Ceci N'est Pas Une Pipe! Corporate Governance Practices Under Two
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Original Article Ceci n’est pas une pipe! Corporate Governance practices under two political regimes in Bangladesh: A political economy perspective Received (in revised form): 12th April 2016 Mohammad Nurunnabi PhD, FHEA FRSA FAIA(Acad) is the Aide to the Rector on Research and Internationalization, Chair of the Department of Accounting, and an Associate Professor in Accounting at Prince Sultan University, Saudi Arabia. Previously he taught in University of East London, UK, University of Bedfordshire, UK and Edge Hill University, UK. He holds a PhD in Accounting (International Financial Reporting Standards – IFRS) with outright pass (no corrections) from the University of Edinburgh, UK. He is a fellow of Higher Education Academy (HEA), UK, an academic fellow of the Association of International Accountants (AIA), and fellow of the Royal Society of Arts (RSA). He is an expert panel member and country contributor (Saudi Arabia) of Wiley Insight IFRS. He is also a Global Advisory Member of Diversity of Thought Leadership and Pipeline (DTLP) Committee, Institute of Management Accountants (IMA), USA. His most recent book is The Role of the State and Accounting Transparency (Routledge: London and New York; 2016). He is the Editor-in-Chief of PSU Research Review: An International Journal, Emerald Publisher; and Senior Associate Editor of Journal of the Knowledge Economy, Springer. He is an Editorial Member of 10 international journals (The International Journal of Accounting, Journal of Islamic Accounting and Business Research, Asia Pacific Journal of Business Administration, Journal of Accounting and Management Information Systems) and reviewer of 53 international journals (The Accounting Review, Journal of Business Ethics, Accounting Education: an international journal, Journal of Accounting and Public Policy, Accounting, Auditing & Accountability Journal, Accounting in Europe, Business Ethics Quarterly, Business Ethics: A European Review, Society and Business Review, Accounting Horizons, Journal of Business Research, Journal of International Business Studies, Supply Chain Management: an International Journal). His research has appeared in Administration & Society, International Journal of Public Sector Management, Journal of Accounting in Emerging Economies, Business Ethics: A European Review, Advances in Accounting, incorporating Advances in International Accounting, Research in Accounting Regulation, Environment, Development and Sustainability, International Journal of Critical Accounting, Journal of Human Resource Costing & Accounting, International Journal of Health Care Quality Assurance, Journal of Asia Business Studies, and Journal of Business Economics and Management. His current research interests include Zakah and Taxation; IFRS Implementation in Emerging Economies; Private Higher Education; Corruption and Accounting Development; Politics, Regulation and Enforcement; and Corporate Governance. Monirul Alam Hossain PhD is an Associate Professor in Accounting at Prince Sultan University, Saudi Arabia. He received his PhD in Accounting from the University of Manchester, UK. His current research focuses on Financial Reporting, International Accounting Standards, and Corporate Governance. He has published extensively in academic and professional journals and conference proceedings. Saad A. Al-Mosa PhD is the Dean of the College of Business Administration at Prince Sultan University, Saudi Arabia. He has PhD in Accounting from the University of East Anglia, UK. Prior to Prince Sultan University, he taught in King Khaled University, Saudi Arabia. His current research focuses on Islamic Accounting & Banking; Zakah and Taxation; Auditing; and AACSB accreditation. ABSTRACT This study investigates self-reported paper-based tick-box corporate governance (CG) compliance and actual CG compliance from 2007 to 2011 in Bangladesh. It further investigates the effectiveness of the Anglo-Saxon model of CG in Bangladesh. A survey of annual reports Correspondence: Mohammad Nurunnabi, Department of Accounting, College of Business Administration, Prince Sultan University, Prince Nasser Bin Farhan Street & Rafha Street, PO Box – 66833, Riyadh 11586, Saudi Arabia E-mail: [email protected] Ó 2016 Macmillan Publishers Ltd. 1741-3591 International Journal of Disclosure and Governance Vol. 13, 4, 329–363 www.palgrave.com/journals Nurunnabi et al (totalling 80 firm-year observations) for 2 years (2007 and 2011), a total of 1,194 Bangladesh Securities and Exchange Commission’s (BSEC) enforcement documents from 2006 to 2010 were evaluated and 20 semi-structured interviews (2013) were conducted. Falsification of CG describes the difference between the self-reported disclosure score (initial CG compliance disclosure) by the company and the actual score that is found through detailed investigation of the annual report. Drawing on political economy theory, this study contributes to the international CG literature in two ways. First, actual CG compliance and falsification were stable under two political regimes. This means that, at least from the point of view of CG and the stock market, the democratic and military governments in Bangladesh were equal. However, the rate of falsification of information is an alarming issue for both local and international policy-makers, and is of considerable importance for local and international investors. Second, the Anglo-Saxon model of CG is not conducive in Bangladesh because of four contextual factors including (a) family ownership and the absence of independent director, (b) political businessmen, (c) corruption and lack of enforcement, and (d) the donor’s continual inter- vention. It can be argued that Anglo-Saxon model of CG transplanted in completely different institutional environments may outweigh its benefit and ultimately challenge appropriateness in emerging economies. This paper provides one of the very few studies utilising an emerging economy data in international business governance research under two very different political regimes. International Journal of Disclosure and Governance (2016) 13, 329–363. doi:10.1057/s41310-016- 0001-8; published online 9 August 2016 JEL codes: K22; M41; M42; M48; P16 Keywords: CG; democratic and military governments; emerging economy; political economy theory INTRODUCTION which companies are directed and controlled (The In ‘The Treachery of Images’ (1928–1929) Cadbury Committee Report, 1992, paragraph Magritte painted a tobacco pipe and beneath it 2.5). Meanwhile, according to the Financial he wrote, ‘Ceci n’est pas une pipe’, which Reporting Council’s (FRC) UK CG Code translates as ‘This is not a pipe’. Magritte said [formerly the Combined Code] (2014, para- about this painting: And yet, could you stuff my graph 1), The purpose of CG is to facilitate effective, pipe? No, it’s just a representation, is it not? So if I entrepreneurial and prudent management that can had written on my picture ‘This is a pipe’, I’d have deliver the long term success of the company. Two been lying!. Likewise this metaphor, the true different schools of thought exist regarding the nature of CG has often been called into adoption of CG Code in emerging economies. question in international corporate governance One group suggests that the adoption of such (CG) literature. Codes contribute to corporation‘s growth and Over the last decade, many emerging value creation (Jamali et al, 2008), high-level economies have adopted the Western model of financial performance (Rajagopalan and Zhang, CG Codes (Rossouw, 2005; Okike, 2007;Li 2008), and foreign direct investment (Cioffi, et al, 2012; Mahadeo and Soobaroyen, 2013; 2000; Hermes et al, 2006; Martin, 2012). The Munisi and Randoy, 2013; Biswas, 2015; second group argues that the Western model is Subramanian, 2015; Adegbite, 2015; Chris- not suitable and is, to some extent, irrelevant to tensen et al, 2015; Ntim et al, 2015; Al-Bassam the emerging markets context due to institu- et al, 2015, forthcoming). According to Sir tional settings (Uddin and Choudhury, 2008; Adrian Cadbury (head of the Committee on Siddiqui, 2010; Samaha et al, 2012). However, ‘Financial Aspects of CG’), CG is the system by relatively little research effort has been devoted 330 Ó 2016 Macmillan Publishers Ltd. 1741-3591 International Journal of Disclosure and Governance Vol. 13, 4, 329–363 Ceci n’est pas une pipe! to CG issues in emerging economies (Davis, Committee Report, 1999; Ahmad and Baree, 2005). The emerging economies, in particular, 2000; Sayeed, 2002) and the concepts of the provide unique opportunities and challenges for Anglo-Saxon CG model dominate in the local governance practices and research (Reed, 2002; practice of CG (Siddiqui, 2010). Bangladesh Davis, 2005). According to Rajagopalan and first started to make liberal market reforms in Zhang (2008, p. 56), Well-functioning CG the mid-1980s during Lieutenant General mechanisms in emerging economies are of crucial Ershad’s military-backed government. How- importance for both local firms and foreign investors ever, despite liberalisation, modern Bangladesh that are interested in pursuing the tremendous continues to face numerous political, eco- opportunities for investment and growth that emerging nomic, social, and environmental challenges, economies provide. including political instability, corruption, The study focuses upon Bangladesh because poverty, overpopulation, and climate change of several reasons. After Bangladesh gained (World Bank, 2002a, b). The recommenda- independence from Pakistan in 1971, it has tions