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Learning from Japan

  • Published at 03:45 pm July 23rd, 2019
Learning from Japan
A better system Bigstock

The Japanese corporate governance model is something to aspire to

Bangladesh is a developing country with vast regulatory regimes in corporate sectors, and the financial institutions are playing a crucial role in supporting commercial corporations. 

Firstly, commercial institutions lend money from financial institutions like banks and others. Secondly, shareholders of a company tend to invest money for corporations by taking loans from banks and other institutions, making financial institutions more important in the corporate sectors. 

All over the world, banking institutions work towards helping the corporate world, as well as play protective roles in challenging situations of corporate institutions. 

In contrast, when a company or corporate institution fails to pay back the interest along with the capital, these banks can play a devastating role in winding up such corporations in the name of recovering the banks’ money under the Public Demands Recovery Act 1913. 

Therefore, if Bangladesh involves banks and corporations in the Japanese model of corporate governance, the situation could be seen as an improvement in the upcoming era of industrial revolutions.

The current situation of Bangladesh heavily relies on the Companies Act 1994 and on the Corporate Governance Code 2018 adopted by the Bangladesh Securities and Exchange Commission for the public companies listed on any stock exchange incorporated in Bangladesh. 

But sometimes, the laws contradict each other. Furthermore, no indicated involvement of public income tax ordinance can be found, which eventually leaves a loophole in the arena of corporate governance in Bangladesh. 

Bangladesh faces difficulties in recovering income tax from the citizens and shareholders of the country.

On the other hand, the limited involvement of banks and financial institutions in the governing sectors of corporations leaves no headache to such financial institutions with regards to the development of the current situation, or in the quality of how the business is run.

The financial institutions are always aware of recovering their loans with interest, and they find well-established procedures for doing such.

Now, if the legislatures think otherwise and formulate corporate governance giving more emphasis on the role of these banks -- not only in recovering the money but also in the decision-making process of the business, products, and other procedures -- then these banks could help such corporations in gaining more profits, as they will have more profits if the business runs well. Thus, they shall keep the interest of the shareholders because of high profits.

In the Japanese corporate governance model, the Japanese commercial code and the securities and exchange law govern the Japanese corporations.

The two governmental organizations such as the Ministry of Justice and Finance are responsible for the implementations and compliance with the governing laws respectively. Moreover, the corporate income tax law governs the procedure of computing taxable incomes for the securities and exchange law.

Wherever there is this trio of legal frameworks, the structure of corporate governance seems more effective and adequate. There is not only the provision for corporate governance provided, but also, the computing of income taxes makes the authority concerned collect all of the taxes at one hand.

In Japan, the government regulators who constitute industrial policies for the private sectors traditionally play the shape-making roles in the corporate environment. The government of Japan never left the private sectors behind, and chose industries for the rapid growth of private sectors initially.

Furthermore, the Ministry of International Trade and Industry (MITI) formulates the visions for those chosen industries, and additionally, the Ministry of Postal Savings allocates the postal funds for them.

On the other hand, the Ministry of Finance (MOF) gives directives to the private banks to increase the financing of such industries and to rescue them from falling behind.

The governmental intervention further exceeds when the main bank has cross-holding shares along with ordinary shareholders. The banks can hold up to 5% shares of the firm, and this emphasized the role of banks in corporations as principle lenders.

The argument is, when a bank would itself have shares in the corporations, then they might be willing to provide more financial support to the affiliated company, and it would rescue such companies, as banks could have earned some profits along with the net interest of loans.

The former employees of Keiretsu sit on the boards of the companies, which helps the company to run their business more effectively with the supervision and experience of the old boys of the banks.

If we look at the economic development of Japan, such a corporate governance model can be seen to be oiling the running machine of business, though there are limitations.

Therefore, it could be advisable for Bangladesh to aspire towards the Japanese corporate governance model.

Md Asif Mahbub Tanvir is a graduate law student of North South University.

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