Not everything that counts can be counted; and not everything that can be counted counts.. Albert Einstein

1. Corporate Governance & Social Responsibility Not everything that counts can be counted; and not everything that can be counted counts.. Albert Einstein

2. Corporate Governance • Internal mechanism for operating and controlling business organizations; - Who - Whom - How

3. CG • Two sides of the coin : - the Government shaping the legal, institutional and regulatory climate within which the CG systems are developed - the Corporations themselves ensuring that there is good governance as they operate

4. Corporate Governance • Simply put, CG is the Way a company is run. • It has become a major concern following the disasters such as Enron, BCCI and many more. • The concern is that of Checks and Balances so that the wholesale fraud or abuse of office will not recur.

5. Way • the way are the Rules, Regulations and Practicesabout responsibilities and duties of directors • and the relationship between Board, Shareholders and other stakeholders

6. Checks and Balances • Compliance • Transparency • Accountability

7. Compliance : SECGuidelines, 2006 • Board Size – Min 5, Max 20 (1/10th of the Board, not less than 1 must be independent member) • Chairman and CEO, preferably different individuals • Provision for • CFO • Head of Internal Audit • Company Secretary

8. Compliance : SEC • CFO to attend all Board Meetings • Formation of Board Audit Committee • Statement of Compliance in Directors’ Report

9. Transparency : Director’s Report • Proper Books of Accounts are kept • International Accounting Standards are followed • Internal Controls are adequate • Explanations given for significant deviations from the previous year’s operating results

10. Transparency : Director’s Report • Summary of key operating and financial data for at least last 3 years • Reasons for non-declaration of dividend for the year • Record kept of the Board Meetings held and attended by each Director • Pattern of aggregate shareholdings by category

11. Audit Committee • Formed by the Board as a Sub-Committee. • Comprises of at least 3 Directors, one of whom is an independent Director, who are financially literate. • Various Formats of reporting.

12. Key elements • Honesty • Trust and Integrity • Transparency • Performance Orientation, • Responsibility and Accountability, • Mutual respect • Commitment to the organization

13. The Overriding Theme • ensure the accountability of certain individuals in the organization through instruments that try to reduce or eliminate the principal-agent(shareholders–managers) problem

14. Historical Background • Since the late 1970’s, corporate governance has been the subject of much debate in the U.S. and other countries. • Efforts to reform corporate governance have been driven, in the main, by the needs and desires of shareowners to exercise their rights of corporate ownership & to increase the value of their shares and, therefore, wealth.

15. Background • In the first half of the 1990s, the issue of corporate governance in the U.S. received considerable press attention due to the wave of CEO dismissals (e.g.: IBM, Kodak, Honeywell) by their boards. • A wave of institutionalshareholder activism to ensure that corporate value would not be destroyed by the traditionally cozy relationships between the CEO and the board of directors (e.g., by the unrestrained issuance of stock options, not infrequently back dated).

16. Background • In 1997, the East Asian Financial Crisis saw the economies of Thailand, Indonesia, South Korea Malaysia and the Philippines severely affected by the exit of foreign capital after property assets collapsed. • The lack of corporate governance mechanisms in these countries highlighted the weaknesses of the institutions in their economies.

17. Background • In the early 2000s, the massive bankruptcies (and criminal malfeasance) of Enron and WorldCom, as well as lesser corporate debacles, such as Arthur Andersen, and Tyco increased shareholder and governmental interest in corporate governance. • This culminated in the passage of the Sarbanes-Oxley Act of 2002.

18. Financial Meltdown • The world has not yet got over the state of shock from the financial meltdown that was preceded by a decade of irrational exuberance (Alan Greenspan). • Among the many reasons leading to the meltdown was the withdrawal of Glass-Steigall Act 1933, that separated commercial banking activity from investment banking.

19. Leveraging • The withdrawal of the act in 1999 led to the “commercial banks becoming investment banks and investment banks becoming hedge funds”. • Subprime lending was a natural extension. • Subsequent financial meltdown put the very existence of financial institutions into question.

20. Capital Market • Capital market is a relatively new phenomenon in Bangladesh. • Within a short time since independence it has grown to a respectable size of almost $20b from less than a billion in the 90s. • The 1996 crash of the capital market is the most significant factor leading to the resurgence of CG in Bangladesh. Much has happened since then.

21. CG in Bangladesh • There are various guidelines on CG that include the SEC guideline 2006 and Bangladesh Bank circular of various dates. • Other regulatory frameworks of importance are; - Companies Act 1994 - Banking Companies Act 1991 - SEC Act 1993 - Depository Act 1999

22. How good is your CG ?10 Diagnostic Questions • How may outside Directors do you have in the board? • Do your directors routinely speak to senior managers who are not represented on the board? • Does your audit committee routinely review the “high exposure” areas? • Do outside directors annually review succession plans for senior management

23. Diagnostic Questions • Do outside directors formally evaluate your CEO’s strengths, weaknesses, objectives, personal plans and performance every year? • Is there a way for outside directors to alter the meeting agenda set by the CEO? • Is there sufficient meeting time for thoughtful discussion in addition to management monologue?

24. Diagnostic Questions • Do the outside director’s meet without management on a regular basis? • Is there a way for outside directors to alter the meeting agenda set by the CEO? Note : This is by no means an exhaustive list. You may want to add some as per your knowledge or experience.

25. Corporate Social ResponsibilityWhy • Moral Obligations : - Being Good Citizen • Sustainability : - Meeting present needs without compromising future ability. • License to Operate : - Explicit or Tacit permission to operate from government, society, stakeholders. • Reputation : - Company image, branding, enliven morale , stock prices.

26. Moral ObligationsDo the right thing • Being responsible for the impact of activities on -customers - suppliers - employees - shareholders - communities - other stakeholders - the environment

27. Moral Obligations • extends beyond the statutory obligation to comply with legislation • sees organizations voluntarily taking further steps to improve the quality of life for employees and their families as well as for the local community and society at large. • The practice of CSR is subject to much debate and criticism.

28. Pros • Proponents argue that there is a strong business case for CSR, in that corporations benefit in multiple ways by operating with a perspective broader and longer than their own immediate, short-term profits.

29. Cons • Critics argue that CSR distracts business from the fundamental economic role • Others argue that it is nothing more than superficial window-dressing. • Still others argue that it is an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations.

30. Sustainability • Sustainability may be defined as the integration of economic, social and environmental aspects to meet the needs of the present without compromising the ability of future generations to meet their own needs . • Credible business practices such as exploitation of labour or the prevention of fraudulent activities such as accounting manipulation are integral part of sustainable business.

31. Sustainability • The challenge is how to put the principles into practice and to implement SR effectively and efficiently. • Both Dow Jones and FTSE have special indices for companies as per attention paid to the sustainability requirement.

32. Sustainability There are two types of sustainability codes of implementation as follows; • Performance Oriented - minimum standard of what constitutes social responsibility SA8000 • Process Oriented - procedures a company should follow AA1000

33. ISO • has undertaken the development of the future ISO26000 standard for providing voluntary guidance on Social Responsibility (SR). • ISO26000 will contain guidelines, not requirements, and therefore will not be for use as a certification standard like ISO 9001:2000 and ISO 14001:2004. • It will be ready in late 2010.

34. ISO 26000 Development Team • 54 countries and 33 organizations are participating in the working group for SR under the joint leadership of the ISO members for Brazil and Sweden. • The stakeholder groups in the main are; - industry, government, labour, consumers - nongovernmental organizations, service, support, - research and others with - a geographical and gender-based balance of participants.

35. ISO14000 is the international specification for an environmental management system (EMS). • It specifies requirements for establishing an environmental policy, determining environmental aspects and impacts of products/activities/services, planning environmental objectives and measurable targets, implementation and operation of programs to meet objectives and targets, checking and corrective action, and management review.

36. ISO14000 is similar to ISO 9000 quality management in that both pertain to the process (the comprehensive outcome of how a product is produced) rather than to the product itself. • The overall idea is to establish an organized approach to systematically reduce the impact of the environmental aspects which an organization can control. • As with ISO 9000, certification is performed by third-party organizations rather than being awarded by ISO directly.

37. Triple Bottom Line Accounting:People, Planet, Profit expands the traditional reporting framework to include ecological and social performance in addition to financial performance. • It is an expanded spectrum of values and criteria for measuring organizational success – economic, environmental and social. • Adopted in 2007 through the initiatives of the UN.

38. People pertains to fair and beneficial business practices toward - the labour - the community - the region in which a corporation conducts its business.

39. Planet refers to sustainable environmental practices. • Life cycle (Cradle to Grave) assessment of products to determine what the true environmental cost is from the growth and harvesting of raw material to manufacture to distribution to eventual disposal by the end user.

40. Profit is the bottom line shared by all commerce, ethical or otherwise.

41. CSR in Practice • CSR is still regarded as charity in most organizations, or at best as an image building exercise. • Consequently CSR is delinked from the mainstream activities of the organization. When the time is good CSR activities abound, and in bad times these are pushed aside. • This need not be so if CSR is linked with the company strategy.

42. CSR as Strategy • Of the 4 broad perspectives of CSR the company can choose the activities that fit the company strategy such as - Toyota Prius stressing environmental sustainability - CISCO linking with human resources through CISCO Networking Academy. • Two ways of looking at the CSR are - Inside-Out View ( Value Chain) - Outside-in Views (Macro Environment) and then decide on the activities as relevant.

43. Summing Up • CG and SR are two sides of the same coin. • One is meaningless without the other.