor the courts are particularly effective at enforcing the Companies Act (CA). Understandably, one question may come up: why would corporate governance be of benefit to Bangladeshi companies? The reasons are simple. Corporate Governance improves shareholder value and competitiveness by : Optimizing Efficiency:

Operational

and

Financial

Good corporate governance streamlines business processes, leading to better operating performance & lower capital expenditures (Gompers, Ishii and Metrick, Corporate Governance and Equity Prices, August 2001), improves the companyâ&#x20AC;&#x2122;s Return on Capital Employed (ROCE), with firms in the top CG quartile avg. 33% & in bottom quartile 15% (Credit Lyonnais SA, 2001) and ensures better share price performance, higher profitability, larger dividend payouts & lower

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risk levels than peers (Lawrence Brown, Georgia State University, Sept. 2003) Improving Access to Outside Capital: Global Institutional Investors managing more than 1 trillion of assets state that they will pay a premium for well governed companies. Premiums avg. 30% in Eastern Europe & Africa and 22% in Asia and Latin America (McKinsey Global Investor Opinion Survey on corporate governance, 2002). Escalating Valuation and Lowering the Cost of Capital: Over 10 years, well-governed companies across a wide range of sectors have seen superior valuation multiples of more than 8% over their badly governed peers (Metrick, Ishii and Gompers, Corporate Governance and Equity Prices, August 2001). One standard-deviation improvement in governance brings an improvement in valuation multiples that ranges from 18% for companies in major OECD markets to 33% in emerging markets (Clapper and Love, World Bank, 2002) Builds/Improves the Companyâ&#x20AC;&#x2122;s Reputation and Trust: CG can make or break reputations by creating confidence, establishing goodwill and building/restoring investor trust. Naturally, there is the issue of costs. Good governance entails real costs. Some of the costs include hiring dedicated staff such as corporate secretaries, experienced and independent directors, or other governance specialists. It will likely require the payment of fees to external counsel, auditors, and consultants. The costs of additional disclosure can be significant as well. Furthermore, it requires considerable managerial and supervisory board time, especially in the start-up phase. These costs tend to make implementation considerably easier for larger companies that may have the resources to spare than smaller companies whose resources may be stretched quite thin.

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A company will not always see instant improvements to its performance due to better corporate governance practices. However, returns, while sometimes difficult to quantify, generally exceed the costs. This is especially true when one takes into account potential risks to employees through job losses, lost pensions, the loss of investor capital in the case of bankruptcy and the disruption that may be caused to communities when companies collapse. Without good corporate governance. • Too much power is centred on one individual without proper oversight e.g. Enron, Satyam, Lehman Brothers • One enters markets that one does not understand and fails to properly set strategy and manage risks e.g. Barings • Board fails to ensure controls are robust or question the unusual or the unrealistic e.g. Barings, Lehman Brothers • Poor disclosure and transparency becomes commonplace e.g. WorldCom • Shareholder rights are mistreated e.g. Parmalat • In extreme cases, systemic governance problems may even undermine faith in the financial markets and threaten market stability e.g. Global Financial Crisis Recent efforts by IFC Building on the existing efforts mentioned earlier, the International Finance Corporation (IFC) of the World Bank Group has recently initiated a comprehensive corporate governance advisory project-Bangladesh

Corporate Governance Project (BCGP) - which aims to improve financial performance and operational efficiency by promoting better Corporate Governance (CG) practices among business enterprises in Bangladesh. This project is jointly funded by the Netherlands and SEDF (South Asia Enterprise Development Facility- a multi-donor facility funded by IFC, DFID, NORAD and managed by IFC). BCGP will work with various stake-holders (e.g., regulators, corporates, financial institutions, family-owned businesses, business associations, chambers of commerce etc.) to (i) improve CG codes at the country level, (ii) raise awareness on CG and its best practices (iii) develop a pool of trainers to help codify CG principles in the market and (iv) also work with business enterprises on a one-one-one basis to improve their CG practices. In addition, to sustain the advancement of CG practices and to effect positive change in the market in the long run, BCGP will aim to build/enhance the capacity of key CG service providers (training & research institutes, consulting firms etc.), press and universities in Bangladesh. Finally, it must be noted that corporate governance is not a one-off exercise but rather an ongoing process. No matter how many corporate governance structures and processes the company has in place, it is advisable to regularly update and review them. Markets tend to value long-term true commitment to good governance practice and not a single action or box-ticking exercise.

The writer is a Project Manager, Bangladesh Corporate Governance Project, International Finance Corporation (IFC)

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SO, WHAT EXACTLY IS RE-BRANDING? Riyad Shahir Ahmed Husain

Re-Branding

is a marketing strategy that comes from the need to position a brand differently. So what do we mean by â&#x20AC;&#x153;positioning?â&#x20AC;? In marketing terms, positioning is the process by which marketers try to create an image or identity in the minds of their target market, for its product, brand, or organization. Generally, the brand positioning process involves: 1. Identifying competition

the

business's

direct

2. Understanding how each competitor is positioning their business today. For example, claiming to be the fastest, cheapest, largest etc 3. Documenting own targetted positioning 4. Comparing the own positioning to competitors' to identify viable areas for differentiation

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5. Developing a distinctive, differentiating and value-based brand positioning statement, key messages and customer value propositions. Coming back to Re-branding, we can thus say Re-branding is not only about changing the logo or name of a product or company. It is also about changing the entire strategy of how the product, brand or organization is to be positioned including business function models, product portfolio, market strategy, policies, theme songs, colours, tag lines and so on. My favourite case study is BSRM (Bangladesh Steel Re-rolling Mills), who have captured a huge market share by re-branding their product. Prior to their re-branding efforts, it was rare for a traditional steel company to even have a logo! The common belief was that since it is a B2B (business to business) product, catering to industrial clients, it is wiser to spend on the distribution channel and other areas. In such cases, what happens is that, however much the value of the business increases, the brand equity does not increase. Internationally, we have seen how important brand equity is. As of

Article

now, Apple’s brand value stands at $153.3 billion and Google’s one is $111.5 billion (Source: Millward Brown, 2011).

facing at that time. Later Vodafone brought in Zoo Zoo replacing the pug.

BSRM have not only changed their visual brand identity elements such as logo, font, colour theme, tagline etc., but they have also come up with new value propositions, which they have communicated effectively to the market with the help of creative advertisements in different forms of media. A lot of credit goes to Unitrend, the advertising agency who were responsible for executing this project.

Another example from Bangladesh with which I have had first hand experience is the Agora Fresh Campaign. When Shopno and Meena Bazaar started expanding their network by increasing the number of outlets throughout the city, Agora sent out an Advertising brief to a few notable Agencies and our Agency, ROOT, was fortunate enough to win the pitch. Instead of getting into the claim of being cheaper or more available across larger number of outlets, we identified “FRESHNESS” as the possible differentiating factor and capitalized on that. We designed a new logo for the campaign and communicated the “Freshness Message” through some very creative press advertisements and interesting in-store activities. The activities included distributing free recipe booklets, overall store branding and stickering the meat, fruits and vegetables with a “Freshness Certification!”

Today, when one is talking about steel companies in Bangladesh, one of the first companies that comes to a consumer’s mind is BSRM. Interestingly enough, eversince BSRM’s Re-branding, a number of other steel re-rolling mills such as RSRM and KSRM have followed their efforts. So the BSRM Re-branding campaign had an affect on the entire steel industry. Re-branding is not only limited to a commercial product. When Osama Bin Laden was captured, among his belongings found in Abbottabad, the US authorities had found an elaborate marketing plan to rebrand the ‘Al Qaida’ in order to keep it more meaningful in the current world. The KGB (Soviet Secret Service) had also gone through many rebranding exercises from its inception in 1918 to its current name FSB. So how would you know if it is time for you to go for Re-branding? The 4 usual reasons are: 1) Differentiation from substitute brands

competing

and

Many companies execute rebranding campaigns to differentiate themselves from their competition. A prominent example from India is the Vodafone campaign. In the mid 2000‘s Vodafone featured a Pug. "Wherever you go, our network follows” was the main message that served as a differentiator to poor network support on roaming that many subscribers in India were

The 6 month “Agora Fresh Campaign” helped Agora to achieve their desired brand position in consumers’ mind and even today, when we think of Agora, one of the first thing that comes to our mind is freshness. 2) To remove a negative connotations to an existing brand The second most popular reason is to remove negative connotations. A very good example is

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McDonalds. They were always heavily criticised for promoting obesity in kids and teenagers.

Out of the 4 reasons, we can say that the first 2 reasons are the more common ones practiced under usual circumstances.

A documentary called ‘Super Size Me’ was even produced to show how food from McDonalds resulted in an unhealthy lifestyle.

Re-branding is only applicable once “Branding” is practiced regularly. In order to acheive sustainability, Branding is a necessity. We have seen how India have succeeded. Brands such as Airtel, Reliance, Tata and Infosys have crossed the boundaries of their nation and are well known brands across the world. On the other hand, often termed as “the factory of the world”, China has hardly managed to build any brands of its own. In the long run, this is not sustainable as they are relying mostly on manufacturing other brands. In the event of a competiting “factory of the world”, their economy would face an adverse effect.

McDonalds went for an extensive Re-branding campaign on a global level and declared their commitment to healthier food by extending their existing menu with healthier options such as salads, fat free milk shakes and other healthy items. In conjuntion to that, they have also changed the entire look of their restaurants. Thus by changing the product offering, McDonalds was able to rebrand themselves and decrease the negative connotations in the minds of consumers all over the world. 3) To keep track of market realities The third reason for Re-branding is to establish current market realities. An example is the current Hero campaign, in which the main objective is to establish the fact that the Indian two-wheeler giant Hero Honda Motors Ltd. has now been re-branded as Hero MotoCorp Ltd., following the split between Hero Group and Honda Motors. 4) After unusual circumstances When a company goes bankrupt or discontinues for any other reasons and is taken over by another organization, Re-branding may occur. For example, when Orion Bank went bankrupt and became ICB Islami Bank, they went for heavy Re-branding to communicate their new identity to consumers.

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For a country like Bangladesh, a detailed look at Branding is something that should be embedded within the hearts of all organizations. Companies like Rahimafrooz are doing quite well in working towards establishing their brands on a global level. Organizations like “The Bangladesh Brand Forum” are working really passionately to incept these beliefs and ideas in the minds of the Bangladeshi businesses. If we want to move forward and take our products, companies or services to the global level, Branding is one of the only ways of achieving so. The writer is the Co-Founder & CEO of ROOT Marketing Services (riyadhusain@gmail.com)

Notifications

KNOWLEDGE BANK Compiled by Itrat Husain FCMA, FCS LEGALLY SPEAKING Affidavit A sworn written or printed statement made under oath before a person authorized to take oath of a particular kind. Appellant The party who appeals against a courtâ&#x20AC;&#x2122;s decision to a court that has jurisdiction to hear appeals, usually seeking reversal of that decision. Caveat A warning, a note of caution. Defendant An individual (or business) against whom a lawsuit is filed. Domicile The place where a person has his permanent home to which he intends to return. A person cannot be without domicile and cannot gave two domiciles at a time. Implied Contract A contract not created or evidenced by the explicit agreement of the parties but one inferred by law, such as the use of the electricity in homes implies a contract with the Electricity Supply Authority. Lien A charge on specific property that is designed to secure payment of a debt or performance of an obligation. A debtor may still be responsible for a lien after a discharge. Litigation A lawsuit, a legal action, including all proceedings therein. Liquidation A procedure by which a company is dissolved with the sale of its property, the proceeds of which are to be used for the benefit of the creditors. Writ A written court order directing a person to take or refrain from taking a certain action.

QUOTATIONS True modesty is the source of all virtues - Hazrat Muhammad (SAW) Say what is true, although it may be bitter and displeasing to people - Hazrat Muhammad (SAW) The acquisition of knowledge is a duty incumbent on every Muslim male and female - Hazrat Muhammad (SAW) Attitude is a little thing that makes a big difference - Winston Churchill Business is the art of extracting money from another manâ&#x20AC;&#x2122;s pocket without resorting to violence - Max Amsterdam

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Notifications

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Notifications

No: SEC/SRMIC/94-231/235 Dated: August 18, 2011

Directive The Securities and Exchange Commission in exercise of the power conferred by section 20 A of the Securities and Exchange Ordinance, 1969 (XV11 of 1969) hereby directs all the listed companies to submit relevant monthly data on free float number of shares in the following format within the first three (3) working days of the following month to the stock exchanges: Total Outstanding (1)

Directors/ Sponsorsâ&#x20AC;&#x2122; Holding (2)

Government Holding (3)

Associate Company Holding (Cross) Holding) (4)

Free Float Holding = (1) - (2) - (3) (4)

This directive is issued for the development of securities market and shall take immediate effect. By order of the Commission

Prof. Dr. M. Khairul Hossain Chairman

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Notifications

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Notifications

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Standing & Sub Committees

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Standing & Sub Committees

STANDING COMMITTEES

A. 1 2 3 4 5 6 7 B. 1 2 3 4 5 6 7 C. 1 2 3 4 5 6 7 D. 1 2 3 4 5 6 7 E. 1 2 3 4 5 6 7 F. 1 2 3 4 5 6 7 G. 1 2 3 4 5

Executive Committee Mohammad Sanaullah FCS Md. Shahid Farooqui FCS M. Naseemul Hye FCS Md. Monirul Alam FCS Mohammad Asad Ullah FCS Shawkat Ali Waresi Dr. A. K. M. Delwar Hossain Membership & Registration Committee Mohammad Asad Ullah FCS Md. Monirul Alam FCS Md Abdus Salam FCS S. A. Rashid FCS Gopal Ch. Debnath FCS Nasreen Begum Dr. A. K. M. Delwar Hossain Education Committee Md. Shahid Farooqui FCS Mohammad Sanaullah FCS M. Naseemul Hye FCS Itrat Husain FCS Md. Selim Reza FCS Prof. Md Helal U. Nizami Dr. A. K. M. Delwar Hossain Examination Committee M. Naseemul Hye FCS Md. Shahid Farooqui FCS Md. Monirul Alam FCS N. G. Chakraborty FCS Safiar Rahman FCS Ahmedur Rahim Dr. A. K. M. Delwar Hossain Research & Development Committee N.G. Chakraborty FCS Mohammad Sanaullah FCS Itrat Husain FCS Safiar Rahman FCS A K M Mushfiqur Rahman FCS Moinul Islam Dr. A. K. M. Delwar Hossain Disciplinary Committee Safiar Rahman FCS Md. Shahid Farooqui FCS Mohammad Asad Ullah FCS Md. Selim Reza FCS Gopal Ch. Debnath FCS Nasreen Begum Dr. A. K. M. Delwar Hossain Audit Committee Itrat Husain FCS Md Abdus Salam FCS S. A. Rashid FCS A K M Mushfiqur Rahman FCS Dr. A. K. M. Delwar Hossain

(F-0004) (F-0037) (F-0056) (F-0069) (F-0025) JS, MOC

Chairman Member Member Member Member Member Secretary

(F-0025) (F-0069) (F-0017) (F-0104) (F-0114) JS, MOL

Chairman Member Member Member Member Member Secretary

(F-0037) F-0004) (F-0056) (F-0009) (F-0067) Member, SEC

Chairman Member Member Member Member Member Secretary

(F-0056) (F-0037) (F-0069) (F-0013) (F-0038) JS, ROJSC

Chairman Member Member Member Member Member Secretary

(F-0013) (F-0004) (F-0009) (F-0038) (F-0097) JS, MOF

Chairman Member Member Member Member Member Secretary

(F-0038) (F-0037) (F-0025) (F-0067) (F-0114) JS, MOL

Chairman Member Member Member Member Member Secretary

(F-0009) (F-0017) (F-0104) (F-0097)

Chairman Member Member Member Secretary

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Standing & Sub Committees

SUB COMMITTEES UNDER EXECUTIVE COMMITTEE

A. 1 2 3 4 5 6 7 B. 1 2 3 4 5 6 7 C. 1 2 3 4 5 6 7 D. 1 2 3 4 5 6 7 E 1 2 3 4 5 6 7 F 1 2 3 4 5 6

C S Regulations Sub Committee Md. Monirul Alam FCS (F-0069) S. A. Rashid FCS (F-0104) A K M Mushfiqur Rahman FCS (F-0097) Md. Rafiqul Islam FCS (F-0028) M Abdullah Al Mamun ACS (A-0153) Md. Zahangir Alam Manik ACS (A-0194) Dr. A. K. M. Delwar Hossain Journal & Publication Sub Committee Itrat Husain FCS (F-0009) M. Naseemul Hye FCS (F-0056) N. G. Chakraborty FCS (F-0013) Kazi Ashiqur Rahman FCS (F-0070) Hossain Sadat FCS (F-0105) Mohammad Ruhan Miah ACS (A-0219) Raja Mahmudul Haque ACS (A-0180) International Relations Sub Committee Md. Shahid Farooqui FCS (F-0037) Gopal Ch. Debnath FCS (F-0114) Md. Abdus Salam Khan FCS (F-0060) Abu Hanif Bari FCS (F-0094) A K M Haruner Rashid FCS (F-0102) Mohammad Asadur Rahman ACS (A-0220) Dr. A. K. M. Delwar Hossain Secretarial Practice Sub Committee Mohammad Asad Ullah FCS (F-0025) M. Naseemul Hye FCS (F-0056) A. K. A. Muqtadir FCS (F-0003) Mohammad Mohashin FCS (F-0033) Salim Ahmed FCS (F-0119) Khandaker Habibuzzaman ACS (A-0143) Dr. A K M Delwar Hossain Dhaka Regional Chapter Sub Committee Khandoker Saad Ullah FCS (F-0087) Nazmul Karim FCS (F-0085) Md.Hasanur Rahman Rakib ACS (A-0158) Sayed Amimul Ihsan ACS (A-0204) Md. Sarwar Jahan Tarafder ACS (A-0209) A S M Sayem ACS (A-0236) Raja Mahmudul Haque ACS (A-0180) Chittagong Regional Chapter Sub Committee Alhaj A F M Shamsudduha FCS (F-0015) M. Nurul Alam FCS (F-0095) Tauhidul Ashraf FCS (F-0101) M. Iqbal Chowdhury ACS (A-0164) Mohammad Moniruzzaman ACS (A-0189) Raja Mahmudul Haque ACS (A-0180)

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Chairman Member Member Member Member Member Secretary Chairman Member Member Member Member Member Secretary Chairman Member Member Member Member Member Secretary Chairman Member Member Member Member Member Secretary Chairman Member Member Member Member Member Secretary Chairman Member Member Member Member Secretary

Standing & Sub Committees

SUB COMMITTEES UNDER EDUCATION COMMITTEE

SUB COMMITTEES UNDER RESEARCH & DEVELOPMENT COMMITTEE

A. 1 2 3 4 5 6 7 B. 1 2 3 4 5 6 7 C. 1 2 3 4 5 6 7 D. 1 2 3 4 5 6 7

Professional Development Sub Committee Mohammad Sanaullah FCS (F-0004) Muzaffar Ahmed FCS (F-0001) Sarwar Azam Khan FCS (F-0027) Md. Azizur Rahman FCS (F-0063) Mohammad Bul Hassan FCS (F-0113) Sharmi - Noor- Nahar ACS (A-0176) Dr. A. K. M. Delwar Hossain Seminar & Conference Sub Committee Safiar Rahman FCS (F-0038) M. Naseemul Hye FCS (F-0056) N. G. Chakraborty FCS (F-0013) Md. Mahbubur Rahman ACS (A-0137) M. A. Majed ACS (A-0144) A F M Nazrul Islam ACS (A-0215) Dr. A. K. M. Delwar Hossain Syllabus & Curriculum Review Sub Committee N. G. Chakraborty FCS (F-0013) Mohammad Sanaullah FCS (F-0004) Md. Monirul Alam FCS (F-0069) S. A. Rashid FCS (F-0104) Mohammed Enamul Hye FCS (F-0058) A. T. M. Tahmiduzzaman ACS (A-0205) Dr. A. K. M. Delwar Hossain Information Technology Sub Committee Md. Selim Reza FCS (F-0067) A. K. M. Kamrul Islam FCS (F-0050) Md. Hasan Kabir FCS (F-0073) Md. A. Haque Sarder FCS (F-0093) Md. Munirul Hoque ACS (A-0214) Md. Mokammel Hoque ACS (A-0241) Raja Mahmudul Haque ACS (A-0180)

A. 1 2 3 4 5 6 7 B. 1 2 3 4 5 6 7 C. 1 2 3 4 5 6 7

Corporate Laws Review Sub Committee M. Naseemul Hye FCS (F-0056) Md. Shahid Farooqui FCS (F-0037) Mohammad Asad Ullah FCS (F-0025) Sarwar Azam Khan FCS (F-0027) Mohammed Sabir Ahmed FCS (F-0096) Muhammad Shahidul Islam ACS (A-0169) Dr. A. K. M. Delwar Hossain Corporate Governance Award Sub Committee Itrat Husain FCS (F-0009) Mohammad Sanaullah FCS (F-0004) Mohammad Bul Hassan FCS (F-0113) Prof. Dr. Feroz I. Faruque FCS (F-0030) Shaikh Mohammadullah FCS (F-0049) Prof. Md Helal U. Nizami Member, SEC Dr. A. K. M. Delwar Hossain Members Welfare & Recreation Sub Committee S. A. Rashid FCS (F-0104) Suraiya Parveen FCS (F-0098) Md. Ataur Rouf ACS (A-0157) Sheikh Khaled Zahir ACS (A-0171) Md. Nazmul Ahsan ACS (A-0162) Md. Mizanur Rahman ACS (A-0213) Raja Mahmudul Haque ACS (A-0180)

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CS Regulations 2011 Gazette

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CS Regulations 2011 Gazette

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CS Regulations 2011 Gazette

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CS Regulations 2011 Gazette

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CS Regulations 2011 Gazette

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CS Regulations 2011 Gazette

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CS Regulations 2011 Gazette

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CS Regulations 2011 Gazette

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CS Regulations 2011 Gazette

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

CS Regulations 2011 Gazette

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

CS Regulations 2011 Gazette

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

CS Regulations 2011 Gazette

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

CS Regulations 2011 Gazette

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

CS Regulations 2011 Gazette

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

CS Regulations 2011 Gazette

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

CS Regulations 2011 Gazette

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

CS Regulations 2011 Gazette

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11

CS Regulations 2011 Gazette

THE CHARTERED SECRETARY J U LY - D E C E M B E R 2 0 11