Corporate governance in Bangladesh: an overview

Abstract

Following a large number of corporate collapses around the world, for example Enron, WorldCom, Ansett, Harris Scarfe, HIH Insurance, One Tel and Parmalat, the ensuing profound impact on investors resulted in considerable attention been given to studying corporate governance in developed countries such as the United States, the United Kingdom, Australia, Germany and Japan. However, there is a dearth of studies on corporate governance practice in emerging economies such as Bangladesh. This study attempts to examine the corporate governance practice in Bangladeshi companies in the light of two dominate models of corporate governance, first the Anglo-American Model and second, the German-Japanese Model. This study reduces the dearth of literature on corporate governance in Bangladesh. This study finds that many of the characteristics of the Bangladeshi context align with the German-Japanese model, such as a concentration of shareholdings by the banks and financial institutions or dominant shareholders leading to a high degree of ownership control, a less liquid capital market, weak shareholders’ rights, a dominant agency conflict between controlling and minority shareholders, and a limited capacity for boards of directors. The study also identifies six specific corporate governance characteristics in relation to current corporate government practices in Bangladesh, first a weakly enforced legal and regulatory framework, secondly weak institutional controls, thirdly a lacuna of professionals to develop a sound corporate governance culture, fourthly a predominance of individual investors, fifthly a dearth of foreign or institutional investors, and sixthly limited transparency and weak disclosure practices.