MBA PROGRAM

Dept. of Accounting & Information Systems

University of Dhaka

Assignment on:
Application of Theory of Knowledge in Corporate Governance
Submitted To:
Dhiman Chowdhury, PhD
Professor
Dept. of Accounting & Information Systems
University of Dhaka

Submitted by:
Group Name: Bright Sparks
Section B, 17th Batch
MBA PROGRAM
Dept. of Accounting & Information Systems
University of Dhaka

Date of Submission: 18th March, 2015

Group Name: Bright Sparks

MBA PROGRAM
17th Batch, Dept. of Accounting & Information Systems
University of Dhaka

Group Members:

SL No.

Name

ID

01

Sumit Hasan

17-005

02

Md. Rezwan Sarder

17-008

03

Md. Nurun Nabi

17-044

04

Sk. Nuruzzaman

17-073

05

Md. Hasan

17-152

Introduction

Corporate governance
Corporate Governance is the system by which business corporations are directed and controlled.
Its structure specifies the distribution of rights and responsibilities among companys different
bodies such as board, management, share holders and other stake holders. Transparency and
accountability are its major attributes (Chowdhury 2012). Corporate governance can also be
defined as the set of laws, policies and procedures, and institutions affecting the way a
corporation is directed, administered and controlled. It also includes the interrelationship of the
stakeholders, i.e., shareholders, management, and the board of directors, employees, suppliers,
customers, banks and other lenders, regulators, the environment and the community at large.
There is a growing recognition that a good Corporate Governance system actively adds value to
the long run. Viewed in this context, Corporate Governance is the enhancement of the long term
shareholders value while at the same time protecting the interest of other stake holders (Afroze et
al. 2005).
Contemporary corporate governance started in 1992 with the Cadbury report in the UK. Cadbury
was the result of several high profile company collapses. It is concerned primarily with
protecting weak and widely dispersed shareholders against self-interested Directors and
managers.
Corporate Governance Parties:
Shareholders Those that own the company
Directors Guardians of the Companys assets for the Shareholders
Managers who use the Companys assets and run the company towards its goal

Four Pillars of Corporate Governance

Accountability: Ensure that management is accountable to the Board and board is accountable
to shareholders
Fairness: Corporate governances protect shareholders rights. All shareholders including
minorities are treated equitably Ahmed et al. 2005). All shareholders including minorities are
treated equitably. It also provides effective redress for violations.
Transparency: Ensure timely, accurate disclosure on all material matters, including the financial
situation, performance, ownership and corporate governance.

Independence: Procedures and structures are in place so as to minimize, or avoid completely

conflicts of interest. Independent Directors and Advisers i.e. free from the influence of others.
Elements of Corporate Governance

Good Board Practices: Clearly defined roles and authorities, duties and responsibilities of
directors, managers. Board is well structured and well organized in an organization. It ensures a
well composition and mix of skills and experiences (Chowdhury 2012).
Good Board procedures: Directors remuneration in line with best practice, proper training and
self evaluation etc.
Control Environment: Components of control environment are internal control procedures, risk
management framework, disaster recovery framework, media management techniques,
independent external auditors etc.
Transparent Disclosure: Financial and non financial information should be disclosed properly.
Financial reports should be prepared according to International Financial Reporting Standards
(IFRS).
Well-Defined Shareholder Rights: shareholders rights and responsibilities should be well
defined. There should be clearly defined and explicit dividend policy.
Board Commitment: board is committed to its objectives and corporate governance initiatives.
Policies and procedures have been formalized and distributed to relevant staff.

Theory of Knowledge
Knowledge
Knowledge is a broad concept. Various disciplines define knowledge from different angle.
Sociologists explained belief and knowledge as ideology which is the reflection of the social
structure. They said more about sociology of belief than sociology of knowledge. They did not
focus on the actual knowledge making process. Philosophy only focuses on the actual knowledge

making process. It defines knowledge as justified belief which indicates that human knowledge
is imperfect because justification is an evaluation process.
A group of philosophers argued that knowledge comes mainly from observation and experiences
whereas another group believes knowledge comes from pure reason independent of experience.
Knowledge in philosophy also means continuous revision of belief. We cannot make knowledge,
we rather create belief or at best justified beliefs.
From where do we get our knowledge?
A second important issue in epistemology concerns the ultimate source of our knowledge. There
are two traditions: empiricism, which holds that our knowledge is primarily based in experience,
and rationalism, which holds that our knowledge is primarily based in reason. Although the
modern scientific worldview borrows heavily from empiricism, there are reasons for thinking
that a synthesis of the two traditions is more plausible than either of them individually.
How are our beliefs justified?
There are better and worse ways to form beliefs. In general terms, it is important to consider
evidence when deciding what to believe, because by doing so we are more likely to form beliefs
that are true. Precisely how this should work, when we are justified in believing something and
when we are not, is another topic in the theory of knowledge. The three most prominent theories
of epistemic justification are foundationalism, coherentism, and reliabilism.
How do we perceive the world around us?
Much of our knowledge, it seems, does come to us through our senses, through perception.
Perception, though, is a complex process. The way that we experience the world may be
determined in part by the world, but it is also determined in part by us. We do not passively
receive information through our senses; arguably, we contribute just as much to our experiences
as do the objects that they are experiences of. How we are to understand the process of
perception, and how this should affect our understanding of the world that we inhabit, is
therefore vital for epistemology.
Do we know anything at all?

The area of epistemology that has captured most imaginations is philosophical scepticism.
Alongside the questions of what knowledge is and how we come to acquire it is the question
whether we do in fact know anything at all. There is a long philosophical tradition that says that
we do not, and the arguments in support of this position, though resisted by most, are remarkably
difficult to refute. The most persistent problem in the theory of knowledge is not what
knowledge is or what it comes from, but whether there is any such thing at all.
Application of justified belief in corporate governance
There is a distinction between belief and justified belief. All beliefs are not knowledge.
Knowledge must be justifiable and justification should be accurate. Justified belief is closely
associated with reason and rationality. Justified belief is also known as well founded belief,
reasonable belief. Justified belief is based on adequate grounds in the absence of superseding
reasons to the contrary. Knowledge can be created from the acceptance of justified belief by
evaluation. The epistemic analysis of causes and effects is an evaluation process. In order to
create knowledge a justified knowledge must be coherent in a certain way with other belief or
statements. Justified belief must also have a explanatory power. Therefore, justified belief means
it is a belief that can be compared, verified and tested with other available beliefs. This rule
suggest corporate governance to apply the code of corporate governance that can be justified
with reasonable knowledge and compared, verified with other code of conduct applied in an
organization.
Application of Knowledge is independent of reason rule
Good knowledge creation requires reasons or beliefs with evidential probability. A belief or trust
with rationality and high confidence can work as a substitute for full information. Beliefs need to
be evaluated against some independent epistemological standard; likewise reason for belief need
to be evaluated against criteria which are external to the participant.
The contribution of the rules knowledge is independent of reason in corporate governance are
as follows:

For the rules of independent of reason, corporate governance rules around the world nowa-days recommend that outside independent directors be included in the board of

directors, audit committee and remuneration committees.

Due to independent of reason corporate governance also required a balanced board of

directors to prevent concentration of power.

In order to ensure independent of reason corporate governance required outside or
external board members to be nominated and appointed not by the chief executive officer
or the chairman, but by the whole board.

Finally, this rule suggests corporate governance that facts and knowledge should not be given to
a single mind in order to dispersed knowledge among people.
Application of discrimination of knowledge concept
Knowledge through discrimination is a process, the ability to discriminate good and bad. It is
characterized by quick apprehension, clear discernment, far-seeing. For value creation, the right
person at the right place is a precondition (Chowdhury 2010). This concept of discrimination
helps corporate governance by explaining things separately and in alternative ways and in
different directions and dimensions to derived maximum benefit from knowledge. For this
reason, in corporate governance two need be kept separate in order for both to flourish. The idea
of separation of management and ownership is derived from this rule.
Application of knowledge based theory in corporate governance
Knowledge based theory develop the effects of the knowledge requirements in the different
production processes on corporate governance structure. Knowledge resources affect corporate
governance (Chowdhury 2010). And the reverse is also true, in that corporate governance
practices can affect knowledge management and production. Corporate governance practices can
promote the efficient use of knowledge resources within the firm. More comprehensive
knowledge based theory of the firm help to embrace knowledge creation and application.
Although misuse of power, ideology and self interest appear dominant in the corporate
environment, most of the issues have been improved in recent years. But still governance
remains the major problem.

Knowledge is considered as the control system because the control system in corporate
governance unearths human self interested behavior and human imperfections of knowledge
dealing with corporate resources. In corporate governance, knowledge is viewed as not only
creating resources but also its efficient creation and equitable distribution of resources.
Knowledge based control system helps corporate manager to design a knowledge base where
corporate players are encouraged to behave not in their self interest and ideology but according
to knowledge, justification, evidences and organizational goals.
Governance in corporate sector still is not truly consistent with the theory of knowledge because
firm theory or knowledge is still production function and resource based. Distribution of
resources is mainly governed by power, self interest and ideology not by epistemic justification.
Devid Humes proposed in his theory of human understanding that in an organization the
employees comes from different culture and background. So in the organization there is a
connection between different thoughts and ideas.
Resemblance problem
Theory of human understanding suggest that employee may do the same performance in the
same way what the manager perceived about before, based on this fact if mangers take decision
the actual performance of employees will not be measured reliability that is why the interest of
stakeholders is not attained.
Contiguity of time or place
The ideas of employees of different time or place may be different but there is a connection
between them for example the ideas of employees worked around 1990s and ideas of employees
worked at present are different because of innovation, technological changes but the present
employees get ideas from past and this the experience (Chowdhury 2010). To ensure corporate
governance managers should evaluate the employees ideas properly.
Cause and effect
If we think of wound, we reflect on pain which is possible for cause and effect. This think that
people do everything what they think. In corporate governance managers should give the

flexibility to employees to think their own way. Based on the past experience the employees give
their best output for the organization.
Application of uniformity rules in corporate governance:
Every employee has an ambition to see himself at the good position of the organization and the
shareholders want to see their organization at top position in the market but someone can do and
other cannot do because of expectation gap of the employees that is they want something but
cannot get the opportunities (Chowdhury 2010).
Application of assignment of responsibility in corporate governance:
By born individual has the tendency to dominate others in a group. In order to create knowledge
this incentive need to be managed. Therefore, manager of the organization tries to select the best
person for the right place. In corporate governance there is a need to ensure accountability. So, to
ensure accountability manager should consider the experience using sense and observation.

Assessment of relation between Theory of Knowledge and

Corporate Governance practice
The dominant view of corporate governance disregards what is today common understanding in
the strategic management literature and in modern corporate governance. The key task of firm
governance is to generate, accumulate, transfer and protect firm with specific knowledge through
evolutionary theory which allows the modification belief. In particular, Agency theory as the
main approach in the corporate governance discussion has disregarded knowledge work aspects.
It has had a marked influence on the discussion both in theory and practice. Now in the agency
problem, man in general is motivated by self-interest or group interest. This self interested
behavior ideology and dependent reasoning are pervasive across place and time. Thus
regulatory framework, no more but better regulation or perfect implementation knowledge is
necessary. So, corporate governance rules around the world now-a-days recommend that outside
independent directors be included in board of directors, audit committees and remuneration
committees. These codes were initiated in the early 1990s in response to wide scale misuse of
power and managerialism by corporate executives. That is why Foucault (1980) noted the

expression of power knowledge. So corporate governance codes around the world are required
a balanced board of directors to prevent concentration of power.
According to management scholars, knowledge can be tacit and explicit. Tacit knowledge is
transformed into explicit knowledge through interaction, communication and interpersonal
communication. Now the primary task of management is to establish the coordination necessary
for knowledge interaction. Generally corporate governance can be seen as monitoring of
management by shareholders, creditors, bankers, auditors and government bodies. This is
aesthetic way of corporate governance is to create knowledge in the arena of modern corporate
governance. Now from the theory knowledge discrimination, right person should be at right
place. This is actually the intellectual process to differ good or bad, right or wrong. The ability of
discrimination is characterized by quick apprehension, clear discrimination, far seeing
intelligence, all embracing knowledge and concentrating and searching. So knowledge is the
mechanism to know activities in aesthetic way. Because organizational knowledge is not only
concerned with corporate governance but it is broadly a network of human activity where
knowledge is worked as control mechanism. So, the objective of knowledge is epistemic unity
of thoughts. To achieve epistemic unity of thoughts, we need greater interactions and
discussions, comparisons and verification of competing ideas. So a control system is considered
as a knowledge system.
Prevention is better than a cure, so including knowledge of the principle and practice of
corporate governance in mainstream director training is essential which is in terms assistance to
think rationally not through the belief only. This is the way to raise capacity of management and
board of directors. After all, knowledge based corporate governance is one which is based on
epistemology or epistemic justifications, adequate grounds, total evidences and comparisons,
verification, evaluation and synthesis among competing ideas. Actually the analysis and
interpretation of the theory of knowledge suggests that epistemology based management control
and corporate governance would restrict pursuance of self interest and ideology. Using
knowledge, in Modern Corporation for agency relationship and agency problems, there have
been shifts and revisions of beliefs in corporate governance like that fixed remuneration system
to performance based system, board composed of both dependent and independent directors and
increased need for strong monitoring on management by institutional shareholders. Theory of

knowledge also prescribes that each control mechanism in an organization separately was an
imperfect mechanism. It implies that corporate control and corporate governance are knowledge
based when corporate activities and their justifications are based on knowledge not on belief and
self interest. So, epistemology of knowledge in philosophy can help correct the narrow behavior
in business and modern corporate governance through socialization, externalization, combination
and internalization.
Conclusion
Corporate governance is viewed as the total system or control mechanisms, external or internal
that provided an effective means of good corporate behavioral process. It ensures accountability
of those who matter most in the process and maximizes the value for the shareholders in a fully
transparent manner. However, in modern corporate governance knowledge from different aspects
gives a magical touch to solve problem aesthetically. For example, in case equitable distribution
of resource, management control, competition in market, transparency both in national and
international perspective, interest of shareholder or any equity issues, knowledge deals with a
successful mechanism to provide an epistemic solution. But the imperfections of knowledge are
not supported for any kind of ethical equality. For example, Equity issue is an important
consideration for good governance. But this aspect remained ignored by corporate governance
codes around the world. For example, in case salary differentials there are some discrimination.
In developed countries like UK remuneration of directors is four or five times than ordinary
staffs. But in developing countries like Bangladesh, remuneration of directors is eleven times
than ordinary staffs which are very lower payment. This is the imperfection of knowledge. But
generally, knowledge is considered as the creation of resource and equality because it involves
interactions among people at various levels, to chalk out a well coordinated action plan for better
utilization of societys resource with a view to achieving individual and societys goals.
Especially in case of agency problem knowledge through different mechanism can solve the
management problem. It makes transparency in the era of corporate governance through
independent directors, non- executive directors, and audit and remuneration committee, frequent
general meeting and so on. Though corporate governance activities traditionally had been
concerned with shareholder value maximization, knowledge based governance can maintain a
balance of power among capital, labor and management. So, Epistemology of knowledge in

philosophy can assist to broaden the behavior in business. But for more perfection of knowledge
in corporate governance it has to be verified, analyzed, interpreted and accepted carefully.

REFERENCES
Afroze, Sadia and Jahan, Mosammet Asma (2005), Corporate Governance Practices in
Bangladesh, Dhaka University Journal of Business Studies, Vol. XXVI, No.2, December.

Ahmed, Mamtaz Uddin and Yusuf, Mohammad Abu (2005), Corporate Governance: Bangladesh
Perspective, The Cost and Management, Vol. 33, No. 6, Nov-Dec.
Chowdhury D. (2012) Incentive, Control and Development: Governance in Private and Public
Sector with Special Reference to Bangladesh, Dhaka University: Dhaka
Chowdhury D. (2010) Knowledge, Interactions and Peace: A Socio-Philosophical Aanalysis,
Dhaka University: Dhaka