the implications of good governance in corporate sector

7/23/2019 The Implications of Good Governance in Corporate Sector

1/20

Title

The Implications of Good Governance in Corporate sector A Case Study of Bank of Khyber

Principle Author/Correspondin

Given Name Dr. Habib ur Rahman, Family Name, Dr. Habib ur Rahman,Email: [email protected]

Cell!"#$%%#&'("!$()hone!"#!*#&'+&%'#!

-iliation -ddress: /arhad 0niversity o /1ien1e and 2normation 3e1hnolo4y,

$ 5, Chinar Road 0niversity 3o6n, )esha6ar,

7hyber )ukhtun7h6a, )akistan

The Implications of Good Governance in Corporate sector


2/20

Abstract!

8ith ever e9pansion in the 1orporate se1tor, the risk o under utiliation as 6ell as misuse o

resour1es in1reased maniold 6hi1h phenomena attra1ted the attention o the business mana4ersand 1ompany ty1oons to mana4e the haards and prevent the1risis rom happenin4. 3his paper o1uses on the root 1ause o mismana4ement and its1onse;uen1es on the operational results o the or4aniation. 2t dis1usses the role o theor4aniational hierar1hy, its e9posure to a11ountability and all time auditability o the operationalresults o the or4aniation 6hi1h event alone 1an ensure the la6less 1ondu1t o su11essulbusiness the paper e9plores in detail the in4redients o better mana4ement via 4ood 4overnan1e.2t elaborates the 1on1ept o Good Governan1e or the purpose o better results by e9plainin4 theimpli1ation o loose 1ontrol or or that matter inee1tive 1he1ks and la1k o re4ulatoryinstruments. E9plainin4 the 1ase study o lo1al 5ank it 1on1ludes that under Good Governan1eand 6ith ee1tive mana4ement the or4aniations have al6ays su11eeded in a1hievin4 their

4oals.

Key "ords: Good Governan1e, or4aniational hierar1hy, poli1y rame6ork and implementation,Chara1teristi1s and role o mana4ement.

#esearch $ethodoloy: 5ook /tudy o literature on Good Governan1e, literature on the sub


3/20

The Implications of Good Governance in Corporate sector

A Case Study of Bank of Khyber

Governance

-ter 8orld 8ar 22 many ne6 nations emer4ed as independent states 6ith determination toeman1ipate rom the e1onomi1 1lut1hes o their past rulers. 3his phenomenon 1reated e9traa44re4ate ee1tive demand 6hi1h subse;uently stret1hed the boundaries o the market.

3he ast e1onomi1 4ro6th e9panded the 1orporate se1tor. -lon4side are stret1hed the dimensionso the state a1tivities. /o1io politi1al a6areness and the 1on1ept o demo1rati1 rulin4 has 1reated1hallen4es or not only the industrial and business ty1oon but has e;ually in1reased theresponsibilities o the state to6ards its 1itiens.)rodu1t diversii1ation and in1reased e1onomi1 a1tivities resulted in division o 6ork 6hi1hultimately ne1essitated dele4ation o po6er. Enlar4ement o produ1tion and distribution se1torsentailed 4reater risk o mismana4ement and 1onse;uent ailure in a1hievin4 the or4aniational

4oal. Chan4in4 e1onomi1 environment and its impa1t on so1io e1onomi1 lie attra1ted attentiono the poli1y makers.

/tron4 or1e o proit motive in 1onli1t 6ith 4oal o so1ial 6ellbein4 o the masses put the/tatesmen as 6ell as the business mana4ers in a deep thinkin4 pond. 3hey are no6 re;uired toa1hieve the only 4oal o ma9imiin4 the overall 6ellbein4 o the so1iety. 3hey have either to1on1entrate on the publi1 utilities throu4h development o /o1ial >ver Head Capital or 1reatin4surpluses or ta9ation and unds or 6elare dispersal.Neither today?s /tate nor industrial unit is absolved o its 1orporate so1ial responsibilities. Hen1ethe runnin4 o the business ma1hinery or its re;uisite output needs to be properly or4anied andoperated upon or ensurin4 the a1hievement o /tate 4oal alon4 6ith meetin4 the e9pe1tation othe stakeholders.

Governan1e is a pro1ess o runnin4 the aairs o an institution or or that matter o a state 6ithan ob


4/20

implemented )or not implemented*. 3he term Governan1e 1an be used in several 1onte9ts su1has 1orporate 4overnan1e, international 4overnan1e, national 4overnan1e and lo1al 4overnan1e.*

Good Governance

3he 1on1ept o Good Governan1e denotes a pro1ess o poli1y ormulation ande9e1utionimplementation o the s1hemes or pro4rams o 4oal a1hievement 6ith all honesty,dili4en1e and dedi1ation so as the end a result 1onorms to the predetermined ob


5/20

the buildin4. 2t is here that a set of uidelinesare dra6n and over all dimensionsare determined6hi1h helps in makin4 de1ision throu4h out the or4aniation 2t, thereore, be1omes in1umbentupon the e9e1utin4 a4ents to operate only 6ithin these parameters. -ny a1tivity 1arried outbeyond these parameters does not re1eive approval rather attra1ts punitive a1tions. 3hele4itima1y o a1hievement o ob


6/20

0! Accountability! Every a1tivity disre4ardin4 the nature o transa1tions needs to be veriied6ith the 1riteria laid do6n or a parti1ular transa1tion and its le4itima1y be as1ertained so thatany a1tivity not provin4 the standard be 1he1ked beore it is 1arried out. 8himsi1al de1isionsand orders passed 6ithout le4itimate authority may not be allo6ed to be implemented. )erpetualinspe1tion and re4ular audits helps in identiyin4 the 4rey areas but implementation o audit

reports is ina1t most or aimin4 the instrument o a11ountability to6ards hands 4oin4 astray.3imely unbiased impartial a1tion saves the situation rom deterioration and distortion o thepro1edure.2mmunity, E9emptions and E91eptions has tempted the authority to be used or vested interest.8ith least ear o punitive a1tion the dishonest authority and their a11ompli1es have al6ays beenthe root 1ause o mismana4ement and ultimate failure in Governance!3he poli1y implementin4 a4ents, thereore, be open to a11ountability disre4ardin4 the rank andrapport.

- /tate or an 2nstitution >r4aniation is a 1omposite o a number o units, areas o operation andse1tors o produ1tion and distribution. Ea1h unit or or4aniation sets its o6n 4oals and ob


7/20

be1ause o the unbiased and s1ientii1 approa1h o the sa4es 6hi1h 4enerally 1ontradi1ts thestatesman?s ob


8/20

Imagination soaring, speech heart inspiring and soul ever searching are indeed the qualities

of the leader of men.

Policy formulation and approval

Fo1usin4 on the Corporate Governan1e, team 1onsists on various un1tional layers 6hi1h ormor4aniational hierar1hy. Fi4ure No. * depi1ts a 1ontour o the bodies 6ho a1t to set 4uidelines,test the 4uidelines on the 1riteria o rules and la6 o land and inally deploy and help the humanresour1es to implement the de1isions 6hi1h are part o the poli1y.>n the top, are the poli1y makers 6ho set 4uide lines 6hi1h helps in de1ision makin4. 3hey areshareholders and o6ners o the entity and have ma


9/20

Final verii1ation by vettin4 1ommittee ensures that the poli1y no6 stands ready orimplementation. 3he r4aniation?s 5yela6s under the entity is 1onstituted as 6ell as statutory la6s2t is in a1t the 1omplian1e 6ith rules o business and abidan1e by the la6 o land 6hi1h enables

the mana4ement to a1hieve the obn1e the e9e1utive 1ommitteeapproves the a1tion plan, the implementin4 a4en1ies be1ome responsible or results as per tar4etand ob


10/20

Procedure and Accountin Committee&

3he poli1y approved by the 1ompetent authority is se4mented by nature o a1tivity and issubse;uently supposed to be undertaken by the relevant sub authority. 2t is, thereore, imperativethat the strata 6hi1h is likely to shoulder the responsibility must be amiliaried 6ith operational

me1hanism and the intri1a1ies involved therein so that its smooth un1tionin4 1an be timelyensured. Dependin4 on the nature o business a uniorm pro1edure and a11ountin4 system needsto be evolved by desi4nin4 the various books o a11ounts and their maintenan1e pro1edure 6hi1h6ill subse;uently a1ilitate the verii1ation o the authenti1ity o the transa1tion and also inalresults 1omin4 out o the business. 3he proper do1umentation o the a1tivities and the various1han4e a4ents involved in the pro1ess must be a6are o the spe1iied area o their operationdurin4 the 6hole host o e9er1ise. 3hereore the re1ordin4 and a11ountin4 methodolo4y needs tobe 1learly deined 6hi1h 6ill subse;uently help in a11ountability and i9in4 o responsibility.3he pro1edure and a11ountin4 1ommittee is 1on1erned 6ith desi4nin4, dratin4 and pres1ribin4o various proormae, do1uments and su44estin4 o me1hanism pertainin4 to the use andmaintenan1e o these materials or uture eviden1e in support o the transa1tion 1arried out 6ith

the help o these instruments.

Trainin and Skill development Committee

5eore puttin4 the poli1y into operation the 6orkor1e and the intermediate a4en1ies must be4iven skill to operate in a11ordan1e 6ithin the 4uidelines laid do6n or that parti1ular area ooperation. 3hey are e9posed to relevant trainin4 or a1;uaintin4 them 6ith various tools andte1hni;ues o a11omplishin4 the 4oal but only 6ith in the permissible


11/20

out. First par o the task 1ommen1es 6ith the desi4nin4 ramin4 and approvin4 o the poli1y6hile in the se1ond rather the more important one is ultimate approval o the results. Here it overthe sees the entire operational results and a1hievement or other6ise o the 4oals ne1essitates therevie6 o the poli1y and also the role o the poli1y implementin4 a4ent.

3ayer 7o! ,! /e1ond part o the hierar1hy is indeed o si4nii1ant role to play in the perorman1eo the or4aniation. 3his position is o11upied by the 1hie e9e1utive o the or4aniation 6ho issele1ted by the shareholders the o6ners o the entity 6ith an e9pe1tation to a1hieve thepredetermined and spe1iied ob


12/20

Ni1k eeson 6as 1raty enou4h to avail the po6ers o a senior e9e1utive in the or4aniation,

be4an strikin4 bar4ains o billions o dollars put at a stake in the business o FUTURES, /8-)/

and OPTIONS.Durin4 *!!+, eeson re1orded alse proit o G5) "'.&==.. He thus su11eeded

in ensurin4 employees abulous bonuses that year. -nd 1orollary, eeson 6as vie6ed as a star

trader 6ho 6as not to be interered 6ith.

Non o the e9e1utives in 5arin4 5rothers J1ompany ever 1ared or the a1tivities o eeson 6hohad sin1e be4an usin4 i1titious -11ount No.''''' to hide some losses 6hi1h eventually resultedin the 1ollapse o theBaring BrothersBank $

=ehran bank 6as established in )akistan on $*st >1tober, *!!* as a publi1 limited 1ompanypaid up 1apital 6as Rs $%% million I0/ K *% millionand be4an its ormal operations rom ""ndPanuary, *!!" as /1heduled 5ank-nd bran1h net6ork at 7ara1hi, ahore, =irpurkhas, )esha6ar, Quetta and Ra6alpindi r.=r.unus Habib 6as appointed as First Chie E9e1utive >i1er o the 5ank 6ho 6as a11used ohavin4 misappropriated nearly ive billion rupees, subse;uently used or donations to politi1ians

and other a4en1ies as 6ell as )rime =inister. He 6as also 1onvi1ted in Dollar 5earers1ertii1ates ID5C?s raud amountin4 to*+'.& million as /E) o H5=ehran 5ank 6as 4iven K+% million 6orth Dollar 5earer 5onds or sale.He had admitted that out o K$.( million bein4 the sale pro1eeds o Dollars 5earers 5onds hehad paid K"% million to intelli4en1e a4en1y o the 1ountry and let over amount 6as used tomeet the pressin4 obli4ations 6here as the pro1eeds rom the D5Cs had to be deposited 6ith/tate 5ank 6ithin (" hours o the sale. Ho6ever, he did not meet this deadline L*&M. 2n a1t, henever deposited the money at all. He 6as arrested on a 1omplaint by the /5) or 1ommittin4misappropriation in the sale)ro1eeds o Dollar 5earer Certii1ates ID5Cs to the tune o K$.( million. He 6as arrested on a1omplaint by the /5) or 1ommittin4 misappropriation in the sale

)ro1eeds o Dollar 5earer Certii1ates ID5Cs to the tune o K$.( million.3he re4ulatory 1ould not monitor or one reason or the other. 3he =ehran 5ank Collapsed..2n*!!&, =ehran 5ank?6as mer4ed 6ith National 5ank 2n *!! the N5) had to make provision oRs *." billion or =ehran 5ankOs liabilities.

3ayer 7o!.! 3he ourth layer o the or4aniation is the 6orkor1e in the absen1e o 6hi1h nomaterial results are possible and its proper utiliation is a4ain the responsibility o the poli1yimplementin4 team. Ei1ient and optimal use o potentials 6ith the help o 4oal a1hievin4 or1eis hi4hly perple9


13/20

department or se4ment o the or4aniation has its o6n intri1a1ies and their handlin4 needs aspe1ii1 skill 6ithout 6hi1h the re;uired results 1an be a1hieved. /u1h a team a4ain 1omprise onsub teams dele4ated 6ith deined authority and assi4ned 6ith predetermined 4oals ora1hievement. 3his sub division o 6orks a1ilitates the

3his hierar1hal distribution is represented 6ith the help o the ollo6in4 dia4ram

Policy $aker

5oard o

Governors

5oard o Dire1tors

Policy Aent

Chie E9e1utive >i1er General

=ana4er=ana4in4 Dire1tor

Policy

Implementation Team

Chief

6inancial

officer

Chief

Audit/inspectionChief %#

officer

Chief

8peration

officer

Task 6orce

>r4aniation?s manpo6er

8ork or1e


14/20

The Bank of Khyber1 Pesha(ar! 3he 5ank o 7hyber 6as in1orporated in the year *!!* as apubli1 se1tor )rovin1ial Commer1ial 5ankin4 entity and 6as subse;uently allo6ed tooperate as s1heduled bank by the year *!!+. /in1e its in1eption the bank 6as headed by=ana4in4 Dire1tor hired rom -4ri1ultural Development 5ank. 5ein4 a developmentbanker he 1ould run the bank only on lines 1ommensurate 6ith his e9pertise.

Commer1ial bankin4 has its o6n me1hanism and needs a dierent temperament.Commer1ial bankers unlike development bankers mainly o1us on in1ome 4enerationand, thereore, strive hard to in1rease the ;uantum o business by se1urin4 ma9imumdeposits and disbursin4 ;uality inan1es. 3he 5ank 1ould not 4ro6 and 1onse;uently inspite o bein4 a Commer1ial 5ank its No. o bran1hes did not e91eed "! till De1ember,"%%&.

5ein4 a publi1 se1tor entity it suered rom 1ontinuous politi1al intereren1e and intervention.3his 1aused re;uent 1han4es o 1har4e. 3he mana4ement instability led to perorman1eslan4iness. east interested mana4ement and poor perorman1e put the bank at rearle4s. Fre;uent 1han4e o 1har4e 6as one o the 1auses o non 1ontinuation o business

poli1ies and resultantly slo6s 4ro6th. 3he poli1y itsel has never been the solution obusiness ills.

Good poli1ies 6hen pra1ti1ed by least interested, vested interest

or inei1ient mana4ement has al6ays met a 6orse type o ailure. >r4aniational 4oala1hievement is the result o team 6ork and the members 6illin4 to 6ork or the1ommon 1ause 1an only 1ontribute. 2t is here that the poli1y implementin4 a4ent, leadero the team attains the most importan1e. His kno6led4e, skill and approa1h in other6ords proessionalism de1ides the mode o implementation pro1ess and ultimateout1ome o the eorts put in. 3he motivation o the team members and turnin4 them

into ambitious 6orkers is the 1harisma o the ee1tive leaders.

3he slo6 4ro6th in 5ank o 7hyber 1an in one 6ay be attributed to la1k o proessionalism andinability to sustain politi1al pressure 6hi1h phenomena led to e91essive stain4 andimpudent lendin4. 3he 5ank resultantly a1ed dii1ulty in maintainin4 ;uality oadvan1es and hu4e amount o provision had to be made to rele1t true inan1ial pi1turein the balan1e sheets.

- 1omparison o the business results o the period rom *!!& #"%** revealed by the ollo6in4table No.* 4ives us a pi1ture o the 4ro6th rate 6hi1h is hi4hly en1oura4in4 and 6orthappre1iation under the present 1ut throat market 1ompetition.


15/20

The Bank of Khyber at a Glance )Amount in millions*

3iabilities +99 ,:: ,::; ,::< ,::9 ,:+: ,:++ ,:+,

-uthoried Capital *%%% "&%% '%%% '%%% '%%% '%%% *%,%%% *%,%%%

)aid up/hare Deposit=oney by Govt. o7)7

"+& *,"$* +,%%" +,%%" &,%%+ &%%+ '""' !%%*

Reserves *$& ''+ *$"$ *,+$ +$& &+' ("" !$(

=eposits $(( *(,+&" "*,+*% "+,($" ","'& $,!'* +&,&+' %,%+$

)roit ater ta9ation *" "'( "*$ *$( $( &$ '(" *,%(&

Property/Assets

5alan1e 6ith otherbanks

(*$ *,%&% $,("' $,$" ",+%$ *&%* *&"( *,+!

2nvestment *,$' (,"$ ',!+& *(,!"& *!,'&" $,'+ +&,(*

-dvan1es *,%$' *%,&*" *%,%'& *",+$ **,'$& *'"$' """'( ",!"

Non perormin4advan1es

",'! ",$%* $,$$* ++&( +%'' $!$! +,$$&

)rovision a4ainst non)erorman1e advan1es

*,&+" "%% ","* "!($ $%"& "!'!$,%%'

Return on E;uity **.$% &.*"* ".++ *".%+ *%.%% !.%% *%

No. o Employees*. )ermanent". Contra1tual$. Daily 6a4er

3otal

$(%##

$(%

$$!*&!*"

%

$(*&+*&

'

$(**!

("

(!&+!"

"

*"'!

'!%+!"&

*$'+

!"(&%*"

*+$%

No. o 5ran1hes "! $$ + &( (% ((

From the above table it transpires that the bank 4ro6th took momentum rom the year "%%!. 3ill

"%%( there is little 4ro6th in the business and one reason bein4 limited number o bran1hes 6ithrestri1ted 1lientele. 5ank is ina1t dire1tly dependent on deposits and these deposits 1an bese1ured 6ith the help o bran1h net 6ork. 3he in1rease in the no. o bran1hes leads to lar4ere9tent to depositor as 6ell as the borro6ers 6ho eventually avail these surpluses or reinvestin4into the e1onomi1 pro1ess. 8ith in1reased ;uantum o deposits the banks have resour1es to lendand earn in1ome, the primary ob


16/20

alone 6hi1h results in the su11ess o the bankin4 unit but it is the ;uality o inan1es 6hi1hdetermines the uture 1ourse o business o the bank . - prudent banker al6ayso1us on in1reasin4 o proitability 6hi1h is possible only throu4h se1urin4 resh deposits andmakin4 advan1es thereo. 3he in1rease in deposits is possible only 6hen the No. o 1lientele isin1reased. 3o a1hieve this ob


17/20

perorman1e loans rose to Rs.$%"&.%% millions a4ainst Rs."!($S millions reported or the year"%%!. 3his 6as imperative or providin4 re;uisite 1ushion a4ainst bad debt 6hi1h 6aspreviously not provided or sui1iently.3he ;uantum o non perormin4 assets subse;uently ell to Rs.$!$!.%% millions at the end o

De1."%** and so de1reased the amount o provisions 6hi1h thou4h also ell to Rs."!'!.%%

millions 6hi1h is (&.'' o ine1ted portolio and is lo6er as 1ompared to the year "%%(

6hen it 6as '(! 3o brin4 the 1lassiied in the ti4ht orbit o prudential re4ulation the urther

provisions had been made durin4 the year "%*" raisin4 the total ;uantum to Rs.+$$&.%% millions.

3he rise in the non perormin4 loans is only *%

)roitability is the most si4nii1ant measurin4 rod or assessin4 the perorman1e o a 1ommer1ial

or4aniation. 3he 5ank o 7hyber has su11eeded in a1hievin4 the ob


18/20

TTTTTTTTTTTTTTTT

3otal *%% "%%

3o arrive at more reliable results sample 6as a4ain divided into t6o sub 4roups. /eventy ive

per1ent prospe1tive respondents 6ere 1hosen rom the urban bran1hes and oi1es lo1ated in

)esha6ar and adGro(th in business of Bank of Khyber

/erial

No.

Question No. o

-ns6erE/

No. o

-ns6erN>

Do not

7no6

* Do you think there are positive1han4es in the perorman1e o 5ank o7hyber U

*'% ** !

" -re you sure that 5ank o 7hyber hasa1hieved unpre1edented 4ro6th

*!" % '

$ 2s this 4ro6th due to Good=ana4mentU

*(' *% "

+ Due think mana4ement 1ould a1hieve

4ro6th due to poli1y 1han4eU

*(& *( '

& Did e9pansion in bran1h net6orkin1reased depositsadvan1esU

*!% % *%

Did bank earned more proit due better und mana4ementU

*'& *% &

( Could 5ank o 7hyber dis1har4e1orporate so1ial responsibilityU

*% % +%

' 2s this perorman1e due to betterservi1e to 1ustomersU

*'( *% $

! Did the e9istin4 1lientele add to the

1orporate ima4e o the 5ankU

*(& *( '

*% -re you satisied 6ith 1ustomer?sa1ilitation at outlets

*!' % "

>ut o a total "%% ;uestionnaires !* ans6ers veriied the hypothesis that the unpre1edented4ro6th in 5ank o 7hyber 6as a1hieved due to in1rease in bran1h net 6ork 6hi1h helped ine9pandin4 the business.


19/20

3he bran1h e9pansion 6as primarily meant to a11ess the ma9imum No o 1lients. 3his 6asina1t the 1ore o 1han4ed 5ank )oli1y 6hi1h stemmed rom the era o Good Governan1e.

Reeren1es.

*.Farnando, - C "%**, corporate governance, oyola Center or 5usiness Ethi1s, Chenai ,2ndia.p &(&

".7ha6a


20/20

*%.7hyber , "%%(,,1nnal reports o" The Bank o" 2h(!er, 5ank o 7hyber, )esha6ar,)akistan.

**.7hyber , "%%',,1nnal reports o" The Bank o" 2h(!er, 5ank o 7hyber, )esha6ar,)akistan.

*".7hyber , "%%!,,1nnal reports o" The Bank o" 2h(!er, 5ank o 7hyber, )esha6ar,)akistan.

*$.7hyber , "%*%,,1nnal reports o" The Bank o" 2h(!er, 5ank o 7hyber, )esha6ar,)akistan.*. http:666.unes1ap.or4pddprs)ron4oin4444overnan1e.asp

*+.7hyber , "%**,,1nnal reports o" The Bank o" 2h(!er, 5ank o 7hyber, )esha6ar,)akistan.

. *&.7hyber , "%*",,1nnal reports o" The Bank o" 2h(!er, 5ank o 7hyber, )esha6ar,)akistan
http://www.unescap.org/pdd/prs/ProjectActivities/Ongoing/gg/governance.asphttp://www.unescap.org/pdd/prs/ProjectActivities/Ongoing/gg/governance.asp

the implications of good governance in corporate sector

Documents