Corporate Governance

for Sustainable Banking :

Conceptual Framework ASHRAF AL

MAMUNAssociate Professor, BIBM

Systems

thinking

CORE SUSTAINABILITY CONCEPTSIntergenerational responsibility

Socio-economic justice

CORPORATE SUSTAINABILITYTRIPLE BOTTOM LINE

Econ

omy

Environment

Equit

y

Profi

ts /

Planet /

People /

CORPORATE SUSTAINABILITYESG

Gov

erna

nce

Environmental

Social

CORPORATE SUSTAINABILITY

GREEN +CSR

Econ

omic

Environmental

Social

1. Pre-Compliance

2. Compliance

4. INTEGRATED STRATEGY

5. PURPOSE & PASSION

SUSTAINABILITY JOURNEY

3. Beyond Compliance

… embedded in supply chains

… acted upon by boards

Sustainability should be … fully embedded in strategies and operations

50%

69%

72%

88%

93%

96%

2010 2007

UN Global Compact and Accenture study, survey of 766 worldwide CEOs, June 2010

CEO MINDSET IS SHIFTING

Regulators

Commmunities

Governments

Employees

Consumers

25%

28%

32%

39%

50%

26%

29%

39%

45%

58%

2010 2007

STAKEHOLDERS INFLUENCE CEOs

UN Global Compact and Accenture study, survey of 766 worldwide CEOs, June 2010

CEOs’ SUSTAINABILITY DRIVERS

UN Global Compact and Accenture study, survey of 766 worldwide CEOs, June 2010

“The possibility that

sustainable enterprises will flourish

forever.”

IN SUMMARY …

SUSTAINABILITY IS SMART BUSINESS

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Strategy Implementation

CorporateGovernance

Strategy Formulation

StrategicCompetitivenessAbove-Average

Returns

Strategic IntentStrategic Mission

The ExternalEnvironment

The InternalEnvironment

The Strategic Management Process and CG

Feedback

Stra

tegi

c In

puts

Stra

tegi

c Act

ions

Stra

tegi

c O

utco

mes

CooperativeStrategy

Competitive Rivalryand Competitive

Dynamics

InternationalStrategy

Business-LevelStrategy

Acquisition andRestructuring

Strategies

OrganizationalStructure,

Controls and Culture

StrategicLeadership

Corporate Governance (CG)Corporate governance is

a relationship among stakeholders that is used to determine and control the strategic direction and performance of organizations

concerned with identifying ways to ensure that strategic decisions are made effectively

used in corporations to establish order between the firm’s owners and its top-level managers

• Risk bearing specialist (principal) pays compensation to

• A managerial decision-making specialist (agent)

Agency Relationship: Owners and Managers

An AgencyRelationships

Managers(Agents)

Shareholders(Principals)

• Decision makers

• Owners

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Keys to Corporate Governance

Transparency

Accountability

Information Disclosure

Ethics

Governance Mechanisms

OwnershipConcentration

Boards ofDirectors

ExecutiveCompensation

Market forCorporate Control

BIS CG Principles for Banks

Board members should be qualified for their positions, have a clear understanding of their role in corporate governance and be able to exercise sound judgment about the affairs of the bank.

The board of directors should approve and oversee the bank’s strategic objectives and corporate values and ensure that they are communicated throughout the banking organization.

The board of directors should set and enforce clear lines of responsibility and accountability throughout the organization.

BIS CG Principles for Banks

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The board and senior management should effectively utilize the work conducted by the internal audit function, external auditors, and internal control functions.

The board should ensure that compensation policies and practices are consistent with the bank’s corporate culture, long-term objectivesand strategy, and control environment.

The bank should be governed in a transparent manner. The board and senior management should understand the bank’s operational structure, including where the bank operates in jurisdictions or through structures that impede transparency.

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Bangladesh Bank Guidelines for CG in Bank Management1. Responsibilities and authorities of

the board of directors: (a) Work-planning and strategic management(b) Lending and risk management(c) Internal control management(d) Human resources management and development(e) Financial management(f) Formation of supporting committees(g) Appointment of CEO

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Bangladesh Bank Guidelines for CG in Bank Management (Cont..)

2. Responsibilities of the chairman of the board of directors

3. Responsibilities of the adviser4. Responsibilities and authorities of the

CEO 5. Meeting of Board of Directors etc.6. Number of members in Executive

Committee 7. Training for Directors

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Bangladesh Bank Guidelines for CG in Bank Management (Cont..)CONSTITUTION OF THE AUDIT COMMITTEE

OF BOARD OF DIRECTORS The audit committee will comprise of 05

(five) members Members of the committee will be nominated

by the board of directors from the directors Members may be appointed for a 03 (three)-

year term of office Company secretary of the bank will be the

secretary of the audit committee

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It is important to serve the interests of the Bank’s multiple stakeholder groups!

Corporate Governance and Ethical Behavior

Although the idea is subject to debate, some believe that ethically responsible companies design and use governance mechanisms that serve all stakeholders’ interests

Importance of maintaining ethical behavior through governance mechanisms is seen in the example of Enron and Arthur Andersen.

Financial Product Market

Stakeholders

OrganizationalStakeholders

Capital MarketStakeholders

Many Thanks….