Need For A Corporate Governance Index

As Bangladeshis we are not unknown to various indices propagated by local and international bodies to detect and gauge inveterate issues prevailing in our societies. Some of them are intended to really make a difference in our life, some are to capture gravity of the situation. Time has come to introduce another one: Corporate Governance Index. It will be an index that will trace governance in our corporate sector and will help understand what can be done here.

Before spelling out the core, let us loiter over the prelude a bit more. On too many occasions, we hear people repining over the corporate governance. It is infested with bad lots, our conglomerates do not last long, worker-management relations is not in good shape. Many big groups that faced odds and grew strong in favorable times could not even stand still in the face of the wind of change in adverse conditions. Deteriorating conditions in our big groups are often put our policy makers in quandary as to which side to take. Knavery soiled reputation of corporate sector. Far too many corrupt practices are being detected in recent times. Often powerful political patrons abetted the wrongdoers. Reneging on agreed terms has become commonplace.

Few that eschewed the political influence and achieved a state  of beatitude by getting closer to Men-in-Fatigue also made a mark in the corporate world. And now we see the shadow of the blessed groups transcends the boundary of corporate affairs. Now we can feel their presence in public offices and in professional bodies. 

Often we hold a view that corporate world should be free from any kind of leverage. In a country where business mingled with politics, this kind of view sounds like utopian. But even if we try to achieve or get closer to that undisturbed state of corporate governance, that will be a great leap forward to make things better. A barren land requires rain to rejuvenate its top soil so that microorganism could play their role to make it fertile. Similarly, a Corporate Governance Index (CGI) for Bangladesh will actuate the business groups to act independently and lawfully . It will force the government to act responsibly by restraining ruling party stalwarts.

CGI can be composed of bevy of indicators: ownership, decision making process, dispute settlement, CSR activities, R&D commitments, closeness to political groups, closeness to security establishments, information etc.

Ownership indicator will assay the owners, how they form the company and the percentage of stakes they hold in the company. Political ownership will fetch a low score.

Decision Making Process will try to measure participation of all the stakeholders in decision making, taking into account minority shareholders' opinions, reflections of opinions shared by employees, consumers, influence of outside quarters in the decision making process and respecting minority shareholders' rights.

Dispute Settlement indicator will look into how the company settles its differences with vendors, subsidiaries and employees. Is there any fair representation of stakeholders in the dispute settlement body? Did the aggrieved party acquiesce in the decision made by the board or move to the Higher Court for justice?

CSR Activities will try to fathom the company’s commitment to make lives, society better by patronizing social initiatives and individual campaigns to fight an evil or a social problem. It will also evaluate company’s commitment towards other sectors like arts and literature, sports etc.

R&D Commitments will evaluate a company in terms of its willingness to undertake research and innovation programs within the company and its support for research works at tertiary institutions.

Links With Political Groups will try to measure how far and at what length it supports and finances political activities. What percentage of political activists constitutes its active workforce.  Does the company dole out regular payments to some party workers? Did the company try to take political assistance to get favor over its rivals at any stage of its operation?

Links With Defense Establishment will try to find out company’s milking of senior and influential military/police bureaucrats to get some favor in doing business in Bangladesh. It will also look into involvement of serving officials in a company and business dealings between a defense-run company and a private company. Since such companies are insulated from tribulations from various quarters, it is not just to consider them on a par with companies who face this kind of troubles. So, they will get a low score if there is this kind of tie.

Audit And Tax will assay company’s ability to conduct regular audit and put the recommendation into action . It will also judge tax commitment of the company.

Information will try to find out how willing a company is to divulge critical and sensitive information to shareholders and the press.

Finally, the CGI will be made by adding all the individual scores. High score means better ranking in corporate governance.

A dedicated organization, headed by a retired university professor or banker, can be formed to  create the CGI and publish an annual corporate governance report.  The initiative can be supported by professional bodies of bankers, businessmen, economic and business reporters and business editors. Researchers, revenue bureau and other organizations can throw their lots with this newly created organization. Individuals and philanthropic institutions can pool money for its creation. A year or two later , sponsors and donors will pitch in.

Now come to the crux of the matter: how this CGI will make a difference.  As soon as news of CGI report suffuses  the country, people will look down upon the companies who will perch on the lower rung of CGI ranking. Bankers will think twice to endorse investment/loan proposal of companies who do not have good scores in the CGI. Press will not give them the space and consumers will be cautious about them. This, in turn, will make parties and defense establishment to hide their footprints  in the corporate world , leading to an intervention-free corporate environment.