Misgovernance As A Security Threat In Bangladesh - Free Sample

Question: Discuss about the case study of misgovernance as a security threat in Bangladesh? Answer: Introduction Corporate misgovernance happens when the company does not follow the rules and regulation framed by the law of the country in which it operates. Corporate governance is a very important factor in developing investors confidence so that they make an investment in the stock market. Due to corporate misgovernance, the whole capital market has a collapsed. Before understanding the concept og misgovernance it is essential to understand the governance part. Corporate governance is a system through which companies are controlled and directed. Corporate governance consists of the market and regulatory mechanism, it describes the roles and responsibilities of management, the board of directors, shareholders and the companys goal. Corporate culture started developing with the growth of industries (Barthwal-Datta, 2009). But today the subjects like the company and bank failures, insolvency, bribery, corruption , frauds like forging, accounts manipulation etc. have increased to a great extent. T he standards of todays business require acknowledged attention and analytical treatment from practitioners and financial economists. We humans have the tendency to cover everything and believe that it will not affect the future and everything will be right. Our minds have a great ability to direct itself and deceive itself through predetermined channels. Human has developed greed and his disease has grown crossing all the boundaries (Blackburn Forgues-Puccio, 2007). Profit is important, but earning profit should not become the only goal. When profit is earned through improper means then it tends to destroy wealth and helps to create poverty. Greed is one of the most important reason for creating a depression in the economic. There should exist ethics so that the economy functions correctly. Ethics should be such that they are people centred. Corporate Misgovernance To understand corporate misgovernance it is very important to first understand the meaning of corporate governance. Corporate governance means the practices, processes and rules by which the establishment is organised and directed. It involves maintaining the balance in the interests of variousstakeholderslike management, shareholders, suppliers, financiers, customers, community and the government. Apart from attaining companys objective, it also helps in planning the actions of the management, internal control, corporate disclosure and performance measurement (Craig-Wood, 2011). For a long time, Indian corporates have kept themselves away from wholesome developments. Corporate governance must protect community values of life, societal aspirations and tradition, environment and economic values. It should provide returns to the investors and shareholders like monetary return. Corporate governance should be such that it should be able to protect the fiscal values of the shareholders. C orporate Misgovernance happens when the organisation is not able to accomplish its duties. Because of increase in the conflicts and competition between the community and the shareholders corporate misgovernance occurs. With the growth of corruption in the government sectors and in the various services provided by them, it supports the business organisation and management of the business organisation to indulge in various unethical practices. The company which are state-owned occupy a very important position in the economy of the country and because they have the monopoly, they indulge in unethical activities and passes the cost of corporate misgovernance to the consumers for all the services and products provided by them. It could be seen that many of the business organisations which are privately owned indulge in corporate misgovernance. In the organisation which are state own almost all the employees indulges in corporate misgovernance, whereas in the organisation which are privat ely owned only the top management are involved in corporate misgovernance, which means that in the private organisation the employees at lower levels behave in a better way and are not a part of such illegal activities. Many of the business organisation use various illegal tactics to make more money. Pollution control, avoiding child labour are considered as ways to improve operations of the company than mere issues of good behaviour. The list of various illegal activities existing in the business organisation nowadays are mentioned below. Misusing the industries licence to avoid competitors to enter the industry. To earn more and quick profit import licence are misused. To meet investment and business expenses they hold the money abroad in an illegal manner. They give bribe to the government official to earn special advantages for their organisation. Corruption and moral bankruptcy Corruption is widespread around the globe. There exist two main causes for the existence of corruption: First reason being Greed and the second reason being the need. Needs can be catered by increasing the pay packages but greed cannot be catered by pay package and there is no end to it (Gangopadhyay, 2011). It is sad to say but it is true that moral bankruptcy and corruption exist in today business which tends to violate the business ethics. All this causes insolvencies and bank failures. The people indulge in immoral activities like smuggling, drug trafficking, corruption, manipulating the financial accounts. Corruption can be classified in two forms. The first is Democratic Corruption means making illegal payment and the second is Anarchical Corruption means bribes paid to agents to get the work done. Agents act as middle- men of the political party which are in power. Corruption is caused due to political problems. Due to increase in the level of corruption, it affects the economy of the country. Investment and entrepreneurialism are aborted, lost in many opportunities, innovations are delayed. Corruption cannot be hidden easily and it is publicly discussed, debated and examined. If an economy wants to encourage investment then it should have long- term economic goals which depend mainly on political contracts (Gibbons, 2015). Whenever any new political party comes in forces and the new minister or government overturns the previous contracts then the economy can only have short- term investments because of which economic growth will be hampered. Corruption is one of the most important reason for poor governance. Various studies show that corruption reduces public earning and increases public spending. Therefore, fiscal deficits increase and it makes it difficult for the government in running good fiscal policy. Due to moral bankruptcy and the decr ease in the value system of human being in all the countries weather be it developed countries or developing countries and the increasing tendency of the people to become rich soon they get involved into activities like forgery and scams like money laundering etc(Hsieh, 2009). Scams caused due to money laundering causes financial distress which ultimately causes financial bankruptcy. It is unfortunate but it is true that by maintaining and financing the non- performing/non- productive assets knowingly hidden in financial records causes serious problems like financial mismanagement, loan defaults, liquidity problems which ultimately causes bankruptcy. It is very sad but true that transaction in black money has become establish business practice nowadays around the globe, more pronounced in countries like developing countries. Like for example when property dealings are done like the purchase of house than the buyer are required to pay 60% of the cost of the building in black and the rest of the 40% through cheque. The amount paid by cheque is white money and that 40% is considered to be the price of the sale deed. Many research studies show that roughly 10% of the G.D.P. is black money according to the study conducted in the year 2012. There exist various illegal sources to earn money. One such illegal source is Black Income. Some of the important sources are taking bribery, smuggling, black marketing etc. Taking bribes, illegal commission and such other forms of illegal income often gets unnoticed but they generate black money in the country (Gibbons, 2015). The burdensome administrative practices encourage the practice of grease money. For example, if an individual person wants any documents from any government offices than he needs to submit a lot of documents which requires a lot of time and efforts and to save time and to get the documents easily they tends to bribe. There exist no procedure to measure the amount of black money flowing in terms of foreign and local currency. Second illegal activity is smuggling. Smuggling has got attention in recent times. A lot of products are smuggled into sea ports in an illegal manner to various countries. The various products are smuggled in order to save the payment of customs duty and they are stolen products (Kaufmann, 2004). The third consist of illegal activities like to avoid duties and fees, unregistered firms are setup. They develop factories and obtain a licence of those scarce materials which are available in the market at a premium. They also borrow funds from banks with an intention to default. For tackling these issues like black money, smuggling, corruption following steps is required. With the increase in the greed and selfishness of the public, a morality based management of business system should be developed which tends to make the ethical values important. It tends to create a long lasting relation with the business ethics which need to be followed in the financial organisation (Kidd Condron, 2007). Unless fraudulent motives and selfish management are not eradicated from the organisation or the country it is almost impossible to develop an ethical environment in the country or the organisation. Every manager should leave all the activities like money laundering, crimes, account manipulati on so that the company is able to run on ethical values and system. Theories to avoid corporate misgovernance There are four theories to explain corporate governance. Agency theory Stewardship theory Stakeholder theory Sociological theory Agency Theory Shareholders are the owner of the company and they are principal of the company. The management is selected by the shareholders directly or indirectly. Management is required to work in a way that the objective of the company is met. The principal assumes that the management that is the agent will work in the favour of the company and will help to fulfil the objective of the company (Kirk, 2006). But sometimes the objective of the management differ from that of the principal that is the shareholders which lead to agency problems. The cost that occurs due to such problems is called agency cost. Therefore, the main purpose of corporate governance is to eliminate the differences between agent and the principal and thus reduce the agency cost. The two ways to reduce agency cost is by Accurate and fair financial disclosures Independent and efficient board of directors Stewardship Theory The Stewardship theory helps to reduce the possible conflicts between owners and corporate managers. This theory assumes that basically managers are trustworthy and they attach significant value to for their personal image (Leibler, 2003). The manager whose reputation are more is given higher pay and their motive is to control behaviour. The basics of Stewardship theory is as follows The theory describes that the managers are not motivated by their own individual goals but their main motive is to serve the objectives of their principal. When given a choice to choose between pro-organisational behaviour and self- serving behaviour they tend to choose steward behaviour which means to serve in the interest of their organisation. The barrier for the adoption of stewardship behaviour is the risk tendency of the principal. The owner should assume that the managers will work in the favour of stewardship theory. Whenever the executive is not able to extend the power of the board then agency cost acts as an effective way to measure the effectiveness of the working of the agents. Stakeholder theory There is various theoretical perspective in stakeholder theory like social contract theory, property right theory, ethics related to care, fiduciary relationship ethics and so on(OAK, 2015). Though there are possibilities to develop the stakeholder theory by using this theoretical perspective but practically it is not possible to do so because it is based on the individual norms and principal. This theory is criticised often because it cannot be applied practically. Sociological theory This theory mainly focuses on the composition of the board and their implication in the distribution of wealth and power in the society (Okoye, 2006). To attain the socio-economic objective the composition of the board, financial reporting, auditing and disclosure are very important. Purpose of Corporate Governance to avoid corporate misgovernance Corporate governance is a method to govern an organisation by following policies, customs, and laws in favour of employees. Corporate governance intents in increasing the accountability of the company and help to avoid disasters. Enron is a solid example of the importance of corporate governance (Pe ari , 2015). Properly executed corporate governance is like police department which helps in eliminating problems. Principal for good corporate governance are Shareholders recognition Stakeholders interest Responsibility of board should be clearly defined Ethical behaviour Business transparency Causes for corporate Misgovernance There are various reasons for corporate Misgovernance in the business organisation in India. Limited needs, closed economy, Lack of competition, ineffective regulatory framework etc. Apart from the above- mentioned reasons which act against transparent and healthy governance, it could be seen that many organisation are run by promoters families which hold negligible share capital of the establishment. The promotors are required to increase their holding in the organisation by the new policy in force (Prywes Sobel, 2015). With the continuous changes in the economic policies, increasing competition, deregulation, delicensing, globalisation the business organisation are required to adapt itself to the new policies. During the recent period due to failure in governance, the number of scams and frauds have increased worldwide. The reason for such failures is beyond corporate misgovernance. The management of the company with the help of their auditor and board of director try to defraud shareholders, both external and internal. The increase of corporate misgovernance does not only arises due to the separation of ownership and management but it is far beyond that. The reasons being the lack of disclosures, transparency, window dressing, inequitable treatment among shareholders, preparing incorrect accounts etc. are all becoming common nowadays. Earlier the meaning of corporate governance was to respect the rules and regulation of a nation in which the company is established. But nowadays due to globalisation, a set of standards which are global needs to be followed. The various causes for corporate misgovernance are Lack of consciousness among stakeholders Government influences in the organisation are more and the power given to enterprise is less. A large amount of the shareholding in the business is from private funds. Internal owners have more power than external owners. Because of the power the managers of the company uses their power for their benefit. Due to this, investors are not given the returns they are purposed to be given(Reed, Turner McConnell, 2011). Voting powers of the external owns are not enough. Ownership is concentrated only in few hands and most of the organisations are family owned. Legal protection given to the investors are not strong which results in the concentration of power to few hands only which uses their power in wrong ways. Capital markets are not developed properly because of which inflow of capital is affected. The market transaction is mostly based on internal information which is mostly manipulative. Banking sectors are not well regulated. Foreclosure norms, bankruptcy and exit mechanisms are absent. A securities market that exists today is not sound. Due to the presence of mismanagement and corruption. Guidelines formulated by the government are not uniform. Organisation structure, ownership and impractical rules do not allow to follow the rules. Management incompetency Not following the procedures mentioned in the internal regulations. Risk management is not paid proper attention. Responsibility is not distributed properly. The internal audit procedure is inefficient. Ignorant about the signal produced by the external audit. Influencing the audit opinion of external auditor. Symptoms of corporate misgovernance Weak management- senior management are fighting among themselves and do not have proper knowledge and information to work in favour of the company. Inadequate or deficient accounting system Unsound policies Over gearing- it means that the company has over borrowed loans than they will be able to pay back. The Single big project- Depending mainly on one big project neglecting all the other small projects. Not adapting to changes Ways to reduce Corporate Misgovernance The laws, rules and regulation, customs, processes, policies affect the way the company is being controlled. Corporate governance is mostly based on the way the people are accountable for the working of the company (Sharman, 2011). Many organisation like insurance companies, banks, manufacturers, religious organisation, gas and oil firms have issues with the corporate governance. The various ways to reduce corporate misgovernance in the business organisation are as follows. Shareholders should be given equitable rights. Running the organisation or the business in the favour of the stakeholders like employees, suppliers, investors, customers, policy- makers, and local communities. Describing the responsibility of the board of directors. Reliability and ethical behaviour by the management of the company. Maintaining transparency in the accounts of the company. Abiding by the rules and regulation framed by the laws. Proper disclosures are given in the books of account of the company. Illegal activities like corruption, bribe, and black money should be avoided. Powers of the CEO and the chairmen should be separated. Both of them need to choose different pathway otherwise, there will be a situation of excessive concentration of power. There should exist no conflicts among managers and the shareholders. There should exist a strict flow of information so that true and accurate information is made available to the decision- makers. Functions and tasks should be described properly especially among the managers. When the management of the company is guided by these principals than the chances of corporate misgovernance decrease. Obligation of the company towards various stakeholders Obligation towards Society A corporation is an association of public who are part of the society and is framed by law (Skouras Christodoulakis, 2013). The activities of the organisation affect the society. So they need to work mutually so that both of them are benefitted. National Interest: The company should work in such a way that it helps in the economic development of the country. Political non-alignment: It should work to support the democratic constitution of the country and should not work in the favour of any particular political party. Legal compliance: The Company should be managed in such a way that it follow all the legal rules and regulation of the country. Rule of law: It should not work in an impractical way and should work in the favour of the minorities shareholders also. Ethical and honest conduct: All the officers, managers, directors, CEO, CFO should work with honesty, sincerity and according to the ethical morals and standards. Corporate citizenship: It should work in such a way that it helps to improve the life of the community in which it operates (Tacconi, Obidzinski, Smith, Subarudi Suramenggala, 2004). Ethical Behaviour: They should set up ethical standards to work internally as well as externally. Social concern: They should work in such a way that the air, land and water does not get polluted. Safe and healthy working environment: It should be able to provide a healthy and safe working environment. Competition: It should not use unethical ways to advertise its product. Obligation towards Investors The company has the below- mentioned obligation towards investors: Towards shareholders: The company should work in such a way that it enhances the value of shareholders. The board of directors should provide the accurate information as required by the shareholders. Transparency should be there and information should be made available when they are required to take the decision. The shareholders should participate equally towards the matter related to the company without interfering with the management decision. Financial record and reporting: The record of the company should be maintained in a fair and true ways and in accordance with the accounting laws and regulations(Yao, 2011). Material misinformation and misrepresentation should be regarded as a violation of ethical conduct and criminal or civil action should be taken against it. Obligation towards employees The management has obligation towards its workers too: Equal employment practice: Fair treatment should be given to the employees and according to their merits. Employee laws should be strictly followed. Equal opportunities- Equal opportunities should be given to all the employees despite their sex, marital status, age, religion. Humane Treatment- employee should be treated as humans first. Participation Empowerment Inclusiveness and equity Collaborative and participative environment Obligation towards customers Providing quality services and products. Making available the products at an affordable price. Committed to work towards customers satisfaction. Managerial Obligation Protecting the assets of the company Maintaining good behaviour towards government agencies. Control should be there about the activities of the management and the management should not misuse their power. The management should work in favour of the society and in its best interest. The management should not receive any gifts or donation in an illegal way. Reasons for growing demand for corporate governance and reducing corporate misgovernance Because of the failure and inadequacies in the existing system, the need for codes and norms arises. When the company wants to earn more profit they tend to neglect the accounting standards required to be followed (Yatsunyk, Bryan Brad Johnson, 2012). In the modern day corporation, the need for corporate governance arises because most of the companies are involved in accounting frauds. Due to growing awareness of the investors. Due to economic reforms that provide private investment and free enterprises. Exposures to greater foreign and domestic competition. Changes in the pattern of shareholding in the public and private sector. Shareholders or investors are playing the active role than just behaving as lenders. Due to the increase in the role of the stock exchange. Conclusion Corporate governance is a procedure which is worried about the management of the organisation, the procedures to govern them, the question which is faced by the board of directors and about the accountability of the organisation towards its shareholders. The Board of directors should find out the ways to resolve these issues. In order to have a good corporate governance in the organisation, the members of the organisation should be able to contribute to improving the performance of the company. The board of directors should ensure that all the actions performed by the organisation are legal and are not against the rules and regulation of the law. Apart from this, the board of director is also responsible to ensure that the organisation is fulfilling its socio-economic responsibility and that they are accountable towards the society also in which it exist. Maintaining corporate governance is not the sole responsibility of the government and the regulator. The shareholders, directors and the professional advisor everyone play an important role in the corporate governance system (Yao, 2011). Everyone should take an active interest in nurturing and promoting healthy corporate governance culture. A country should have a reputation for good corporate governance otherwise, the capital will follow elsewhere. The investors should be confident on the level of disclosure, reporting standards. Like if a disease is not cured on time it can become an epidemic, in the same way if corporate misgovernance is left unattended then it can cause serious damage to the economy. References Barthwal- Datta, M. (2009). 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