Corporate Governance: Inclusive Role of Board

Professionals working within an organization strive to achieve specific goals through their best efforts. However, the effectiveness of their performance can sometimes be compromised by a lack of Corporate Governance. Broadly speaking, "Governance" refers to the system by which entities are directed and controlled. It encompasses the structures and processes involved in decision-making, accountability, control and behavior at the highest levels of an organization.

Corporate Governance specifically deals with the financial and operational controls within a corporate entity, defining the relationships between the Board of Directors, senior management and shareholders. It establishes the company’s direction and integrity, supports financial stability and fosters trust with investors and the community. Essentially, Corporate Governance encompasses the checks and balances within an organization, including the rules, practices and processes used to manage the company effectively.

The goal of Corporate Governance is to promote effective, entrepreneurial and prudent management that ensures the long-term success of the company. According to the World Bank, an effective framework of Corporate Governance should rest on four fundamental "Pillars": Responsibility, Accountability, Fairness and Transparency (RAFT). Boards of Directors are responsible for upholding these principles to direct and control their companies effectively. The role of a board of directors in corporate governance is pivotal to the overall health and success of a corporation. As businesses evolve, so too does the concept of effective corporate governance, increasingly emphasizing inclusivity.

?

Background of Corporate Governance in Bangladesh:

Corporate governance is a concept or philosophy that emerged following the growth of corporations in the 20th century in our country. After the stock market crash of 1996 in Dhaka Stock Exchange and Chittagong Stock Exchange, scholars and experts began to advocate and argue for corporate governance mechanisms that would allow shareholders to keep companies in check. In the latter Quarter Year of the 20th century this continued, with corporate governance structures being introduced to control managers and to ensure that their actions and decisions are in line with shareholders’ interests.

?Furthermore, management need to know how ethical decisions are made and the environment that influences ethical decision making. Managers face the same, risks as others but managers should be aware of those special risks associated with customer contact and interaction with their relevant stakeholders. While there may be significant and meaningful aspects of ethics that can be taught to employees that will help them live a better life, there should be some foundational concepts taught to business employees that will help them obtain a holistic understanding of business ethics.

?Many managers have difficulty understanding that ethics requires going beyond minimal legal requirement. Trying to find a framework that helps managers see the benefits of conducting oneself according to the highest ethical standards is difficult indeed. The best opportunity for achieving this goal would be an understanding of stakeholders that shape and form ethical issues and evaluating a description of how leadership corporate culture, formal ethical programmes and individual character are important to ethical decision making. In addition, organizations with strong ethical cultures and full formal ethics programmes are less likely to observer misconduct. Hence when the board of directors create a good ethical climate, it will enable them achieve good corporate governance in their organization.

?

Corporate Governance Scenario in Bangladesh:

Corporate governance practices in Bangladesh are quite absent in most companies and organizations. In fact, Bangladesh has lagged behind its neighbours and the global economy in corporate governance. One reason for this absence of Corporate Governance is that most companies are family oriented. Moreover, motivation to disclose information and improve governance practices by companies is felt negatively. There is neither any value judgment nor any consequences for corporate governance practices. The current system in Bangladesh does not provide sufficient legal, institutional and economic motivation for stakeholders to encourage and enforce corporate governance practices; hence failure in most of the constituents of corporate governance is witness in Bangladesh. Poor bankruptcy laws, no push from the international investor community, limited or no disclosure regarding related party transactions, weak regulatory system, general meeting scenario, lack of shareholder active participations is some of the individual constituents that have been identified by Mamtaz Uddin Ahmed and Mohammad Abu Yusuf in their research study “Corporate Governance”.

??

Purpose of Corporate Governance:

The central purpose of corporate governance is to make managers accountable to shareholder. Without a corporate governance structure, managers would be free to make decisions that are in their own interest, but not necessarily in the interest of the Company. Corporate governance keeps managers in check by limiting their power and often, by trying to make them pay attention to Company’s performance.

?

Benefits of Corporate Governance:

• Good corporate governance ensures corporate success and economic growth.
• Strong corporate governance maintains investors’ confidence, as a result of which, company can raise capital efficient and effectively.
• It lowers the capital cost.
• There is a positive impact on the share price.
• It provides proper inducement to the owners as well as manages to achieve objectives that are in the interest of the shareholders and the organization.
• Good corporate governance also minimizes wastages, corruption, risks and mismanagement.
• It helps in brand formation and development.
• It ensures organization is managed in a manner that fits the best interest of all.

?Corporate governance is an important part of strategic management that can improve company performance. Despite its importance, many people are unclear about what corporate governance is precisely. Both managers and investors should understand what corporate governance is and the role that it plays in company. Being aware of what corporate governance is will allow them to see how it affects their respective businesses.

?

Responsibilities of the Board in Corporate Governance:

1.???? Board members should make decisions based on complete information, act in good faith, exercise due diligence and care, ensuring and focusing on prioritize the best interests of the company and its shareholders.

2.???? When board decisions impact different shareholder groups in varying ways, the board should ensure that all shareholders are treated fairly.

3.???? The board should apply high ethical standards. It should take into account the interests of stakeholders.

4.???? The board should fulfill certain key functions, including:

???????????????? i.???? Reviewing and guiding corporate strategy, major action plans, risk policies, annual budgets and business plans; setting performance objectives; monitoring implementation and overall corporate performance; and supervising significant capital expenditures, acquisitions and divestitures.

??????????????? ii.???? Monitoring the effectiveness of the company’s governance practices and making changes as needed.

????????????? iii.???? Selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing succession planning.

????????????? iv.???? Aligning key executive and board remuneration with the longer-term interests of the company and its shareholders.

??????????????? v.???? Ensuring a formal and transparent board nomination and election process.

????????????? vi.???? Monitoring and managing potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions.

???????????? vii.???? Ensuring the integrity of the corporation’s accounting and financial reporting systems, including overseeing independent audits and ensuring that robust control systems are established, particularly for risk management, financial and operational controls and compliance with legal and regulatory standards.

?????????? viii.???? Overseeing the process of disclosure and communications.

?

Recommendation:

Bangladesh Companies adopts a responsible attitude towards corporate governance (Annual report and accounts of Bangladesh). The Board is in support of the Code of Corporate Governance for Public Companies in Bangladesh (“the Code”) released by the Bangladesh Securities & Exchange Commission in 03 June 2018 (BSEC/CMRRCD/2006 SEC/2006-158/207/Admin/80). The Board will endeavor to ensure that the Company is in compliance with the provisions of the Code at all times.

?

The Board is inter alia, responsible for supervising the conduct of business of the management as well as the general course of affairs in the Company as well as responsible for assessing the Company's corporate strategy and general policy; the development of the Company's financial position; the Company's risk management and other systems; the Company’s organizational structure;?and the Company's social policy.

?

The Board has a formal schedule of meetings each year and met four(4) times minimum in the course of the year under review in line with that schedule (there were also two other unscheduled special meetings of the Board).

?

In the evolving landscape of corporate governance, the inclusive role of the board is not just a strategic advantage but a fundamental necessity. As businesses navigate complex global markets and diverse stakeholder expectations, the value of an inclusive board becomes increasingly apparent. By embracing diversity in gender, race, ethnicity, age and background, boards can significantly enhance their decision-making processes, drive innovation and mitigate risks more effectively.

?

An inclusive board reflects a commitment to broadening perspectives, fostering a culture of respect and ensuring equitable practices. This approach not only strengthens governance but also enhances the organization's reputation and competitive edge. As companies strive to align with modern standards and societal expectations, inclusive governance stands as a key pillar for achieving sustainable success.

?

Moving forward, it is crucial for organizations to actively implement strategies for board inclusivity, address challenges thoughtfully and measure the impact of their efforts. By doing so, they will not only fulfill their ethical and social responsibilities but also position themselves as leaders in the realm of corporate governance, ready to adapt and thrive in an increasingly diverse and dynamic world.