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* Comply with applicable laws and regulations;
* Support fundamental human rights in line with the legitimate role of
business; and
* Give proper regard to health, safety, security and the environment.




Principles
1. Economic (Part B)
Profits and a strong financial foundation provide a basis for fulfilling
a company™s responsibilities; and
Criteria for investment and divestment decisions include sustainable
development considerations (economic, social and environmental)
and an appraisal of the investment risks.
2. Competition (Chapter 10)
Free enterprise and fair competition are supported; and
Operations are conducted in accordance with the principles of fair
and ethical competition and within the framework of applicable com-
petition laws and regulations.
3. Business integrity (Chapters 7 and 12)
Honesty, integrity and fairness are applied in all aspects of business
and the same is expected in relationships with business partners;
The direct or indirect offer, payment, solicitation or acceptance of
bribes in any form is unacceptable. Facilitation payments are bribes
and should not be made;
Employees must avoid conflicts of interest between their private
activities and their part in the conduct of company business;
Employees must declare any potential conflicts of interest; and
All business transactions must be reflected accurately and fairly in
the accounts in accordance with established procedures and are sub-
ject to independent audit and disclosure.
4. Public/political activities (Chapter 12)
Legitimate business interests are promoted and defended;
In the development of proposed legislation and other regulations,
which may affect legitimate business interests, the company may
engage with governments, both directly and through bodies such as
trade associations. Such engagement must be in accordance with val-
ues and business principles;
There is no engagement by the company in party politics;
If payments or donations are made to political parties, they are fully
disclosed as to amount and purpose; and
Employees have the right to stand for public office provided it is
appropriate in the light of circumstances.
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5. Health, safety, security and the environment (Chapters 16“20)
A systematic approach to health, safety, security and environmen-
tal management is followed to achieve continuous performance
improvement;
Health, safety, security and the environment issues are managed as
critical business activities. Standards and targets are set for improve-
ment. Performance is appraised and reported externally;
There is commitment to making continuous improvement in the man-
agement of a company™s environmental impact and to the longer-term
goal of developing a sustainable business; and
Ways are continually sought to reduce the environmental impact of a
company™s operations, products and services.
6. Local communities (Chapter 12)
The ways in which a company contributes directly or indirectly to the
general well-being of the communities within which it operates are
continuously improved in order to be good neighbours;
Social impacts of business activities are managed carefully. By work-
ing with others the company enhances the benefits to local commu-
nities, including through private sector and human development, and
mitigates any negative impacts from its activities; and
A constructive, open dialogue with stakeholders is established,
which aims to achieve a mutually beneficial outcome.
7. Communication and engagement (chapter 9)
Regular dialogue and engagement with stakeholders is essential;
There is commitment to reporting the company™s performance, provid-
ing full, relevant information to legitimately interested parties, subject
to any overriding considerations of business confidentiality; and
In interactions with employees, business partners and local commu-
nities, the company listens and responds in an honest and respon-
sible manner.
8. Compliance/obeying the law (All chapters)
Laws and regulations are complied with; and
Constructive support is given, where appropriate, if institutional
capacity to ensure compliance is weak.




Good corporate governance needs to be built on sound law, effective institu-
tions and effective mechanisms for the resolution of disputes. These are neces-
sary to ensure, for example, the equitable treatment of all shareholders and
their reasonable rights to influence significantly the company. In addition,
assurance is needed so that contracts, whether related to funding or to sale and
purchase of goods, can be grounded in law and capable of enforcement.
Chapter 23 “ Corporate responsibility, corporate governance and emerging jurisdictions 597



The following ˜five pillars™ as set out by the OECD (2006) create a legal and
institutional environment within which good corporate governance can
flourish:
1. Comprehensive corporate law;
2. Strong and proactive regulatory authorities such as the Stock Exchange,
Securities Commission, takeover mechanisms, etc.;
3. Internationally accepted accounting standards;
4. An entity that promotes good governance through education and information;
5. Effective remedy through the courts when necessary.
The corporate governance aspects of the OECD Policy Framework for
Investment can be found in Appendix G.
The principles and approaches outlined above can also be adopted effect-
ively by SMEs. Recognising the particular needs of SMEs, the CBC has
developed a framework for SMEs which can be found in Appendix H.


South Asia country profiles
Bangladesh
In Bangladesh, there have been no serious corporate scandals that have been
enough to send shockwaves to undermine confidence in the financial system,
nor has the country found that it has reached the limits of conventional corpor-
ate financing mainly through bank lending. The relatively low level of inter-
national investment in Bangladesh does not provide a sufficient motivation for
improving corporate governance, nor are there many traditional domestic motiv-
ations for improvement in corporate governance practices. Nevertheless, good
corporate governance practices will help develop and stimulate better business
management, strategic management and risk management, which, in the long
term, will make Bangladeshi businesses more competitive. The lessons from
the experience of the neighbouring countries in South Asia are such that
Bangladesh can deploy good corporate governance to prevent the problems that
have afflicted other countries rather than to solve them after the event.
The principle legal instrument for enforcing governance in Bangladesh is
the Companies Act 1994 which is administered by the Registrar of Joint Stock
Company (RJSC) and the Ministry of Commerce. In that respect the Securities
Exchange Commission (SEC) has limited jurisdiction of enforcement of corpor-
ate governance. SEC is concerned with publicly limited companies only, the
numbers of which are very insignificant (some estimates put this at only 5% of
all companies). Close monitoring of leading companies is a disincentive for
going public as there is a perception that this will create and raise unnecessary
difficulties for companies to supply information as and when requested.
Although RJSC has registered thousands of companies, vigilance is very weak;
indeed their rules do not permit them to undertake close monitoring.
Lack of appropriate training, information and knowledge about company
laws are key challenges. Ignorance of regulatory requirements is one of the
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main detrimental issues. A recent seminar in Dhaka highlighted the need for
services from people with adequate knowledge of the principles of corporate
governance as well as security laws and regulations that are required for prac-
tising these issues.
The legal system is very weak and awareness even less so. Even a CEO of a
company may not know enough about the company rules and regulations and
this often hampers companies from taking a rule-based decision. This may
depend on the whim of the chairperson, a situation made worse by the combin-
ation of CEO and chair position. However, progress is being made. In 2006
Apex Footwear, one of the country™s leading textile and clothing exporters
became the first listed company in Bangladesh to appoint an independent
director in line with the corporate governance guidelines set by the SEC; with
the new appointment, the size of the board stands at six. Key gaps in corporate
governance centre on:

Directors failing in their oversight function;
Regulators lacking competent professionals; and
Ownership policy being absent for SOEs.

Major initiatives on corporate governance include work by the Bangladesh
Enterprise Institute and the Commonwealth, Bangladesh Bank Directives on
Corporate Governance, a National Taskforce, the establishment of a Code of
Corporate Governance for Bangladesh (2004) and SEC Guidelines on Corporate
Governance (2006).
The way forward includes coordination among regulators, capacity building,
the ownership policy for SOEs and donor coordination. There is also a need for
an SME focus “ ˜many would benefit if they are interfaced with the corporate gov-
ernance issues of the big companies™, as one business leader on a CBC visit to the
UK recently put it. Moreover with increasing investment in Bangladesh and
South Asia there is an opportunity to develop and sustain interest about the
prospects for corporate reform and good practice in corporate governance.
The drive for better corporate governance can come from shareholders,
investor associations, institution investors and the financial press. Each of
these potential actors should be strengthened. First, the financial press and the
constituency for detailed financial reporting are limited. Furthermore, the
information provided by companies and regulatory bodies is often inadequate.
Second, public shareholders do not join together in shareholder associations
to demand better company performance or to assert their shareholder rights.
Even in cases where the public holds a majority of shares, the treatment of share-
holders is poor. Given that majority shareholders have not asserted their rights,
minority shareholder rights are not a priority to most public corporations.
Third, there are only a few institutional investors in the country and they
often do not exercise the power that they hold. In most capital markets, institu-
tional investors like insurance companies, pension funds and mutual funds
hold power over substantial sums of investment capital and demand strong
performance and transparent corporate governance. In Bangladesh, there are
Chapter 23 “ Corporate responsibility, corporate governance and emerging jurisdictions 599



only a few institutional investors, most of which are state-owned enterprises
(SOEs). State-owned institutional investors have no performance motivation to
force companies to improve performance, voluntarily disclose information, or
improve corporate governance. The few private investors do not have enough
clout to force large-scale changes in the corporate sector. As a corollary, the
venture capital industry also does not exist.
Most companies do not think they are candidates for foreign investment, so
there is no push from the international economic community for better corporate
governance. In 2005 Beximco, the pharmaceutical company, became one of the
first Bangladeshi companies to be listed on an exchange outside the country (on
London™s AIM market). However, Bangladesh does not have a sovereign credit
rating (SCR) provided by any of the international rating agencies. Multinational
companies have emerged as a positive force in the general business environment
creating pressure for others to conform. For instance, companies like British
American Tobacco and Lever Brothers Bangladesh have proactively come for-
ward with their own findings and statistics on tax evasion by competitors in their
respective sectors. However, driven by their own self-interests, they have suc-
ceeded in bringing about redress at the National Board of Revenue.
A recent survey of the Dhaka Stock Exchange (Haque et al. 2006) found
that better corporate governance enhances the firms™ ability to gain access to
equity finance and firm value, and thus contributes to the process of capital
market development. The evidence has specific policy implications in relation
to the significance of better firm governance in enhancing financial sector
development, and avoiding potential vulnerability in the financial system. The
strong governance role of the legal and regulatory institutions appears to be
imperative to remove mass malfunctions at both the firm and operational level
of the capital market in Bangladesh.


India
The dramatic improvement of corporate governance in India is a consequence of
the post-1991 economic reforms, the challenges of globalisation resulting in
enhanced competitiveness, changes in the shareholding pattern, and growing
importance of institutional investors and public financial institutions. It was
also prompted by events such as the securities scam (involving a large number
of banks) leading to the stock market crash in 1992. This was followed by the
consolidation of equity ownership by multinational companies listed on the
stock markets, and then by the stock market bubble in 1993 and crash of the ˜dis-
appearing companies™ in 1994, which devastated the primary market until the
end of the century. These led to the formation by the Confederation of Indian
Industry (CII) of the Bajaj Committee (chaired by Mr Rahul Bajaj, chairman of
Bajaj Auto and past co-chair of CBC) on corporate governance in late 1995, well
before the East Asian financial crisis. In addition, the Indian capital markets had
reached a crisis point where the accumulated distortions of decades of restrict-
ive state policies and of corporate control had highlighted the need for urgent
capital market reform (see also ˜Due Diligence and Corporate Governance™).
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Equity holdings by non-financial corporations in India, which are primar-
ily intercompany cross-holdings, are much higher than those in the developed
economies. The participation of the small investor in corporate equity in India
is at comparable levels with the US, with India having the largest number of
listed companies in the world. Further, data on the 10 largest non-financial
corporations reveals that the average concentration of shareholding among the
top three shareholders is about 40%, which is much higher than in the US and
the UK.
The Companies Act provides for disclosures of financial and non-financial
information to all the stakeholders in terms of an annual balance sheet and
annual report. India provides great protection of shareholders™ rights on paper
and recent efforts to strengthen enforcement have enhanced investors™ trust in
the market. The financial press is increasingly reporting violations of shareholder
rights and issues of family ownership and control. These are positive drivers of
change. However, enforcement and implementation of laws and regulations
remain important challenges. Indeed the World Bank™s Report on the Observance
of Standards and Codes 2004 (ROSC) found that while India observed or largely
observed most of the principles, it could do better in certain areas.
The basic law governing the functioning of the corporate world is the

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