Corporate governance (CG) is an important effort to ensure accountability and responsibility and is a set of principles, which should be incorporated into every part of the organization.
The need for corporate governance arises from the potential conflicts of interest among stakeholders in the corporate structure. These conflicts of interest often arise from two main reasons. First, different stakeholders have different goals and preferences. Second, the stakeholders have imperfect information as to each others actions, knowledge, and preferences. Corporate governance (CG) is an important effort to ensure accountability andresponsibility and is a set of principles, which should be incorporated into every part ofthe organization. Though it is viewed as a recent issue, there is, in fact, nothing newabout the concept. Because it has been in existence as long as the corporation itself-aslong as there has been large – scale trade, reflecting the need for responsibility in thehandling money and the conduct of commercial activities.
2.1 What is Corporate Governance?
Different authors view the meaning of corporate governance differently. For example, one school of thought describe corporate governance as a “system” by which companies are directed and controlled (Cadbury and Greenbury Report, CFACG 1992); another school views corporate governance as “structures and processes for decision making, accountability, control and behavior at the governing body” (Public accounts and Estimates Committee, 2002); to others corporate governance is about “finding ways” to ensure effective decision making (Pound 1995). But it must be kept in our mind that the fundamental concern of corporate governance is to ensure the conditions whereby a firm’s directors and mangers are held accountable, ensure better and effective protection to all stakeholders. The World Bank argues that the framework of corporate governance should be based on four “pillars” – of Responsibility, Accountability, Fairness and Transparency (RAFT). However, Kocourek (2003) believes that to counter the accounting, leadership, and governance scandals, organizations are rushing to institutionalize corporate governance, which may be even be counterproductive. The drive to more tightly regulate the membership and functions of corporate boards is already encouraging companies to view governance as a legal challenge rather than a way to improve performance. By reducing the critically important issue of corporate governance to what amounts to box-checking, corporate directors and senior executives are addressing the symptoms, not the root cause, of the governance crisis. Kocourek states that governance begins at home – inside the boardroom, among the directors. It is embedded in how, when, and why they gather, interact, and work with one another and with management… in other words, the “soft” stuff. But qualitative reforms to the behaviors, relationships, and objectives of the directors and CEO are meaningless unless they are subject to the “hard” mechanisms of performance criteria, processes, and measurement. According to Kocourek, this combination of soft and hard solutions can turn corporate governance from vague concept into a means to deliver organizational resilience, robustness, and continuously improved performance.
2.2 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 neighbors and the global economy in corporate governance (Gillibrand, 2004). 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....