The Directors’ Report to Shareholders: Disclosures from Corporate Governance Code 2018 in Bangladesh

A Director's Report is a report prepared by the Board of Directors of a company and presented to the shareholders at the Annual General Meeting. It has an important function in providing shareholders with information about the company's business which may not be ascertainable from the financial information given in the accounts. The Board of the company shall include the following additional statements or disclosures in the Directors’ Report prepared under section 184 of the Companies Act, 1994 (Act No. XVIII of 1994):

(i) An industry outlook and possible future developments in the industry;?

(ii) The segment-wise or product-wise performance;?

(iii) Risks and concerns including internal and external risk factors, threat to sustainability and negative impact on environment, if any;?

(iv) A discussion on Cost of Goods sold, Gross Profit Margin and Net Profit Margin, where applicable;?

(v) A discussion on continuity of any extraordinary activities and their implications (gain or loss);?

(vi) A detailed discussion on related party transactions along with a statement showing amount, nature of related party, nature of transactions and basis of transactions of all related party transactions;?

(vii) A statement of utilization of proceeds raised through public issues, rights issues and/or any other instruments;

(viii) An explanation if the financial results deteriorate after the company goes for Initial Public Offering (IPO), Repeat Public Offering (RPO), Rights Share Offer, Direct Listing, etc.;

(ix) An explanation on any significant variance that occurs between Quarterly Financial performances and Annual Financial Statements;?

(x) A statement of remuneration paid to the directors including independent directors;?

(xi) A statement that 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;?

(xii) A statement that proper books of account of the issuer company have been maintained;?

(xiii) A statement that appropriate accounting policies have been consistently applied in preparation of the financial statements and that the accounting estimates are based on reasonable and prudent judgement;?

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(xiv) A statement that International Accounting Standards (IAS) or International Financial Reporting Standards (IFRS), as applicable in Bangladesh, have been followed in preparation of the financial statements and any departure there from has been adequately disclosed;

(xv) A statement that the system of internal control is sound in design and has been effectively implemented and monitored;?

(xvi) A statement that minority shareholders have been protected from abusive actions by, or in the interest of, controlling shareholders acting either directly or indirectly and have effective means of redress;?

(xvii) A statement that there is no significant doubt 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 there of shall be disclosed;?

(xviii) An explanation that significant deviations from the last year’s operating results of the issuer company shall be highlighted and the reasons thereof shall be explained;?

(xix) A statement where key operating and financial data of at least preceding 5 (five) years shall be summarized;

(xx) An explanation on the reasons if the issuer company has not declared dividend (cash or stock) for the year;

(xxi) Board’s statement to the effect that no bonus share or stock dividend has been or shall be declared as interim dividend;?

(xxii) The total number of Board meetings held during the year and attendance by each director;?

(xxiii) A report on the pattern of shareholding disclosing the aggregate number of shares (along with name-wise details where stated below) held by:

(a) Parent or Subsidiary or Associated Companies and other related parties (name-wise details);?

(b) Directors, Chief Executive Officer, Company?Secretary, Chief Financial Officer, Head of Internal Audit and Compliance and their spouses and minor children (name-wise details);?

(c) Executives; and?

(d) Shareholders holding ten percent (10%) or more voting interest in the company (name-wise details);?

Explanation: For the purpose of this clause, the expression “executive” means top 5 (five) salaried employees of the company, other than the Directors, Chief Executive Officer, Company Secretary, Chief Financial Officer and Head of?Internal Audit and Compliance.?

(xxiv) In case of the appointment or reappointment of a director, a disclosure on the following information to the shareholders:

(a) a brief resume of the director;?

(b) nature of his or her expertise in specific functional areas; and?

(c) names of companies in which the person also holds the directorship and the membership of committees of the Board;

(xxv) A Management’s Discussion and Analysis signed by CEO or MD presenting detailed analysis of the company’s position and operations along with a brief discussion of changes in the financial statements, among others, focusing on:?

(a) accounting policies and estimation for preparation of financial statements;?

(b) changes in accounting policies and estimation, if any, clearly describing the effect on financial performance or results and financial position as well as cash flows in absolute figure for such changes;?

(c) comparative analysis (including effects of inflation) of financial performance or results and financial position as well as cash flows for current financial year with immediate preceding five years explaining reasons thereof;?

(d) compare such financial performance or results and financial position as well as cash flows with the peer industry scenario;?

(e) briefly explain the financial and economic scenario of the country and the globe;?

(f) risks and concerns issues related to the financial statements, explaining such risk and concerns mitigation plan of the company; and?

(g) future plan or projection or forecast for company’s operation, performance and financial position, with justification thereof, i.e., actual position shall be explained to the shareholders in the next AGM;?

(xxvi) Declaration or certification by the CEO and the CFO to the Board as required under condition No. 3(3) shall be disclosed as per Annexure-A; and?

(xxvii) The report as well as certificate regarding compliance of conditions of this Code as required under condition No. 9 shall be disclosed as per Annexure-B and Annexure-C.

In several research papers, we have seen that there is a significant relationship between firm performance and Corporate Governance reporting. Besides, investors show their interests for investing in the firms which have a good Corporate Governance reporting. It also reduces the information gap.