Bangladesh Securities and Exchange Commission (BSEC) has recently revised the corporate governance

guidelines for only listed companies. Introduced first in 2006 the guidelines were substandard in
comparison with the best practices and standard framework. Updating the guidelines was an essential
assignment of the BSEC.

However, despite accommodating the points like qualification of independent directors, specifying audit
committee's functions further, keeping any subsidiary company's operation under close monitoring by
the holding company, duties of Chief Executive Officers (CEOs) and Chief Financial Officers (CFO) etc.,
the updated version has not considered many aspects of a standard framework. Moreover, what the
companies are doing is they are just ticking the boxes to provide information as required by the
guidelines. The information thus provided is not followed up or monitored by the BSEC to see whether it
is true or false. Actually there is a gap between the disclosures made by a company under the guidelines
and the real situation in many cases. In every step of the contents, the guidelines want the companies
just to disclose. But what is disclosed might not be in practice. So a report containing such disclosures is
simply an essay on corporate governance, not the exact compliance status of the organisation.

To ensure full compliance with the guidelines, every level of a company management has to be made
accountable. The senior management of a company and its board, especially the audit committee, and
the BSEC cannot avoid their responsibilities for supervising the compliance and taking necessary action
promptly in the event of any lapse. The guidelines should make the company audit committee, its board
and external auditors responsible for supervising implementation of the guidelines and reporting
accordingly.

The revised corporate governance guidelines stipulate that a company will obtain a certificate from any
chartered accountant or chartered secretary or cost and management accountant on the status of
compliance with the set of guidelines. Undoubtedly, it will lead to buildup of pressure on the company
to implement the guidelines effectively.

As per the 'Corporate Governance Board Leadership Training Resources Kit' published by the Global
Corporate Governance Forum and the International Finance Corporation (IFC), 'corporate governance'
generally has four pillars (i) accountability, (ii) fairness, (iii) transparency and (iv) responsibility. It also
has five elements, namely (i) board constitution and practice, (ii) effective control process, (iii)
transparent disclosures, (iv) well-defined shareholders' rights and (v) board commitment.

The existing guidelines lack the necessary amount of accountability and transparency in many aspects as
some important issues under each of the aforementioned components of corporate governance are
missing. Some significant loopholes in the guidelines may be pointed out under each of the components
given below.

Board constitution and practice: As regards board constitution, the best practices missing are (i) no
nomination committee to ensure appointment of capable and experienced person(s) as director, (ii) no
remuneration committee to offer and pay reasonable payment based on assessment of each person's
capacity and performance, (iii) no self-evaluation system for directors aimed at educating and making
themselves more capable of directorship (here directorship is, as if, an absolute property of inheritance),
(iv) appointment of independent directors should be done more transparently to avoid appointment of
persons of own choice, who cannot act independently in most cases.

For appointment of independent directors under the clause 1.3 (ii) of the guidelines, the BSEC should
scrutinise the CVs sent by the company and then allow the organisation to go for appointment.

Control process: Both the Companies Act and the guidelines have very limited wording on the control
process. The missing points in the guidelines are: (i) No word is there in the guidelines about internal
control with a risk management framework. When it comes to the board report of a company as per the
clause 1.5, the guidelines require a company to report only and it is only a reporting box. It has nothing
to do with the assessment of what is actually happening to implementation of the guidelines. (ii)
Internal audit function, its scope, reporting and the frequency of audit would be determined by the
board of a company. But there should be a mandatory framework in the guidelines to be complied with.
Not that only to have a head of the internal audit department in the company is enough. (iii) A
transparent guideline should be there on appointment of external auditors for listed companies in line
with the Companies Act, 1994, as has been set by the Bangladesh Bank for banks and non-banking
financial institutions (NBFIs) to maintain quality of appointment, independence and avoid any conflict of
interest. (iv) Companies have to introduce their internal Management Information Systems (MISs) to
review day-to-day functions and performance from different viewpoints. And (iv) both internal audit
department and audit committee should have proactive work plans to overview the policy and
procedures of implementation of the guidelines. The audit committee especially would take steps to
update the necessary policies based on the report of external and internal auditors and their own
analysis.

Transparent disclosures: Transparent disclosures are very essential for corporate financial discipline.
Some more points leading to transparent disclosure need to be inserted into the guidelines, like (i)
making the companies accountable for framing their own corporate governance principles, monitoring
them strictly by regulators including the BSEC to ensure their compliance with different sets of
guidelines including those on corporate governance, (ii) only certification from CEO and CFO is not
enough, the grade of appointment, qualification and duties and responsibilities of a CFO and a company
secretary need to be stated that may make them accountable for transparent reporting, and (iii) the
guidelines should include publishing of the companies' basic financial and non-financial information on
the website.

Shareholders' rights: The regulators and the board of a company have the responsibility to ensure and
protect shareholders' rights and hence, the guidelines should focus on this to attract investors. In this
respect, the mentionable issues are: (i) although the Companies Act 1994 stipulates guidelines on
shareholders' rights to vote, buy and sell shares and access to dividend, the BSEC guidelines should
include the right to review records, right for legal action under any act affecting the right of them and
should introduce shareholders' rights plan in the company and (ii) policies on related party,
extraordinary transactions, dividend etc. to be stated clearly.

Board commitment: The board of a company, the leader of the entity seating on the driving seat, has to
lead the entity the way toward sustainable development through good corporate governance practice.
In order to implement the good corporate governance, the board commitment is essential and as such,
the points which need to be focussed on are: (i) to introduce a commitment form to the effect that the
board is aware of their duties and responsibilities and committed to adhere to related policies on
operation of their company, (ii) to make adoption of corporate governance principles mandatory for
each company and the board of a company has to inform the BSEC of it with a copy of it attached in line
with the BSEC guidelines and (iii) the BSEC should obtain every year the plan of the board of a company
on implementation of the corporate governance guidelines.

Unless updated to cater to a standardised framework and implementation of the guidelines is
monitored firmly by the BSEC, the guidelines would be simply a formality of reporting without any
benefit from it. Good corporate governance is required for a company for its steady and sustainable
development so the benefits trickle down to all stockholders. So, the guidelines need to be standardised
both in contents and monitoring of their implementation. We need a set of corporate governance
guidelines with a standardised framework and we should use the tool to harvest the benefit of
transparent financial reporting.