Corporate Governance Practices in Trust Bank Ltd

RAB 8 Barisal

Chapter : One

Introduction

 

1.1 Background of the study

The term ‘corporate governance’ is now a buzzword in today’s business world. Almost every business organization’s annual report contains some writings on this issue. However, the applicability of corporate governance is not some in all organization. There is no doubt that proper practices of corporate governance help every organization to run in a healthy way. The challenge of every business organization is to maximize  shareholder’s value that requires an effective corporate governance system. Bangladesh as a least developed country (LDC) is driving towards the establishment of good governance because a good nation can not be ensured without transparent activities at all levels of the organizations. The importance of corporate governance is extremely high in case of a banking organization because it deals with people’s money. Therefore, the risk is relatively high in this organization that can be mitigated through the accurate practices of corporate governance.

 

1.2 Objective of the study

The intent of the study is to better understand the status of corporate governance practices in Trust Bank Ltd.

 

1.3 Methodology of the study

The following methodological steps were followed in conducting the study :

(a)     Research Design :

This study is basically descriptive in nature. The study was aimed at identifying the ins and outs of the corporate governance practices in Trust Bank Ltd.

 

(b)    Data Collection Methods :

The data were collected both from primary and secondary sources.

 

Primary Sources :

The primary data were collected through a questionnaire. The questionnaire was developed solely for collecting information on corporate governance practices in the organization. The most important issues of corporate governance were covered in the questionnaire.

 

Secondary Sources :

  • Annual report of Trust Bank Ltd. 2007
  • SEC guidelines
  • Bangladesh  Bank guidelines
  • Website of Trust Bank Ltd.
  • Relevant books

 

(c)    Sample design

■ Target Population

The target population were the top executives of Trust Bank Ltd.

■  Sampling Type used

The study was conducted on the basis of non-probalrility sampling procedure. In this regard, both the convenience and judgment sampling methods were used.

■       Sample size

The sample size was 15 and it was determined on the basis of personal judgment. The sample size was small because the respondents are more or less homogenous.

 

(b)    Field Work

An extensive interview was conducted and each interview covered from 15 to 25 minutes. Again a close look was given to observe the respondents’ reactions during filling up the questionnaire. Finally, various reports and manuals, both external and internal, were collected.

 

(e)    Analysis of Data

Varies statistical methods were used to analyze  the collected data. Descriptive statistics were used in analyzing the data. SPSS was used in this purpose.

1.4 Limitations of the Study :

From the beginning to ending, the study has been conducted with the intention of making it as a complete and accurate one. Notwithstanding there are some limitations of the study which are as follows:

–                All the executives were not contacted

–                The time period for this study was short

–                Lack of experience in conducting such type of study.

–                Inadequacy of required data.

 

Chapter –Two

A brief Discussion about Corporate Governance

 

2.1 Definition of corporate governance :

The term ‘corporate governance’ has been defined by different auroras and scholars in different ways. The meaning of corporate governance varies from man to man. However, some important definitions of corporate governance are as follows :

i)       “Corporate Governance is about promoting g corporate fairness, transparency & accountability”.

ii)      “Corporate Governance – which can be defined narrowly as the relationship of a company to its shareholders, or more broadly, as its relationship to society”.

iii)     “Corporate Governance is the relationship between corporate managers, directors & the providers of equity, people & institutions who save & invest their capital to earn a return. It ensures that the board of directors is accountable for the pursuit of corporate objectives & that the corporation itself conforms to the law & regulations.

 

2.2 Features of Corporate Governance :

The following are the most common features of corporate governance.

i)       Corporate Governance is a system by which business corporations are directed and controlled.

ii)      It specifies the distribution of rights and responsibilities among different participants in the corporation.

iii)     It spells out the rules and procedures for making decisions on corporate affairs.

iv)     It provides the structure through which the company objectives are set.

v)      It also provides the means of attaining those objectives and monitoring performance.

vi)     It deals with general interest of stakeholders.

2.3 Importance of Corporate Governance :

The term ‘Corporate Governance’ has got paramount importance because of the following reasons.

1)            Good corporate governance creates access to capital.

2)            It is essential for the firms that want to stimulate private sector investment.

3)            It balances the conflicting interest of company’s participants.

4)            Corporate governance helps the company to run effectively & efficiently & thus attract private sector investment. This in turn accelerates financial growth.

5)            The presence of effective corporate governance system, within an individual company & across an economy as a whole,  helps to provide a degree of confidence that is necessary for the proper functioning of a market economy.

6)            Since effective governance ensures proper functioning of market economy, it ultimately results in low cast of capital,  thus firms are encouraged to use resources more efficiently, thereby underpinning growth.

7)        According to CIMA, importance of Good Corporate Governance are-

○ Corporate governance reduces risk.

○ It stimulate performance

○ It enhances the marketability of goods & services

○ It improves leadership

○ It demonstrate transparency & social accountability

 

2.4 Factors determining good corporate governance :

The following factors are considered very important in determining good corporate governance.

i)              Codes of Governance – that lead to transparent reporting.

ii)            Effective Board Governance & Process

iii)          Effective Independent Directors

iv)          Informed business decisions

v)            A Culture of Risk Management

vi)          Active & Interested Shareholders

vii)        Presence of equal voting right

viii)      Separation of ownership from management.

ix)          A culture of timely reporting

x)            An evaluation system of CEO performance.

 

2.5 Elements of corporate governance :

The following elements are considered very much important for ensuring good corporate governance system.

i)              Responsibility – Who is responsible for what ?

ii)            Accountability – Who is accountable to whom ?

iii)          Transparency – Are the important information about organization fairly and timely disclosed ?

iv)          Internal control – Are the internal activities of the organization properly monitored and controlled ?

 

2.6 Board Development :

The primary responsibility of maintaining corporate governance in any organization lies in board. Therefore, board development is considered as an important factor of ensuring corporate governance in an organization. The various issues of board development are described briefly as follows.

2.6.1 Structure of the board :

It includes both the hard system and soft systems which are as follows:

■       Hard  systems, procedure and standards include :

○       Board Charter & Work Plan

○       Job description, qualities & technical qualification of directors

○       Directors contracts

○       Individual & Whole board performance evaluation

○       Training & Director Qualification

○       Forensic Test

 

■       Soft Systems, procedure & Standards

○       Leadership by Chairman

○       Board of Directors code of Conduct

○       ‘peer fear’ of company, business community, professional institute.

 

2.6.2 Board Charter

A board charter usually describes the board mission, functions, and values that cover specific issues which are as follows :

■       Board Mission

“Create wealth for stakeholders, nature & increase assets of shareholders”.

 

■       Board Functions

  • Agree & promulgate board function & evaluate performance.
  • Set company mission vision & values
  • Agree strategic plan, operating plan & budget for the following year.
  • Review opportunities related to investment & divestment.
  • Monitor management’s performance in achieving the objectives set in operating plan & budget.
  • Appoint, monitor & evaluate the CEO
  • Ensure conformance with legislative requirements.
  • Ensure there are adequate resources
  • Communicate with the shareholders

■       Board Values

  • Conflicts of interest
  • Work in best interest of the company
  • Keep to company’s mission

 

 

2.6.3 Size and composition of board.

■       Size

○          Size depends on the requirement of the particular organization

○          Not fewer than 3-5

○          Not more than 7-11

■          Composition

○          Diverse Mix

○          More Independent Directors

○          Qualities

○          Professionalism

 

2.6.4   Board Work Plan

○       Deliberate Shift from evaluation of past performance to adding value

○       Annual & quarterly Board Work Plan with required agendas.

○       Time Budgeting

▪        Adding Value (40%)

▪        Risk Management (15%)

▪        Conformance (15%)

▪        Issues Management (15%)

▪        Monitoring (15%)

 

2.6.5 Leadership Role of Chairman

○       Relationship with CEO

○       Relationship with team members

○       Confidence of stakeholders

○       Ensure timeliness & relevance of information

○       Heading director evaluation process

○       Conducting Board meeting

○       Be available

○       Ultimate decision maker

 

2.7 Board Effectiveness :

There is no doubt that only an effective board can drive a firm towards the achievement of goals.

2.7.1 Critical Attributes of an effective  board:

Independence

Managing conflict of Interest

Working in the best interest of the company

Competency

2.7.2 Tasks of an Effective Board :

  • Determining company’s vision & mission
  • Determine the value to be promoted throughout the company.
  • Determine company policies
  • Determining, selecting, implementing & supporting strategic option.
  • Determining the business strategies that underpinning the corporate strategy.
  • Ensuring the fitness of corporate structure for strategic options
  • Delegating authority to management & monitoring their performance.
  • Determining monitoring criteria to be used by the board.
  • Ensuring the effectiveness of the internal control
  • Ensuring that two way communication between shareholders & stakeholders are effective.
  • Emphasis on the interest of shareholders/ & other stakeholders.

2.8 Board Empowerment

Now-a-days it is strongly believed that a board should be empowered to carry but its concerned tasks effectively and efficiently.

 

2.8.1 Meaning of Empowerment

The capability and independence of outside directors to :

  • Monitor the performance of top management & the company.
  • To influence management to change the strategic direction of the company if its performance doesn’t meet board’s performance & in the most extreme case, to change corporate leadership.

 

2.8.2 Requirements of Empowerment

 

  • Redefining the relationship
  • CEO’s clear understanding of Board’s roles & responsibilities.
  • Recognizing & respecting the boundary between monitoring management & actually managing the company by outside directors.
  • New form of teamwork
  • Retaining CEO’s power to lead the company while obtaining the guidance of ‘active & informed’ directors.

 

2.8.3   Pressure for Empowerment

  • Pressure from Institutional Investors
  • Poor Performance of CEOs
  • Pressure from Government Competitive Council
  • Controversy regarding CEO’s Compensation

2.8.4   Invalid Assumptions About Empowering Board

  • Power is Zero – Sum
  • Advising & Monitoring are in Conflict
  • There is no need to act unless a crisis strikes
  • One size fits all companies

 

2.8.5 Factors Influencing Empowered Board Activities

  • Confidence in CEO
  • Considering Empowerment as Company’s Performance
  • Complexity of the Decisions.

2.8.6   Characteristics of an Empower Board

  • Directors from outside of the company
  • Small enough to be a cohesive
  • Represent a range of relevant business & leadership experiences
  • Free Communication
  • Existence of leader, where CEO is also chair of the board
  • Committees are entirely made up entirely of outside directors
  • Members receive information in a intelligible format.

2.9  Audit Committee

Every business organization should have an audit committee to oversee the operations of the organization. The primary responsibility of audit committee is to ensure that the activities of the firm are being carried out in accordance with the prescribed rules and regulation. The composition of members of audit committee is vital for every business organization. There must have some external members in the audit committee. The audit committee should report the board of directors timely and accurately with a summary of the organizational activities.

 

2.10 Risk Management :

Risk is an integral part of every business organization. Therefore, risk management is considered as an important issue of maintaining corporate governance in an organization. The task of top management is to maintain a healthy balance between risk and return. There must have some systematic rules and policies regarding risk management in an organization.

 

2.11 Corporate Social Responsibility :

Every business organization is established with an aim at earring profit. But this should not be the only objective of a business firm. It has a number of responsibilities to its stakeholders. The main motto of corporate governance is to ensure the interests of different stakeholders.

 

Chapter – Three

 

Corporate Governance Practices in Trust Bank Ltd.

 

3.1    Trust Bank Ltd at a glance

Registered Name of the Company : Trust Bank Limited
Registration No. & date : C-37960 (2260)/99, 17 June 1999
Sponsor Shareholders : Army Welfare Trust
Certificate of Incorporation received on : 17 June 1999
Certificate of Commencement of Business Received on : 17 June 1999
Banking License Received on : 15 July 2007
First branch license received on : 9 August 1999
Formal Inauguration on : 29 November 1999
Corporate Web site : www.trustbank.com.bd
E-mail : info@trustbanklimited.com
Initial Public Offering :
Publication of Prospectus : 17 May 2007
Subscription opening : 15 July 2007
Subscription closing : 19 July 2007
Listed with Dhaka Stock Exchange on : 25 Sep 2007
Listed with Chittagong Stock Exchange on : 24 Sep 2007
Commencement of trading of shares at DSE : 01 Oct 2007
Commencement of trading of shares at CSE : 01 Oct 2007

 

 

3.2  Corporate Governance Practices

3.2.1 Employees’ understanding on corporate Governance issues :

There is no doubt that a proper understanding of corporate governance among the employees is vital for any organization. This is important for ensuring transparency and accountability which are the main attributes of good governance. But unfortunately many of the employees do not have adequate understanding on issues of corporate governance. Very few employees were found who have complete understanding about corporate governance. The data collected in this regard is a follows :

Particulars % (Percentage)
(a) Some understanding 47.77%
(b) Adequate understanding 30.36%
(c) Significant understanding 17.41%
(d) Complete understanding 4.95%
(e) No Comment

 

3.2.2 Elements of corporate governance in order of importance in the eyes of TBL executives.

There are some common issues of corporate governance which are considered as its bedrocks, such as accountability, transparency responsibility and internal control. But no consensus was found among the respondents in terms of the order of importance of these issues. But everybody agreed that these are the basic issues of corporate governance that the management of any organization should maintain.

 

3.2.3 Responsibility of Overseeing the Corporate Governance Issues :

Most of the top executives of Trust Bank Ltd. said that the primary responsibility for corporate governance issues within the organization is upto the Chief Executive Officer (MD). Again some executives believe that it is also the responsibility of the audit committee to oversee the corporate governance issues within the organization.

 

However, from the study it was found that the following persons and teams bear the responsibility of maintaining corporate governance issues.

  • The Chief Executive Officer (MD)
  • The Board of Directors
  • The Chief Financial Officer
  • The Chief Financial Officer
  • The Audit Committee
  • Company Secretary.

It is important to note that the bank has no designated office to deal with corporate governance issues. Generally the company secretary oversees the corporate governance issues.

 

3.2.4 Written corporate governance code or manual :

An organization should have a written corporate governance code or manual that the people of it should follow. A written code sends the message of corporate governance to all levels within the organization. But unfortunately TBL has no written corporate governance code or manual. However, the bank follows SEC and Bangladesh Bank guidelines in this regard.

 

3.2.5 Employee Code of Conduct

The necessity of having an employee code of conduct in an organization can not be described in words. It spells out the responsibility and accountability of employees at various levels in the organization. TBL has a written employee code of conduct. Moreover the bank has incorporated the code of conduct into employment contracts and has made it a requirement at employment.

 

3.2.6 Board of Directors

The board of directors is the central governing authority of maintaining  the overall performance of a firm. The bank company Act, 1991 states that the number of directors in the boards is maximum 13 (excluding CEO). The members of the board must perform their duties and responsibilities in such a way that is consistent with the firm’s vision and mission. The study has revealed various issues regarding the board of directors of Trust Bank Ltd. which are listed below.

  • Major functions of the Board of Directors.
  • The board approves budget and reviews the business plan on quarterly basis to give directions as per changing economic and market environment.
  • It reviews the policies and manuals of various segments of business in order to establish effective risk management mechanism in all the operational activities of the bank.
  • It also reviews the policies and guidelines issued by Bangladesh Bank and gives directions for their due compliance.

 

■       Board Character :

A board charter clearly specifics the rules, responsibilities and powers of the board members. Trust Bank Ltd. has a board charter that establishes the roles responsibilities and specific annual objectives of the board. The following are the elements that are included in TBL’s board charter.

  • Board Mission
  • Board values
  • Board functions
  • Powers of directors etc.

 

■       Independent Directors

The presence of independent director in the board is a good symptom of good governance because they can protest the issues strongly if the said issues go against the general interest of stakeholders. At present Trust Bank Ltd. has no independent director in its board. The board of directors has decided to appoint an independent director in the board by 2008. It is important to note that he or she will also be a member of audit committee

 

 

■       Depositor Directors

According to the Bangladesh Bank guidelines, every bank company must appoint 2 directors from its depositors within 30 September, 2008. Depositor director will be appointed by the Board of Directors with the prior approval of Bangladesh Bank. Trust Bank Ltd. has already appointed two depositor director in its boards within the said time.

■       Members of Board of Directors

The study has revealed the following information regarding the member of board of directors.

  • Number of members in the board is nine including Managing Director.
  • There are two depositors directors in the board.
  • There will be an independent director in the board by 2008.
  • Most of the directors in the board are army personnel.

 

■       Board Meeting

The active and timely board meeting is considered as an important means of ensuring corporate governance in the organizations. Frequent meeting of the board ensure better supervision and policy guidelines to support the growth of the business. The study has revealed the following information regarding the board meetings of Trust Bank Ltd.

  • No of board meeting held in last year (2007) is 13.
  • Average length of the board meeting are prepared in advance, but all the agenda may not be approved by the directors.
  • The minutes of the board meeting are prepared and approved by all the directors.

 

3.2.7 CEO’s performance evaluations system :

Ounce’s a ECO is in place, the board is responsible for evaluating his or her performance going forward. The process of performance evaluation should be used to influence the actions of the CEO to provide strong results for shareholders. Performance evaluation for the CEO has three prerequisites.

  • The interest of the CEO and of the company must be aligned through compatible values and incentives.
  • There must be mutually agreed upon goals, standards, and time frames for the result.
  • Accurate and timely measures of the key indicators of success must be shared with the board.

The CEO’s performance can be evaluated depending on the following grounds.

  • Success or failure in strategy implementation.
  • Benchmarking with peers
  • Outside assessments such as shareholders, customers, vendors, govt. agencies’ evaluation.
  • Financial performance evaluation in terms of profitability, ROl, cashflow, growth and finally stability (predictability)

 

However, the board of Trust Bank Ltd. does have any written performance evaluation system to evaluate the CEO’s performance. The board is in charge to evaluate the performances of CEO verbally.

3.2.8 Demarcation of power between the boards and the management.

Board’s function is limited to formulation of policies for implementation by management. Management is heeded by the Managing Director. Managing enjoys absolute power in respect of recruitment, posting and promotion of manpower in accordance with Bangladesh Bank’s guidelines. In addition boards has delegated adequate administrative, business and financial powers to management for quick and efficient discharge of the Banks activities.

 

3.2.9 Audit Committee

There is doubt that an audit committee can play a vital role in maintaining the corporate governance issues within an organization. Trust Bank Ltd. has formed an audit committee in accordance with Bangladesh Bank BRDD Circular No. 12 dated 23.12.2002. The basic objectives of forming an audit committee by TBL are as follows.

  • For ensuring transparency and accountability in the operations of the bank.
  • For ensuring that the activities of the bank are conducted within the framework of policies, principles and plans as laid down by the board as well as the guidelines of the regulatory authorities issued time to time.

The study has revaeled the following information regarding the audit committee of Trust Bank Ltd.

  • There are three members in the audit committee
  • The committee is headed by a senior director.
  • The committee has unrestricted access to all accounts, books and seconds to ensure that its job is conducted properly.
  • The committee had three meetings during the year (2007)
  • The committee submits the report to the board of directors.
  • The members of the audit committee comprise of non-Executive Directors, Independent Directors (proposed) and company secretary.

 

Apart from the audit committee, the board has appointed an independent auditor to assist both the committee and the board in discharging their supervisory functions.

 

3.2.10 Compliance of Regulatory guidelines :

Securities and Exchange Commission (SEC) issued corporate governance guidelines (notification dated 20 February 2006), on comply or explain basis, for the companies status of the said notification, SEC has asked the listed companies to report the compliance status of the said notification in the annual report. Trust Bank Ltd. has followed this guideline properly. Moreover, the bank also strictly maintains the rules and regulations provided by Bangladesh Bank. For example, it has made Initial Public Offering (IPO) to meet its paid up capital requirement. Moreover, the bank has appointed two depositor directors in the bank according to the guidelines of Bangladesh Bank.

 

3.2.11 Internal Control :

Effective internal control system is regarded as an important bedrock of corporate governance practices in an organization. Trust Bank Ltd. has set up a separate department named ‘Internal Control and Compliance Department’ for maintaining the internal issues of the bank according to the proscribed rules and regulations. The department is handed by a Vice President. He has the primary responsibility to maintain the internal activities of the bank as per the rules and regulations set by the board as well as various regulator agencies.

 

3.3.12 Disclosure of Information :

The transparency of the activities of an organization is better understood by observing the nature of information that it discloses. The study has revealed that Trust Bank Ltd. discloses the  following information.

a)            Background of Directors

b)            Feed paid to External Auditors, advisor and other related parties

c)            Directors selling or buying shares in their company.

d)           Policies on risk management.

e)            Significant changes in ownership.

f)             Governance  structures and policies

The bank discloses the above information through its web page, annual report and reports to regulatory agencies. It discloses financial statements to the stakeholders annually.

3.2.13 Risk Management :

There is no doubt that the degree of risk involved in banking business is extremely high. The executives of Trust Bank Ltd. believe that risk is an integral part of their business and the main role of their risk management principles is to find the optimal balance of risk and return.

They believe that in today’s challenging environment, effective risk management is vital for maximization of shareholders wealth. The bank’s risk management process gives extreme importance on the maintenance of following types of risk.

  • Credit risk
  • Asset-liability/balance  sheet risk
  • Foreign exchange risk
  • Internal control and compliance risk
  • Money laundering risk

It is important to note that the bank strictly following corporate governance manual as instructed by Bangladesh Bank at the time of sanctioning loads and advances to mitigate the risks.

 

3.2.14 Corporate Social Responsibility (CSR)

Corporate social responsibility (CSR) is a key element and means for achieving greater business value in this competitive business world. Trust Bank Ltd. aims to be a socially responsible organization with an obligation to consider the interest of all the stakeholders in all aspects of its operation. This obligation is seen to extend beyond its statutory obligation to comply with legislation.

 

The study has revealed the following activities of Trust Bank Ltd. as a part of its corporate social responsibility.

i)              Special Reserve fond for providing stipend to poor but meritorious students, medical and other assistance to the disadvantaged section of the society, contributing detuning natural calamities.

ii)            Humanitarian Assistance during natural calamities.

iii)          Promoting sports.

iv)          Passport application processing.

 

3.2.15 Participation of the bank employee’s in corporate governance program.

The active and regular participation of the employees of an organization indicates the degree of awareness about corporate governance issues among the employees. The study has not found a satisfactory result in this regard. Very few top executives of Trust Bank Ltd. has joined programs on corporate governance issues. The result of the study in this regard is as follows.

Particulars %
Yes 30%
No 70%

It is important to note that the bank has arranged various works shops on various regulatory issues different times for its employees.

3.2.16 Relationship between corporate governance and company performance

The respondents were asked to rate the corporate governance issues with their company performance. Most of the respondents have said that there is a high relationship between corporate governance and their company  performance.

The study has found the following scenario in this regard.

Particulars %
Very high 20%
High 65%
Medium 15%
Low

 

3.2.17 Employee Remunerations Packages :

A proper practice of corporate governance issues ensures the interest of all stakeholders. Employees of the bank are also one kind of stakeholders. So, it is logical to know the status of employee remuneration packages of the bank. The respondents, almost all of them are high executives of the bank, were asked to provide their opinion on employee remuneration packages i.e., whether the remuneration packages are competitive or not. The study has found the following results in this regard.

  Particulars %
Competitive 20%
Not competitive 60%
No comment 20%

3.2.18 Recruitment and promotions of employees :

The transparency of an organization can also be justified through the examination of its recruitment and promotion policy. Trust Bank Ltd. has two types of recruitment policy: fresh entry and lateral entry. The first batch of the bank’s Management Trainee Officers (MTO) were recruited through external organization (IBA), although the viva-voce was conducted by the top management of the bank. The recruitment policy of junior officers in extremely internal to the bank. Most of the employees think that promotion policy of the bank is transparent.

 

The study has revealed the following result regarding the fairness of the bank’s employee recruitment and promotion.

Particulars %
Fair 65%
Not fair 20%
No comment 15%

 

 

Chapter – Four

 

Findings, Concluding Remarks and Recommendations

 

4.1 Findings of the Study :

Trust Bank Ltd. is a growing private commercial bank in Bangladesh. It has a lot of opportunity to grow if it will be in the right track of banking business. No doubt that only a good corporate governance can ensure its survivality and expected growth. However, the study has found the following findings regarding the corporate governance practices in the bank.

i)              Very few employees Trust Bank Ltd. has complete understanding on corporate governance issues.

ii)            A major percentage of the top executives are not well known with the corporate governance practices in the bank. Many respondents could not response to the questions that are outside of their department.

iii)          The primary responsibility of corporate governance issues is upto the Managing Director. In addition, the audit committee also oversees  the issues.

iv)          The bank has no designed officer to deal with the corporate governance issues that is not a good symptom for the bank.

v)            The bank has a written employment code of conduct and it was incorporated into employment contracts.

vi)          The organization considered ethical and social responsibility issues at the time of developing employment code of conduct.

vii)        There is no independent director in the board which is not a good symptom of an effective corporate governance system. However, the bank is going to appoint an independent director by 2008.

viii)      It has no code of conduct for the board.

ix)          The Bank has a board charter that establishes the roles, responsibilities and specific annual objectives of the board.

x)            The number of directors in the board is commensurate with Bangladesh Bank guideline.

xi)          The number of board meeting and their length are satisfactory.

xii)        The board has no written procedure to evaluate the performance of CEO.

xiii)      The bank has an active audit committee that regularly reports to the Board of Directors.

xiv)      The bank has “Internal Control and Compliance Department” to look after the internal control functions.

xv)        The bank discloses the information that are required by the regulatory agencies.

xvi)      The annual report of the bank discusses its risk management system and its corporate governance practices.

xvii)    Most of the respondents think that the employee remuneration packages are not competitive.

4.2 Concluding Remarks and Recommendations :

The emergence of globalization has posed a great challenge to the business firms to compete in the market. It is extremely true in case of banks. Most of banks are now fighting with each other for gaining market share.

 

Trust Bank is a newly emerging bank. It is involved with opportunities and threats. The bank must ensure good corporate governance practices to take the full advantages of opportunities and to minimize threats. Based on the study, the following recommendations can be provided with strong emphasize.

i)              Make the persons (s) specific to bear the primary responsibility to maintain corporate governance practices in the bank.

ii)            Develop a written code of corporate governance and make sure that all the employees of the bank are aware of the contents of the code.

iii)          Develop a code of conduct for the board and ensure its proper applications.

iv)          Give emphasize on the regularity of the board meetings and bring the top most important issues in the meetings.

v)            Make sure that the agenda of the board meeting are prepared in advance and ensure that the prepared agenda are sent to the members of the board of directors timely.

vi)          Develop a realistic and scientific procedure to evaluate the performance of CEO.

vii)        Make sure that the functions of the audit committee are being carried out according the prevailing rules and regulations.

viii)      Make sure that internal control functions are being carried out properly.

ix)          Disclose the relevant information through a proper media of communication.

x)            Make sure that the employee remuneration packages are competitive.

 

Bibliography

1.      Annual Report of Trust Bank Ltd., 2007.

2.      Bangladesh Bank guidelines (various circulars)

3.      Colley. L. John, Doyle. L. Jacqueline’s and others —- ‘Corporate Governance’ 2nd edition, page No – 13, 37, 64, 104-106.

4.      Kendall. Nigel, Kendall. Arthur – ‘Real World Corporate Governance’  8th edition, page no – 18-20, 39, 101-108, 214-218.

5.      Securities and Exchange Commission’s guidelines.

6.      The Bank Company Act, 1991.

7.      The Company Act, 1994.

 

Appendix

Questionnaire

 

 

A questionnaire on “Corporate governance practices in Trust Bank Ltd.”

 

The following questionnaire pertains to various issues of corporate governance. The intent of this study is to better understand the status of corporate governance practices in Trust Bank Ltd. The questionnaire will take only 15 to 20 minutes to fill out at yours convenience and your valuable and frank responses will be helpful in conducting the study accurately. Your name and personal details will in no way be connected with the questionnaire.

 

1. Please rate your understanding on issues of Corporate Governance (CG).

a. Some understanding                          b. Adequate understanding

c. Significant understanding                  d. Complete understanding

 

2.      Please rank the elements of Corporate Governance in order of importance. (1 for most important and 4 for least important)

a. Accountability _____                         b. Transparency ______

c. Responsibility _____                          d. Internal Control _____

 

3.      Who has primary responsibility for Corporate Governance issues within your organization? (Tick all that apply)

a. The Board of Directors                      b. The Chief Executive Officer (MD)

c. The Chief Financial Officer               d. The Audit Committee

e. The Legal Department                       f. No one has primary responsibility

g. Other (please specify) _________________

 

4.      Do you have any designated officer to deal with Corporate Governance issues?

a. Yes                                                     b. No

If yes, please specify the position ______________________

If no, who deals with the issues ________________________

 

5.      Does your organization have any written CG code or manual?

a. Yes                                                     b. No

 

6.      Does your organization have any written Employee Code of Conduct?

a. Yes                                                     b. No

 

7.      Does your organization incorporate the Code of Conduct into employment contracts and make it a requirement of employment?

b. Yes                                                     b. No

 

8.      While preparing the Employee Code of Conduct did your organization consider ethical and social responsibility issues ?

a. Yes                                                     b. No

 

9.      How many Directors does your board have ?  ___________

 

10.    How many Independent Directors does your board have ? _________

 

11.    Does your organization have any Code of Conduct for the Board ?

a. Yes                                                     b. No

 

12.    Does your organization have any Board Charter that establishes the roles, responsibilities and specific annual objectives of the board ?

a. Yes                                                     b. No

 

13.    Please highlight the elements that are included in your organization’s Board Charter. (Tick all that apply)

a. Board Mission                                    b. Board Values

c. Board Function                                  c. Others (please specify) ________

14.    Does your board have the following committees or sub-committees?

a. Compliance Committee                      b. Nomination Committee

c. Compensation Committee                  d. Risk Management Committee

e. Others (please specify) _________

 

15.    How many board meeting were held last year? _______

 

16.    On an average, how many hours does a board meeting last? ______

 

17.    Are the agenda of the board meeting prepared in advance and approved by all the directors?

a. Yes                                                     b. No

 

18.    Are the minutes of the board meeting prepared and approved by all the directors ?

a. Yes                                                     b. No

 

19.    Does the Board have any performance evaluation system to evaluate its own performance?

a. Yes                                                     b. No

If yes, how frequently it is done? ________________

 

20.    Does your organization follow any procedures to evaluate the CEO’s performance?

a. Yes                                                     b. No

 

21.    Who is in charge to evaluate the CEO’s performance? (Tick all the apply)

a. Board          b. Chairman           c. Investors           d. Suppliers

e. Customers          f. Other (please specify) ________

 

22.    Does the Board have an Audit Committee?

a. Yes                                                     b. No

 

23.    How many members are there in the Audit Committee? ______

 

24.    Who are the members of the Audit Committee? (Tick all that apply)

a. Chairman                                            b. Managing Director

c. Senior Management                           d. Executive Directors

e. Independent Directors                       f. Non-Executive Directors

g. Others (please specify) ______________

 

25.    Who leads the Audit Committee?

a. Chairman                                            b. Managing Director

c. Independent Directors                       d. Executive Director

f. Others (Please specify) ________________

 

26.    To whom does the Audit Committee report?

a. Chairman                                            b. Managing Directors

c. Independent Directors                       d. Executive Director

e. Non-Executive Director                     f. Others (Please specify) _________

 

27.    Functions of the Audit Committee includes (Tick all that apply)

a. Choosing the external auditor

b. Receiving reports directly from the external auditor

c. Overseeing the work of the internal auditor and

d. Ensuring that audit and Regulator’s findings are duly and properly acted upon.

e. Others (please specify) _________________

 

28.    Is there any assigned person to look after the internal control functions and report their activates to the audit committee ?

a. Yes                                                     b. No

If yes, Please specify ______________

29.    Who performs the audit function?

a. Local firm (please name) _________________________

b. Local firm with international affiliations (please name) __________

c. International firm (please name) _________________________

 

30.    Does your organization have any external auditor?

a. Yes                                                     b. No

 

32.    Has your company appointed the following people? (Tick all that apply)

a. Chief Financial Officer (CFO)           b. Head of Internal Audit

c. Company Secretary                            d. Compliance officer

 

33.    Does your organization disclose the following information? (Tick all that apply)

a. Background of Directors                   b. Remuneration of Director

c. Fees paid to External Auditors, Advisor and other related parties

d. Directors selling or buying shares in their company

e. Policies on Risk Management            f. Significant changes in ownership

g. Governance structures and policies (explicit corporate governance rules and vision)

 

34.    By what means does your organization disclose this information ? (Tick all that apply)

a. Company’s webpage                          b. Annual Report

c. Report to regulatory agencies            c. Other (please specify) ________

 

35.    Does the Annual Report discuss the company’s risk management system and its corporate governance practices?

a. Yes                                                     b. No

 

36.    Does your organization disclose financial statements to the stakeholders?

a. Yes                                                     b. No

If yes, how frequently? _______________________

 

37.    Have you / your organization’s officials attended any CG programme organized?

a. Yes                                                     b. No

 

38.    To what extent do you think good corporate governance practices are related with the company’s performance?

a. Very High        b. High        c. Medium       d. Low         e. Very low

 

39.    Do you think that your bank’s employee remuneration packages are competitive?

a. Yes                                                     b. No

 

40.    Do you think that employees are recruited and promoted fairly?

a. Yes                                                     b. No

 

 

Thank you for your valuable participation

 

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