Journal april december 2010

ISSN : 1998-1597

Volume : XII Issue : 2 April - December 2010

Chartered Secretaries Act 2010 A New Horizon in Corporate Bangladesh

Institute of Chartered Secretaries of Bangladesh (ICSB) A

S t a t u t o r y

B o d y

u n d e r

a n

A c t

o f

P a r l i a m e n t

We salute the martyrs of 1971 who laid down their lives for the freedom of our motherland - Bangladesh

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

A. K. A. Muqtadir FCS

: Councilor

Mohammad Asad Ullah FCS

: Councilor

Itrat Husain FCS

: Councilor

N.G.Chakraborty FCS

: Councilor

Md. Abdus Salam FCS

: Councilor

Safiar Rahman FCS

: Councilor

Md. Selim Reza FCS

: Councilor

Md. Akter Hossain Sannamat FCS

: Councilor

Gopal Chandra Debnath ACS

: Councilor

Md. Shawkot Ali Waresi Joint Secretary, GoB : Councilor Moinul Islam Joint Secretary, GoB

: Councilor

Nasreen Begum Joint Secretary, GoB

: Councilor

Mansur Alam FCS, Member, SEC

: Councilor

Ahmedur Rahim Registrar, RJSC, GoB : Councilor

2 EDITORIAL 3 PRESIDENT’S MESSAGE 5 INSTITUTE ACTIVITIES 14 THE COUNCIL 2010-2013 15 RESUMÉ OF OFFICE BEARERS 17 NATIONAL CONVENTION 2010 23 THIRD CONVOCATION 2010 26 CONVENTION SPEECH 30 CONVOCATION SPEECH ARTICLES

32 35 37

40

How to Invest in Capital Market Ruhul Ameen FCMA Emergent needs of ICSB Rafiqul Islam FCS Tax Holiday Ranjan Kumar Bhowmik Corporate Finance and Governance S. Abdur Rashid FCS

54 CHARTERED SECRETARIES ACT 2010

(The views and opinions expressed in the articles published in this Journal are those of the writers only) Published by the Institute of Chartered Secretaries of Bangladesh (ICSB) 107, Kakrail (1st & Ground Floor) G.P.O. Box. : 3100, Dhaka-1000, Bangladesh Phone : Fax : E-mail : Web :

880 2 934 9578 & 933 6901 880 2 9339957 icsmbd@gmail.com, icsb@icsbd.com http://www.icsb.edu.bd

Gazette

EDITORIAL BOARD Editor

: Itrat Husain FCS

Members

: Mohammad Sanaullah FCS Md. Shahid Farooqui FCS M. Naseemul Hye FCS Md. Monirul Alam FCS Dr. A. K. M. Delwar Hossain

Design & Production : ROOT (A Concern of Tradex BD)

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

EDITORIAL Institute News

ICSMB TO ICSB : Beginning of a new era Since its inception in 1997, the Institute of Chartered Secretaries and Managers of Bangladesh (ICSMB) managed to grow steadily. It adhered to the mission statement and did not lose sight of its vision. Despite the absence of a statutory law to give the Institute sufficient backing, the members kept their heads high with perseverance for recognition of their goals through the promulgation of the Chartered Secretaries Act. All the members are aware of this uphill task! However ultimately the Institute got recognition as a consequence of the enactment of the Chartered Secretaries Act-2010 and the Institute changed to the Institute of Chartered Secretaries of Bangladesh (ICSB).

In developed economies investor awareness and shareholders’ expectations and active participation have kept company managements on their toes and has discouraged unethical behaviour resulting in good governance. Unfortunately the scenario is quite different in Bangladesh due to lack of sufficient statutory regulations and insufficient knowledge of the shareholders.

Good Corporate Governance is therefore still a dream.

ICSMB’s contribution in creating awareness and insights regarding Corporate Governance in the corporate sector cannot be denied. The Institute was a source of “professional hope” for the stakeholders.

Over the years it became a beacon of the corporate sector in Bangladesh. It introduced core standards which should be followed for establishing good governance in the corporate sector.

As a consequence of untiring efforts of ICSMB the capital market regulator, Securities and Exchange Commission (SEC) set up governance standards in 2006 and directed companies to comply with these standards. There can be no difference of

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THE CHARTERED SECRETARY APRIL-DECEMBER 2010

opinion on the fact that companies must strive to match global standards of governance. These can be considered as the starting point with miles to go towards establishment of good governance in the corporate sector.

The long awaited Chartered Secretaries Act is now a reality and we look forward to the beginning of a new era in Bangladesh. The people of the country have witnessed the emergence of another professional institute, which is not in conflict with the other institutes but can work hand in hand for the progress of the country through better accountability. The expectations of the stakeholders of the companies are now higher and we must not fail them.

As per the provisions of the Chartered Secretaries Act – 2010, election of the new council has already been held and a new council has been formed consisting of eighteen councilors- thirteen elected from amongst the members and five nominated from various government ministries and other organizations. This will strengthen the council and will help in improving the decision making process.

We are optimistic about the future and have to look forward with an open mind. We will look back only for reference and to learn from our past mistakes and shortcomings.

We must initiate steps to bring about significant improvements in the corporate sector for the benefit of the stakeholders and the country. Global standards have to be established. To attain these goals all the members must work as a united force. We are proud of our past achievements and should aspire to reach greater heights.

Insha Allah we will do it.

Itrat Husain FCS Editor

PRESIDENT’S MESSAGE Dear Professional Colleagues, At the very outset, I would like to extend my heartfelt gratitude to all the members of our beloved profession who have voted for me to the council. I would also like to thank the members of the Council for electing me as the President of the newly formed Institute of Chartered Secretaries of Bangladesh.

Memory lane Today I proudly recall my association with only 13 dedicated founder professionals who formed the Institute in 1997. Since then we have relentlessly tried to establish the fact that the Company Secretary is an independent profession. There is no conflict of interest with other professions. Eventually all those who really mattered in our corporate world, have realized it. After 12 years of relentless efforts and nurturing we have been able to prove to the nation that ICSB is an independent professional Institute in the field of Corporate Management. Chartered Secretaries Act 2010 is a testimony to this. To emphasize this view, my predecessors have played an important role. Thanks to all of them. Specially the contribution of Mohammad Asadullah FCS was remarkable. Under his dynamic leadership the Chartered Secretaries Act has got its new shape.

Now, our Govt., Regulatory Bodies and Corporate Leaders, both in the private and public sectors, have faith and confidence about the professionalism of Chartered Secretaries.

Formation of new Council Immediately after the enactment of Chartered Secretaries Act 2010 an election was held in August, 2010 where 13 Council members were directly elected by secret ballot. 5 members were nominated from the Government. All together the Council consists of eighteen members. All are competent and capable and professionally equipped to contribute towards the development of the Institute. I always believe that our collective efforts can help to build a world class professional Institute in the country.

Chartered Secretaries Act 2010 We are yet to reach our destination. Our long awaited Chartered Secretaries Act is a reality but still we are not in a position to work smoothly. With this objective in mind the Council is busy to develop and establish Chartered Secretaries Regulations 2010. Simultaneously, the Council also has been trying to link the CS Act with other laws in the country. I strongly request you all to come forward and help the Council in whatever way you can. On my part let me assure you that I shall give the highest priority to uplift the profession with my dignity, sincerity and honesty with an objective to materialize the dream of the Chartered Secretaries Act 2010 into reality.

Road map Rome was not built in a day. Although ICSB started its journey in 1997, yet as of today the Institute is running on its own. Not a single paisa have been received from the Govt. as we did not have its legal umbrella. Now the time has come to think of the Institute more widely and strategically similar to the other two professions. The Council needs to focus on the following issues so that the improvement of our professionalism is in line with development of the corporate world.

• • • • • •

To acquire a land in Dhaka city for the Institute for establishing an academic building as well as the Institute’s office To take vigorous program for developing our members through Continuous Professional Development (CPD) program To give more emphasis on Corporate Governance Issues To develop leaders as part of succession planning To maintain a close relationship with the Govt. & Regulatory Bodies To maintain proactive relations with the similar professions in the country and aboard

Before I conclude let me emphasize that the society will expect a high level of expertise and knowledge from the Chartered / Company Secretaries. This will require the profession to be equipped with the highest standards of education and training so that it can earn the respect of the society for their ethics, integrity and trustworthiness.

I am sure that the members of the Institute will take note of this.

I wish everyone a very happy and prosperous New Year.

Mohammed Sanaullah FCS PRESIDENT THE CHARTERED SECRETARY APRIL-DECEMBER 2010

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Institute News

Institute Activities April - December 2010 April-December 2010 was the most glorious and historic time for this Institute. In this period the Institute accomplished its long cherished Chartered Secretaries Act- 2010, by its passage in the Jatiya Sangsad of Bangladesh.

During this period ICSB also organized some significant events such as National Convention 2010 and 3rd Convocation of the Institute which may help to establish its image as a leading professional institute in this country.

Meetings After the election, the 1st Council Meeting of ICSB was held on September 14, 2010 with active participation of 13 elected Councilors along with nominees of different Ministries- Mr. Shawkat Ali Waresi, Joint Secretary, Ministry of Commerce, Ms. Nasreen Begum, Joint Secretary, Law, Justice and Parliamentary Affairs and Mr. Ahmedur Rahim, Registrar of Joint Stock Companies & Firms. Five more Council meetings were held during this period.

During this period the delegates of the Institute met the Commerce Minister twice. In the 1st meeting a delegation headed by Mohammad Asad Ullah FCS, President, accompanied by M. Naseemul Hye FCS, Treasurer, S. Abdur Rashid FCS, Council Member and Dr. A. K. M. Delwar Hossain, Secretary of the Institute called on the Commerce Minister Lt. Col. (Retd.) Muhammad Faruk Khan MP on April 1, 2010 at his office. The delegates discussed matters including the progress of the enactment of Chartered Secretaries Act. On June 03, 2010 Mohammad Asad Ullah FCS, President accompanied by Dr. A. K. M. Delwar Hossain, Secretary of Institute met the Commerce Minister immediately before the passage of the Chartered Secretaries Act -2010 in the Parliament.

Meeting with Parliamentary Standing Committee Council Meeting in Progress

Meeting with Commerce Minister

ICSB Delegates with Muhammad Faruk Khan MP, Hon’ble Minister for Commerce

A delegation headed by Mohammad Asad Ullah FCS, President, accompanied by Mohammad Sanaullah FCS, Council Member and Past President and Dr. A. K. M. Delwar Hossain, Secretary of the Institute had a meeting with Parliamentary Standing Committee for Ministry of Commerce on April 14, 2010. Mohammad Asad Ullah apprised the background of the Chartered Secretaries Act 2010, its impact on our economy, role in corporate governance, professional scope and other dimensions of the Act before the Parliamentary Standing Committee.

The Committee assured its all out support and cooperation regarding the passing of Chartered Secretaries Bill-2010 in the Parliament.

THE CHARTERED SECRETARY APRIL-DECEMBER 2010

05

Institute News

Training Programme To ensure good corporate governance as well as to develop efficiency of corporate personnel the Institute organized significant numbers of training programmes during this period as part of its management development pursuits.

A training was held on ‘Compliance for Insurance Companies’ during April 18 to April 22, 2010 with 18 participants from different corporate bodies. Md. Selim Reza FCS, Council Member of the Institute inaugurated the programme.

Participants of Management of Company Meetings

ICSB has organized and successfully conducted a month long training programme on ‘Corporate Affairs Management’ from May 21 to June 18, 2010. 18 participants of different listed companies attended the programme.

Mohammad Sanaullah FCS, Chairman, Professional Development Committee inaugurated the programme.

Participants of Compliance for Insurance Companies

Another training programme on “Human Resource Management” was held on May 8 to May 12, 2010 with 19 participants. Mohammad Sanaullah FCS, Chairman, Professional Development Committee inaugurated the programme.

Participants of Corporate Affairs Management

Fifth training programme was on ‘Business Finance for Non Finance Executives. 14 participants took part in the programme held from June 6-10, 2010. Md. Selim Reza FCS, Council Member of the Institute inaugurated the programme.

Senior Members of the Institute were the faculties in these training programme.

Participants of Human Resource Management

Third training programme during the period under report on ‘Management of Company Meetings’, was held on May 08, 2010 with 15 participants from different business organization took part the training programme. Mohammad Sanaullah FCS, Chairman, Professional Development Committee inaugurated & conducted the programme.

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THE CHARTERED SECRETARY APRIL-DECEMBER 2010

Participants of Business Finance for Non Finance Executives

Institute News

Meet the Press

Mohammad Asad Ullah FCS, President addressing the press conference

After the passage of the Chartered Secretaries Act 2010 in the Jatiyo Sangsad of the Peoples’ Republic of Bangladesh, the ICSB organized a Press Conference on June 12, 2010 at Dhaka Reporters’ Unity at Shegun Bagicha, Dhaka.

Mohammad Asad Ullah FCS, President of Institute explained and briefed the representatives of different print and electronic media. Mohammad Sanullah FCS, former President of the Institute and other Council Members were also present in the Press Conference.

Convention Center, Gulshan-1, Dhaka on June 12, 2010. There was a lot of enthusiasm among the participants. The Celebration programme started with the recitation of the Holy Quran by S. A. Rashid FCS. Mohammad Asad Ullah FCS, welcomed the members and expressed his deep gratitude to Almighty Allah. M.S. Alam Mia FCS, Fellow and Founder Member graced the programme as Special Guest. Md. Shahid Farooqui FCS, Senior Vice President, N.G. Chakraborty, immediate past Vice President and M.Naseemul Hye FCS, Vice President also spoke on the occasion. M.S. Alam Mia FCS, presented a special crest to Mohammad Asad Ullha FCS, immediate Past President for his outstanding contribution towards the enactment of Act. Mohammad Asad Ullah FCS presented crests to other Council Members for their contributions.

Mohammad Sanaullah FCS, expressing his feelings at Celebration of Enactment program

In an open discussion session a good number of members participated and expressed their observations, views and emotion choked reactions over enactment of Chartered Secretaries Act -2010.

M.S. Alam Mia FCS along with other office bearers of the Institute inaugurating the Celebration of Enactment program

A large number of journalists attended the Press Conference. The journalists present floored different questions on Chartered Secretaries Act-2010 and its impact on our society which were spontaneously replied by Mohammad Asad Ullah FCS and Mohammad Sanaullah FCS.

Orientation Programme Session-2010

for

Summer

Orientation programme for the newly enrolled students of Summer 2010 Session ( 26th batch) of Chartered Secretary Course was held on July 22, 2010 at BIAM Auditorium, Dhaka.

Celebration of Enactment The Enactment of Chartered Secretaries Act 2010 was the most significant achievement for the Institute as well as Chartered Secretary Profession. In this respect Dhaka Regional Chapter organized a Grand Celebration at Spectra

Mohammad Sanuallah FCS, President of the Institute addressing the new comers in Inaugural Session

THE CHARTERED SECRETARY APRIL-DECEMBER 2010

07

Institute News

Mohammad Asad Ullah FCS, President of the Institute inaugurated the program and in the inaugural speech he welcomed the newly enrolled students and appreciated their interest in this profession through their enrollment in the Chartered Secretary Course. Mohammad Sanuallah FCS, Chairman, Education Committee presided over the programme. He presented a comprehensive presentation on Chartered Secretary course where the Profession of Chartered Secretary as a challenging and rewarding profession in the corporate world was lucidly presented. Md. Shahid Farooqi FCS, Senior Vice President and N. G. Chakrabory FCS, Vice President of the Institute also spoke in the programme. In the Summer Session 2010, 159 students have been enrolled. In the open discussion session, some newly enrolled students tabled some questions on Chartered Secretary Course and its scope and Mohammad Sanaullah FCS, Chairman, Education Committee replied to their questions.

The Fourteenth Annual General Meeting

14th AGM of the Institute in progress

The 14th Annual General Meeting (AGM) of the Institute was held on Saturday, August 21, 2010 at BIAM Auditorium, New Eskaton, Dhaka.

Mohammad Asad Ullah FCS, President of the Institute presided over the meeting. He presented the Council Report for 2009 while M. Naseemul Hye FCS, Treasurer placed the Auditors’ Report and Audited Accounts of the Institute for the year ended December 31, 2009.

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 step that were taken by the Council for upholding the standards of ICSB as a leading professional institute of the Country in the field of corporate management and governance.

1st Council Election of ICSB Immediately after the AGM, the 1st Election of ICSB was held under the provision of the newly enacted Chartered Secretaries Act 2010. Earlier, an Election Commission comprising of Md. Rafiqul Islam FCS, Mohammad Mohashin FCS, and Abdus Salam Khan FCS was constituted to conduct the election. Md. Rafiqul Islam FCS was the Chairman of the Election Commission. A large number of Members of ICSB participated, exercised their voting rights and elected 13 Members of the Council of ICSB for the term 2010-2013. In the election 29 candidates submitted their nomination papers.

1st Election of ICSB Members of Institute seen in queue for Casting vote

Election to the First Council Final Result Sheet The following is the election result as announced by the Election Commission Number of Members

234 (Two Hundred Thirty Four)

Number of Voters

199 (One Hundred Ninety Nine)

Number of Casted Ballot Papers

170 (One Hundred Seventy)

Number of Ballot Papers

View of Members at the 14th AGM

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THE CHARTERED SECRETARY APRIL-DECEMBER 2010

Rejected 02 (Two)

Reason for Rejection

Casted more than 13 votes

Number of Valid Ballot Papers

168 (One Hundred Sixty Eight)

Institute News

Number of Votes bagged by contesting members :

Constitution of the New Council of ICSB

Elected Members

Pursuant to the Section-6(1) of Chartered Secretaries Act-2010 the Council of the Institute was formed accordingly with 13 elected Councilors and the following Government nominees of different Ministries and SEC for the term 2010-2013.

Position

Name

1st A. K. A. Muqtadir

F-0003 : 152

2nd Mohammad Sanaullah

F-0004 : 122

3rd Md. Shahid Farooqui

F-0037 : 117

4th Mohammad Asad Ullah

F-0025 : 114

5th Md. Selim Reza

F-0067 : 113

6th M. Naseemul Hye

F-0056 : 105

7th Itrat Husain

F-0009 : 101

8th Nanda Gopal Chakraborty

F-0013 : 101

9th Md. Monirul Alam

F-0069 : 101

10th Md Abdus Salam

F-0017

: 94

11th Md. Akter Hossain Sannamat

F-0068

: 87

12th Safiar Rahman

F-0038

: 83

13th Gopal Chandra Debnath

A-0131

: 82

14th Muzaffar Ahmed

F-0001

: 81

15th A. F. M. Asaduzzaman

F-0039

: 80

16th Shamsuddoha Abdur Rashid F-0104

: 80

17th M. Nurul Alam

F-0095

: 73

18th M. Shafiqul Islam Khan

F-0016

: 64

Significant increase in admission of Students

19th Md. Mahbubur Rahman

F-0026

: 63

20th Mohammed Sabir Ahmed

F-0096

: 54

21st Mohammad Bul Hassan

A-0130

: 53

22nd Mohammad Sayduzzaman

A-0126

: 49

It is our great pleasure that the enactment of the Chartered Secretaries Act -2010 has had a significant impact on the Summer Admission of the Institute (July-December 2010). A total 159 students enrolled, which is much higher than earlier enrollments.

23rd Mohammad Monowar Hossain A-0193

: 45

Examination and Result of Winter 2010

24th A. K. M. Mushfiqur Rahman F-0097

: 41

25th Suraiya Parveen

F-0098

: 31

26th Md. Amirul Islam

F-0050

: 30

27th Jagadish Kumar Bhanja

A-0190

: 30

28th Md. Siddiqur Rahman

A-0175

: 26

29th Md. Nazrul Islam

A-0192

: 12

Non Elected Members Position

Name

Md. Shawkot Ali Waresi

Joint Secretary, Ministry of Commerce, GoB

Moinul Islam

Joint Secretary, Ministry of Finance, GoB

Nasreen Begum

Joint Secretary, Law, Justice & Parliamentary Affairs, GoB

Mansur Alam

FCS, Member, Securities of Exchange Commission

Ahmedur Rahim

Registrar of Joint Stock Companies and Firms, GoB

Election of Office Bearers The 1st Council meeting of the Institute of Chartered Secretaries of Bangladesh was held on September 14, 2010. The Councilors unanimously elected the following new Office Bearers of the Institute for the term 2010- 2013: Mohammad Sanaullah FCS Md. Shahid Farooqui FCS

President Senior Vice President

M. Naseemul Hye FCS

Vice President

Md.Monirul Alam FCS

Treasurer

The Winter Session Examination 2010 of the Institute was held from July 9 to July 16, 2010 as per schedule. 144 candidates appeared in Intermediate and 32 candidates appeared in the Final Groups. Total 94 Students passed in the examination at different levels. The Council in its meeting held on August 19, 2010 announced the results of the Examination held in July, 2010.

THE CHARTERED SECRETARY APRIL-DECEMBER 2010

09

Institute News

Candidates who have passed C.S. Inter.

Level-I

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THE CHARTERED SECRETARY APRIL-DECEMBER 2010

Institute News

List of the Final Qualified Candidates:

CS-1425

A-0209

Md. Rafiqul Islam

Mohd. Sarwar Jahan Tarafder ACS

Asst. Company Secretary - ILFSL Company Secretary 窶的LS

CS-0642 A. M. M. Myeen Uddin Mazumder

Assistant Vice President Islami Finance & Investment Limited

A-0210 Rayhan Kamal ACS

Assistant Company Secretary GSP Finance Company (Bangladesh) Limited

CS-1485 Md. Obaidul Islam Khan

General Manager Financial Compliaince, Finance Robi Axiata Ltd.

CS-1237 Mohammad Mostafizur Rahman Legal Affairs Manager Bata Shoe Company (BD) Ltd.

A-0211 Mahbub Iqbal Morshed ACS

Executive Officer Prime Bank Limited (Jatrabari Branch)

A-0212 Mohammad Masum Billah ACS Manager Acct. & Finance Grameen Phone Limited

CS-1193 Mojibul Hoque Bhuiyan

Ex. HR Officer Tesco International Sourcing Ltd.

A-0213 Md. Mizanur Rahman ACS Company Secretary Destiny Group

CS-1210 Md. Mokammel Hoque

Senior Executive Company Secretary Department Grameen Phone Limited

Elected Associates Members

A-0206 Md. Jahidul Islam ACS

A-0207 Jahangir Alam ACS

Manager (Statutory Affairs) Kallol Group of Companies

A-0214 Md. Munirul Hoque ACS

Company Secretary Diganta Media Corporation Limited

A-0215 A.F.M. Nazrul Islam ACS Company Secretary Gemcon Group

A-0216 Lorens Shamol Mollick ACS Assistant Manager-HR The Prothom Alo

A-0208 Md. Mizanur Rahman ACS

Associate Manager (Compliance) Company Secretarial Department BRAC Bank Limited

A-0217 Israt Jahan Rimi ACS

Administration Supervisor Expeditors Bangladesh Ltd.

THE CHARTERED SECRETARY APRIL-DECEMBER 2010

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Institute News

A-0218 Md. Abedur Rahman ACS Asst. Company Secretary Premier Leasing Securities Ltd.

A-0227 Mohammad Monirul Islam ACS

Company Secretary & Head of Audit Bangladesh Development Group

A-0219

A-0228

Mohammad Ruhan Miah ACS

Tarafder Jahangir Alam ACS

Assistant Company Secretary Transcom Group

Chief Executive Officer Fareast Stock & Bond Ltd.

Post National Convention Celebration Program A-0220 Mohammad Asadur Rahman ACS

Assistant General Manager-Corporate Affairs Dhaka Stock Exchange Limited

A-0221 Saiful Alam ACS

First Vice President, Mercantile Bank Ltd. Internal Control and Compliance Division

A-0222 Mohammad Belal Hossain ACS

ICSB organized a get together on December 3, 2010 for the Committee Members who had significantly contributed in successful holding of the National Convention 2010 and 3rd Convocation of the ICSB. Almost all the Committee Members participated in the grand dinner party.

Mohammad Sanuallah FCS, President of the Institute welcomed the Members and highly appreciated their outstanding contributions during the National Convention 2010 and Convocation of the Institute to make the events successful. He expressed that the Members shall continue their contributions for the greater interest of the Institute. Among others, Ms. Nasreen Begum, Joint Secretary, Ministry of Law, Justice & Parliamentary Affairs, Md. Shahid Farooqi FCS, Senior Vice President, M. Naseemul Hye FCS, Vice President, Md. Monirul Alam FCS, Treasurer and Mohammad Asad Ullah FCS, Immediate Past Present were also present in Program.

Senior Officer Bank Asia Ltd.

A-0223 Sorwar Alam MBA, ACS

Manager-Corporate Affairs & Taxation Marico Bangladesh Ltd.

A-0224 Riad Hossain ACS

Manager-Finance & Property Management Standard Chartered Bank

A-0225 Khalid Mohammad Sharif ACS

Assistant Manager- Company Affairs NAVANA CNG LTD

A-0226 Md. Mizanur Rahman ACS

General Manager-Finance & Company Secretary GSP Finance Company (Bangladesh) Ltd.

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THE CHARTERED SECRETARY APRIL-DECEMBER 2010

The Members present condoled the sad demise of one of our Patron Lutful Hye MP, Chairman, Parliamentary Standing Committee for Ministry of Commerce and a valiant freedom fighter and a Honorary Fellow Member of the Institute who passed away on November 22, 2010. He had outstanding contributions towards the enactment process of the Chartered Secretaries Act -2010 in the Jatiya Sangsad.

The Members present maintained one minute’s silence by standing and a Doa was conducted for the eternal peace of the departed soul of Lutful Hye MP in the heavenly abode.

Mohammad Asad Ullah FCS led the Doa Mehfil.

Institute News

A-0169

Success Greeting

Muhammad Shahidul Islam ACS

has been promoted to the position of Company Secretary of RAK ceramics (Bangladesh) limited on july 24, 2010.

Earlier Mr. Islam was the Assistant Company Secretary of the Same Company.

F-0055 Nasir Uddin Ahmed FCA, FCS

has recently been appointed as Director & Group CFO of MGH Group. Prior to this Mr. Ahmed served Coats Bangladesh Ltd. as Finance Director & Company Secretary. He started his professional career with British American Tobacco Bangladesh Ltd. He is the immediate Past President of the Institute of Chartered Accountants of Bangladesh (ICAB).

A-0176 Shami-Noor-Nahar ACS

has been promoted to Deputy Company Secretary of United Leasing Company Limited. Prior to this appointment Ms. Nahar used to serve ULC as Deputy Manager (Board Secretariat).

F-0104

A-0219

Shamsuddoha Abdur Rashid FCS

has joined ASCENT Group (Scholastica Limited) as Company Secretary on September 1, 2010. Earlier Mr. Rashid served Biman Bangladesh Airlines Ltd. as Company Secretary (GM).

Mohammad Ruhan Miah ACS

has joined Transcom Group as Assistant Company Secretary on September 18, 2010. Before joining Transcom Mr. Ruhan served State University.

F-0105

CS-1117

Hossain Sadat FCS

Jasmin Akter

has been promoted to the position of Company Secretary of Grameen Phone Ltd. Prior to that, Mr. Sadat served Grameen Phone Ltd. as Deputy Company Secretary.

has recently joined MCSL (Destiny Group) as Assistant company Secretary on December 06, 2010. Before that he served Mulitex Limited as Manager (Accounts & Corporate Affairs)

WE MOURN With deep sense of grief and profound shock we express our deep condolence at the sad demise of Advocate Lutful Hye Sachchu, MP, Law maker and a veteran freedom fighter and Honorary Fellow Member of our Institute who passed away on Monday 22, 2010 (Inna-Lillahi-Wa-Inna-Ilaihi-Rajeoon). He was a great patron and well-wisher of the Institute of Chartered Secretaries of Bangladesh (ICSB). We will always remember him for his significant contributions and active support for the enactment of the Chartered Secretaries Act 2010.

On behalf of all the Members and Students of the Institute of Chartered Secretaries of Bangladesh (ICSB), We express our heartfelt condolencess to the bereaved family and pray to the Almighty Allah for eternal peace of the departed soul in heavenly abode.

Let us all pray for the salvation of the departed soul.

THE CHARTERED SECRETARY APRIL-DECEMBER 2010

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The Council

THE COUNCIL : 2 0 1 0 - 2 0 1 3

President Mohammad Sanaullah FCS

Senior Vice President Md. Shahid Farooqui FCS

Immediate Past President & Councilor Past President & Councillor Mohammad Asad Ullah FCS A. K. A. Muqtadir FCS

Councilor Safiar Rahman FCS

Councilor Md. Shoukot Ali Waresi Joint Secretary, GoB

Vice President M. Naseemul Hye

FCS

Past President & Councilor Itrat Husain FCS

Councilor Md. Selim Reza FCS

14

FCS

Councilor N.G. Chakraborty FCS

Councillor Md. Akter Hossain Sannamat FCS

Councilor Md Abdus Salam FCS

Councilor Gopal Chandra Debnath ACS

Councilor Moinul Islam

Councilor Nasreen Begum

Councilor Mansur Alam FCS

Councilor Ahmedur Rahim

Joint Secretary, GoB

Joint Secretary, GoB

Member, SEC

Registrar, RJSC, GoB

Secretary of the Council

THE CHARTERED SECRETARY APRIL-DECEMBER 2010

Treasurer Md. Monirul Alam

Dr. A. K. M. Delwar Hossain

Resume of Office Bearers

Brief ResumĂŠ of Elected Office Bearers of ICSB Mohammad Sanaullah FCS President Mohammad Sanuallah FCS, has been elected 1st President of the Institute of Chartered Secretaries of Bangladesh (ICSB) for the term 2010-2013.

Mohammad Sanaullah is one of the Fellow and Founder Members of the Institute. He was the Past President of the International Federation of Company Secretaries (IFCS) and Past President of the Institute of Chartered Secretaries and Managers of Bangladesh (ICSMB). Sanaullah is the Director & Company Secretary of Singer Bangladesh Limited, with over 24 years exposure in Business and Corporate Management. He did his graduation with Honours in Accounting from University of Dhaka, Masters in Accounting and Business Administration and Post Graduation Diploma Holder in Personnel Management.

He is also the Director, Bangladesh Institute of Capital Market (BICM) and Executive Member, Intellectual Property Association of Bangladesh (IPAB). He has developed and contributed significantly to various professional development programs and workshops organized by the Institute and various forums both home and at abroad. He is a Fellow Member of the Institute of Personnel Management, Bangladesh and Former Council Member (2005-2007) Bangladesh Society for Human Resource Management (BSHRM).

Md. Shahid Farooqui FCS Senior Vice President Md. Shahid Farooqui FCS has been elected as the Senior Vice President of the Institute. Before that he also worked in ICSB as Senior Vice President for the Term 2009-2010 and also as Vice President and the Treasurer of the Institute in the earlier sessions.

Shahid Farooqui obtained his B.Com (Hons) in Accounting from Chittagong University and passed M.Com from Dhaka University. He started his career in the Accounts Department of one of the leading Pharmaceutical industries of the country, the Ibn Sina Pharmaceutical Industry Ltd. He worked as the Manager Accounts of this listed company and later on was entrusted with the responsibility of Company Secretary and General Manager.

He is also the Treasurer of the country wide organization the Industrialists and Businessmen Welfare Foundation (IBWF). He is currently the Secretary of the Badsha Faisal Trust- an education and social development organization.

THE CHARTERED SECRETARY APRIL-DECEMBER 2010

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Resume of Office Bearers

Brief Resume of Elected Office Bearers of ICSB M. Naseemul Hye FCS Vice President M. Naseemul Hye FCS, elected as the Vice President of the Institute. Prior to that, Mr. Hye performed as Treasurer of the Institute for the immediate last three terms in 2007-2008, 2008-2009 and 2009-2010.

He is the Fellow Member of the Institute. He did his graduation and Post Graduation in Accounting from University of Dhaka in 1981 and 1982 respectively. He also completed his Post Graduate Diploma in Financial Management in 1997-1998.

He is serving as Executive Director and Company Secretary of Meghna Cement Mills Ltd. and other 54 companies of Bashundhara Group. He is also the Member of trustees Board, Bashundhara Foundation and Member of the Governing Body, Bashundhara Technical Institute. He is also a Director (nominated), at Pioneer Insurance Co. Ltd.

Md. Monirul Alam FCS Treasurer Md. Monirul Alam FCS, has been appointed as the Treasurer of the Institute. He is a Fellow Member of the Institute. He completed his M. Com in Accounting from University of Dhaka in 1989.

Monirul Alam is serving in Dutch-Bangla Bank Ltd. as Company Secretary. Prior to this position, he served in United Leasing Co. Ltd. and Green Delta Insurance. Co. Ltd.

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THE CHARTERED SECRETARY APRIL-DECEMBER 2010

ICSB National Convention 2010

National Convention

ICSB National Convention 2010 M. Naseemul Hye FCS Education is the process by which accumulated knowledge, skills and values are deliberately transmitted from one to another in a society. A profession is a trusted pursuit that involves rendering services of a specialized nature. It requires core and cultivated knowledge and focused training acquired from specialized institutions created specifically for this purpose. It arises when a particular trade or occupation transforms itself through development of formal qualifications based upon education, apprenticeship examinations and the emergence of regulatory bodies with powers to admit, discipline and regulate its members with some degree of rights and authority.

Professions are desired to be regulated by statute, with the responsibilities of enforcement delegated to respective professional bodies, whose function is to define, promote, oversee, support and regulate the affairs of its members.

Typically, individuals are required by law to be qualified by a recognized professional body before they are permitted to practice in that particular profession. Professional bodies are responsible for the professionals, and additionally set examinations and evaluation of competence and enforce adherence to an ethical code of practice.

After promulgation of the Chartered Secretaries Act 2010 it has paved the ways for growth and promotion of the profession of Chartered Secretaries in Bangladesh constitutionally. This profession has been recognized by different countries much before of us. The enactment of the Chartered Secretaries Act 2010 is a vivid admission that all cannons of requirement are recognized.

To make the institute strong enough and to cultivate the profession of Chartered Secretaries particular sort of service excel as a profession.

What it needs are: i) ii) iii)

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recognition of the kind of work as special service; let it to develop in a particular form, fashion or system; scope to formulate its own criteria and standard;

THE CHARTERED SECRETARY APRIL-DECEMBER 2010

iv) v)

allowing umbrella of law; and monitor its growth and development.

The newly enacted and long cherished Chartered Secretaries Act has paved the way for promotion of the profession of Chartered Secretaries in Bangladesh. It includes private practice by Chartered Secretaries under its fold. The Act and the new dimension of the profession will culminate in good corporate governance and sound exercise of corporate management for ultimate economic development of Bangladesh.

Marking the occasion, the Institute organized the National Convention 2010 on the Theme of Chartered Secretaries Act: New Dimension in Professional Excellence. The two day long program was held on 6th and 7th August 2010 at Bangabandhu International Conference Center, Dhaka.

The objectives of the Convention was: -

Making Corporate Bangladesh aware of the Chartered Secretaries Act, 2010; Dissemination of the types of services a Chartered Secretary can provide; Presentation and assessment of the existing Corporate Governance scenario; Identifying the imperatives to improve the Corporate Governance status; Obtaining suggestions from participants for shaping the Institute.

A large number of corporate professionals from home and abroad, member and students of the Institute attended the Convention.

Inaugural Session Muhammad Faruk Khan, MP Hon’ble Minister for Commerce Government of Bangladesh graced the occasion as Chief Guest and inaugurated the National Convention in the afternoon of 6 August, 2010. Advocate Lutful Hai MP Chairman, Parliamentary Committee, Ministry of Commerce GoB, Feroz Ahmed, Former Secretary, Ministry of Commerce GoB, Mansur Alam FCS, Member, Security and Exchange Commission (SEC) attended as Special Guest.

National Convention

Publications Committee while N.G. Chakraborty FCS delivered the Concluding Remarks.

In the Convention 3 Technical Papers were presented in the 3 Technical Sessions.

1st Technical Session

The Convention was presided over by Mohammad Asad Ullah FCS, President of the Institute of Chartered Secretaries of Bangladesh (ICSB). Md. Shahid Faruqui FCS, Sr. Vice President, ICSB introduced the Convention Theme and Mohammad Sanaullah FCS, Past President, ICSB & Chairman, Education Committee introduced the nine Honorary Fellow Members at the Convention.

The speakers highlighted that the enactment of Chartered Secretaries Act-2010 will play a significant role to ensure good corporate governance in Bangladesh. Enactment of the Chartered Secretaries Act will ensure that the educating authority i.e. the Institute of Chartered Secretaries of Bangladesh produces the qualified professionals for the thriving sector.

A colorful souvenir was published on the occasion of the National Convention 2010. It was released on the inaugural day by A. K. A Muqtadir FCS, Past President, ICSB & Chairman, Journal &

Immediately after the Inaugural Session, the 1st Technical Session of the Convention was held from 7:30 pm to 9:00 pm. The Session was Chaired and conducted by Suhel Ahmed Choudhury, former Secretary, Ministry of Commerce, Government of the People’s Republic of Bangladesh.

Mohammad Sanuallah FCS, Past President of ICSB and IFCS and Director, Corporate Affairs, Singer Bangladesh Ltd. presented his keynote paper titled: “Chartered Secretaries Act: A NEW DIMENSION IN CORPORATE MANAGEMENT”.

In the keynote paper the background of the Chartered Secretaries Act, long process of transformation of the Institute of Chartered Secretaries & Managers of Bangladesh into the Institute of Chartered Secretaries of Bangladesh and its recognition as a statutory body, Chartered Secretary as a profession, company secretary in the global perspective, core competencies of company secretaries and their responsibilities towards various different bodies, groups and quarters, salient features of the Chartered THE CHARTERED SECRETARY APRIL-DECEMBER 2010

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National Convention

Secretaries Act 2010 were highlighted by the keynote speaker.

The mission, vision, objectives, roles, functions of the ICSB, and the effect of the enactment of the CS Act 2010 over corporate management was lucidly presented.

Sarwar Azam Khan FCS, Director & Company Secretary GlaxoSmithKline Bangladesh Limited and Mohammad Asad Ullah FCS, were the commentators.

2nd Technical Session

The Act vis a vis the Profession was presented.

N.G.Chakraborty FCA, FCS, Vice President of ICSB & a practicing Chartered Accountant presented the keynote paper on “The Act Vis a Vis the Profession”. In the keynote paper the background of the major legislations in Bangladesh, the formation of ICSMB and its envious growth in material terms as well as in abstract terms, necessity of the CS Act, the CS profession, expectation towards ICSB and challenges before the profession was highlighted by the paper presenter.

The 2nd Technical session was held on 8th August 2010 from 9:30 am to 11:00 am. This session was Chaired and conducted by Dr. Hossain Zillur Rahman, Former Adviser Ministry of Commerce, Caretaker Govt. of Bangladesh.

Sadhan Chandra Das FCA, FCS, Principal, S.C. Das & Co., Chartered Accountants and Itrat Husain FCMA, FCS, past President and Council Member, ICSB & Executive Director-Corporate Affairs, Evince Group were the discussants in this session.

A. K. A. Muqtadir FCS, Past President & Council Member, ICSB presented his keynote paper titled “Chartered Secretary in Practice”.

In the keynote paper the concept of the Chartered Secretary in practice was highlighted by the keynote speaker. The parameters of secretarial services by the Chartered Secretary in practice, secretarial audit, its objective and short and long term effect over corporate management, governance etc. were presented.

Md. Shahid Farooqui FCS, Senior Vice President, ICSB and Md. Abdus Salam FCS, Council Member were the commentators.

3rd Technical Session The 3rd Technical Session was Chaired and conducted by Dr. Iftekhar Ghani Chowdhury, Former Adviser, GOB & Former Member, Securities and Exchange Commission and currently the Vice Chancellor, State University of Bangladesh,. In this Session a Technical Paper on

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THE CHARTERED SECRETARY APRIL-DECEMBER 2010

A large number of enthusiastic guests and delegates participated in the open floor discussions following each keynote paper presentations. The Keynote speakers as well as the Session Chairmen and the discussants of the Sessions answered the volleys of questions raised from the floor.

Awarding of Honorary Fellowships The enactment of the Chartered Secretaries Act 2010 was the culmination of our relentless efforts stretching over 12 long years starting from 1998.

During that long toils and turmoil a number of selfless sentinels offered their services leading to the achievement of the Act. Those were precious but priceless to measure. Without their contributions it would not have been a success story for us. The Institute and the profession are enormously indebted to them. The Institute of Chartered Secretaries of Bangladesh would like to further recognise some of the vanguards whose contributions towards the enactment will stretch over all times to come.

National Convention

4. Barrister Moudud Ahmed, MP

Former Honourable Minister Ministry of Law, Justice and Parliamentary Affairs Government of the People’s Republic of Bangladesh

5. Dr. A.B. Mirza Md. Azizul Islam Muhammad Faruk Khan, MP

Barrister Shafique Ahmed

Advocate Lutful Hai MP

Former Honourable Adviser Ministry of Finance, Planning, Post & Telecommunications Care Taker Government of the People’s Republic of Bangladesh

6. Dr. Hossain Zillur Rahman

Former Adviser Ministry of Commerce Care Taker Government of Bangladesh

7. Md. Ghulam Hussain

Secretary Ministry of Commerce Government of the People’s Republic of Bangladesh Barrister Moudud Ahmed, MP

Dr. A. B. Mirza Md. Azizul Islam

Dr. Hossain Zillur Rahman

8. Suhel Ahmed Choudhury

Former Secretary Ministry of Commerce Government of the People’s Republic of Bangladesh

9. Feroz Ahmed

Former Secretary Ministry of Commerce Government of the People’s Republic of Bangladesh Md. Ghulam Hussain

Suhel Ahmed Choudhury

Feroz Ahmed

In recognition that, the Institute conferred and awarded its Honorary Fellowships to nine dignitaries. Mohammad Sanaullah FCS, Past President, ICSB & Chairman, Education Committee introduced the 09 Honorary Fellow Members in the Convention and Mohammad Asad Ullah FCS, President of the Institute of Chartered Secretaries of Bangladesh (ICSB) handed over the Gold Medals and Honorary Fellow Membership Certificates to the awardees present in the Convention. The following dignitaries were conferred with the Honorary Fellowships of ICSB: 1. Muhammad Faruk Khan, MP

Honourable Commerce Minister Government of the People’s Republic of Bangladesh

2. Barrister Shafique Ahmed

Honourable Minister Ministry of Law, Justice and Parliamentary Affairs Government of the People’s Republic of Bangladesh

3. Advocate Lutful Hai, MP

Conferring of Professional Excellence Award The members of the Institute of Chartered Secretaries of Bangladesh (ICSB) has gratefully acknowledged the contributions of all its well-wishers, supporters, friends and colleagues in the long process of achieving the Chartered Secretaries Act-2010.

The indebtedness to all of them knew no bound.

Of them, contributions of some of the personalities were so great that without their active support and co-operation the promulgation of the Act would not have been possible at all.

Words fail to express the appreciation of the members of the ICSB. However, in recognition of the outstanding contributions towards the enactment, it has been the privilege for the benign members of the Institute to award the PROFESSIONAL EXCELLENCE AWARD to Mohammad Asad Ullah FCS, President ICSB for his proven contributions, perseverance, sincerity, dedication and relentless efforts in bringing the Act to light.

Chairman Standing Committee on Ministry of Commerce National Parliament

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National Convention

The members and participants enjoyed the shows and cultural program.

The members of the ICSB expressed their gratitude to him deep from heart and proudly offered Mohammad Asad Ullah FCS, President ICSB a GOLD MEDAL in recognition of his great endeavor and feat.

Cultural Program & Shows Highlighting the national prides and creation process of the ICSB two laser shows were held on both the days of Convention.

The leading corporate bodies of the country extended its support and cooperation by providing sponsorships, advertisements and accessories for holding of the National Convention 2010 and 3rd Convocation of the Institute, ICSB grateful for their support.

Music is an integral Part of our culture. The cultural programme at the convention was organized by Itrat Husain FCS, Past President of the Institute as the Chairman of the Event Management and Cultural Programme committee. The program was held in two parts. In the first part the enthusiastic members of the Institute gave their performance and it was followed by programme of the renowned professional artistes of the country.

Change will not come if we wait for some other person or some other time.

We are the ones we've been waiting for. We are the change we seek.

Barack Obama

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THE CHARTERED SECRETARY APRIL-DECEMBER 2010

3rd Convocation 2010

Third Convocation

Third Convocation 2010 Mohammad Ruhan Mia ACS Institute of Chartered Secretaries of Bangladesh (ICSB) organized its 3rd Convocation on August 07, 2010 at Bangabandhu International Conference Center, Dhaka. Barrister Shafique Ahmed, Hon’ble Minister for Law, Justice & Parliamentary Affairs, Government of Bangladesh graced the Convocation Ceremony as Chief Guest.

Mr. Firoz Ahmed, former Secretary, Ministry of Commerce was also attended as special guest.

Mohammad Asad Ullah FCS, President and Executive Director, BEXIMCO Group chaired the program and Mohammad Sanaullah FCS, Director, Corporate Affairs & Company Secretary, Singer Bangladesh was the Convocation Speaker.

The President, People’s Republic of Bangladesh and Ministers of different ministry had encouraged by giving their messages on the occasion. The Financial Express also published a special supplement on August 07, 2010, on the occasion of the Third Convocation.

of Bangladesh, mentioned that the Convocation is a solemn, sacred and purposeful function with a pride. The convocation does not belong to any particular individual or group nor is it meant for the qualified students and the faculty members alone but to the nation at large, conceived and permitted as it is, with a high sense of national purpose and prestige.

He underscored in his speech that the finest teaching, the biggest libraries and most modern facilities will not enhance one’s intellectual capabilities unless one is prepared and willing to utilize the available opportunities. The qualified Chartered Secretaries are more enlightened than before. With this privilege comes an obligation to uphold the values, conscience and justice; comes a responsibility towards the society, the countrymen and the nation you belong to.

Total of 69 qualified Chartered Secretaries received their prestigious certificates from the Hon’ble Minister for Law, Justice & Parliamentary Affairs, Government of Bangladesh.

A significant number of national and international delegates were present on the occasion.

Distinguished guests, faculty members and members of the Council and the media personalities and journalists were present on the occasion.

Convocation committee did and excellent job in organizing the whole programme. All the participants enjoyed a colorful cultural show followed by a sumptuous dinner.

Hon’ble chief guest shared his feelings in such a way that he felt proud for being the part of conversion of the Institute into a Statutory Body under the Chartered Secretaries Act 2010. He also expressed that it was a historical moment for him that during his tenure The Chartered Secretaries Act 2010 was passed in the parliament of Bangladesh.

Firoz Ahmed, former Secretary, Ministry of Commerce spoke on the occasion. He also shared his experience while working in the same ministry.

He mentioned the contribution of some members of the institute and his position for the same.

Barrister Shafique Ahmed, Hon’ble Minister for Law, Justice & Parliamentary Affairs, Government

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THE CHARTERED SECRETARY APRIL-DECEMBER 2010

Mohammad Sanaullah FCS, Director, Corporate Affairs & Company Secretary, Singer Bangladesh and convocation speaker highlighted in his speech that on the eve of their new journey, the qualified Chartered Secretaries need to keep in mind that

Third Convocation

ICSB qualification does not end their learning process. In fact, they are starting on a new phase where learning increases in intensity, depth and scope. Their knowledge and skills, character and integrity, will be tested and examined, no longer in the examination hall and classrooms, but in the highly competitive and challenging work environment.

He urged that Chartered Secretaries should continue to uphold the principles of good corporate governance and professional ethics that are so deeply enshrined in the values of this Institute. Since Chartered Secretaries work as “Chief Governance Officers” they are custodians of good governance, and are at the forefront in upholding these values and ensuring their organizations are in compliance with these values.

2010. Thus this is the first time the Institute has organized the Convocation as a statutory body.

This was our 3rd Convocation and we have made history for ICSB. What a great honor to be a part of this auspicious occasion! Especially so, as “Education” and “Society” may be regarded by some as a disparate grouping. Most of the members came to the Institute with the hope that they would know more at the end of their stay than they did at the beginning.

Mohammad Asad Ullah FCS, Executive Director, BEXIMCO Group and Immediate Past President of the Institute, members of the Council and members of the Institute also spoke on the occasion.

M. Naseemul Hye FCS Secretary, Organizing Committee, National Convention 2010 conveyed the Note of Thanks to the dignitaries for their messages and the guests, sponsors, patrons, supporters, contributors, local and foreign delegates and Members of the Institute for their active participation, generous support and cooperation for successful holding of the convention and 3rd Convocation of ICSB.

The Institute was established in 1997 namely Institute of Chartered Secretaries and Managers of Bangladesh (ICSMB) under license from the Ministry of Commerce and constituted as per provisions of the Companies Act 1994. Two consecutive Convocations of the Institute were held as per the above mentioned provisions.

Subsequently, Institute of Chartered Secretaries of Bangladesh (ICSB) is constituted under an Act of Parliament i.e. The Chartered Secretaries Act

It is the time to say that creativity is an important and valuable state of mind, which is a key stage in addressing any complex issue, and all important issues are complex. We trust that we will meet unforeseen challenges of the future with the same zeal and sprit that we have demonstrated in our studies.

Our thinking should be rooted in our philosophy, “knowledge is the ultimate power and optimal professional skill is your Economic security in the context of world we live in.” To paraphrase - even after 30 years in our profession from now on if we are still building the fountain of knowledge and enhancing our skill - as we were on our convocation - then we will be the genuine winners and be the persons who can be held out as an exemplar for the next generation as credible and respectable leaders of Bangladesh.

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Convention Speech

Address of Welcome Mohammad Asad Ullah, FCS, President, ICSB at the 3rd National Convention held on August 6, 2010 Bismillah-hir Rahmanir Rahim Hon’ble Chief Guest, Muhammad Faruk Khan, M.P., Honorable Minister, Ministry of Commerce Govt. of the People`s Republic of Bangladesh: Respected special Guests, Advocate Lutful Hye, Chairman, Standing Committee, Ministry of Commerce, Govt. of Bangladesh; Feroz Ahmed, former Secretary, Ministry of Commerce, Govt. of Bangladesh; Mansur Alam, Acting Chairman, Securities and Exchange Commission and Distinguished delegates and Members of the Media, Ladies and Gentlemen, Assalamu Alaikum, On behalf of the Council and Members of the Institute of Chartered Secretaries of Bangladesh I feel extremely privileged to welcome you all to this National Convention 2010 and celebration of Chartered Secretaries Act 2010 passed by the Jatio Sangshad on 7 June 2010. The enactment is regarded as a milestone in promoting corporate governance and compliance of statutory laws and rules for the development of corporate Bangladesh.

First of all, I would express my kindest acknowledgement, thanks and gratitude to Almighty Allah for his kind blessings and greatness that Chartered Secretaries Act 2010 has been passed by the Parliament of Bangladesh.

We are extremely grateful to the Hon’ble Commerce Minister, Govt. of Bangladesh, Muhammad Faruk Khan, MP for his wholehearted support and co-operation in holding this National Convention 2010 of the Institute.

On this occasion, I, on my own behalf and on

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THE CHARTERED SECRETARY APRIL-DECEMBER 2010

behalf of the Institute express my gratitude and heartfelt thanks to Hon’ble Prime Minister Sheikh Hasina, all the Members of her Cabinet, Members of Parliament, specially to Muhammad Faruk Khan, Hon’ble Minister for Commerce, Advocate Lutful Hye, Hon’ble Chairman, Standing Committee on Ministry of Commerce and other Members of the said Standing Committee for their strong initiatives and efforts towards the profession, without which it would not been possible for us to get the Chartered Secretaries Bill enacted by the Jatio Sangshad on 7 June 2010 which created an epoch history in the professional development of Bangladesh.

Sir, you are so kind and we are also fortunate that under your strong leadership our long cherished dream come into a reality today. We have been fighting for last 12 years for enactment of Chartered Secretaries Act. The Institute submitted the Chartered Secretaries Bill to the Ministry of Commerce in 1998.

Subsequently, when the BNP Government came to power we pursued the matter with the than Govt. We met 36 Ministers of the government to get their support on our Bill, but due to the intervention of the then Finance Minister the Bill was returned several times from the Administrative Development Committee of Secretaries of Cabinet Division with various remarks. They purposely obstructed the matter in their entire regime in order to destroy this profession.

When the present Govt. came to power, we at once met with Hon’ble Commerce Minister Muhammad Faruk Khan and apprised the matter about our long standing sufferings and miseries created by the vested quarters from time to time.

Hon’ble Minister then committed that the Bill would be passed by his Govt. as early as possible.

After observing different formalities the Bill was approved by the Cabinet on 15 February, 2010.

The vested quarters unitedly did their best to stop the Bill mid way. At the personal initiatives of Hon’ble Commerce Minister all the obstructions were removed and finally, it was placed before the National Parliament on 15 March, 2010.

I like to mention here that, the Chairman of Standing Committee on Ministry of Commerce

Convention Speech

Advocate Lutful Hye also played a vital role in passing the Bill when it was sent to Standing Committee for examination and scrutiny and also to submit a final report to the Parliament for consideration. Advocate Lutful Hye alongwith his team members scrutinized the Bill so precisely and submitted a nice and foolproof report alongwith the recommendation of the Committee before the parliament to pass the Bill. At the dynamic leadership of both the Chairman of Standing Committee and Hon’ble Commerce Minister, the Bill was subsequently passed by the Parliament unanimously on 7 June 2010. If Muhammad Faruk Khan and Advocate Lutful Hye would not have taken their personal initiatives, the Bill would not have been passed in Parliament.

Sir, you have created a history in the profession of Chartered Secretaries in Bangladesh. Now Chartered Secretary is a complete and independent profession in sovereign Bangladesh.

It is my personal opinion that, within next one hundred years such successful events will not come in the history of our Institute and the profession. Therefore, we all the Members of the Institute are extremely grateful to Muhammad Faruk Khan and Advocate Lutful Hye and also to the Prime Minister Sheikh Hasina’s Government.

We are equally happy to have with us the former Secretary, Ministry of Commerce, Feroz Ahmed a visionary person of Corporate Management who had worked as the focal point in the corporate Administration of the country. Being the Secretary of Commerce he played a pivotal role for enactment of Chartered Secretaries Act. Whenever we faced any problem in the process of the Bill with relevant Ministries his proactive role encouraged us to go ahead. His personal initiatives on the Bill helped us overcome the hurdles created by vested quarters, from time to time. During his tenure as Commerce Secretary for long time, he helped us as a top most sentinel of our Institute and profession. We are also extremely grateful to you Sir and regard you as the Institute's guardian for ever.

Hon’ble Commerce Minister, Chairman of the Standing Committee, and ex-Secretary of Commerce, Sir, the Institute and its Members are indebted to you for your outstanding contributions towards the profession. After 50 years, when the Institute will celebrate its golden jubilee, and even beyond, the Members will remember you as long as the Institute and the profession will in exist in Bangladesh and they will recognise you as the

guardians ever of the Institute.

We are also very glad to have with us the acting-Chairman of the SEC, Mansur Alam who strives for establishing good corporate Governance in the Corporate Management of the country.

We also profoundly acknowledge the outstanding contributions made by Dr. A. B. Mirza Azizul Islam and Dr. Hossain Zillur Rahman former Advisers of the Caretaker Government. Under their strong leadership the Caretaker Government promulgated the Chartered Secretaries Ordinance 2008 on 16 June, 2008. Suhel Ahmed Choudhury former Secretary of Commerce also had outstanding contributions to bring the Chartered Secretaries Act in its final shape.

We also welcome the High Officials of the Govt., regulatory bodies and corporate leaders of the country who are with us today to grace the occasion.

Dear Participants, One of the objectives of our Institute is to develop professionalism, knowledge and expertise of our members, so that they can boldly face the uncharted courses of the future. Keeping this in mind, we have decided to organize this Convention. This occasion is the culmination of a great deal of intensive activities by the Council Members of the Institute. You may not know, it but a lot of efforts have been exerted, behind the scene, to make this occasion happen within a very short period of time.

The theme of the conference- ‘Chartered Secretaries Act: New Dimension in Professional Excellence’ is a very important topic in our present day corporate environment. In the fast changing society of today, the concept of Corporate Governance and the role of the Company Secretary have undergone phenomenal changes. Keeping this in mind, I can say with a fair degree of conviction that the topics selected for the three brainstorming Sessions are quite appropriate for the occasion. I believe that through this National Convention, Company Secretaries and Corporate Executives will get acquainted with the new Chartered Secretaries Act and the New Dimension in professional excellence in the global perspective. I am sure this will raise awareness and professional excellence in them.

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Convention Speech

Distinguished Guests,

Hon’ble Chief Guest, Sir-

With respect to the Institute, let me mention that the Institute of Chartered Secretaries of Bangladesh is a premier national professional body established with the objectives to regulate, promote and develop the profession of Company Secretaries in Bangladesh. The Institute is one of the founder members of the International Federation of Company Secretaries (IFCS) headquartered in Delhi. The Institute is nurturing the profession of Company Secretary and producing Chartered Secretaries by offering two and a half year postgraduate professional course on Corporate Management. The curriculum is maintained in line with the present day needs of the corporate world. The Institute has over 225 Members. The number of current students is about 2,500.

The enactment of the Chartered Secretaries Act is not an end in itself. Rather it is the beginning of a new Institute with new hope and aspirations.

We have to bear the responsibility for materializing the expectations of our members, students and society as a whole. Therefore, the struggle ahead would be much more intense and devoted. However, we are prepared for the same.

For materializing our dreams ahead, we are in need of the following and I draw the kind attention of our Chief Guest in this respect Sir:

Management development is an integral agenda of our professional development program. You will be happy to know that the institute has conducted more than 200 professional training courses over the last 12 years for the Corporate Executives where it trained up about 10,000 senior and mid level corporate executives of the country.

1)

In view of enactment of the Chartered Secretaries Act 2010 (CS Act), the age old Companies Act 1994 has to be suitably amended and updated corresponding to the stipulations of the CS Act, with inclusion of specific provision for mandatory employment of Chartered Secretaries, at least in Public Listed Companies for ensuring improved governance, management and regulatory compliance in corporate organizations.

2)

Companies Act 1994 was promulgated mainly in line with the Indian and Pakistani Companies Acts, Subsequently however; hundreds of amendments were made in those and India introduced new Companies Act in 2009 catering to the present needs of business and commerce of the world. Not a single amendment has yet been made in our Companies Act 1994. So, our Companies Act has become obsolete in the present need. Now, we would urged upon the Chief Guest to update the Companies Act in line present day needs of the corporate world.

3)

Ever since its establishment in 1997, our Institute has been running entirely on self-financing basis. Not a single drop of financial contribution has so far been received from government or any other quarter. Now, after enactment of the Chartered Secretaries Act, ICSB attains the status of one of the national institutes like ICAB and ICMAB. Accordingly, we would urge upon you Sir, to kindly include ICSB in the existing roll of the Govt. budget and assign fund in the form of lump-sum allocations, so that we can meet up our long standing financial crisis.

Company Secretaryship is an independent profession. Although this profession is still very young in our country but the Chartered Secretaries Profession was established in Britain by a Royal Charter of England in 1891, about 119 years back. Subsequently this profession was established by its own legal footings in all most all the developed countries of the world.

Ladies and Gentlemen: Our learned Key Note Speakers are professionals who have long experience in the field of Corporate Management and Corporate Governance. They will definitely point out the important tools of Corporate Management and application of codes of best practices. It is expected that the convention would be able to provide, at least, the scope for cross fertilization of views, ideas and experiences among the professionals of the participating companies.

This, I believe, will assist us in making appropriate recommendations for implementation by the regulatory authorities.

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Convention Speech

4)

5)

We are running our Institute in a rented house which is not befitting for running a professional Institute. We would request you to kindly arrange to allocate a piece of land for the Institute in the main hub of the City, as like as ICAB and ICMAB to whom the Govt. allotted required lands and helped them construct big campus for them.

World Bank, IMF, ADB and other international Bodies have been allocating funds and providing logistic supports to ICAB, ICMAB, SEC and Stock Exchanges of the country. We would request you Sir to take necessary measures in this respect to also include ICSB in those projects of international bodies.

Hon’ble Chief Guest, Sir, You have served the nation while in the Bangladesh Army and now you have been serving the nation as a veteran politician and an influential Minister of Sheikh Hasina’s Government.

nation, we on behalf of the Institute appeal to you all, kindly to take necessary measures to implement our above agenda for ultimate economic development of the nation.

Hon’ble Chief Guest and Special Guest, Sir, I express my sincere thanks and gratitude to you for coming here to inspire us all despite your busy schedule. We all hope and believe that the great task the present govt. is assigned with, will come true soon.

I hope the delegates of the conference will find the deliberations interesting, useful and thought provoking. Before I conclude, I would like to express my sincere thanks and gratitude to the honored guests, members and participants of this conference. May peace be on you.

Thank you all Allah Hafez

It is my humble and highest request you, for the greater interest of the profession as well for the

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Convocation Speech

Convocation Speech Convocation Speaker

Honorable Chief Guest Barrister Shafique Ahmed, Minister for Law, Justice and Parliamentary Affairs, Govt. of Bangladesh Honorable Special Guest Mr. Feroz Ahmed, Former Secretary, Ministry of Commerce, Govt. of Bangladesh Mr. President, Members of the Institute, graduating students, parents, faculty members, ladies and gentlemen.

Assalamu Alaikum, very good afternoon.

It is indeed a great privilege for me to attend the 3rd convocation of the Institute of Chartered Secretaries of Bangladesh as the convocation speaker.

On this very special occasion, I congratulate all the new graduates who have successfully concluded their examinations from July 2007 to January 2010 examinations and to acknowledge our newly elected Associates, who having contributed their knowledge and expertise throughout the years, have now achieved a higher level in their career paths. I would also like to congratulate all the parents who I am sure have sacrificed so much to ensure that their young ones are well educated. It is a worthwhile investment and I am sure that the future will justify the sacrifices you made.

Today we have with us our learned faculties. My special thanks to them for having played the vital role in guiding and helping shape our graduates, imparting in them a spirit of excellence and creative ideas and zest in order to impact their work environment.

Message for the Graduates Having qualified from the Institute you have reached another milestone in this journey of life-long learning. What the future holds is unknown but what is certain is that you are climbing the ladder to the next stage with an added advantage as a Chartered Secretary.

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THE CHARTERED SECRETARY APRIL-DECEMBER 2010

This professional qualification will place you in a good position for a rewarding career as it has prepared you with in-depth knowledge in a variety of fields, which are essential in management and administration, and yet, it has simultaneously equipped you sufficiently to specialize in the company secretarial and administration and corporate governance fields.

Its versatility greatly broadens your choice of careers and opens doors of opportunities in both the public and private sectors.

The Institute is aware of the difficulties that some graduates may face in obtaining the relevant experience to enter the job market. It has therefore implemented the Internship program, under which graduates with little or no experience can apply to undergo practical training with Internship listed companies, who are ICSB members. The Institute will provide the guidance and training required to venture into the competitive marketplace.

As you are poised on the threshold of a new chapter in your life journey, bear in mind that attaining the ICSB qualification does not end your learning process. In fact, you are starting on a new phase where learning increases in intensity, depth and scope. Your knowledge and skills, character and integrity, will be tested and examined, no longer in the examination hall and classrooms, but in the highly competitive and challenging work environment.

I would like to extend our special congratulations to the Associate members present at this ceremony. We are truly proud of your commitment and dedication to the profession of the Chartered Secretary. You have contributed much to the profession through your knowledge and expertise over the years and it is indeed heartening to note that you have been rewarded with your election to a higher level of membership within the Institute.

As a Company Secretary, I trust you will continue to uphold the principle of good corporate governance and professional ethics that are so deeply enshrined in the values of this Institute.

Convocation Speech

Ladies and Gentlemen On the broader front, globalization and the unparalleled growth in the corporate sector have given rise to the call for good corporate governance and corporate social responsibility.

Chartered Secretaries as “Chief Governance Officers� are custodians of good governance, and are at the forefront in upholding these values and ensuring their organizations are in compliance with these values. I am pleased to say here that most of the Company Secretaries of public companies listed on Stock Exchanges in our country are our members.

Distinguished guests, Ladies and Gentlemen It has become apparent over the years that professionals need to develop a sense of belonging to the profession they graduate in and ensure they maintain the highest standards in their professional capacity.

Institute is only the first step in helping you to work for a better tomorrow and a better life for yourselves and your society. Remember that you must constantly upgrade your skills and knowledge to remain competitive in this ever-changing world. It is estimated that approximately 90% of all transfer of knowledge and know-how occurs by people interacting as they move from one place to another. Learning is thus a continuous process that you must remember when you interact with others while pursuing your careers.

On this note, I conclude by thanking all present here today to witness this momentous occasion.

My congratulations once again to our graduates and newly elected Associates. I wish you every success in your career and future endeavors.

Mohammad Sanaullah FCS Past President ICSMB & IFCS

The strong moral and academic foundation which you have gained in this professional

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Capital Market

Article

How to Invest in Capital Market Ruhul Ameen, M.Com, FCMA People from all stratum are entering into the share/securities market irrespective of whether they are investors or new issuers. New Issuer Company and corresponding investors are the precondition for healthy growth of the share market. The numbers of new investors [Beneficiary Owner (BO) accounts] in Bangladesh are increasing day by day. Central Depository Bangladesh Limited (CDBL), Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) are relentlessly working to increase their capacity to meet the growing demand of the investors and the issuer companies. DSE and CSE members are opening their branches in different areas to cater to this growing demand.

But their exists some mis-matches of demand and supply, which concerns every one related to this market, especially the new comers, who are investing both in the secondary market as well as in the IPO (Initial Public Offer) through Members’ branches, located in Dhaka and also outside Dhaka. These new comers are likely to make mistakes due to lack of proper knowledge and high expectations caused by rumours etc.

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investment friendly environment by minimizing financial expenses for the entrepreneurs/ borrowers and reducing cost of fund to the bankers/lenders. This win - win situation can only be possible from capital market. If this can be made possible, our future will be bright, we will be able to be a middle earning country soon. Our competitiveness in the world market will increase, we will be able to stand with pride. We have to believe that the capital market is the best vehicle to speed up growth of the country as other nations. We need immediate action from the bourses to undertake regular awareness program to educate the new investors about the risk management, investment planning, portfolio management and other basic knowledge about shares and securities, company fundamentals etc.

Find below 15 do’s and don’ts for the new investors in the share market. These are of course not comprehensive ones. Any suggestions from the readers are always welcome.

The move to expand the market base was taken

by DSE in early 2006 to bring its trading facilities to all Districts of the Country. In its first phase, Chittagong, Sylhet, Rajshshi and Barisal were included as divisional priority and Bogra and Comilla as district level first target areas. Internet service provider’s (ISP) limitation halted the expansion program to some extent otherwise this could grow much more. The Road Show to create awareness among the local and foreign investors in the capital market of Bangladesh should be continued. If the program could be conducted outside the country, it would attract more investment from foreign and Bangladeshis working abroad.

WHAT TO DO? • Acquire knowledge on share trading.

• Keep searching information on issuers.

• Learn perfect time to Buy/Sell.

• Take your trade confirmation from your broker.

• Sign your Buy/ Sale order.

• Sign your Pay-in Slip.

• Make your portfolio of at least 5-10 Companies.

• Try to make safe portfolio.

• En-cash your profit.

• Repurchase if price comes down.

• Always concern with company fundamentals • Buy in bearish or falling market.

• Ups and down is a normal phenomenon • Follow your investment plan • Patience will minimize risk

It is presumed that marginal new investors in the capital market will exceed 3-4 million lower middle class and raise the market-cap to 60% of the GDP. It will help government to raise fund from the capital market reducing borrowings from the banks. It will enable the banks to fund more to the business and also attract Non-Resident Bangladeshis’ (NRB’s) remittance to share market that could help reduce excessive pressure on the consumer market. This will make a well balanced

WHAT NOT TO DO? • Don’t choose wrong securities/shares.

• Don’t believe in rumour; try to unearth the truth.

• Don’t accept the advice of rumour spreaders.

• Don’t encourage cash transactions.

• Don’t sign any buy or sale order without checking.

• Don’t forget to check the pay-out slip.

• Don’t act on someone’s advice without justification.

THE CHARTERED SECRETARY APRIL-DECEMBER 2010

Capital Market

• Don’t go for very high/ low price Z categories shares.

• Don’t sell/buy all at a time.

• Don’t repurchase when prices are in upward trend.

• Don’t believe without checking.

• Don’t buy in bullish or rising market.

• Don’t forget to learn the tricks to take advantage of ups and down of market price.

• Don’t be greedy • Don’t get panicked when market goes down.

The way the share market is growing, I feel the good entrepreneurs are now having the best time to raise fund from the Securities market.

Securities Market provides both Equity and Debt.

Equity is raised in the form of shares. Debt is raised in the form of Debenture, Preference share, Convertible Bond (convertible from bond to share) etc. Equity is raised against ownership i.e profit and loss sharing basis and Debt is interest bearing which is always cheaper than bank borrowing rates. This money can be used as working capital. So if the fund can be used efficiently the financial cost can be reduced.

Government can also raise fund for its nationalized factories by listing those in the bourses secondary market, trading of its shares or debentures. By using this instrument Government can raise huge capital by giving attractive incentives to the general investors.

Supply of Securities is a real constraint in our economy. Both the bourses are trying relentlessly to encourage new issuers. It is actually the task of the Merchant Banks to work for bringing in new issues. SEC may liberalise its stringent regulations to bring more issues in the market.

The way banking, Insurance, Leasing, Telecom, Power etc. sectors are growing with the help of capital market others will gradually follow their path. We need not to run after rumour. We should now try to learn the COMMONLY USED TERMS IN SHARE BUSINESS: a) P/E: Price Earning Ratio- Closing price/ Earning per share. b) Book Closure/ Record Date: Name of registered share holders on a particular day. c) AGM: Annual General Meeting. d) EGM: Extra Ordinary General Meeting. e) Companies’ Categories like as: A = Regular AGM and minimum 10% dividend, B = Regular AGM but dividend is less then 10%.

N = Newly listed Companies.

Z = No regular AGM, no dividend.

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f) Share holders’ equity: Share capital+ Share money deposit+ Share premium + Reserve & Surplus. g) NAV/ Share (Net Asset Value): Share holders’ equity/ No. of shares. h) Cash dividend Yield (%): Cash dividend per share/Market value per share. i) EPS (Earning per share): Net Profit After Tax/ Number of shares. j) Market Capitalization: Closing price* Number of shares. k) Reporting periods: a) Q1 = 1st Quarter, b) Hy = Half Yearly, c) Q3 = 3rd Quarter.

We should also learn the reasons of Bullish and Bearish market? What does bubble mean, what risk is involved if it happens, etc? What is the way to minimize your risk is also a very important thing to learn. Selection, of port folios, collection of information and proper timing to buy and sell are the most important things to gain in the capital market.

Share Traders should have proper education and training on Company Law and Securities Laws.

Some commonly used notes and their meanings related to Shares & Securities used in the Daily Financial Express: Notes

Meaning/ Abbreviations

1. Open : First traded price of the day.

2. Traded issues : Traded in both the bourses.

3. T. avg : Weighted average prices of all the transactions of the day.

4. Yday : Price of the previous trading day.

5. High and Low : Highest and lowest price of the day.

6. Close : The closing price of the day.

7. Year Hi/Lo : High and low price in the last running year. Running year moves everyday.

8. Reporting of price : For companies having no transaction on the day the prices are reported from the last transaction day.

9. Drop out from the list : Companies which have no transaction in either of the Stock Exchanges aredropped from the table.

10. Not Traded : The companies having no transactions are shown as “Not Traded”.

11. Not listed : Companies not listed in Stock Exchanges are shown as “Not Listed”.

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Capital Market

12. Ad 13. “*�

Article

: Audited. : Indicates CDBL listed.

Category is mentioned beside the name of the company after CDBL mark.

SOME IMPORTANT FINANCIAL RATIOS:

14. Dilution of EPS/NAV

: All EPS and NAV are diluted/ restated at record date in applicable cases.

15. Declaration of : Year end is mentioned beside Year end the declared dividend figure dividend which is also applicable for Audited EPS and NAV. 16. Insurance Sectors EPS/BV

:

EPS/BV (Book value) is calculated by a special formula which is approximate just to compare that figures among the companies under the insurance sector. These figures could not be compared to other sectors.

17. Calculation of : Only the positive earning PER and EPS companies are considered in calculating the PER and EPS of the sectors and Stock Exchanges. For latest EPS and PE corresponding report is to be mentioned. All EPS are annualized and shown and used in PE calculation.

For all company wise PE calculation, weighted average price of the combined transaction is used.

Ask not what the country can do for you Ask what you can do for the country.

John F. Kennedy

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THE CHARTERED SECRETARY APRIL-DECEMBER 2010

Emergent needs of ICSB

Emergent needs of ICSB

Article

(Through the lenses of a member of the Institute)

Rafiqul Islam FCS Present Status Congratulations to all those who formed ICSMB in 1997 to develop, promote and regulate the profession of Company Secretaries in Bangladesh. Members in the profession pay great respect to those who worked in the enactment of Act No. XXV of 2010. It was published in the Bangladesh Gazette on 16-06-2010 and declared to have been promulgated for development, expansion and control of the Profession of Chartered Secretaries. A new Council of the Institute was elected on 21-08-2010 pursuant to the Chartered Secretaries Act 2010. Nominations from Government regulatory bodies have already been received and the President, Senior Vice President and Vice President of the Council were elected and the Treasurer of the Council was appointed in accordance with the provisions of the Act in the 1st Council Meeting. CS Regulation Committee was formed on 10-10-2010 and a consultant was entrusted with the job of Preparing an Orgnogram & Employees Service Rules for the Institute on the same date. These are expected to be completed by the end of the current month.

Emergence and problems ahead ICSB is a not-for-profit organization for the development of the profession similar to ICAB and ICMAB. ICAB has got advantage from its start after introduction of Companies Act at the outset in the UK. It got tremendous support from all concerns from the very beginning. Industrial Revolution in Europe after promulgation of Companies Act enhanced the prestige of the Chartered Accountants and they became involved in many activities of the Corporate Sector with the passage of time. Gradually the business activities became complex and competition of Companies became fierce. The desire of Corporate Sector to reduce cost and maximize profit for the shareholders resulted in formation of the Institute of Cost and Management Accountants (ICMAB).

At present Chartered Accountants are appointed as per law for auditing the Financial Statements of all the Companies, Corporations and other Government Bodies. The Income Tax Ordinance gives them privilege to appoint them for auditing the Financial Statements of all business enterprises and firms. Besides they have developed many skills for rendering many

services to the business and not-for-profit sectors. All these have given ICAB and its members financial strength to develop competencies and scopes of activities for its members. The Companies Act and the Income Tax Ordinance recognize members of ICAB & ICMAB (not ICSB) for performing certain tasks.

But activities of ICMAB members mainly revolve round services which they can render to the Corporate Sector and for which they are competent to work. ICSB Act has been enacted only recently and the Institute does not have necessary land, building, human resources and finance to carry out even initial formation tasks.

The necessity of Chartered Secretary Profession has been felt from 1992 after submission of Cadbury Report and preparation of code of conduct by the London Stock Exchange for the listed companies. There were many other reports and many developments in many countries on the issue. The USA introduced Sarbanes Oxley Act in 2002 due to financial scandal in the Corporate World where ownership is separated from the Management and the Company Secretary is now considered the highest post in the Corporate Offices with the growing importance of Corporate Governance (CG) and Corporate Social Responsibility (CSR). The OECD countries including India and Pakistan have followed the same code of conduct, introduced by London Stock Exchange. The same principles were introduced by Securities and Exchange Commission in Bangladesh in 2006 for compliance or give explanations to the deviations from the set principles of SEC. At this stage, the Institute must analysis its strategies, select the best course and implement the same for quick formation of the Institute. When the shareholders contribute towards paid up capital, it is easy to buy land, construct building, install machinery and acquire other necessary assets for starting business operation. But in case of such professional Institute, land is be obtained from Ministry of Land, finance from the Ministry of Finance with the recommendation of Ministry of Commerce, provided ICSB Council can start operation and the activities, entrusted to the CS Regulation Committee and the Consultant, are completed soon to the satisfaction of the ICSB Council who must, in the mean time, arrange for a circular establishing the Institute of Chartered Secretaries of Bangladesh and publish the same THE CHARTERED SECRETARY APRIL-DECEMBER 2010

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Emergent needs of ICSB

in Bangladesh Government Gazette to achieve the objectives in accordance with section-3 of the Act No.XXV of 2010. On legal establishment of the Institute, role of members of ICSB is to be incorporated in the Companies Act, Banking Companies Act, Insurance Act and other relevant Acts and Security Laws. Else the purpose of creation of ICSB shall be frustrated. If the bye-laws of the Institute can not be introduced through publication in the Bangladesh Gazette at the earliest, the activities of the Institute will be delayed to the discredit of the Council.

Present Economic Scenario of the Country and of the Corporate Sector Production of cereals in the Country has been declining @ 3.9% every year due to continuous climatic change in the regions. Survey Report reveals that people of Bangladesh suffer from mal-nutrition and under-weight. It is the worst scenario of the World. We have many poor people living below poverty lines. Most of them remain hungry due to non-availability of adequate food items. Almost all the State Owned Enterprises (SOE) are running at a loss. When recession engulfed the developed world and the renowned Banks are collapsing one after another there, Banks, Leasing and Insurance Companies of our country have been earning continuous high profit, whereas, productive units are limping and fighting for survival. Pressure of Basel Committee has been forcing our Banks to enhance Capital Adequacy Ratio, whereas, the loans of borrowing companies are mounting continuously every year.

Recent paper news discloses that non-performing loans of the earlier nationalized banks are mounting every year. Sponsors of many borrowing companies are investing in luxuries or other profitable units that ensure better return. It results in higher cost of essentials and higher cost of living of the teeming millions. Again Annul Report of listed Companies exhibit compliance of SEC directives in respect of Corporate Governance and Corporate Social Responsibility. But some of them are in the “Z” category. Chartered Secretaries are required to ensure real compliance of the directives. But it will not be possible, if the concerned people are not competent enough to practice the same in the field. It requires the skill of all the professionals along with skill expertise in legal compliance issues that can make the job of Chartered Secretaries beneficial to the Corporate Sector and State Owned Enterprises (SOE). If the Institute can not challenge these quickly and efficiently, the future of Chartered Secretary profession will roam about without any direction, whereas, the nation and the ailing sectors need

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THE CHARTERED SECRETARY APRIL-DECEMBER 2010

Article

their services urgently and eagerly.

Commencement of Operation of the ICSB The responsibility and functions of the ICSB Council are spelled out in section-12 of the Act and the same can be performed to the expectation of the nation and needs of the circumstances only when the committees of the Institute are formed and made operational in accordance with prescribed bye-laws to be prepared in accordance with section-13 of the Act. Responsibility and functions of the committees and sub-committees need be carried out in accordance with the bye-laws to be prescribed, considered, adopted and approved and the same is published in the national gazette.

Activities of the Institute can be started after the organization chart is considered and approved and necessary officials are recruited to carry out the desired functions. The following Committees may be formed as early as possible to start operation of the Institute: a. Executive Committee; b. Membership Committee; c. Students Committee; d. Education Committee; e. Examination Committee; f. Research & Development Committee; g. Disciplinary Committee; h. Real Estate Committee; i. Construction Committee; j. Taxation & Corporate Laws Committee; k. Review Committee of Acts & Ordinances; l. Bye-Laws Committee m. Continuing Professional Development Committee; n. Journal Committee; o. Information Technology (IT) Committee; p. International Relations Committee; q. Placement Committee; r. Members’ Welfare Committee; s. Finance Committee; and t. Dhaka Regional Chapter; These and other required committees may be formed as early as possible taking all candidates who contested in the last election. All of them are resourceful and helpful for the Institute.

Conclusion Financial Resources is the Oxygen of the ICSB for smooth operation of blood to keep it active and healthy for tuning the activities to the needs for the circumstances and ultimately to achieve the objectives of the establishment of ICSB. The Council is taking necessary steps for collecting required fund for the Institute.

Tax Holiday

Tax Holiday

Article

- an unsuccessful tax incentive

Ranjan Kumar Bhowmik Introduction Tax holiday has been started to allow as a tax incentive for industrialization in this region since 1959 by introducing new section 15BB in the then Income Tax Act 1922. In 1972, the tax holiday system was withdrawn by repealing section 15BB. But the incentive was re-introduced by incorporating section 14A in the Income Tax Act 1922 by the Finance Act 1974 with effect from the assessment year 1974-75 for industrial undertakings (established on or after 1st July 1973 having subscribed and paid up capital not less than Tk. 1 Lakh and not more than Tk. 35 Lakh) and also for tourist industries (established on or after 01 January 1976 having subscribed and paid up capital not less than tk. 1 lakh and not more than Tk. 10 Core) with the tax holiday period of 9 years for the prescribed areas and of 5 years for other areas.

With the introduction of the Income tax Ordinance 1984, the provision of tax holiday has been maintained under sections 45 and 46 primarily. The provision was applicable for industrial undertakings (established between 01 July 1974 and 30 June 1985) and tourist industries (established between 01 January 1976 and 30 June 1985) having subscribed and paid-up capital not less than Tk 1 lakh for any industries.

The tax holiday incentive was first extended for the industries up to 30 June 1990 by the Finance Act 1985 , then up to 30 June 2000 by the FA 1989. But subsequently through FA 1991 the incentive was restricted for the industries established within 30 June 1995 with an apparent intention of withdrawing the tax holiday incentive since 1995-96.

New section 46A has been introduced through FA 1995 allowing the tax holiday incentive for industrial undertakings, tourist industries and physical infrastructure facilities established between 01 July 1995 and 30 June 2008 with having subscribed and paid up capital not less that Tk. 1 Lakh. Again it is extended for another 3 years through inserting section 46B with some minor changes.

(1) Type of Industries eligible for tax holiday.

Three types of industries are eligible to apply for tax holiday 1. Industrial Undertaking; 2. Tourist Industry; and 3. Physical Infrastructure facility.

The Following categories of industries are eligible for the definition of Industrial Undertakings 1. Textile 2. Textile Machinery 3. High Value Garments (overcoats, Jackets and suits) 4. Pharmaceuticals 5. Melamine 6. Plastic Products 7. Ceramics 8. Sanitary ware 9. Steel from iron ore 10. Fertilizer 11. Insecticide and pesticide 12. Computer Hardware 13. Petro-Chemicals 14. Basic raw materials of drugs.

15. Chemicals 16. Pharmaceuticals 17. MS Rod 18. Boilers 19. Compressors; and 20. CI Sheet 21. Jute goods.

22. Agriculture machinery.

23. Agro-processing.

24. Ship building.

25. Diamond cutting and any other industry as the Govt. may specify.

26. Energy saving bulb 27. Solar energy panel.

28. Barrier contraceptive or rubber latex.

The following categories of infrastructure are within the meaning of Physical infrastructure facility:1. Sea and river port 2. Container terminals 3. Internal container depot 4. Container freight station 5. CNG terminal and transmission line THE CHARTERED SECRETARY APRIL-DECEMBER 2010

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Tax Holiday

6. LNG terminal and transmission line 7. Flyover 8. Large water treatment plant and supply through pipe line 9. Waste treatment plant 10. Export processing zone.

11. Gas pipe line.

12. Mono-rail.

13. Underground rail.

14. Telecommunication (other than mobile phone).

15. Solar energy plant and any other category as the Govt. may specify.

Tourist Industry means residential hotel having facility of three stars or more and any other category as the Govt. may specify (2) Conditions for eligibility Some conditions are required to be fulfilled for tax holiday under section 46B of the Income Tax Ordinance, 1984. These are as follows: (a) The undertaking must be owned and managed by either a body corporate established by or under an act of parliament with its head office in Bangladesh. or a company as per Companies Act, 1913/1994 with its registered office in Bangladesh having a subscribed and paid up capital of not less than taka 10, 00,000/-(ten lakh) on the date of commencement of commercial production or operation. (b) The undertaking is not formed by splitting up or by reconstruction or reconstitution of business already in existence or by transfer to a new business of any plant and machinery used in business, which was being carried on in Bangladesh at any time before the commencement of the new business. (c) The undertaking must be approved by the NBR for the purpose of tax holiday. (d) The undertaking shall have to obtain clearance certificate from the Directorate of Environment for the relevant income year.

(3) Application procedure and its disposal by the NBR (a) Tax holiday application is to be submitted to the NBR within 6 months from the end of the

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THE CHARTERED SECRETARY APRIL-DECEMBER 2010

Article

month of commercial production or operations in the form prescribed in Rule 59A, in duplicate, duly signed and verified by the MD or Director of the company. (b) NBR shall give its decision within 45 days from the date of receipt of the application by the Board.

Otherwise the undertaking shall be deemed to have been approved. (c) NBR shall not reject any application unless the applicant is given a reasonable opportunity of being heard. (d) If NBR rejects any tax holiday application, the undertaking can submit a review application to the Chairman of the Board within 4 months from the date of receipt of the rejection letter.

Chairman then will either review himself or will constitute a committee consisting of 3 Member of the NBR who will review its previous decision and pass such order as it think fit. There is no time limit for disposal of the review application. The decision of the review committee of the NBR as final and conclusive and there is no scope to submit further review application.

4) Withdrawal and Cancellation of tax holiday a) Any understanding after getting tax holiday from the NBR can write to the NBR for cancellation of tax holiday within 1 year from the date of granting such tax holiday. b) NBR may also cancel or suspend fully or partially any tax holiday in the public interest. c) The DCT in the course of assessment may also withdraw the tax holiday from the relevant assessment year if he is satisfied that one or more of the required conditions are not fulfilled. d) Tax holiday shall be deemed to have been withdrawn for the assessment year in which the following transaction is made:(1) If the company is engaged in any commercial transaction with another company having one or more sponsor shareholders.

(2) If the DCT finds that the company has purchased or sold goods at higher/lower price than the normal market price with the intention to reduce the income of another undertaking/ company.

Tax Holiday

(5) Period of Tax holiday

6) Conditions to be fulfilled after getting tax holiday (a) The profits and gains of the tax holiday company shall be computed separately; (b) Any loss during the tax holiday period cannot be carried forward beyond the tax holiday period. (c) Only normal depreciation is applicable for tax holiday enjoying companies (d) 30% + 10% = 40% year wise tax holiday income is to be reinvested. 30% is to be reinvested in the same company or in a new industry within the tax holiday period or maximum within 1 year from the end of the tax holiday period. Another 10% is to be reinvested in the shares of listed company in each year within 3 months from the end of the income year.

However in case of garments industry total 40% income is to be reinvested in the same industry or in any new industry without any fraction.

Otherwise income of the year or years will subject of tax. However, the quantum of reinvestment will be reduced by the amount of dividend if declared by the company. (e) The income of the tax holiday company under the following heads are taxable; (1) Capital gain (2) Any income arising from the disallowances u/s 30 (3) Dividend is taxable at the hand of shareholders (7) Documents to be submitted with tax holiday application The following documents are to be submitted

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along with tax holiday application: (1) An attested copy of certificate of incorporation; (2) An attested copy of the Memorandum and Articles of Association of the company; (3) A certificate of commencement of business; (4) In case the company has already commenced business, certified copy of the audited balance sheet and profit and loss accounts for the period for which the accounts have been prepared: (5) In case of industrial undertaking/tourist industry/physical infrastructure facility for which approval is sought has been acquired for another party, an attested copy of the agreement between the applicant company and the seller enter into for the acquisition of the industrial undertaking/ tourist industry/physical infrastructure with list and value of assets acquire; (6) A certificate to the effect that the industrial undertaking/tourist industry/ physical infrastructure facility has not applied or shall not apply for accelerated depreciation allowance under paragraph 7 or 7A of the Third Schedule to the Ordinance.

(8) Reduced tax rate as an alternative of tax holiday Reduced tax rate has been prescribed through S.R.O. for industrial undertaking, infrastructural facility and tourist industry established between 01.07.2009 to 30.06.2012 as an alternative of tax holiday. Tax rate will, however, vary based on the location of the industry which is tabulated below: (S.R.O. no 172 dated 30.06.2009)

Conclusion There is a common complain against tax holiday that it is the most unsuccessful income tax incentive in the sense that the private entrepreneurs mostly used this Govt. incentive as a weapon of whitening black money and the way of tax evasion. There is a tendency to show the industry as a loosing one after the expiry of the tax holiday period. Keeping this in mind, S.R.O. no 172 dated 30/06/2009 has been designed as an alternative of tax holiday where lower tax rate will be applicable during the initial years and gradually it will increase.

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Corporate Finance and Governance

Article

An Introduction in the Context of Bangladesh as well as Global Standard S. Abdur Rashid FCS Corporate Finance is an area of finance dealing with the financial decisions that corporations (or business enterprises) make and the tools and analysis used to make these decisions. While Corporate Governance denotes the entire range of mechanisms and arrangements that determine the way for the key decisions are made in corporations including policies and practices that Shareholders and Board of Directors use to manage themselves and to fulfill their responsibilities to investors and other stakeholders.

Corporate Finance The primary goal of corporate finance is to maximize corporate value, while managing the firm’s financial risks. The main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms.

There ate three broad areas of corporate financial decision making; they are Capital Budgeting Decision , Capital Structure Decision and Working Capital Management . Each of these three areas are briefly explained below: Capital Budgeting Decision Once the managers of a firm choose the business or businesses they want to be in, they have to develop a plan to invest in buildings, machineries, equipment, research and development, godowns (warehouses), showrooms, distribution network, information infrastructure, brands, and other long-lived assets. This is the subject of capital budgeting process.

Many formal methods are used in capital budgeting, including the techniques such as • • • • • •

Accounting rate of return Net present value Profitability index Internal rate of return Modified internal rate of return Equivalent annuity

The unit of analysis in capital budgeting is an investment project. Considerable managerial time, attention, and energy is devoted to identify, evaluate, and implement investment projects Capital Structure Decision Once a firm has decided the investment projects it wants to undertake, it has to figure out ways and means of financing them. Achieving the goals of corporate finance requires that any corporate investment be financed appropriately. As above, since both hurdle rate and cash flows (and hence the riskiness of the firm) will be affected, the financing mix can impact the valuation.

Management must therefore identify the ‘optimal mix’ of financing – the capital structure that results in maximum value.

Capital Budgeting (or investment appraisal) is the planning process used to determine whether a firm’s long term investments such as new

The sources of financing will, generically, comprise some combination of debt and equity financing. Financing a project through debt (borrowed fund) results in a liability or obligation that must be serviced, thus entailing cash flow implications independent of the project's degree of success. Equity (stockholders’ fund) financing

1.

2.

7.

3.

4.

5.

6.

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machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. It is budget for major capital, or investment, expenditures.

Finance is the science of funds management.

A corporation is an institution that is granted a charter recognizing it as a separate legal entity having its own privileges, and liabilities distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business.

Capital Budgeting Decision has a significant bearing on how capital is allocated in the firm and deals with long-term investments.

Capital Structure Decision has a significant bearing on the ways and means of financing (raising fund) Working Capital Management has a significant bearing on short-term financial management and deals with current assets.

Manager may be referred to anyone who holds the managerial

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8.

9.

responsibilities and uses management skills.

Hurdle Rate is the rate of minimum return necessary to cover all costs associated with a project.

Financing Mix denotes a combination of equity (owners’ funds) and debt (borrowed money).

At present this issue is not practical in Bangladesh.

Corporate Finance and Governance

is less risky with respect to cash flow commitments, but results in a dilution of ownership, control and earnings. The cost of equity is also typically higher than the cost of debt, and so equity financing may result in an increased hurdle rate which may offset any reduction in cash flow risk.

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•

•

The key issues in capital structure decision are: o What is the optimal debt-equity ratio for the firm? o Which specific instruments of equity and debt finance should the firm employ? o Which capital markets should the firm access? o When should the firm raise finances? o At what price should the firm offer its securities? o What is the optimal dividend payout ratio for the firm? [This issue is known as dividend decision.] o Should the firm buy back its own shares?

The unit of analysis in the capital structure decision is the firm as a whole and not the individual investment project.

Capital structure decision and dividend decision should be guided by considerations of cost and flexibility, in the main. The objective should be to minimize the cost of financing without impairing the ability of the firm to raise finances required for value creating investment projects.

Working Capital Management Decisions relating to working capital and short term financing are referred to as working capital management. Working Capital Management (also referred to as Short-term Financial Management) refers to the day-to-day financial activities that deal with current assets and current liabilities .

The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.

Management has to use a combination of policies and techniques for the management of working capital. These policies aim at managing the current assets (generally cash and cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable.

1.

Current Assets include inventories, debtors, short-term holdings of marketable securities, and cash, etc.

•

•

Cash management: Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs.

Inventory management: Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs - and hence increases cash flow.

Besides this, the lead times in production should be lowered to reduce Work in Progress (WIP) and similarly, the Finished Goods should be kept on as low level as possible to avoid over production - see Supply chain management; Just In Time (JIT); Economic order quantity (EOQ); Economic production quantity Debtors management: Identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa).

Short term financing: Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to ‘convert debtors to cash’ through ‘factoring’.

Thus the key issues involved in working capital management are: o o o o o

What is the optimal level of inventory for the operations of the firm?

Should the firm grant credit to its customers and, if so, on what terms?

How much cash should the firm carry on hand?

Where should the firm invest its temporary cash surpluses?

What sources of short-term finance are appropriate for the firm?

Relationship of Corporate Finance with other areas in Finance Investment banking The terms ‘corporate finance’ and ‘corporate financier’ tend to be associated with investment banking - i.e. with transactions in which capital is raised for the corporation. These may include 2.

Current Liabilities include short-term debt, trade credits, accruals, and provisions, etc.

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• • • • •

• • •

•

Raising seed, start-up, development or expansion capital Mergers, demergers, acquisitions or the sale of private companies Mergers, demergers and takeovers of public companies, including public-to-private deals Management buy-out, buy-in or similar of companies, divisions or subsidiaries typically backed by private equity Equity issues by companies, including the flotation of companies on a recognised stock exchange in order to raise capital for development and/or to restructure ownership Raising capital via the issue of other forms of equity, debt and related securities for the refinancing and restructuring of businesses Financing joint ventures, project finance, infrastructure finance, public-private partnerships and privatisations Secondary equity issues, whether by means of private placing or further issues on a stock market, especially where linked to one of the transactions listed above.

Raising debt and restructuring debt, especially when linked to the types of transactions listed above.

Financial Risk Management Risk management is the process of measuring risk and then developing and implementing strategies to manage that risk. Financial risk management focuses on risks that can be managed (‘hedged’) using traded financial instruments (typically changes in commodity prices, interest rates, foreign exchange rates and stock prices). Financial risk management will also play an important role in cash management.

This area is related to corporate finance in two ways. Firstly, firm exposure to business risk is a direct result of previous Investment and Financing decisions. Secondly, both disciplines share the goal of enhancing, or preserving, firm value. All large corporations have risk management teams, and small firms practice informal, if not formal, risk management. There is a fundamental debate on the value of "Risk Management" and shareholder value that questions a shareholder's desire to optimize risk versus taking exposure to pure risk. The debate links value of risk

1.

42

Hurdle Rate is the rate of minimum return necessary to cover all costs associated with a project.

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management in a market to the cost of bankruptcy in that market.

Derivatives are the instruments most commonly used in financial risk management. Because unique derivative contracts tend to be costly to create and monitor, the most cost-effective financial risk management methods usually involve derivatives that trade on well-established financial markets or stock exchanges. These standard derivative instruments include options, futures contracts, forward contracts, and swaps.

More customized and second generation derivatives known as exotics trade over the counter (OTC).

Personal and Public Finance Corporate finance utilizes tools from almost all areas of finance. Some of the tools developed by and for corporations have broad application to entities other than corporations, for example, to partnerships, sole proprietorships, not-for-profit organizations, governments, mutual funds, and personal wealth management. But in other cases their application is very limited outside of the corporate finance arena. Because corporations deal in quantities of money much greater than individuals, the analysis has developed into a discipline of its own. It can be differentiated from personal finance and public finance.

Principles of Corporate Finance The Principles that are generally considered in Corporate Finance are as follows: o o o

o o

2.

Invest in projects that yield a return greater than minimum acceptable hurdle rate .

The hurdle rate should be higher for riskier projects and reflect the financing mix used.

Returns on projects should be measured based on cash flows generated and timing of cash flows; both positive and negative side effects of projects should also be considered.

Choose a financing mix that minimizes the hurdle rate and matches the assets being financed.

If there are not enough investments that earn the hurdle rate, return the cash to the owners of the firm (if public listed company, these would be stockholders).

Financing Mix denotes a combination of equity (owners’ funds) and debt (borrowed money).

Corporate Finance and Governance

o

The form of returns (dividends and stock buybacks) will depend upon the stockholders’ characteristics.

Objectives in Corporate Finance The objectives in decision making in corporate finance may differ from firm to firm and from managers to managers. In traditional corporate finance, the objective in decision making is to maximize the value of the firm. A narrower objective is to maximize stockholder wealth.

When the stock is traded and markets are viewed to be efficient, the objective is to maximize the stock price. All other goals of the firm are intermediate ones leading to firm value maximization, or operate as constraints on firm value maximization.

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Stockholders’ Interests

Interests

vs.

Management’s

As the management of a corporation enjoys separate privileges distinct from its owners, there may be some conflict between stockholders’ interests and management’s interests. However, it is obvious that management is appointed by the stockholders of by their representatives. The conflict(s) prevailing in corporations/firms should have a suitable resolution.

The positions of Stockholders and Management in Corporate Organization are shown below:

The objective of maximizing stock price is often criticized as follows: o o

o

Maximizing stock price is not incompatible with meeting employee objectives. In particular: Employees are often stockholders in many firms Firms that maximize stock price generally are firms that have treated employees well.

Maximizing stock price does not mean that customers are not critical to success. In most businesses, keeping customers happy is the route to stock price maximization.

Maximizing stock price does not imply that a company has to be a social outlaw.

Flow of corporate financial decisions towards maximization of stockholders wealth is shown below:

Traditional corporate financial theory focuses on maximizing stockholders’ wealth, becauseo

o o

Stock price is easily observable and constantly updated (unlike other performance measures, which may not be as easily observable and certainly not updated as frequently).

If investors are rational (are they?), stock prices reflect the wisdom of decisions, short term and long term, instantaneously.

The objective of stock price performance provides some very elegant theory on: • how to pick projects • how to finance them • how much to pay in dividends

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Theoretically, the stockholders have significant control over management. The mechanisms for disciplining management are the annual meeting and the board of directors. But, in Practice, neither mechanism is as effective in disciplining management as theory posits.

The power of stockholders to act at annual meetings is diluted by three factors: • •

•

o o o

– maximizing firm size – maximizing market share The strength of the stock price maximization objective function is its internal self correction mechanism. Excesses on any of the linkages lead, if unregulated, to counter actions which reduce or eliminate these excesses. Some examples are stated below: – managers taking advantage of stockholders has lead to a much more active market for corporate control.

– stockholders taking advantage of bondholders has lead to bondholders protecting themselves at the time of issue.

– firms revealing incorrect or delayed information to markets has lead to markets becoming more “skeptical” and “punitive” – firms creating social costs has lead to more regulations, as well as investor and customer backlashes.

Most small stockholders do not go to meetings because the cost of going to the meeting exceeds the value of their holdings.

Incumbent management starts off with a clear advantage when it comes to the exercise of proxies. Proxies that are not voted becomes votes for incumbent management.

For large stockholders, the path of least resistance, when confronted by managers that they do not like, is to vote with their feet.

Traditional corporate financial theory breaks down, when o

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The interests/objectives of the decision makers in the firm conflict with the interests of stockholders.

Bondholders/Lenders are not protected against expropriation by stockholders.

Financial markets do not operate efficiently, and stock prices do not reflect the underlying value of the firm.

Significant social costs can be created as a by-product of stock price maximization.

The bondholders exercise defense against stockholder excesses. There are some instances of bondholders defense: o

o

The alternative solutions to resolve the potential conflicts may be as follows: o o o

To choose a different mechanism for corporate governance To choose a different objective To maximize stock price, but reduce the potential for conflict and breakdown: • Making managers (decision makers) and employees into stockholders • By providing information honestly and promptly to financial markets

Choosing a Different Objective Function Firms can always focus on a different objective function such as: – maximizing earnings – maximizing revenues

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o

More restrictive covenants on investment, financing and dividend policy have been incorporated into both private lending agreements and into bond issues, to prevent future hassles.

New types of bonds have been created to explicitly protect bondholders against sudden increases in leverage or other actions that increase lender risk substantially. Two examples of such bonds are: – Puttable Bonds, where the bondholder can put the bond back to the firm and get face value, if the firm takes actions that hurt bondholders – Ratings Sensitive Notes, where the interest rate on the notes adjusts to that appropriate for the rating of the firm More hybrid bonds (with an equity component, usually in the form of a conversion option or warrant) have been used. This allows bondholders to become equity investors, if they feel it is in their best interests to do so.

The response of financial market stockholder excesses may also be noted:

against

Corporate Finance and Governance

o

While analysts are more likely still to issue buy rather than sell recommendations, the payoff to uncovering negative news about a firm is large enough that such news is eagerly sought and quickly revealed (at least to a limited group of investors)

o

As information sources to the average investor proliferate, it is becoming much more difficult for firms to control when and how information gets out to markets.

o

As option trading has become more common, it has become much easier to trade on bad news. In the process, it is revealed to the rest of the market.

o

When firms mislead markets, the punishment is not only quick but it is savage.

There may also be some societal response against stockholder excesses, as for example, o

If firms consistently flout societal norms and create large social costs, the governmental response (especially in a democracy) is for laws and regulations to be passed against such behavior.

o

For firms catering to a more socially conscious clientele, the failure to meet societal norms (even if it is legal) can lead to loss of business and value

o

Finally, investors may choose not to invest in stocks of firms that they view as social outcasts.

Modified Objective Function The objectives in decision making differ from firm to firm. Objective function for different type of firms would be as follows: o

For publicly traded firms in reasonably efficient markets , where bondholders (or lenders) are protected, objective function would be to Maximize Stock Price; this will also maximize firm value

o

For publicly traded firms in inefficient

1.

Publicly Traded Firm is one share/stock of which is listed with and traded in any stock exchange.

Efficient Market is one where all pertinent information is available to all participants at the same time, and where prices respond immediately to available information.

2.

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markets , where bondholders are protected, objective function would be to Maximize Stockholder Wealth; this will also maximize firm value, but might not maximize the stock price. o

For publicly traded firms in inefficient markets, where bondholders are not fully protected, objective function would be to Maximize Firm Value, though stockholder wealth and stock prices may not be maximized at the same point.

o

For private firms, where lenders are protected, objective function would be to Maximize Stockholder Wealth.

o

For private firms, where lenders are not protected, objective function would be to Maximize Firm Value.

Stakeholders’ Issue in Corporate Finance Stakeholders are groups such as employees, customers, suppliers, creditors, owners, and others who have a direct economic link to the firm. A firm with a stakeholder focus consciously avoids actions that would prove detrimental to stakeholders. The goal is not to maximize stakeholder well-being but to preserve it. The stakeholder view does not alter the goal of maximizing shareholder wealth. Such a view is often considered part of the firm's "social responsibility. It is expected to provide long-run benefit to shareholders by maintaining positive stakeholder relationships. Such relationships should minimize stakeholder turnover, conflicts, and litigation. Clearly, the firm can better achieve goal of shareholder wealth maximization by fostering cooperation with its other stake-holders, rather than conflict with them.

The Agency Issue in Corporate Finance We have seen that the goal/objective of the financial manager should be to maximize the wealth of the firm's owners. Thus managers can be viewed as agents of the owners who have hired them and given them decision-making authority to manage the firm. Technically, any manager who owns less than 100 percent of the firm is to some degree an agent of the other owners. In theory,

3.

In-efficient Market is one where all pertinent information is not available to all participants at the same time.

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most financial managers would agree with the goal of owner wealth maximization. In practice, however, managers are also concerned with their personal wealth, job security, and fringe benefits.

Such concerns may make managers reluctant to take more than moderate risk if they perceive that taking too much risk might jeopardize their jobs or reduce their personal wealth. The result is a less-than-maximum return and a potential loss of wealth for the owners.

Agency Problem : How to Reduce/Minimize From this conflict of owner and personal goals arises what has been called the agency problem, the likelihood that mangers may place personal goals ahead of corporate goals. Two factors market forces and agency costs - serve to prevent or minimize agency problems.

Market Forces – Major shareholders may exercise their voting rights to replace under-performing management. – The threat of takeover by another firm that believes it can enhance the target firm’s value by restructuring its management, operations and financing.

Agency Costs Agency Costs are the costs of monitoring management behavior, ensuring against dishonest acts of management, and giving mangers the financial incentive to maximize share price.

The most popular, powerful and expensive approach is to structure management compensation to correspond with share price maximization to give managers incentives to act in the best interests of the owners. In addition, the resulting compensation packages allow firms to compete for and hire the best managers available.

The two key types of compensation plans are incentive plans and performance plans. Incentive plans tend to tie management compensation to share price (e.g granting of stock-options to management). Performance plans tie management compensation to measures such as EPS, growth in EPS and other ratios of return (e.g granting of performance shares, performance-based cash bonuses, etc.).

Moreover, through establishment of Corporate Governance an organization can try to reduce or

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eliminate the agency problem. The concept of Corporate Governance is being explained in the next paragraphs.

Corporate Governance Corporate Governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. This also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, the board of directors, employees, customers, creditors, suppliers, and the community at large.

Corporate Governance is a multi-faceted subject, one of its important theme is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem.

It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs.

There has been renewed interest in the corporate governance practices since 2001, particularly due to the high-profile collapses of a number of large U.S. firms such as Enron Corporation and MCI Inc. (formerly WorldCom). In 2002, the U.S. federal government passed the Sarbanes-Oxley Act, intending to restore public confidence in corporate governance.

Legal Environment In Bangladesh, all corporations/companies are governed under common law, the Companies Act 1994. In addition to this common law, the banks and non-bank financial institutions, insurance companies and statutory bodies are governed under separate laws/statutes. Moreover, the publicly traded companies must follow the Securities Laws and Regulations/ Notifications/ Guidelines/ Directives issued from time to time by the Securities and Exchange Commission and by the respective Stock Exchange(s).

Impact of Corporate Governance

Corporate Finance and Governance

The positive effect of corporate governance on different stakeholders ultimately is a strengthened economy, and hence good corporate governance is a tool for socio-economic development.

Role of Institutional Investors Many years ago, worldwide, buyers and sellers of corporation stocks were individual investors, such as wealthy businessmen or families, who often had a vested, personal and emotional interest in the corporations whose shares they owned. Over time, markets have become largely institutionalized: buyers and sellers are largely institutions (e.g., pension funds, mutual funds, hedge funds, exchange-traded funds, other investor groups; insurance companies, banks, brokers, and other financial institutions).

The rise of the institutional investor has brought with it some increase of professional diligence which has tended to improve regulation of the stock market (but not necessarily in the interest of the small investor or even of the naĂŻve institutions, of which there are many). Note that this process occurred simultaneously with the direct growth of individuals investing indirectly in the market (for example individuals have twice as much money in mutual funds as they do in bank accounts).

However, this growth occurred primarily by way of individuals turning over their funds to 'professionals' to manage, such as in mutual funds.

In this way, the majority of investment now is described as "institutional investment" even though the vast majority of the funds are for the benefit of individual investors.

Program trading, the hallmark of institutional trading, averaged over 80% of NYSE trades in some months of 2007. (Moreover, these statistics do not reveal the full extent of the practice, because of so-called 'iceberg' orders.

Unfortunately, there has been a concurrent lapse in the oversight of large corporations, which are now almost all owned by large institutions. The Board of Directors of large corporations used to be chosen by the principal shareholders, who usually had an emotional as well as monetary investment in the company (think Ford), and the Board diligently kept an eye on the company and its principal executives (they usually hired and fired the President, or CEO).

A recent study by Credit Suisse found that companies in which "founding families retain a stake of more than 10% of the company's capital enjoyed a superior performance over their

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respective sectorial peers." Since 1996, this superior performance amounts to 8% per year.

Forget the celebrity CEO. "Look beyond Six Sigma and the latest technology fad. One of the biggest strategic advantages a company can have, [BusinessWeek has found], is blood lines." In that last study, "BW identified five key ingredients that contribute to superior performance. Not all are qualities unique to enterprises with retained family interests. But they do go far to explain why it helps to have someone at the helm— or active behind the scenes— who has more than a mere paycheck and the prospect of a cozy retirement at stake."

See also, "Revolt in the Boardroom," by Alan Murray.

Nowadays, if the owning institutions don't like what the President/CEO is doing and they feel that firing them will likely be costly (think "golden handshake") and/or time consuming, they will simply sell out their interest. The Board is now mostly chosen by the President/CEO, and may be made up primarily of their friends and associates, such as officers of the corporation or business colleagues. Since the (institutional) shareholders rarely object, the President/CEO generally takes the Chair of the Board position for his/herself (which makes it much more difficult for the institutional owners to "fire" him/her). Occasionally, but rarely, institutional investors support shareholder resolutions on such matters as executive pay and anti-takeover, aka, "poison pill" measures.

Finally, the largest pools of invested money (such as the mutual fund 'Vanguard 500', or the largest investment management firm for corporations, State Street Corp.) are designed simply to invest in a very large number of different companies with sufficient liquidity, based on the idea that this strategy will largely eliminate individual company financial or other risk and, therefore, these investors have even less interest in a particular company's governance.

Since the marked rise in the use of Internet transactions from the 1990s, both individual and professional stock investors around the world have emerged as a potential new kind of major (short term) force in the direct or indirect ownership of corporations and in the markets: the casual participant. Even as the purchase of individual shares in any one corporation by individual investors diminishes, the sale of derivatives (e.g., exchange-traded funds (ETFs), Stock market index options, etc.) has soared. So, the interests of most investors are now increasingly rarely tied to the

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fortunes of individual corporations.

But, the ownership of stocks in markets around the world varies; for example, the majority of the shares in the Japanese market are held by financial companies and industrial corporations (there is a large and deliberate amount of cross-holding among Japanese keiretsu corporations and within S. Korean chaebol 'groups'), whereas stock in the USA or the UK and Europe are much more broadly owned, often still by large individual investors.

Parties to Corporate Governance Parties involved in corporate governance include the executive body (e.g. the Chief Executive Officer, the Board of Directors, Management, Shareholders and Auditors). Other stakeholders who take part include suppliers, employees, creditors, customers and the community at large.

In corporations, the shareholder delegates decision rights to the manager or to the executive body to act in the principal’s best interests. This separation of ownership from control implies a loss of effective control by shareholders over managerial decisions. Partly as a result of this separation between the two parties, a system of corporate governance controls is implemented to assist in aligning the incentives of managers with those of shareholders. With the significant increase in equity holdings of investors, there has been an opportunity for a reversal of the separation of ownership and control problems because ownership is not so diffuse.

A board of directors often plays a key role in corporate governance. It is their responsibility to endorse the organisation’s strategy, develop directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organisation to its owners and authorities.

The Company Secretary, known as a Corporate Secretary in the US and often referred to as a Chartered Secretary if qualified and certified by the Institute of Chartered Secretaries (ICSB) in Bangladesh, is a high ranking professional who is trained to uphold the highest standards of corporate governance, effective operations, compliance and administration.

All parties to corporate governance have an interest, whether direct or indirect, in the effective performance of the organization. Directors, workers and management receive salaries, benefits and

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reputation, while shareholders receive return.

Customers receive goods and services; suppliers receive compensation for their goods or services.

In return these individuals provide value in the form of natural, human, social and other forms of capital.

A key factor is an individual’s decision to participate in an organisation e.g. through providing capital and trust that they will receive a fair share of organisational returns. If some parties are receiving more than their fair return then participants may choose not to continue participating leading to organizational collapse.

Principles in Corporate Governance Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization. Of importance is how directors and management develop a model of governance that aligns the values of the corporate participants and then evaluate this model periodically for its effectiveness. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports.

Commonly accepted principles of corporate governance include: • Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings.

• Interests of other stakeholders: Organizations should recognize that they have legal and other obligations to all legitimate stakeholders.

• Role and responsibilities of the board: The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. There are issues about the appropriate mix of

Corporate Finance and Governance

executive and non-executive directors.

• Integrity and ethical behaviour: Ethical and responsible decision making is not only important for public relations, but it is also a necessary element in risk management and avoiding lawsuits. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. It is important to understand, though, that reliance by a company on the integrity and ethics of individuals is bound to eventual failure.

Because of this, many organizations establish Compliance and Ethics Programs to minimize the risk that the firm steps outside of ethical and legal boundaries.

• Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide shareholders with a level of accountability.

They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.

Issues involving corporate governance principles include: • internal controls and internal auditors • the independence of the entity’s external auditors and the quality of their audits • oversight and management of risk • oversight of the preparation of the entity's financial statements • review of compensation arrangements for the CEO and other senior executives • the resources made available to directors in carrying out their duties • the way in which individuals are nominated for positions on the board • dividend policy Nevertheless ‘corporate governance’, despite some feeble attempts from various quarters, remains an ambiguous and often misunderstood phrase. For quite some time it was confined only to corporate management. That is not so. It is something much broader, for it must include a fair, efficient and transparent administration and strive

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to meet certain well defined, written objectives.

Corporate governance must go well beyond law.

The quantity, quality and frequency of financial and managerial disclosure, the degree and extent to which the Board of Director (BOD) exercise their trustee responsibilities (largely an ethical commitment), and the commitment to run a transparent organization- these should be constantly evolving due to interplay of many factors and the roles played by the more progressive/responsible elements within the corporate sector. John G. Smale, a former member of the General Motors board of directors, wrote: “The Board is responsible for the successful perpetuation of the corporation. That responsibility cannot be relegated to management.” However, it should be noted that a corporation should cease to exist if that is in the best interests of its stakeholders. Perpetuation for its own sake may be counterproductive.

Mechanisms and Controls Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. For example, to monitor managers’ behaviour, an independent third party (the auditor) attests the accuracy of information provided by management.

An ideal control system should regulate both motivation and ability.

Internal Corporate Governance Controls Internal corporate governance controls monitor activities and then take corrective action to accomplish goals. Examples include: • Monitoring by the Board of Directors: The board of directors, with its legal authority to hire, fire and compensate top management, safeguards invested capital. Regular board meetings allow potential problems to be identified, discussed and avoided.

Whilst non-executive directors are thought to be more independent, they may not always result in more effective corporate governance and may not increase performance. Different board structures are optimal for different firms. Moreover, the ability of the board to monitor the firm’s executives is a function of its access to information.

• Internal Audit & Internal Control System: Internal control procedures are policies

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implemented by an entity’s board of directors, audit committee, management, and other personnel to provide reasonable assurance of the entity achieving its objectives related to reliable financial reporting, operating efficiency, and compliance with laws and regulations. Internal auditors are personnel within an organization who test the design and implementation of the entity’s internal control procedures and the reliability of its financial reporting.

• Balance of Power: The simplest balance of power is very common; require that the President be a different person from the Treasurer. This application of separation of power is further developed in companies where separate divisions check and balance each other’s actions.

One group may propose company-wide administrative changes, another group review and can veto the changes, and a third group check that the interests of people (customers, shareholders, employees) outside the three groups are being met.

• Performance-based Remuneration: It is designed to relate some proportion of salary to individual performance. It may be in the form of cash or non-cash payments such as shares and share options, superannuation or other benefits.

Such incentive schemes, however, are reactive in the sense that they provide no mechanism for preventing mistakes or opportunistic behaviour, and can elicit myopic behaviour.

External Corporate Governance Controls External corporate governance controls encompass the controls external stakeholders exercise over the organisation. Examples include: • competition • debt covenants • demand for and assessment of performance information (especially financial statements) • government regulations • managerial labour market • media pressure • takeovers Role of Accountant in Corporate Governance

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Financial reporting is a crucial element necessary for the corporate governance system to function effectively. Imperfections in financial reporting process will cause imperfections in the effectiveness of corporate governance. This should, ideally, be corrected by the external auditing process.

Accountants and auditors are the primary providers of information to capital market participants. The directors of the company should be entitled to expect that management prepare the financial information in compliance with statutory and ethical obligations, and rely on auditors’ competence.

However, current accounting practice allows a degree of choice in determining the method of measurement, criteria for recognition, and even the definition of accounting entity. The exercise of this choice to improve apparent performance (known as creative accounting) imposes extra information costs on users. In the extreme, it can involve non-disclosure of information.

One area of concern is whether the auditing firm acts as both the independent auditor and management consultant to the same firm. This may result in a conflict of interest which places the integrity of financial reports in doubt due to client pressure to appease management. The power of the corporate client to initiate and terminate management consulting services and, more fundamentally, to select and dismiss accounting firms contradicts the concept of an independent auditor. Changes enacted in the US in the form of the Sarbanes-Oxley Act prohibit accounting firms from providing both auditing and management consulting services.

However, good financial reporting is not a sufficient condition for the effectiveness of corporate governance if users don’t process it, or if the informed user is unable to exercise a monitoring role due to high costs.

Rules vs. Principles Rules are typically thought to be simpler to follow than principles, demarcating a clear line between acceptable and unacceptable behaviour. Rules also reduce discretion on the part of individual managers or auditors.

In practice, rules can be more complex than principles. They may be ill-equipped to deal with new types of transactions not covered by the code.

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Moreover, even if clear rules are followed, one can still find a way to circumvent their underlying purpose - this is harder to achieve if one is bound by a broader principle.

Principles on the other hand is a form of self regulation. It allows the sector to determine what standards are acceptable or unacceptable. It also pre-empts over zealous legislations that might not be practical.

Enforcement Enforcement can affect the overall credibility of a regulatory system. They both deter bad actors and level the competitive playing field. Nevertheless, greater enforcement is not always better, for taken too far it can dampen valuable risk-taking. In practice, however, this is largely a theoretical, as opposed to a real, risk. There are various integrated governance, risk and compliance solutions available to capture information in order to evaluate risk and to identify gaps in the organization’s principles and processes. This type of software is based on project management style methodologies such as the ABACUS methodology which attempts to unify the management of these areas, rather than treat them as separate entities.

Action beyond Obligation Enlightened boards regard their mission as helping management lead the company. They are more likely to be supportive of the senior management team. Because enlightened directors strongly believe that it is their duty to involve themselves in an intellectual analysis of how the company should move forward into the future, most of time, the enlightened board is aligned on critically important issues facing the company.

Unlike traditional boards, enlightened boards do not feel hampered by the rules and regulations of the Sarbanes-Oxley Act. Unlike standard boards that aim to comply with regulations, enlightened boards regard compliance with regulations as merely a baseline for board performance. Enlightened directors go far beyond merely meeting the requirements on a checklist. They do not need any Act to mandate that they protect values and ethics or monitor CEO performance.

At the same time, enlightened directors recognize that it is not their role to be involved in the day-to-day operations of the corporation. They lead by example. Overall, what most distinguishes enlightened directors from traditional and standard

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directors is the passionate obligation they feel to engage in the day-to-day challenges and strategizing of the company. Enlightened boards can be found in very large, complex companies, as well as smaller companies.

Codes and Guidelines Corporate governance principles and codes have been developed in different countries and issued from stock exchanges, corporations, institutional investors, or associations (institutes) of directors and managers with the support of governments and international organizations. As a rule, compliance with these governance recommendations is not mandated by law, although the codes linked to stock exchange listing requirements may have a coercive effect.

Corporate Governance Code in Bangladesh Securities and Exchange Commission (SEC) of Bangladesh issued an Order relating to Corporate Governance Guidelines on 09 January 2006, and subsequently issued a Notification on 20 February 2006 as ‘Corporate Governance Code’ which supersedes the Order dated 09 January 2006.

By the notification dated 20 February 2006, the SEC imposes further conditions to the consent already accorded by it, or deemed to have been accorded by it, or to be accorded by it in future, to the issue of capital by the companies listed with any stock exchange in Bangladesh.

The conditions that are imposed under Corporate Governance Code are summarized below: 1. The number of the board members should not be less than 5 and more than 20.

2. The positions of the Chairman of the Board and the Chief Executive Officer of the companies should preferably be filled by different individuals.

3. At least one tenth (1/10) of the total number of directors, subject to a minimum of one, should be independent director(s) who should be appointed by the elected directors.

4. The directors of the companies should include following additional statements in the Directors’ Report prepared under section 184 of the Companies Act, 1994:(a) The financial statements prepared by the management of the issuer company present fairly its state of affairs, the result of its operations, cash flows and changes in equity. (b) Proper books of account of the issuer THE CHARTERED SECRETARY APRIL-DECEMBER 2010

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Corporate Finance and Governance company have been maintained. (c) Appropriate accounting policies have been consistently applied in preparation of the financial statements and that the accounting estimates are based on reasonable and prudent judgment. (d) International Accounting Standards, as applicable in Bangladesh, have been followed in preparation of the financial statements and any departure therefrom has been adequately disclosed. (e) The system of internal control is sound in design and has been effectively implemented and monitored. (f) There are no significant doubts upon the issuer company’s ability to continue as a going concern. If the issuer company is not considered to be a going concern, the fact along with reasons thereof should be disclosed. (g) Significant deviations from last year in operating results of the issuer company should be highlighted and reasons thereof should be explained. (h) Key operating and financial data of at least preceding three years should be summarised. (i) If the issuer company has not declared dividend (cash or stock) for the year, the reasons thereof should be given. (j) The number of Board meetings held during the year and attendance by each director should be disclosed. (k) The pattern of shareholding should be reported to disclose the aggregate number of shares held by :(i) Parent/Subsidiary/Associated companies and other related parties (name wise details); (ii) Directors, Chief Executive Officer, Company Secretary, Chief Financial Officer, Head of Internal Audit and their spouses and minor children (name wise details); (iii) Executives; and (iv) Shareholders holding ten percent (10%) or more voting interest in the company (name wise details).

5. The company should appoint a Chief Financial Officer (CFO), a Head of Internal Audit and a Company Secretary. The CFO and the Company Secretary of the companies should attend meetings of the Board of Directors.

6. The company should have an Audit Committee as a sub-committee of the Board of Directors.

The Audit Committee should be composed of at least 3 (three) members. The Board of

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7.

8.

9.

10.

Directors should select 1 (one) member of the Audit Committee to be Chairman of the Audit Committee.

The Audit Committee should report on its activities to the Board of Directors. The Audit Committee should immediately report to the Board of Directors on the following findings, if any :(a) Report on conflicts of interests; (b) Suspected or presumed fraud or irregularity or material defect in the internal control system; (c) Suspected infringement of laws, including securities related laws, rules and regulations; and (d) Any other matter which should be disclosed to the Board of Directors immediately.

If the Audit Committee has reported to the Board of Directors about anything which has material impact on the financial condition and results of operation and has discussed with the Board of Directors and the management that any rectification is necessary and if the Audit Committee finds that such rectification has been unreasonably ignored, the Audit Committee should report such finding to the Commission, upon reporting of such matters to the Board of Directors for three times or completion of a period of 9 (nine) months from the date of first reporting to the Board of Directors, whichever is earlier.

Report on activities carried out by the Audit Committee, including any report made to the Board under above condition during the year, should be disclosed in the annual report of the company.

The company should not engage its statutory auditors to perform the following services of the company; namely:(i) Appraisal or valuation services or fairness opinions; (ii) Financial information systems design and implementation; (iii) Book-keeping or other services related to the accounting records or financial statements; (iv) Broker-dealer services; (v) Actuarial services; (vi) Internal audit services; and (vii) Service(s) that Audit Committee determines.

11. The directors of the company shall state, in accordance with the annexure attached, in the directors’ report whether the company has complied with these conditions.

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Conclusion Corporate Finance deals with the financial decisions that corporations (or business enterprises) make and the tools and analysis used to make these decisions. Principles in Corporate Finance should be as follows: A. Investment should be made in projects that yield a return greater than the minimum acceptable hurdle rate.

B. Financial Manager should choose a financing mix that minimizes the hurdle rate and matches the assets being financed.

C. If there are not enough investments that earn the hurdle rate, return the cash to the owners of the firm (if public listed company, these would be stockholders).

Corporate Governance is the entire range of mechanisms and arrangements that determine the way for the key decisions are made and used by Shareholders and Board of Directors use to manage themselves and to fulfill their responsibilities to investors and other stakeholders.

Fundamentally, Corporate Governance is about accountability of decision-making and conformance with applicable Laws. Despite the differences between different national styles of corporate governance there is convergence on the importance of transparency, integrity and accountability. The Principles of Corporate Governance should be as follows: A. The corporate governance framework should be developed with a view to its impact on overall economic performance, market integrity and the incentives it creates for market participants and the promotion of transparent and efficient markets.

B. The legal and regulatory requirements that affect corporate governance practices in a jurisdiction should be consistent with the rule of law, transparent and enforceable.

C. The division of responsibilities among different authorities in a jurisdiction should be clearly articulated and ensure that the public interest is served.

D. Supervisory, regulatory and enforcement authorities should have the authority, integrity and resources to fulfill their duties in a professional and objective manner. Moreover, their rulings should be timely, transparent and fully explained.

1.

The corporate governance framework should recognize the rights of stakeholders established by law or through mutual agreements and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises. The rights of stakeholders that are established by law or through mutual agreements are to be respected.

Where stakeholder interests are protected by law, stakeholders should have the opportunity to obtain effective redress for violation of their rights.

Performance-enhancing mechanisms for employee participation should be permitted to develop.

Where stakeholders participate in the corporate governance process, they should have access to relevant, sufficient and reliable information on a timely and regular basis. Stakeholders, including individual employees and their representative bodies, should be able to freely communicate their concerns about illegal or unethical practices to the board and their rights should not be compromised for doing this. The corporate governance framework should be complemented by an effective, efficient insolvency framework and by effective enforcement of creditor rights.

References 1. Corporate Finance by Richard A. Brealy, Stewart C. Myers and Franclin Alen 2. Principles of Corporate Finance by Richard A. Brealy and Stewart C. Myers 3. Essentials of Managerial Finance by J. Fred Weston and Eugene F. Brigham 4. Capital Investment & Financial Decisions by Haim Levy and Marshall Sarnat 5. Modern Working Capital Management by Frederick C. Sherr 6. Financial Decision Making (Concepts, Problems and Cases) by John J. Hampton 7. Notification (Corporate Governance Code) dated 20 February 2006 issued by SEC 8. Oxford English Dictionary 9. Oxford Dictionary of Business 10. Wikipedia 11. Internet

There are some exceptions for the banks and non-bank financial institutions, insurance companies and statutory bodies that are governed under separate laws/statutes.

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