A Study On Corporate Governance of Sadharan Bima Corporation

Chapter-One
Introduction
A study on Corporate Governance of Sadharan Bima Corporation 1

1.1: INTRODUCTION
Corporate governance is the system of rules, practices and processes by which a

company is directed and controlled. Corporate governance essentially involves
balancing the interests of a company's many stakeholders, such as shareholders,
management, customers, suppliers, financiers, government and the community.
Corporate governance is based on several critical principles. They include an
independent, active and engaged Board of Directors which has the skill to properly
evaluate and oversee the business process, business and financial performance,
internal control and compliance structure and direct management on the strategic and
policy issues. So, It can be defined as the set of processes, customs, policies, laws and
institutions affecting the way a company is directed, administered or accountability of
certain individuals in an organization, through mechanisms that tend to reduce or
eliminate the principal-agent problem. There are 2 Government owned insurance
companies in Bangladesh. Bangladesh Sadharan Bima Corporation is one of the
public insurance companies in Bangladesh from the two. Insurance Company is a
financial institution, so it also needs to follow International Accounting Standards
(IAS) which is generally called Bangladesh Accounting Standards (BAS) and
International Financial Reporting Standards IFRS) is called Bangladesh Financial
Reporting Standards (BFRS). Bangladesh Security Exchange Commission (BSEC)
has implemented corporate governance guidelines which compliance is mandatory for
every insurance company as well as other companies in Bangladesh and other nations;
Organization for Economic Co-operation & Development (OECD) stated principles
of corporate governance for every corporation.

1.2: LITERATUREREVIEW
Cadbury, A. (1992) stated that corporate governance is the system by which

companies are directed and controlled. Boards of directors are responsible for the
governance of their companies. The shareholders’ role in governance is to appoint the
directors and the auditors. The responsibilities of the board include setting the
company’s strategic aims, providing the leadership to put them into effect,
supervising the management of the business and reporting to shareholders on their
stewardship.
Ahmed and Baree, (2000), the authors identified problems of implementing

international corporate governance norms in Bangladesh and finally make certain
recommendation for reform of corporate governance as well. The article recommends
three substantive actions. First, a ‘high powered committee’ including members from
government, regulatory agencies, companies and ICAB should write a code for
corporate governance in Bangladesh. Second, Existing laws should be duly reformed.
Third, academic and professional institutions should include corporate governance
principals in their syllabus.
Hermes and Jenifer, (2002), stated that Corporate Governance as a set of

interlocking rules by which corporations, shareholders and management govern their
behaviour. In each country, this is a combination of a legal system that sets some
common standards of governance and systems of behaviour determined by firms
themselves.
Ahmad and Yusuf, (2005), stated that Corporate governance practices in Bangladesh
are quite absent in most companies and organizations.. One reason for this absence of
Corporate Governance is that most companies are family oriented. Moreover,
motivation to disclose information and improve governance practices by companies is
felt negatively. There is neither any value judgment nor any consequences for
corporate governance practices. The current system in Bangladesh does not provide
sufficient legal, institutional and economic motivation for stakeholders to encourage
and enforce corporate governance practices; hence failure in most of the constituents
of corporate governance is witnessed in Bangladesh.

Osman, I. Mahmood and Mahfuja (October 2007) shown how corporate
governance is practiced through ownership structure and how firm’s performance as
well as its dividend payout policy is influenced by different ownership pattern. There
are several alternative corporate governance mechanisms, which may play an
important role to improve firm’s performance. Here ownership structure has been
considered as an effective tool of corporate governance.
Sarkar, J.B and H, Ahmed (2007) pointed out the scenario of corporate governance
disclosure by listed public limited companies in Bangladesh. They identified some
information items which companies tend to disclose much such as ‘disclosure of
remunerations committee’. They observed that there are some information items,
which companies tend to disclose less or try to conceal purposively, such as ‘stock
code’. They observed that 25 companies out of total 257companies as listed on DSE
up to June 30, 2005 reported Corporate Governance Report in the annual reports
voluntarily.
Bhuiyan, U. Hamid, P. Kumar (2007) studied on Corporate Governance and

Reporting: An Empirical Study of the Listed Companies in Bangladesh. They
considered importance of corporate disclosure and financial reporting in Bangladesh.
Belonging to financial or non-financial institution, age, multinational company, and
size of the board of directors are not found to have any significant impact on
corporate governance disclosure. They tried to examine the actual corporate
governance practices in the listed public limited companies by considering 45
disclosure items.
Boubakri, Narjess (2011) conducted a study on “corporate governance and issues

from the insurance industry” and depicted that the nature and consequences of
corporate governance. He assessed the impact of corporate governance on firm
performance and risk taking. He found that following all the guidelines prescribed by
different respective bodies positively impact on company’s performance. But, most of
the companies are not conscious of these guidelines.

Bhowmik, S. Chandra and Shariful (2013) depicted that Bangladesh Corporate
Governance Guidelines is stronger than the guidelines of any other country.
Bangladesh corporate governance guidelines lack specific instructions regarding
number of board meeting, audit committee meeting, time gap between two meeting,
shareholders' voting right, proxy right etc. Again the minimum number of
independent director specified by the rules is not enough to ensure transparency and
accountability.
Karim, Rezwana, Bakul, and Rehana (July–December, 2010) described that the
level of disclosure is not also poor (mean disclosure is 85.81 percent). Among the
different types of industries, tannery and cement industries disclose more variables of
corporate governance while insurance companies are in lowest level of disclosure.
They examined fifty listed companies of DSE. It also includes the interrelationship of
the stakeholders, i.e., shareholders, management, and the board of directors,
independent directors, employees, suppliers, customers, insurances and other lenders,
regulators, the environment and the community at large.

1.3: STATEMENT OF THE PROBLEM
In a developing nation like Bangladesh, varied insurance companies are playing a

very vital role in the economic growth. No perfect study was so far conducted on the
problems of corporate governance of Bangladesh Sadharan Bima Corporation.
However, this study focused on finding out the best practices of corporate governance
of Sadharan Bima Corporation in Bangladesh.
1.4: SCOPE OF THE STUDY
This report consists of the outright observation and job experiences during the
internship period in the Sadharan Bima Corporation, Mymensingh Regional office.
The report mainly emphasizes the problems which are faced by insurance
organization in performing insurance business in Bangladesh especially in case of
Sadharan Bima Corporation. The report also concentrated on the prospects of
insurance business in Bangladesh. Finally the report incorporates the problems and
prospects of insurance business in Bangladesh.
1.5: PURPOSE OF THE STUDY
The internship objective is to gather practical knowledge and experience the corporate
working environment with the close approximation to the business firm and the
experts who are leading and making strategic decisions to enhance the growth of a
financial institution. To this regard this report is contemplating the knowledge and
experience accumulated from internship program.
The major objectives of the study are as follows:
 To identify the pillars of corporate governance;
 To gather adequate idea underlying practice of corporate governance in SBC;
 To know the compliance of corporate governance of SBC;
 To identify present scenario of corporate governance of the company; and
 To recommend some suggestions to overcome from those problems.

1.6: METHODOLOGY
Methodology refers to underlying principles and rules of organization or the

philosophical systems that work at the backdrop of any study. It clarifies the problems
involving the research in a very ordered and systematic fashion. Strategies are
determined at this stage for future implementation. In this report decisions and
calculations have been made basing on past experiences and the available data of past
activities.
1.6.1: Sources of data

It is an explanatory report in nature, which aims to evaluate corporate governance of
Sadharan Bima Corporation in Bangladesh. The research study is an empirical
research based on primary and secondary sources of data.
Primary Data:
Data has been collected primarily through correspondence with the personnel
working in different desks, relevant document studies, informal discussion with
clients and the top management.
Secondary data:
The main source of published data is the auditors’ statements of financial affairs,
which are basically used internally by the corporation. Data were also collected
from secondary sources like - Annual Reports of Insurance Company, Prospectus &
Profile of SBC, and Websites of the Insurance Company etc.
1.6.2: Reliability of data
The data collected are highly reliable in the sense that all data generated in the report
are used exclusively by Sadharan Bima Corporation.

1.6.3: Data Analysis:
Although it is a descriptive report, the data gathered from both primary and secondary
sources were arranged orderly to get a clear picture of the insurance company’s
corporate governance system. The study includes both qualitative and quantitative
analysis to evaluate of corporate governance rules as well as the monitoring tools.
1.7: LIMITATION OF THE STUDY
Some limitations in preparing this report have been faced. The main limitations are as
follows:
 The first limitation is lack of sufficient documents to properly conduct the study.
There is no well-furnished publication about corporate governance in SBC.
 Relevant papers and documents were not available.
 Did not provide adequate data from their source documents due to their
Confidentiality
 Difficulty in accessing latest data of internal operations.
 Their website had no updated data about corporate governance.
In spite of these substantial limitations, the researcher has tried to make this report as
informative as possible.

Chapter-Two
Overview of Sadharan
Bima Corporation

2.1: HISTORY OF INSURANCE COMPANY
Marine is the oldest form of insurance which was introduced in Northern Italy
sometime between the 12th and 13th century but the insurance business got the
institutional shape in the United Kingdom after establishment of Lloyd’s insurance
company in the late 17th century. The coffee houses of London play a vital role in
developing trade and commerce in United Kingdom.
The merchants and traders used to gather in these coffee houses for their business
transactions. Edward Lloyd opened a coffee house in 1680. In late 17th century this
coffee house virtually turned into the most famous Lloyds insurance company of the
UK.
During British role, some insurance companies started functioning in India. These
companies were of various origin including British, Australia and also India. After
independence, the Bangladesh government nationalized the insurance industry in
1972 by the presidential order no.95 Known s Bangladesh Insurance (Nationalization)
Order, 1972. By virtue of this order, save and accept postal life insurance and foreign
life insurance companies (other than the Pakistani companies), all companies and
organization transacting all types if insurance business in Bangladesh came under this
nationalization order. At the same time five insurance corporations were initially
established by the Government.
2.2: HISTORY OF INSURANCE COMPANY IN BANGLADESH
Insurance is not a new idea or proposition to the people of Bangladesh. Half a century
back, during the British regime in the then India, some insurance companies started
insurance business, particularly life, in this part of the world. Since 1947 until 1971
insurance business gained momentum in this part of what was then known as East
Pakistan. There are about 49 companies transacting both life and general insurance
business. These companies were operating under a free competitive economy.
After the emergence of the People’s Republic of Bangladesh in 1971, the government,
in order to make available the fruit of liberation to the general mass, nationalized the
insurance industry along with the banks in 1972 by Presidential Order no. 95. By
virtue of this order, save and accept postal life insurance and foreign life insurance
companies (other than the Pakistani companies), all companies and organization
transacting all types if insurance business in Bangladesh came under this
nationalization order. At the same time five insurance corporations were initially
established by the Government, viz, Jatiya Bima Corporation (National Insurance
Corporation), Teesta Bima Corporation (Teesta Insurance corporation), Karnaphuli
Bima Corporation (Kornaphuli Insurance Corporation), Rupsa Jiban bima
Corporation (Rupsa Life Insurance corporation), Surma Jiban Bima Corporation
(Surma Life Insurance Corporation). On 14 May, 1973 the Insurance Corporation act
VI, 1973 was enacted under which the previous five corporations were abolished and
the following two corporations emerged:
 Sadharan Bima Corporation for General insurance and;

 Jiban Bima Corporation for life insurance in Bangladesh.
Sadharan Bima Corporation (SBC) emerged on 14th May, 1973 under the Insurance
Corporation Act (Act No. VI) Of 1973 as the only state owned organization to deal
with all classes of general insurance & re-insurance business emanating in
Bangladesh. Thereafter SBC was acting as the sole insurer of general Insurance till
1984. Bangladesh Government allowed the private sector to conduct business in all
areas of insurance for the first time in 1984. The private sector availed the opportunity
promptly and came forward to establish private insurance companies through
promulgation of the Insurance Corporations (Amendment) Ordinance (LI of 1984)
1984.
On the other hand, In May 1973, Jiban Bima Corporation (JBC) started its journey in
Bangladesh. Since establishment its focus is mainly on two basic things, one of them
is to solve the risks and raise savings habits among the people and the other is to
create financial resources for the country’s economic growth through creative plans
and life insurance schemes.
The Insurance Market in Bangladesh now consists of two state-owned corporations,

forty three and seventeen private sector general & life insurance companies
respectively, a total of 62insurance companies.

2.3: HISTORICAL BACKGROUND AND PROFILE OF SBC
Sadharan Bima Corporation is only state-owned General Insurance Corporation

operating under the direct control and supervision of the Ministry of Finance,
Government of the People’s Republic of Bangladesh. It emerged on 14th May, 1973
under the Insurance Corporation Act (Act No. VI) Of 1973 to deal with all classes of
general insurance & re-insurance business emanating in Bangladesh. Thereafter, SBC
was acting as the sole insurer of general Insurance till 1984. In the year 1984
Bangladesh Government allowed insurance Companies in the private sector and to
that effect promulgated the insurance Corporations (Amendment) Ordinance 1984.
SBC is entitled to 50% of public sector business in Bangladesh. Insurance

Corporation (Amendment) Act 1990 provides that fifty percent of all insurance
business relating to any public property or to any risk or liability appertaining to any
public property shall be placed with the SBC and the remaining fifty percent of such
business may be placed with this Corporation or with any other insurers in
Bangladesh. But for practical reason and in agreement with the Insurance Association
of Bangladesh SBC underwrites all the public sector business and 50% of that
business is distributed among the existing 45 private general insurance companies
equally under National Co-insurance Scheme.
In respect of reinsurance, the same act provides that fifty percent of a company’s
reinsurance business must be placed with the SBC and remaining fifty percent may be
reinsured either with this Corporation or with any insurer in Bangladesh or abroad.
The main pillar of the SBC is insurance as well as reinsurance business. SBC is the
largest non-life insurance underwriter in Bangladesh in terms of gross premium,
network of offices & trained manpower. On the other hand, SBC reinsures the risks of
private insurance companies operating in Bangladesh.

2.4: ORGANIZATIONAL STRUCTURE OF SBC
SBC is run by a Board of Directors consisting of 07 members. The chairman and the
directors of the Board including the Managing Directors are appointed by the
Government. The Managing Director being the chief executive officer conducts and
manages the affairs and business of the Corporation in accordance with the provisions
of the Act, regulations and Government instructions and the resolutions of the Board.
He is also guided by the sound commercial principles and business practices. The
present organization structure of Sadharan Bima Corporation is shown below:
Managing Director
Chief Executive Officer
General Manager
Deputy General Manager
Assistant General Manager
Manager
Deputy Manager
Assistant Manager
Junior Officer
Office staff

2.5: DETAIL ORGANIZATIONAL STRUCTURE OF SBC
Organizational Structure of SBC
Board of
Directors
Managing
Directors
Admoinitrat Underwritin Finance &

Reinsurance Claims Real Estate Audit ECGD Branches
ion g Accounts
Central Marine Dhaka Zone

Personnel Marine Marine
Accounts Claims 17 Offices
Cittagong
Establishme Reinsurance Non-Marine
Fire Fire Zone
nt Accounts Claims
7 Offices
Motor & Motor & Khulna
Finance & Zone
MIS Cell Miscellaneo Miscellaneo Law
Budget
us us 16 Offices
House Crops & Rajshi Zone
Aviation Investment
Building cell Cattles 15 Offices
Narayangon
Telephone Coordinatio j Zone
Engineering
Cell n
5 Offices
Comilla
Motor Cell Statistices Zone
7 Offices
Sylhet
Security Region
Inspection
Services
5 Offices
Old Records Mymensing
& h Region
Dead Stocks 8 Offices
Traing
Institute

2.6: CORPORATE INFORMATION
Name of the Corporation Sadharan Bima Corporation

Incorporation Date 14th May, 1973
Date of Commencement 1973
Corporate Address 33, Dilkusha. C/A, Dhaka, Bangladesh.
Authorized Capital TK 200 Million
Paid Up Capital TK 100 Million
National Reinsurer in Private Sector 1985
Member 1. Asian Reinsurance Corporation,
Bangkok
2. Federation of Afro-Asian Insurances
and Reinsurer (FAIR)
Managing Director Mr. Syed Shahriyar Ahsan
2.7: BOARD OF DIRECTORS
Sl. No. Name and Designation

01 Prof. Shibli Rubayat-Ul-Islam
Chairman
02 Mr. Khondoker Rashidul Huq
Director
03 Mrs. Tahmina Begum
Additional Secretary, Finance Division, Ministry of Finance
Director
04 Mr. Md. Humaiun Kabir
Director
05 Mr. Sk. Abdur Rafique
Director
06 Mr. Syed Shahriyar Ahsan
Managing Director

2.8: IMPORTANCE OF SBC IN THE NATIONAL ECONOMY OF
BANGLADESH
Fortunately, in the past few years, several interesting lines of research have begun to
map the significance of insurance business in Bangladesh. The research output reveals
that insurance business is the crucial weapon for smooth running of financial
operations of the country. However, the studies also suggest that, insurance business
is very significant for the following roles:
2.8.1 Family Needs
A time does come when the family income stops completely or at least is considerably
depleted. Then they must have an income for necessities of life-- food, clothing and
shelter. It can be provided by insurance. Besides, it also provides the expenditure of
children’s education, marriage purpose etc.
2.8.2 Financial Security
Every man seeks security by living in a community which jointly braves all dangers.
Insurance is a supportive instrument in patronizing this process.
2.8.3 Capital Formation
Insurance is an ideal savings plan, provides for future economic needs. It gives the
opportunity to make capital formation.
2.8.4 Security of Old Age
Old age is considered as a hazard because many men live beyond their earning years
and during this time they still need on income. Life insurance qualifies as a good form
of properly for old age.
2.8.5 Sharing Risk
When a subscriber buys insurance it will be beneficial for him if he fails in any
accident that life can be perished. Otherwise it will be shared to all. Infect life
insurance has been formatted according to this purpose.

2.8.6 Eliminating Dependency
Insurance eliminates dependency. It makes a man to be self-reliance and his own

capability.
2.8.7 Expanding International Business
Insurance is not only appropriate for internal trade but also appropriate for export
import trading. Export-import trading is quite impossible without insurance. Because
at any time vehicles or ships may fall in danger by the natural calamity as such as
storm, tornado, cyclone etc. Even any Cargo Biman may fall in accident. At that
moment insurance is a vital supportive weapon.
2.8.8 Removing Uncertainty
Now-a-days scientific technology is going to increase day by day. Various important

elements and techniques are being made every day. Side by side a risk is also present
here. In this situation insurance is very helpful to save the property by accepting the
risk.
2.8.9 Achieving Social Value
In the society any insurer is considered as a respectable person. Because when

anybody knows that someone buys insurance he is conscious about his future. This is
why for getting the social dignity most of the people are very much interested to buy
insurance.
2.8.10 Mental Peace
It is not possible to continue the life keeping the risk forward. Insurance removes the
mental anxiety by accepting the life risk.
2.8.11 Profitable Insurance
Insurance not only creates the savings but also gives the opportunity to invest that
savings. After a definite period, the insurer/policy holder gets a lot of money is very
important during in his leisure period.

2.8.12 Increasing Per Capita Income & National Income
Insurance creates the field of activities and makes the source of income. On the other
hand, it constructs the organization firmly. For this per capita income and national
income is increased.
2.8.13 Protecting Inflation
By buying the insurance the capital is transferred to the institution. As a Result

inflation may be protected by utilization of extra capital.
2.8.14 Economic Development
The mobilization of savings, formation of capital, and an achievement of balanced

growth is an important responsibility of a state irrespective of its development age.
Insurance is a technical instrument in patronizing.
2.9 FUTURE PLANE OF SCB
Sadharan Bima Corporation wants to be the premier organization in Bangladesh for

all insurance and reinsurance business and to provide quality services at affordable
cost. Sadharan Bima Corporation also wants to be the insurer of the first choice in
Bangladesh by offering top class security comprehensive, efficient services and
professional conduct of business. Sadharan Bima Corporation wants to use every
possible system and technology and knowledge to perform as an international
standard corporation while being number one organization in insurance sector of
home and abroad.
a. Separate organization for crop insurance
Bangladesh is an agricultural country. Every year huge amount of agricultural

products is destroyed by natural calamities. In this case crop insurance can protect the
farmers from those losses, but it needs an effective organization exclusively for
Agriculture related products. From this view point the Board suggested to establish a
separate Agricultural Insurance company for better and adequate insurance support. A
subsidiary company may be incorporated under the company is providing equity
participation by the SBC.

b. Increased the Authorized and Paid-up Capital of SBC
In line with the new Insurance Act enacted in 2010 as well as for meeting the need for
increased capital requirements to support the current size of business and keeping in
view the future growth of business of SBC, the Board of Directors deemed that,
Authorized and Paid-up capital of SBC be increased to taka 200 Crore and taka 100
Crore respectively from existing taka 20 Crore and 10 Crore. Accordingly proposal in
this regard will be submitted to Banking and Financial Institutions Divisions of
Ministry of Finance, Government of Bangladesh. The Board has also decided to
revalue SBC’s fixed assets by Professional Valuator in order to bring the real
financial strength of the Corporation..
2.10 CORPORATE SOCIAL RESPONSIBILITY OF SBC
Sadharan Bima Corporation is committed to conduct all its operations in a manner

that is protective to the environment, health and safety of employees, customers and
the community. In fulfilment of this commitment SBC maintains a continuing effort
to adhere to the following principles:
1. Develop its employees by encouraging empowerment and rewarding innovation;
2. Promote an environment for learning and personal growth of its employees by

providing training within the country and the abroad;
3. Endeavour to attain a position of leadership in each category of its business;
4. SBC is committed to insuring its business to conduct in accordance with high

ethical, professional legal standards and good corporate governance practices;
5. Aim to achieve business excellence by understanding, accepting meeting and

exceeding valued client’s expectations;
6. SBC will determine its clients need and have a commitment to provide high quality
services to meet them

2.11: OTHER ACTIVITIES OF SBC
In addition of performing the insurance business in Bangladesh smoothly, Sadharan

Bima Corporation also performs a wide number of extracurricular activities. For
instance:
Training
The Corporation attachés highest importance for upgrading the professional

competence and skills of its employees through undertaking various training programs
both at home and abroad. Every financial year they spent a huge amount of money for
training programs and seminars.
Observance of National Days
Important national days like National Martyrs and International Mother Language
Day on February 21, Independence Day on March 26, Victory Day on December 16
were observed due to respect and solemnity. Floral wreaths were laid at the Shaheed
Meenar and at national Martyrs memorial to pay homage to the martyrs who made
supreme sacrifice tough hold the dignity of the mother tongue achieve independence
of the country.
Anti-Money Laundering (AML) activities
Sadharan Bima Corporation believes adherence to laws relating to AML and

Combating Financing of Terrorism (CFT). In compliance with the AML laws,
Sadharan Bima Corporation has formed three member AML committees and adopted
policies for strict observance of AML laws by its each and every officer while
discharging their responsibilities.
Computerization
In line with the vision of the government to build a Digital Bangladesh, SBC has gone
through a gigantic transformation. Head office functions of SBC and the main
branches of SBC are now operated through extensive use of IT infrastructure.
Investments have been made to make the necessary upgrading in hardware and
software. A new website has also been launched to provide up to date information
about SBC.

2.12: VISION OF SBC
The vision of Sadharan Bima Corporation is to become a word class insurance and
reinsurance organization.
2.13: MISSION OF SBC
 To be the premier organization in Bangladesh for all insurance and

reinsurance business and to provide quality at affordable cost;
 To be the insurer of the first choice in Bangladesh by offering top class
security, comprehensive, efficient services and professional conduct of
business;
 Maintain SBC’s leading position in the insurance market in Bangladesh;
 To become an insurance organization of international standard by attaining the
highest confidence and trust of all concern from home and abroad through
improve services, dedication customer care and efficiency;
 To place innovation, technology and knowledge at the heart of the
organization’s growth.
2.14: GOALS OF SBC
1. To venture into other areas in Bangladesh and abroad on the strength of SBC’s
core competency;
2. To enter into and expand new insurance product and services to meet the
changing needs of clients;
3. To fulfill of SBC’s social commitments towards the public as a state owned
enterprise.

2.15: STRATEGIC OBJECTIVES OF SBC
Strategic objectives of SBC are

i. To achieve business targets;
ii. To increases share of private sector business through marketing efforts;
iii. To build, maintain and improve the commercial image of the organization and
gain recognition as a competent and professional insurer as well as reinsurer;
iv. To simplify the administrative system and procedure;
v. To attain full computerization and to utilize IT to its full potential;
vi. To reduce operating cost;
vii. To enhance the skills and flexibility of the employees through continuous
training;
viii. To ensure better return from SBC’s investment;
ix. To improve maintenance of existing real estate and expansion of it.
2.16: SWOT ANALYSIS OF SADHARAN BIMA CORPORATION
SWOT Analysis is the detailed strategy of an organization’s exposure and potential in

perspective of its strength, weakness, opportunity and threat. SWOT is an acronym
for the internal strength and weakness of a firm and the environmental Opportunity
and Threat facing that firm. So, if we consider Sadharan Bima Corporation in
Bangladesh as a business firm and analyse its strength, weakness, opportunity and
threat the scenario will be as follows:
2.16.1 Strength: Strengths of the company which is determining how well the Co.
would be able to perform in the light of prevailing resources & competitive
conditions.
 Strong corporate Management
 Maintain strong network through the country.
 strength or own financial capability of the company
 Members/customers identify as their strengths
 High qualified and experience employee that can bring the SBC in the higher
position.

2.16.2 Weakness: Weaknesses of the company which are lacking-deficient
competitive capabilities in the key functional areas of the company.
 Centralized decision making.
 Conflict in about power of authority among directors.
 Poor co-ordination and communication among different departments.
 Marketing Officer are not educated enough about Insurance law.
 Inefficient and ineffective employee for some positions.
2.16.3 Opportunity: Opportunities of the company which determine co. important

avenues for profitable growth, potential utility/ scope to sustain in the competitive
advantage. Home country constraints are becoming flexible as because of govt. are
now very much aware to this sector advantages and disadvantages.
 Target market is increasing at a higher rate on competitor’s products
 Rapid growth of business function and chancing the current market.
 Might attract a specific target market which they have initially targeted for –
the rural market.
 SBC brand can attract a group of customers.
 It has good working environment.
2.16.4 Threats: Threats of the company which is determine barriers to company

profitability & competitive.
 The market is very competitive
 Commission offered by competitors is some cases low
 Employee dissatisfactions for the current position in the company.
 Political environment of the country.
 Inflation and slow growth of the economy
 Economic conditions affecting our financial viability

2.17: SERVICES OF SBC
SBC provides various types of product & services. Reinsurance and Motor insurance
are the main product and services of SBC. Basically Government Institution and other
government individuals is the main client of the Sadharan Bima Corporation. So other
product and services of Sadharan Bima Corporation are given below:-
 Motor Insurance Policy

 Public Liability Policy
 Product Liability Insurance Policy
 Reinsurance Services
 Industrial Development through equity participation
 Human resource development for insurance industry
 Risk Improvement services
 Fire Insurance Policy
 Marine Hull Insurance Policy
 Marine Cargo Insurance Policy
 House Holder’s Comprehensive Insurance Policy
 Burglary Insurance Policy
 Engineering Insurance Policy
 Aviation Insurance Policy
 Workmen’s Compensation Insurance Policy
 Cash in Transit Insurance Policy
 Personal Accident Insurance Policy
 Dread Disease Insurance Policy
 Overseas Medi-claim (Business and Holiday) Insurance Policy
 Overseas Medi-claim (Employment and Studies) Insurance Policy
 All Risks Insurance Policy
 Peoples Personal Accident Insurance Policy
 Fidelity Guarantee Policy
 Contractor’s all Risks Policy
 Livestock Insurance Policy
 Cash on counter insurance Policy
 Cash in safe Policy
Chapter-Three
Conceptual framework of the Study

3.1: EMERGENCE OF CORPORATE GOVERNENCE
The origination of corporate governance is not totally clear but it is said that Agency
theory is the primary step of corporate governance ideals. The term “corporate
governance” appears to have arisen and entered into prominent usage in the mid-to-
late 1970’s in the United States in the wake of the Watergate scandal and the
discovery that major American corporations had engaged in secret political
contributions and corrupt payments abroad. Eventually it also gained currency in
Europe as a concept distinct from corporate management, company law or corporate
organization.
3.2: CONCEPT OF CORPORATE GOVERNANCE
Corporate Governance is the application of best Management Practices, Compliance

of Laws in true letter and spirit and adherence to ethical standards for effective
management and distribution of wealth and discharge of social responsibility for
sustainable development of all stakeholders.
Corporate governance has also been defined as the set of processes, customs, policies,
laws and institutions affecting the way a company is directed, administered or
accountability of certain individuals in an organization, through mechanisms that tend
to reduce or eliminate the principal-agent problem.
Some scholars are defined corporate governance as the mechanism that frames the
duties and powers of corporations to deliver benefits to investors and those directly
impacted by the corporation’s activities.
Corporate governance has attracted a lot of interest because of the importance of the
economic health of corporations and society in general. The goal of every firm is to
increase its shareholders wealth. As those who put financial resources at the disposal
of companies they expect that such resources would be managed effectively and in a
transparent manner to yield reasonable returns on their investment. But because
managers may not always act in the interest of shareholders, the Board of Directors is
constituted to monitor their activities.

3.3: OBJECTIVES OF CORPORATE GOVERNENCE
Corporate Governance is aimed at creating an organization which maximizes the

wealth of shareholders. It visualizes an organization in which emphasis is laid on
fulfilling the social responsibilities towards the stakeholders in addition to the earning
of profits. The objectives of Corporate Governance are to ensure the following:
 Constituting Board capability of taking independent and objective decisions.

 Board is independent in terms of Non-Executive and Independent Directors.
 Board adopts transparent procedures and practices.
 Board has an effective machinery to serve the concerns of the Stakeholders.
 Board to monitor the functioning of the Management Team.
 Properly constituted Board capable of taking independent and objective decisions.
 Board is independent in terms of Non-Executive and Independent Directors.
 Board adopts transparent procedures and practices.
 Board has an effective machinery to serve the concerns of the Stakeholders.
 Board to monitor the functioning of the Management Team.
 Board remains in effective control of the affairs of the Company.
3.4: ELEMENTS OF CORPORATE GOVERNENCE
Role and Power of Board of Director.

1. Legislation
2. Management Body
3. Board Skills
4. Board & Directors Appointments
5. Board Induction and Training
6. Board Independence
7. Board Meetings
8. Board Resources and Documents
9. Code of Conduct
10. Strategy setting and Planning
11. Financial and Operational Reporting
12. Monitoring the Board Performance and Suggestions
13. Audit Committee and,
3.5: PHILOSHOPHY OF CORPORATE GOVERNANCE
Corporate Governance helps in maximizing the long-term shareholder value. It is

more a way of business life than a mere legal compulsion. Four ideals, which should
be the guiding force of company’s philosophy on Corporate Governance, are:-
i. Transparency
ii. Accountability
iii. Disclosure and;
iv. Value Creation.
The Code of Business Conduct and Ethics helps ensuring compliance with legal
requirements and other standards of Business Conduct. All company Employees and
Trainees are expected to read and understand this code of ethics, comply with all
applicable policies and procedures, and ensure that all agents and contractors are
aware of, understand and adhere to these standards. The Company expects all
employees, agents and contractors to exercise good judgment to ensure all employees,
agents and contractors and to maintain competitive, efficient, positive harmonious and
productive Work Environment and business organization.
3.6: CORPORATE GOVERNANCE THEORIES
For the purpose of this report various corporate governance theories have been
reviewed: agency, stakeholders and resource dependency theory, stewardship theory,
social contract theory legitimacy theory and political theory.
3.6.1: AGENCY THEORY
Much of the research into corporate governance derives from agency theory. Since the
early work of Berle and Means in 1932, corporate governance has focused upon the
separation of ownership and pedals which results in principal-agent problems arising
from the dispersed ownership in the modern corporation. They regarded corporate
governance as a mechanism where a board of directors is a crucial monitoring device
to minimize the problems brought about by the principal-agent relationship. In this
context, agents are the managers, principals are the owners and the boards of directors
act as the monitoring mechanism (Mallin, 2004). Moreover, literature on corporate
governance attributes two factors to agency theory. The first factor is that
corporations are reduced to two participants, managers and shareholders whose
interests are assumed to be both clear and consistent. A second notion is that humans
are self-interested and disinclined to sacrifice their personal interests for the interests
of the others (Daily, Dalton & Cannella, 2003). The agency role of the directors refers
to the governance function of the board of directors in serving the shareholders by
ratifying the decisions made by the managers and monitoring the implementation of
those decisions. The focus of agency theory of the principal and agent relationship has
created uncertainty due to various information asymmetries (Deegan, 2004).
The agency model assumes that individuals have access to complete information and
investors possess significant knowledge of whether or not governance activities
conform to their preferences and the board has knowledge of investor’s preferences
(Smallman, 2004). Therefore according to the view of the agency theorists, an
efficient market is considered a solution to mitigate the agency problem, which
includes an efficient market for corporate control, management labour and corporate
information.
3.6.2: STAKEHOLDER THEORY
This theory centres on the issues concerning the stakeholders in an institution. It

stipulates that a corporate entity invariably seeks to provide a balance between the
interests of its diverse stakeholders in order to ensure that each interest constituency
receives some degree of satisfaction (Abrams, 1951). This model addresses the needs
of investors, employers, suppliers and customers. Pertaining to the scenario above,
stakeholder theory argues that the parties involved should include governmental
bodies, political groups, trade associations, trade unions, communities, associated
corporations, prospective employees and the general public. Stakeholder theory has
become more prominent because many researchers have recognized that the activities
of a corporate entity impact on the external environment requiring accountability of
the organization to a wider audience than simply its shareholders. Other key issues
such as flow of information from senior management to lower ranks, interpersonal
relations, working environment, etc. are all critical issues that should be considered.
Some of these other issues provided a platform for other arguments. An extension of
the theory called an enlightened stakeholder theory was proposed.

3.6.3: RESOURCE DEPENDENCY THEORY
The basic proposition of resource dependence theory is the need for environmental
linkages between the firm and outside resources. In this perspective, directors serve to
connect the firm with external factors by co-opting the resources needed to survive
(Pfeffer and Salancik, 1978). Thus, boards of directors are an important mechanism
for absorbing critical elements of environmental uncertainty into the firm. Williamson
(1985) held that environmental linkages or network governance could reduce
transaction costs associated with environmental interdependency. The organization’s
need to require resources and these leads to the development of exchange
relationships or network governance between organizations. Several factors would
appear to intensify the character of this dependence, e.g. the importance of the
resource(s), the relative shortage of the resource(s) and the extent to which the
resource(s) is concentrated in the environment (Donaldson and Davis,
1991).According to the resource dependency rule, the directors bring resources such
as information, skills, key constituents (suppliers, buyers, public policy decision
makers, social groups) and legitimacy that will reduce uncertainty (Gales &Kesner,
1994). Thus, Hillman et al. (2000) consider the potential results of connecting the firm
with external environmental factors and reducing uncertainty is decrease the
transaction cost associated with external association.
3.6.4: SOCIAL CONTRACT THEORY
Among other theories reviewed in corporate governance literature social contract

theory, sees society as a series of social contracts between members of society and
society itself (Gray, Owen & Adams 1996). There is a school of thought which sees
social responsibility as a contractual obligation the firm owes to society (Donaldson
1983). An integrated social contract theory was developed by Donaldson and Dunfee
(1999) as a way for managers make ethical decision making, which refers to macro
social and micro social contracts. The former refers to the communities and the
expectation from the business to provide support to the local community, and the
latter refers to a specific form of involvement.

3.6.5: LEGITIMACY THEORY
Another theory reviewed in the corporate governance literature is legitimacy theory.

Legitimacy theory is defined as “a generalized perception or assumption that the
actions of an entity are desirable, proper, or appropriate with some socially
constructed systems of norms, values, beliefs and definitions” (Suchman 1995). The
emphasis of legitimacy theory is that an organization must consider the rights of the
public at large, not merely the rights of the investors. Failure to comply with societal
expectations may result in sanctions being imposed in the form of restrictions on the
firm's operations, resources and demand for its products. Much empirical research has
used legitimacy theory to study social and environmental reporting, and proposes a
relationship between corporate disclosures and community expectations (Deegan
2004).
3.6.6: POLITICAL THEORY

Political theory brings the approach of developing voting support from shareholders,
rather by purchasing voting power. Hence having a political influence in corporate
governance may direct corporate governance within the organization. Public interest
is much reserved as the government participates in corporate decision making, taking
into consideration cultural challenges (Pound, 1983). The political model highlights
the allocation of corporate power, profits and privileges are determined via the
governments’ favour. The political model of corporate governance can have an
immense influence on governance developments. Over the last decades, the
government of a country has been seen to have a strong political influence on firms.
As a result, there is an entrance of politics into the governance structure or firms’
mechanism (Hawley and Williams, 1996).
3.7: FACTORS AFFECTING THE QUALITY OF CORPORATE

GOVERNANCE
1. Integrity of the Board of Directors

2. Ability of the Board of Directors
3. Adequacy of the Process
4. Quality of Corporate Reporting and
5. Participation of Stakeholders

3.8: OECD PRINCIPLES OF CORPORATE GOVERNENCE
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMEN

Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and
which came into force on 30th September 1961, the Organization for Economic Co-
operation and Development (OECD) shall promote policies designed:
– To achieve the highest sustainable economic growth and employment and

arising standard of living in member countries, while maintaining financial
stability, and thus to contribute to the development of the world economy;
– To contribute to sound economic expansion in member as well as non-
member countries in the process of economic development; and
– To contribute to the expansion of world trade on a multilateral, non-
discriminatory basis in accordance with international obligations.
The OECD Principles of Corporate Governance:
i. Ensuring the Basis for an Effective Corporate Governance Framework

ii. The Rights of Shareholders and Key Ownership Functions
iii. The Equitable Treatment of Shareholders
iv. The Role of Stakeholders in Corporate Governance
v. Disclosure and Transparency
vi. The Responsibilities of the Board
I. Ensuring the Basis for an Effective Corporate Governance Framework
The corporate governance framework should promote transparent and efficient

markets, be consistent with the rule of law and clearly articulate the division of
responsibilities among different supervisory, regulatory and enforcement authorities.
 The corporate governance framework should be developed with a view to its

impact on overall economic performance, market integrity and the incentives it
creates for market participants and the promotion of transparent and efficient
markets.
 The legal and regulatory requirements that affect corporate governance practices

in a jurisdiction should be consistent with the rule of law, transparent and
enforceable.
 The division of responsibilities among different authorities in a jurisdiction
should be clearly articulated and ensure that the public interest is served.
 Supervisory, regulatory and enforcement authorities should have the authority,
integrity and resources to fulfill their duties in a professional and objective
manner. Moreover, their rulings should be timely, transparent and fully
explained.
II. The Rights of Shareholders and Key Ownership Functions
The corporate governance framework should protect and facilitate the exercise of
shareholders’ rights.
 Basic shareholder rights should include the right to:

1. Secure methods of ownership registration;
2. Convey or transfer shares;
3. Obtain relevant and material information on the corporation on a timely and
regular basis;
4. Participate and vote in general shareholder meetings;
5. Elect and remove members of the board; and
6. Share in the profits of the corporation.
 Shareholders should have the right to participate in, and to be sufficiently

informed on, decisions concerning fundamental corporate changes such as:
1. Amendments to the statutes, or articles of incorporation or similar governing
documents of the company;
2. The authorization of additional shares; and
3. Extraordinary transactions, including the transfer of all or substantially all
assets that in effect result in the sale of the company.
 Shareholders should have the opportunity to participate effectively and vote in

general shareholder meetings and should be informed of the rules, including
voting procedures, that govern general shareholder meetings:

1. Shareholders should be furnished with sufficient and timely information
concerning the date, location and agenda of general meetings, as well as full
and timely information regarding the issues to be decided at the meeting.
2. Shareholders should have the opportunity to ask questions to the board,
including questions relating to the annual external audit, to place items on
the agenda of general meetings, and to propose resolutions, subject to
reasonable limitations.
3. Effective shareholder participation in key corporate governance decisions,
such as the nomination and election of board members, should be
facilitated. Shareholders should be able to make their views known on the
remuneration policy for board members and key executives. The equity
component of compensation schemes for board members and employees
should be subject to shareholder approval.
4. Shareholders should be able to vote in person or in absentia, and equal
effect should be given to votes whether cast in person or in absentia.
 Capital structures and arrangements that enable certain shareholders to obtain a
degree of control disproportionate to their equity ownership should be disclosed.
 Markets for corporate control should be allowed to function in an efficient and
transparent manner.
1. The rules and procedures governing the acquisition of corporate control in
the capital markets, and extraordinary transactions such as mergers, and
sales of substantial portions of corporate assets, should be clearly articulated
and disclosed so that investors understand their rights and recourse.
Transactions should occur at transparent prices and under fair conditions
that protect the rights of all shareholders according to their class.
2. Anti-take-over devices should not be used to shield management and the
board from accountability.
 The exercise of ownership rights by all shareholders, including institutional
investors, should be facilitated.
1. Institutional investors acting in a fiduciary capacity should disclose their
overall corporate governance and voting policies with respect to their
investments, including the procedures that they have in place for deciding
on the use of their voting rights.

2. Institutional investors acting in a fiduciary capacity should disclose how
they manage material conflicts of interest that may affect the exercise of key
ownership rights regarding their investments.
 Shareholders, including institutional shareholders, should be allowed to consult
with each other on issues concerning their basic shareholder rights as defined in
the Principles, subject to exceptions to prevent abuse.
III. The Equitable Treatment of Shareholders
The corporate governance framework should ensure the equitable treatment of all
shareholders, including minority and foreign shareholders. All shareholders should
have the opportunity to obtain effective redress for violation of their rights.
 All shareholders of the same series of a class should be treated equally.

1. Within any series of a class, all shares should carry the same rights. All
investors should be able to obtain information about the rights attached to all
series and classes of shares before they purchase. Any changes in voting rights
should be subject to approval by those classes of shares which are negatively
affected.
2. Minority shareholders should be protected from abusive actions by, or in the

interest of, controlling shareholders acting either directly or indirectly, and
should have effective means of redress.
3. Votes should be cast by custodians or nominees in a manner agreed upon with

the beneficial owner of the shares.
4. Impediments to cross border voting should be eliminated.
5. Processes and procedures for general shareholder meetings should allow for
equitable treatment of all shareholders. Company procedures should not make it
unduly difficult or expensive to cast votes.
 Insider trading and abusive self-dealing should be prohibited.

 Members of the board and key executives should be required to disclose to the
board whether they, directly, indirectly or on behalf of third parties, have a
material interest in any transaction or matter directly affecting the corporation.

IV. The Role of Stakeholders in Corporate Governance
The corporate governance framework should recognize the rights of stakeholders

established by law or through mutual agreements and encourage active co-operation
between corporations and stakeholders in creating wealth, jobs, and the sustainability
of financially sound enterprises.
 The rights of stakeholders that are established by law or through mutual

agreements are to be respected.
 Where stakeholder interests are protected by law, stakeholders should have the
opportunity to obtain effective redress for violation of their rights.
 Performance-enhancing mechanisms for employee participation should be
permitted to develop.
 Where stakeholders participate in the corporate governance process, they should
have access to relevant, sufficient and reliable information on a timely and
regular basis.
 Stakeholders, including individual employees and their representative bodies,
should be able to freely communicate their concerns about illegal or unethical
practices to the board and their rights should not be compromised for doing this.
 The corporate governance framework should be complemented by an effective,
efficient insolvency framework and by effective enforcement of creditor rights.
V. Disclosure and Transparency
The corporate governance framework should ensure that timely and accurate
disclosure is made on all material matters regarding the corporation, including the
financial situation, performance, ownership, and governance of the company.
 Disclosure should include, but not be limited to, material information on:
1. The financial and operating results of the company.
2. Company objectives.
3. Major share ownership and voting rights.
4. Remuneration policy for members of the board and key executives, and
information about board members, including their qualifications, the
selection process, other company directorships and whether they are
regarded as independent by the board.
5. Related party transactions.
6. Foreseeable risk factors.
7. Issues regarding employees and other stakeholders.
8. Governance structures and policies, in particular, the content of any
corporate governance code or policy and the process by which it is
implemented.
 Information should be prepared and disclosed in accordance with high quality
standards of accounting and financial and non-financial disclosure.
 An annual audit should be conducted by an independent, competent and
qualified, auditor in order to provide an external and objective assurance to the
board and shareholders that the financial statements fairly represent the financial
position and performance of the company in all material respects.
 External auditors should be accountable to the shareholders and owe a duty to
the company to exercise due professional care in the conduct of the audit.
 Channels for disseminating information should provide for equal, timely and
cost-efficient access to relevant information by users.
 The corporate governance framework should be complemented by an effective
approach that addresses and promotes the provision of analysis or advice by
analysts, brokers, rating agencies and others, that is relevant to decisions by
investors, free from material conflicts of interest that might compromise the
integrity of their analysis or advice.
VI. The Responsibilities of the Board
The corporate governance framework should ensure the strategic guidance of the
company, the effective monitoring of management by the board, and the board’s
accountability to the company and the shareholders.
 Board members should act on a fully informed basis, in good faith, with due
diligence and care, and in the best interest of the company and the shareholders.
 Where board decisions may affect different shareholder groups differently, the
board should treat all shareholders fairly.
 The board should apply high ethical standards. It should take into account the
interests of stakeholders.
 The board should fulfill certain key functions, including:
1. Reviewing and guiding corporate strategy, major plans of action, risk policy,
annual budgets and business plans; setting performance objectives;
monitoring implementation and corporate performance; and overseeing
major capital expenditures, acquisitions and divestitures.
2. Monitoring the effectiveness of the company’s governance practices and
making changes as needed.
3. Selecting, compensating, monitoring and, when necessary, replacing key
executives and overseeing succession planning.
4. Aligning key executive and board remuneration with the longer term interests
of the company and its shareholders.
5. Ensuring a formal and transparent board nomination and election process.
6. Monitoring and managing potential conflicts of interest of management,
board members and shareholders, including misuse of corporate assets and
abuse in related party transactions.
7. Ensuring the integrity of the corporation’s accounting and financial reporting
systems, including the independent audit, and that appropriate systems of
control are in place, in particular, systems for risk management, financial and
operational control, and compliance with the law and relevant standards.
8. Overseeing the process of disclosure and communications.
 The board should be able to exercise objective independent judgment on
corporate affairs.
1. Boards should consider assigning a sufficient number of non-executive board
members capable of exercising independent judgment to tasks where there is
a potential for conflict of interest. Examples of such key responsibilities are
ensuring the integrity of financial and non-financial reporting, the review of
related party transactions, nomination of board members and key executives,
and board remuneration.
2. When committees of the board are established, their mandate, composition
and working procedures should be well defined and disclosed by the board.
3. Board members should be able to commit themselves effectively to their
responsibilities.

 In order to fulfill their responsibilities, board members should have access to
accurate, relevant and timely information.
3.9: PILLARS OF CORPORATE GOVERNANCE
Accountability, Fairness, Responsibility, and Transparency are the four pillars of

corporate governance. Corporate governance is self-regulation integrated into a
business model. Good governance helps and ensures to safeguard the interest of
stakeholders. The company has a robust corporate governance structure and is
committed to maintain sound corporate governance principles and practice. About
Good Governance Aristotle declares in The Politics that: “the state is a creation of
nature, and that man is by nature a political animal. “The state, emphasizes Aristotle,
“comes into existence, originating in the bare needs of life, and continuing in
existence for the sake of a good life.” The quality of governance is, therefore, key.
The administration of justice, writes Aristotle, is “the principle of order in political
society.”

Chapter-Four
Corporate governance practice of
Sadharan Bima Corporation

4.1: INTRODUCTION
Since the early 1990s, CG has been receiving increasing attention from regulatory
bodies and practitioners worldwide. In August 2003, Bangladesh Enterprise Institute
(BEI) invited a number of prominent individuals from the private sector, the
government, NGOs and other relevant bodies to begin the process of formulating a
Code of Corporate Governance for Bangladesh. Convening this Taskforce on
Corporate Governance was an outcome of BEI’s ongoing research and advocacy work
on strengthening corporate governance in Bangladesh. Members of the Taskforce
provided essential guidance and direction to the development of the Code.
In addition, distinguished guest experts invited to certain Taskforce meetings
provided invaluable input and expertise on specific aspects and sections of the Code.
Also, greatly appreciated for lending their valuable time and encouragement to the
project are Dr. Fakhruddin Ahmed, Governor of the Bangladesh Bank, Mr.
Muhammed Ali Rumee, Deputy Governor of Bangladesh Bank, and Dr. Mirza Azizul
Islam, Chairman of the Securities and Exchange Commission, all of whom offered
significant insight and comments to the Code.
Finally, the Taskforce was assisted and supported in every way by the Bangladesh
Enterprise Institute Working Group in the drafting of the Code, which could not have
been completed within such a short time-frame, if not for the hard work of this
dedicated group. The Working Group was chaired by Farooq Sobhan, President of
BEI. The primary drafter of the Code was Wendy Werner, while Josephine Oguta led
the effort to formulate the section of the Code on NGO Governance. Other members
of the Working Group were Sheela Rahman, Yawer Sayeed, Nihad Kabir, Rashida
Ahmad and Adeeb Khan. The group also received advice from Adnan Wahed and
Abdullah Al Mamun on Financial Institutions. Anya Rahman and Rashida Ahmad
spent many hours proofreading to help finalize the document.
Finally, Michael Gillibrand served as international consultant to the project and
provided unfailing feedback, resources, and assistance on international best practices
of corporate governance. To govern the corporate environment in Bangladesh,
following legal measures are in practice:
 Securities and Exchange Ordinance, 1969

 Bangladesh Insurance Nationalization Order, 26th March, 1972
 Bangladesh Insurance Corporation Ordinance, 14th May,1973
 Financial Institutions Act, 1993
 Securities and Exchange Commission Act, 1993
 Companies Act, 1994
 Bankruptcy Act, 1997
 Insurance Act, 1938 (Amended) 3rd March, 2010
 Insurance Rule 1958.
 Income Tax Ordinance, 1984
 Bangladesh Accounting Standards
 Bangladesh Financial Reporting Standards.
However, to institutionalize the practice of CG in Bangladesh, first initiative was
undertaken by the Securities and Exchange Commission (SEC). SEC issued a
notification on Corporate Governance Guidelines (CG Guidelines) for the publicly
listed companies of Bangladesh under the power vested on the Commission by
Section 2CC of the Securities and Exchange Ordinance, 1969. The CG Guidelines
were issued on a ‘comply or explain’ basis, providing some ‘breathing space’ for the
companies to implement on the basis of their capabilities. Nevertheless, the overall
framework for investor protection and CG has a number of important weaknesses that
have hindered the capital market development.
4.2: ISSUES IN CORPORATE GOVERNANCE IN BANGLADESH
The previous years have observed a silent inclination towards corporate governance
due to a variety of forces that are acting today and would become stronger in years to
come. So there are various issues of corporate governance in Bangladesh. The
following issues in corporate governance are explained briefly:
Deregulation:
Economic reforms have not only increased growth prospects, but they have also
made markets more competitive. This means that in order to survive companies will
need to invest continuously on a large scale.
Disintermediation:
Meanwhile, financial sector reforms have made it imperative for firms to rely on
capital markets to a greater degree for their needs of additional capital.

Institutionalization:
Simultaneously, the increasing institutionalization of the capital markets has enhanced
the disciplining power of the market.
Globalization:
Globalization of Bangladesh’s markets has exposed issuers, investors and
intermediaries to the higher standards of disclosure and CG that prevail in more
developed capital markets.
While these factors will make the markets more effective in disciplining the dominant
shareholder, there are many things that the government and the regulators are yet to
do to enhance this ability. Ahmed and Yusuf (2005) argue that there has been failure
in most of the elements of CG. Some of these individual elements can be portrayed
with a view to seeing their weaknesses in implementing CG:
Corporate ownership structures:

All corporate governance systems revolve around four core principles: Fairness,
accountability, responsibility and transparency. The specific challenges of upholding
these principles depend on the ownership structure of the corporate sector. However,
in Bangladesh, general practice is that the corporate structure is dominated by family
members. Such practice hinders the level of fairness, accountability and transparency.
Inadequate Bankruptcy Laws:

Bankruptcy laws and processes are inadequate in terms of provisions and not strong
in terms of enforcement in Bangladesh. No country can have good CG standards with
poor bankruptcy laws and processes. Besides, inefficient foreclosures and
securitization processes have compounded the problems in Bangladesh.
Lack of initiatives to drive for CG from the International Investor Community:

Most companies in Bangladesh have a pessimist approach in attracting foreign
investment. As a result, there is a lack of drive from the international investor
community for better corporate governance.

Accounting standards, audit and disclosure:
The scenario of internal audit; accounting standards and disclosure and its impacts on
CG and management practices in Bangladesh are mixed. There are now elements of
both positive scopes and new challenges and risk for the corporations in these areas.
Inconsistency between Companies Act, BAS and BSEC Requirements:

The companies Act, 1994 provides, among others, provisions regarding preparation
and publication of financial statements, disclosures and auditing. However, in many
cases, the Act lacks clarity with regard to statutory requirements on disclosures in the
financial statements of listed companies. Moreover some accounting requirements
mentioned in the Act are incompatible with International Accounting Standards (IAS)
which is required by the SEC.
Limited or No Disclosure regarding Related Party Transactions:

Related party transactions are not disclosed properly in the financial statements. It is
an impediment towards achieving good CG in Bangladesh.
Weak Regulatory System:

Bangladesh still follows the hybrid system of legal system inherited from the British
administration. Currently, the insurance Companies Act of 2010 is the law that
governs the incorporated domestic corporations and institutions. The other significant
laws which has important role in governing the corporate sectors are: Securities and
Exchange Ordinance 1969, Financial Institutions Act 1993, Securities and Exchange
Commission Act 1993 and Bankruptcy Act, 1997. Therefore, weak regulatory system
along with board interference with the management retards the improvement of CG in
the country.
Capital Market Role:

Capital market facilitates good governance through information production and
monitoring. The capital market of Bangladesh consists of two stock exchanges:
Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE). Bangladesh
does not have depth in its equity market. The capital market of Bangladesh is still a
weak link in the movement towards strengthening CG.

General Meeting Scenario:
General meetings of a company, in particular the Annual General Meeting (AGM)
are the primary platform where shareholders can raise their concerns and make their
influence felt over the management towards attaining good governance.
Board Committees:
Board committees (audit, remuneration and nomination) are of critical importance in
CG. Audit Committee is now being treated as a principal player in ensuring good CG
and rebuilding public confidence in financial reporting. The role of Audit Committee,
among others are: monitoring integrity of financial statements, reviewing internal
financial controls, recommending appointment of external auditor and reviewing
auditor independence and objectivity and audit effectiveness.
The Boards of Directors:

BSEC guidelines provides for many stringent rules in respect of any negligence,
default, breach of duty or trust on the part of director, manager or officer of a
company. However, experience suggests that these are more honored in the breach
than observance.
Lack of Shareholder Activism:

Shareholder rights are today recognized in countries across the globe as relevant to
efforts for improving and strengthening CG. The average non-controlling or minority
shareholders do not possess significant level of education, understanding and
sophistication required to exert pressure on a company to change behavior.
No Market for Corporate Control:

A market for corporate control plays an important monitoring function in CG, as
poorly managed companies will become takeover targets. In Bangladesh, there seems
to have no market for corporate control.
Weak Pressure Groups:

Shareholders, investor associations, institutional investors and the financial press can
play significant role in ensuring better CG. Each of these potential pressure groups is

weak in Bangladesh. The numbers of journalists who possess knowledge on financial
reporting are limited and there are lacks of investigative reports.
Lack of Auditor Independence:

Auditors in Bangladesh are not considered independent or sufficiently qualified to
attest to the validity of the financial statements of corporate entities. A study shows
that 64.4 percent of the companies conduct regular audit for effective implementation
of the core labor policies. Of the companies which audit the implementation of core
labor policies, 91.1 percent meet their labor policy objectives. Only 2.2 percent of the
companies confessed that they make unfair dismissals and 4.4 percent of the
companies confessed that they violated labor laws in last 5 years. Around 67 percent
of companies have a formal policy to ensure clean, healthy and safe working
conditions. Procedures to implement policy and specific assignment to senior
management for implementation are found only in 26.7 percent of the companies.
Poor Audit Report:

Audited financial reports are rarely reliable and free from the control of the owners.
Despite irregularities (in respect of non-compliance with the applicable IASs) in the
audit report, the auditors issue unqualified audit report on the financial statements.

4.3: PROBLEMS OF SOUND CORPORATE GOVERNANCE IN
BANGLADESH
i. Board of Directors and management tend to avoid disclosure;
ii. Closely-held family ownership leads to limited transparency and accountability;
iii. Institutional finance is the primary source of financing;
iv. A lack of independent directors and skilled audit committee members;
v. A weak regulatory framework
vi. Red-tapism
vii. Low audit fees for external auditors
viii. Lack of qualified internal auditors
ix. The absence of sufficient institutional investors
x. A lack of active minority shareholder groups
xi. Insider trading
xii. Lack of whistle blowing and;
xiii. Corruption.
4.4: COMPLIANCE OF BAS BY SBC
Name of BAS No. Status

Presentation of Financial Statements 1 Applied
Inventories 2 N/A
Cash Flow Statements 7 Applied
Accounting Policies, Changes in Accounting Estimates –and 8 Applied
Errors
Events after the Balance Sheet Date 10 N/A
Construction Contracts 11 N/A
Income Taxes 12 Partly
Applied
Segment Reporting 14 N/A
Property, Plant and Equipment’s 16 Applied
Leases 17 N/A

Revenue Recognition 18 Applied
Employee Benefits 19 N/A
Accounting for Govt. Grants and disclosures of Govt. 20 N/A
Assistances
The Effects of Changes in Foreign Exchange Rates 21 Applied
Borrowing Costs 23 Applied
Related Party Disclosures 24 N/A
Consolidated and Separate Financial Statements 27 Applied
Investments in Associates 28 N/A
Interest in Joint Ventures 31 N/A
Financial Instruments 32 Applied
Earnings Per Share 33 N/A
Interim Financial Reporting 34 N/A
Impairment of Assets 36 Applied
Provisions, Contingent Liabilities and Contingent Assets 37 N/A
Intangible Assets 38 Applied
Financial Instruments: Recognition and Measurement 39 Applied
Investment Property 40 N/A
Agriculture 41 N/A
Information Source: Annual Report of SBC 2016

Compliance of BAS
Applied
43% Partly Applied
53% Not Available
4%
The Application Bangladesh Accounting Standards, above 28 standards they applied

only 11standards or 43% and partially applied 4% and 53% of BAS is N/A on
financial statements.
4.5: COMPLIANCE OF BFRS BY SBC
No Name of BFRS Status
BFRS 1 First-time Adoption of International Financial Reporting N/A

Standards
BFRS 2 Share-based Payment N/A
BFRS 3 Business Combinations Applied
BFRS 4 Insurance Contracts Applied
BFRS 5 Non-current Assets Held for Sale and Discontinued N/A

Operations
BFRS 6 Exploration for and Evaluation of Mineral Resources N/A
BFRS 7 Financial Instruments: Disclosures Applied
BFRS 8 Operating Segments N/A
Information Source: Annual Report of SBC 2016

Compliance of BFRS
37%
Applied
Not Available
63%
In case of Bangladesh Financial Reporting Standards, SBC has applied only 3

standards or 37% out of 8 standards on their financial statements. And that is very
poor application standards.
Comparison between Insurance act and BSEC guidelines
Topic Insurance Act 2010 BSEC Guidelines 2012
General Direction By Board By Board
Board’s size The Board of each The number of the board
Corporation shall consist members of the company
of the Managing shall not be less than 5 (five)
Director and six other and more than 20 (twenty)
Directors to be
appointed by the
Government, at least
three of whom shall be
from amongst persons
who, in the opinion of
the Government, have
had the experience and
shown capacity in the
field of insurance

Independent Directors Not defined One fifth of board of
directors
Tenure of Independent 3 years The tenure of office of an
Directors independent director shall be
for a period of 3 (three)
years, which may be
extended for 1 (one) term
only.
Qualification of Same qualification for A man has ability to contracts
Independent Director (ID) all directors and has 12 years practical
experience.
Chairman of the Board Same person Must be different individuals
and Chief Executive
Officer
Citizenship of Directors Must be Bangladeshi Not defined
Vote of directors One vote for each Not defined
The Directors’ Report to According to company According to company act
Shareholders act
Chief financial officer Separate individuals Separate individuals
(CFO), Head of internal
audit and Company
secretary (CS)
Audit Committee Not defined The Audit Committee shall
members be composed of at least 3
(three) members
Chairman of the Audit The Government shall The Board of Directors shall
Committee appoint one of the select 1 (one) member of the
Directors, other than the Audit Committee to be
Managing Director, to be
Chairman of the Audit
the Chairman of the Board
Committee, who shall be an
independent director.
Role of Audit Committee Comptroller and Auditor- All are defined
General on such terms and

conditions as the
Government may fix, and
shall, in regard to the
extent and method of their
audit, be guided by such
directions as may be given
by the Comptroller and
Auditor-General
External/Statutory Same As BSEC Same As act

Auditors
Subsidiary Company Not defined At least 1 (one) independent
director on the Board of
Directors of the holding
company shall be a director
on the Board of Directors of
the subsidiary company
Power, Duties of chief powers, perform such Clearly defined
executive officer (CEO) functions and discharge
and chief financial officer such duties as may be
entrusted to him by the
(CEO):
Government or as time to
time
Reporting And Follow the Gazetted The company shall obtain a

Compliance Of Corporate notification certificate from a practicing
Governance Professional
Accountant/Secretary
(Chartered Accountant/Cost
and Management
Capital Shall be TK 30 Crore. Not defined
Accounts and Audit Each Corporation shall Same as insurance act
maintain proper
accounts and shall, at the
expiry of each year,

prepare in
the prescribed form with
reference to that year a
balance sheet, a profit
and loss account and
revenue accounts in
respect of such class of
insurance business
together with such other
abstracts and statements
as may be prescribed
Actuarial valuation The Bima Corporation Proper valuation assets and
shall, at least once in a liabilities
year cause an investigation
to be
made by the appointed
actuary into the financial
condition of its business,
including valuation of its
liabilities in respect
thereto, in accordance with
the basis specified and
shall cause an abstract of
the actuarial report to be
made in such form and
manner as specified in the
regulations made by the
Authority and submit the
report of the appointed
actuary to the Authority
and also to the
Government.”
Power to make rules The Government may, by It is a Gazetted notification

notification in the official
Gazette, make rules for

carrying out the purposes
of this Act
Winding up Clearly explained the Not defined

procedure of winding up

Chapter-Five
Findings, Recommendations
and Conclusion

5.1: FINDINGS OF THE STUDY
Findings of corporate governance practice of insurance sector in Bangladesh; a study

on SBC’s are given below:-
1) Sadharan Bima Corporation has followed the corporate governance guidelines in
case of formation of “Board of Directors, Independent Directors, and Audit
Committees”.
2) The company has good financial disclosure. They provide real time financial
information by publishing yearly financial report. But, the corporation is not
technologically updated.
3) Compliance practices of corporate governance guidelines can be increase
through make mandatory to follow the guideline from a specific period of time
instead of the option of ‘comply or explains’.
4) The Study has checked the insurance company’s annual report and found that the
company has maintained BSEC guidelines and it got certificate from Chartered
Accountant firms.
5) In insurance sector, SBC’s financial disclosures are not satisfactory.
6) Managing Directors of SBC act as CEO of SBC.
7) Application of BAS is 43% and BFRS is 37% on financial statements of SBC.
8) There are no whistle blowing systems in SBC.
9) Other insurance company also poor in financial disclosure.
10) All directors responsibility same as insurance act but BESC guidelines has
defined only responsibilities of Independent directors.
11) The BSEC guidelines are not only for insurance company but also for other
companies. So it is not good for every company because size of businesses is
considerable in corporate governance. And;
12) Environmental issues are not considered in Insurance act and BESC guidelines.

5.2: RECOMMENDATIONS
The necessary recommendation of findings about corporate governance practice of

insurance sector in Bangladesh; A study on SBC are given below
1. As SBC is a state owned publicly traded insurance company, so it should be

disclosed their disclosure on timely basis and other insurance company also
follow full disclosure principle.
2. Managing directors and CEO must be separate person.
3. A corporate code of conduct should be followed. Which might be maintained

international standards?
4. Application of BAS and BFRS should be maintained properly.
5. A sound internal control system should be maintained. They can follow COSO
framework for internal control systems.
6. Company website publication must be updated regularly and also can create a
post as Information Manager whose duty is to provide information.
7. Insurance Development & Regulatory Authority or BESC should be

implementing a separate corporate governance guidelines for insurance company
with detail.
8. Duties, responsibilities and others conditions of members of insurance company

should be defined clearly.
9. Environmental issues of insurance policy should be checked by insurance

company.
10. SBC should launch whistle blowing system.
11. Comptroller and Audit General should take necessary step for unfair activities of
insurance companies or insurance personnel. And;
12. Insider trading of insurance companies must be reduced in insurance industry.

5.3: CONCLUSION
If we can build transparency, accountability in insurance sector Bangladesh has a

great opportunity for insurance business. Good corporate governance can change the
view of stakeholder and also can create better employment opportunity for thousands
of unemployment’s. It can build trust to policy holders and undertake different risks.
Insurance sector can be a source of FDI. By providing taxes to government it also can
improve GDP growth. Now the time of globalization, good governance will help
company to protect shareholder interest. If SBC follow this recommendation one day
it will be giant insurance company in Bangladesh as well as in the world. Now, the
slogan of the insurance company should be “Good Governance, Better service”.

Chapter-Six
References

1. Bhuiyan, U. Hamid, P. Kumar (June 2007), “Corporate Governance and
Reporting: An Empirical Study of the Listed Companies in Bangladesh”
Journal of Business Studies, Vol. XXVIII, No.1.
2. Bhowmik ,S. Chandra and Shariful (2013) “Comparative Analysis of
Corporate Governance Guidelines in Asian Countries”, The Cost and
Management, Volume-41, Number-4 ISSN 1817-5090, July-August, 2013 :
pp. 41-47
3. Boubakri, Narjess (2011) “corporate governance and issues from the insurance
industry” The Journal of Risk and Insurance, 2011, Vol. 78, No. 3, p.501-518.
4. Karim, Rezwana, Bakul , and Rehana (July–December, 2010) Corporate
Governance Practices in Bangladesh with Reference to SEC Corporate
Governance Guidelines, ASA University Review, Vol. 4 No. 2.
5. Khan, H.S, Gulam, Zahirul, Rashid & Arafat (2009), current status of
corporate governance guidelines in Bangladesh: a critical evaluation with legal
aspect, Bangladesh Research Publication Journal. J. 3(2): 971-981.
6. Ahmed, Mamtaz Uddin and Yusuf, Mohammad Abu (Nov-Dec 2005),
Corporate Governance: Bangladesh Perspective, The Cost and Management,
Vol. 33, No. 6,
7. Osman, I. Mahmood and Mahfuja (October 2007) “Firm Performance and
Corporate Governance Through Ownership Structure: Evidence from
Bangladesh Stock Market” International Review of Business Research, Papers
Vol. 3 No.4 p 88-110
8. Organization For Economic Co-Operation and Development, OECD
Principles of Corporate Governance, (endorsed by the Ministers at the OECD
Meeting, 26-27 May 1999), Paris, OECD, 1999, also available at
www.oecd.org.
9. Sarkar, J.B. and Ahmed H. (January-February 2007), Disclosure of Corporate
Governance by public limited companies in Bangladesh, The cost &
management.
10. Sarkar, H. Shakhawat (2014) Scenario of Corporate Governance Practices in
Bangladesh: A Study on Dutch Bangla Bank Limited (DBBL), European
Journal of Business and Management, ISSN 2222-1905 (Paper) ISSN 2222-
2839 (Online) Vol.6, No.37.

11. Ahmed Kawser, 2007, A Report on Financial Analysis of Sadharan Bima
Corporation
12. Sadharan Bima Corporation annual report 2012, 2013, 2014, 2015, 2016.
Websites:
13. www.sbc.govt.bd
14. www.idra.govt.bd
15. www.bsec.govt.bd

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Chapter-One

A study on Corporate Governance of Sadharan Bima Corporation 1

Corporate governance is the system of rules, practices and processes by which a

A study on Corporate Governance of Sadharan Bima Corporation 2

Cadbury, A. (1992) stated that corporate governance is the system by which

Ahmed and Baree, (2000), the authors identified problems of implementing

Hermes and Jenifer, (2002), stated that Corporate Governance as a set of

A study on Corporate Governance of Sadharan Bima Corporation 3

Bhuiyan, U. Hamid, P. Kumar (2007) studied on Corporate Governance and

Boubakri, Narjess (2011) conducted a study on “corporate governance and issues

A study on Corporate Governance of Sadharan Bima Corporation 4

A study on Corporate Governance of Sadharan Bima Corporation 5

In a developing nation like Bangladesh, varied insurance companies are playing a

1.4: SCOPE OF THE STUDY

1.5: PURPOSE OF THE STUDY

A study on Corporate Governance of Sadharan Bima Corporation 6

Methodology refers to underlying principles and rules of organization or the

1.6.1: Sources of data

1.6.2: Reliability of data

A study on Corporate Governance of Sadharan Bima Corporation 7

1.7: LIMITATION OF THE STUDY

A study on Corporate Governance of Sadharan Bima Corporation 8

A study on Corporate Governance of Sadharan Bima Corporation 9

2.2: HISTORY OF INSURANCE COMPANY IN BANGLADESH

 Sadharan Bima Corporation for General insurance and;

The Insurance Market in Bangladesh now consists of two state-owned corporations,

A study on Corporate Governance of Sadharan Bima Corporation 11

Sadharan Bima Corporation is only state-owned General Insurance Corporation

SBC is entitled to 50% of public sector business in Bangladesh. Insurance

A study on Corporate Governance of Sadharan Bima Corporation 12

Deputy General Manager

Assistant General Manager

A study on Corporate Governance of Sadharan Bima Corporation 13

Organizational Structure of SBC

Admoinitrat Underwritin Finance &

Central Marine Dhaka Zone

A study on Corporate Governance of Sadharan Bima Corporation 14

Name of the Corporation Sadharan Bima Corporation

2.7: BOARD OF DIRECTORS

Sl. No. Name and Designation

A study on Corporate Governance of Sadharan Bima Corporation 15

2.8.1 Family Needs

2.8.2 Financial Security

2.8.3 Capital Formation

2.8.4 Security of Old Age

2.8.5 Sharing Risk

A study on Corporate Governance of Sadharan Bima Corporation 16

Insurance eliminates dependency. It makes a man to be self-reliance and his own

2.8.7 Expanding International Business

2.8.8 Removing Uncertainty

Now-a-days scientific technology is going to increase day by day. Various important

2.8.9 Achieving Social Value

In the society any insurer is considered as a respectable person. Because when

2.8.10 Mental Peace

2.8.11 Profitable Insurance

A study on Corporate Governance of Sadharan Bima Corporation 17

2.8.13 Protecting Inflation

By buying the insurance the capital is transferred to the institution. As a Result

2.8.14 Economic Development

The mobilization of savings, formation of capital, and an achievement of balanced

2.9 FUTURE PLANE OF SCB

Sadharan Bima Corporation wants to be the premier organization in Bangladesh for

a. Separate organization for crop insurance