Corporate Governance Features of Developing Markets

  

I.            Ownership concentration and family domination in the corporate sector:

·       the top five stockholders hold more than 50% of a firm’s outstanding stocks.

·       most companies have executive directors, CEO, and chairman from the controlling family. 

·       A survey found that 73 percent of the boards of non-bank listed companies were heavily dominated by sponsor shareholders ‘who generally belong to a single family- the father as the chairman and the son as the managing director is the norm’.

II.            Weak Legal Infrastructure: Bangladesh is a common law country.

·       The present legal and judicial system has its foundation mainly to 200 years of British rule. The companies are governed by the Companies Act 1994 which is based on the British Companies Act 1844. All domestic companies of Bangladesh are incorporated under this Act”.

·       the increasing lack of legal professionals;

·       inadequate legal provisions; 

·       the lack of implementation and monitoring; 

·       and finally, the institutionalized corruption.

III.            Lack of skill, competence and independence of professionals

IV.            Poor shareholder activism:

·       the predominance of family ownership structure

·       minority shareholders’ rights are largely ignored by the companies in Bangladesh

·       three major reasons behind this weakness, and are lack of education, lack of awareness about their rights and responsibilities, and short-term vision.

·       AGM is considered one of the core mechanisms of check and balance for shareholders. In the absence of pressure from powerful shareholders and legal monitoring, AGMs have become a mere formality.

v. Easy access to bank credit

·       scope for adopting malpractices for not repaying bank loans through the exercise of political influence 

·       lack of quality shares and inadequate and irregular participation of the institutional shareholders as major reasons for the stagnant capital market.

vi. Absence of ‘second order’ institutions:

·       second-tier accountancy bodies (such as the ACCA)

·       very small number of qualified chartered accountants

·       accounting qualifications.

·       the regulatory bodies and the judiciary, suffer from a lack of skills and proper training, especially in dealing with corporate cases.

·       acute shortage of skilled and experienced financial analysts and advisors.

·       skilled professionals who could sit on the board as independent members