University of Dhaka

Department of Accounting & Information Systems

Masters of Business Administration,

19th Batch,

Section C

Submission of Term paper on the Topic of

“The impact of corporate governance on the internal relation between
management and the sub-ordinates within the business”

Selected Industry- Lather and Tannery

Submitted to:

Tanzina Haque
Associate Professor
Department of Accounting & Information Systems
University of Dhaka

Submitted by:

Name ID No
Muaz Ahmed(Group Leader) 19-257
Shahanaz Begum 19-109
Md Shah Alam 19-149
Nipa Aktar 19-165
Mohammad Tawfik E Elahi 19-205

Date of Submission: Sunday, November 5, 2017

Table of Contents
Introduction: ............................................................................................................................... 2
Objective of the Study: .............................................................................................................. 2
Literature Review: ..................................................................................................................... 3
Research Scope: ......................................................................................................................... 4
Methodology: ............................................................................................................................. 4
Data Collection: ..................................................................................................................... 5
Research Questions: ............................................................................................................... 5
Hypothesis Development: ...................................................................................................... 6
Analysis and Findings: ............................................................................................................... 7
Respondents Personal Information: ....................................................................................... 7
Responses of Research Question: .......................................................................................... 9
Analyzing research questions according to hypothesis ....................................................... 12
Recommendations: ................................................................................................................... 12
Conclusion: .............................................................................................................................. 15
References: ............................................................................................................................... 16
Appendix:................................................................................................................................. 17
Introduction:

Corporate governance is the process by which the board of directors (BoD), and its sub-
sequent committees, for the benefit and betterment of the company's as well as Shareholders
and stakeholder are provided direction, authority, and oversights to management.

“It means how to make the balance between the board members and their benefits and
the benefits of the shareholders and the other stakeholders”. (M.Tarek Youssef, 2007)

Corporate governance is the way or method that helps the organization to perform more
accurately, more precisely in this era of vast global competition to ensure all related parties’
interest.

Internal control is a process which is affected by the board of directors, management, it’s sub-
ordinated and so on. Internal control is the mix up that helps the organization to run
effectively and efficiently.

Internal control and corporate governance are much correlated to each other. Good internal
control depends on good corporate governance. In this paper we will try to find the impact of
the corporate governance to the internal control of the management and its sub-ordinates.

Objective of the Study:

The objective of this study is-

i) To find the impact of the corporate governance in the management and its
subordinates.
ii) To express the relation and dependence of the management to its sub-ordinates
and vice-versa.
iii) To find the impact of the management-subordinate communication to the
productivity of the business.
iv) To find the responsibilities of board of director to improve the management-
subordinate relationship.
Literature Review:

There are four active trade unions in Bangladesh’s tanning industry. These are:

1. Tannery Workers Union (TWU)

2. Jatio Tannery Sromik League (JTSL)

3. Jatiotabadi Tannery Sromik Dal (JTSD)

4. Jatio Somaztantric Chamra Shilpo Sromik Jot (JSCSSJ)

The second and the third trade union are affiliated with political parties. The TWU is the
larger one and JSCSSJ works alongside with it. s supported by Bangladesh Labor Welfare
Foundation (BLF) in its efforts to organize workers and strengthen its internal organization.

Main worker issues according to TWU are:

1. Relocation to Savar: According to TWU there is an opportunity to build more

modern tanneries in Savar with good effluent systems, but relocation should not
happen unless facilities for workers are provided – there are currently no facilities
such as accommodation, hospitals or schools for workers in Savar

2. Occupational Health and Safety: Employees work with hazardous chemicals

without protective gear. In addition, there is no proper guidance for workers, no
separate sanitation, ventilation is bad and there is no canteen.

3. Wages: The tannery industry is very hazardous because of the use of chemicals. As
the work also requires skills, workers’ salaries should be higher. TWU is demanding a
minimum wage of BDT 11,000 for tannery workers.

4. Job insecurity / casual work: Temporary workers receive piece-rate payments and
earn less than permanent workers. After having worked three months, workers should
be made permanent. However, this does not happen in practice. Contract / agency
labor is also becoming more prevalent in the tannery industry. Lack of job security is
a big issue.

According to report prepared by Stichting Onderzoek Multinationale Ondernemingen

(SOMO) on 2015 most of the workers of Leather industry are unaware of joining the benefit
of Trade Union. Even some tannery owners are very hostile towards trade unions and
threaten to fire workers if they join one.
There is a consensus, however that the broader view of corporate governance should be
adopted in the case of banking institutions because of the peculiar contractual form of
banking which demands that corporate governance mechanisms for banks should encapsulate
depositors as well as shareholders. Oyejide and Soyibo (2001) joined the consensus by
depositor, by arguing that the special nature of banking requires not only a broader view of
corporate governance, but also government intervention in order to restrain the behaviour of
bank management.

They further argued that, the unique nature of the banking firm, whether in the developed or
developing world requires that a broad view of corporate governance, which encapsulates
both shareholders and depositors, be adopted for banks. They posit that, in particular, the
nature of the banking firm is such that regulation is necessary to protect depositors as well as
the overall financial system.

Research Scope:
There is lack of research in this field in international as well as domestic arena. As a result,
proper literature has not been found. Besides the tannery and lather sector is the most
underrated sector of our economy. The tannery companies don’t use the corporate guideline
properly and there are certain reasons for that. Because the industry is not so developed, the
industry is facing a switch of as the court wants that the environment should not be populated
and so on.

So from the above information, we can draw a conclusion that tannery and lather sector is
one of the great field for researching internal control and corporate governance impact. The
volatile situation of this industry will make the investigation possible for of all areas.
Methodology:
Data Collection:
There are two kinds of data which are needed for this research purpose. Those are -

1. Primary data
2. Secondary data.

Primary Data: Firstly, the direct responses from the employees of the lather industry
companies. In order to get there responses, we have formed a questionnaire that will provide
us the necessary information about the internal control and the corporate governance
guideline maintained by the company. We visited the companies and take direct responses of
the individual employees to get the accurate data. There are 6 (six) public companies in the
lather and tannery industry. We took 5 (five) respondents from every company. So there are
30 (thirty) respondents in total.

Secondary Data: For analysis purpose, we have to compare the collected data and processed
information about those data with some relevant and related piece of information. For this
reason we have taken some data from the available journals, articles, reference books etc. we
also depends on the company’s’ website for their annual report.

Research Questions:
From the discussion of literature section and the professional view point, some questions
arises which will help us to find the appropriate reasons of how the labor-force and the
corporate governance is related to each other. The questions are-

Research Question 1:

Is there any relationship between internal management and corporate governance?

Research Question 2:

Does the success of business organization depend largely on the quality of employee
management and corporate governance?

Research Question 3:

Is selfish interest of the chief executive officers one of the factors affecting corporate
governance in an organization?

Research Question 4:

Can an unethical behavior of the employees hamper the functions of an organization?

Research question 5:

Can ineffective control of the management and poor corporate governance pose negative
effect on employee management?
Research question 6:

Does good control structure with the active and efficient work force creates more chances for
greater results?

Research Question 7:

Can effective control over the employee and corporate governance create the rights
environment for effective production and work satisfaction?

Research Question 8:

Do employee trade unions have positive impact corporate governance?

Research Question 9:

Has development of working environment through the efficient corporate governance helps
to contribute more in the growth and development of the Bangladeshi economy?

Hypothesis Development:
As per Suala (2005), hypotheses are the conjectural statement of the relationship between two
or more variables. So, the formulation of hypotheses for this research work has been shown
in the below-

Here, (Ho) stands for Null Hypothesis,

On the other hand (Hi) denotes Alterative Hypothesis.

Hypothesis 1:
Ho: Organizational success or otherwise does not depend greatly on the quality of internal
control of sub-ordinates and corporate governance.

Hi: Organizational success or otherwise depends greatly on the quality of internal control of
sub-ordinates and corporate governance.

Hypothesis 2:

Ho: There exist no significant relationship between internal control of the sub-ordinates,
corporate governance and organizational development.

Hi: There exist significant relationship between internal control of the sub-ordinates,
corporate governance and organizational development.

Hypothesis 3:

Ho: Ineffective internal control of management and poor corporate governance do not affect
organizational development.

Hi: Ineffective internal control of management and poor corporate governance do affect
organizational development.
Analysis and Findings:

Respondents Personal Information:

The respondents’ characteristics and classification as presented in section A‟ of the

questionnaire of the appendix of the research work. This is about the personal information of
the respondents.

Those are -

Table 1: Gender distribution of respondents

Respondent No of respondents % of respondents

Male 18 60

Female 12 40

Total 30 100

Table 1 show that 60% of the total numbers of the respondents are male which indicates the
majority, while 40% of them are female. This implies that the number of male working in
tannery industry were more than females.

Table 2: Analysis of the age distribution of the respondents

Respondent No of respondents % of respondents

21-30yrs 6 20.00%
31-40yrs 8 26.67%
41-50yrs 9 30.00%
51-60yrs 5 16.67%
61yrs & above 2 6.67%

Total 30 100

Table 2 indicates that there are different age group works in the tannery industry as there is
no clean majority and the numbers of respondents as well are the percentage are almost close
to each group of people.
Table 3: Analysis of the educational Qualification of the respondents

Respondent No of respondents % of respondents

Under Graduation 21 70.00%

Graduate 6 20.00%
Post graduate 3 10.00%

Total 30 100

From table 3 we can see that most of the employees in the tannery sector are under graduate.
Almost 60% of them are under graduate while only 20% of them are graduate. Meanwhile the
number of post graduate individual is very low, 10% of the total percentage.

Table 4: Work experience of the respondents

Respondent No of respondents % of respondents

0-5yrs 6 20.00%
6-10yrs 16 53.33%
11-15yrs 5 16.67%
16yrs & above 3 10.00%

Total 30 100

Here table 4 shows that a large number of the total respondents, more than 50% of the total
population, have 6 to 10 years work experience. On the other hand 20% have less works
experience than them. On the contrary, 25% have greater experience than them.
Responses of Research Question:

Table 5: Corporate governance helps to develop internal code of conduct for the
management and its sub-ordinates.

Respondent No of respondents % of respondents

Strongly Agreed 8 26.67%

Agreed 10 33.33%
Undecided 2 6.67%
Strongly Disagreed 6 20.00%
Disagreed 4 13.33%
Total 30 100

Table 5 shows that majority of the respondents agreed or strongly agreed with the statement.
The percentage of agreed and strongly agreed is together 60%.

Table 6: Relation between management and its subordinates are very much important
for the organizations development.

Respondent No of respondents % of respondents

Strongly Agreed 7 23.33%
Agreed 9 30.00%
Undecided 3 10.00%
Strongly Disagreed 6 20.00%
Disagreed 5 16.67%
Total 30 100

Table 6 indicates that most of the respondents agreed or strongly agreed on the statement.
Here the percentage of agreed and strongly agreed is together almost 53%.

Table 7: Management’s willingness to contact more with the subordinates helps to

create better work environment.

Respondent No of respondents % of respondents

Strongly Agreed 9 30.00%

Agreed 11 36.67%
Undecided 2 6.67%
Strongly Disagreed 4 13.33%

Disagreed 4 13.33%
Total 30 100
Table 7 is about management’s willingness. Here altogether 66% respondents agreed.

Table 8: Good communication between management and the employee enhances the job
satisfaction.

Respondent No of respondents % of respondents

Strongly Agreed 8 26.67%
Agreed 11 36.67%
Undecided 3 10.00%
Strongly Disagreed 5 16.67%
Disagreed 3 10.00%
Total 30 100

According to table 8, 62% respondents agreed on the statement of good communication

between management and employee.

Table 9: Employee to management and management to employee both sided

communication notably increase the performance.

Respondent No of respondents % of respondents

Strongly Agreed 9 30.00%
Agreed 10 33.33%
Undecided 4 13.33%
Strongly Disagreed 2 6.67%
Disagreed 5 16.67%
Total 30 100

Table 9 shows that majority of the respondents agreed or strongly agreed with the statement.
The percentage of agreed and strongly agreed is together 63%.

Table 10: Implementation of corporate governance guidelines extends the management

and employee relationship.

Respondent No of respondents % of respondents

Strongly Agreed 8 26.67%
Agreed 12 40.00%
Undecided 3 10.00%
Strongly Disagreed 4 13.33%
Disagreed 3 10.00%
Total 30 100

Table 10 indicates that most of the respondents agreed or strongly agreed on the statement.
Here the percentage of agreed and strongly agreed is together almost 66%.
Table 11: Corporate governance practice creates more opportunity to excise
accountability and decentralization in the organization.

Respondent No of respondents % of respondents

Strongly Agreed 12 40.00%
Agreed 8 26.67%
Undecided 4 13.33%
Strongly Disagreed 2 6.67%
Disagreed 4 13.33%
Total 30 100

Table 11 is about corporate governance practice and decentralization in the organization.

Here altogether 66% respondents agreed.

Table 12: Corporate governance helps to establish employee to employee relations.

Respondent No of respondents % of respondents

Strongly Agreed 11 36.67%
Agreed 8 26.67%
Undecided 3 10.00%
Strongly Disagreed 6 20.00%
Disagreed 2 6.67%
Total 30 100

According to table 12, 62% respondents agreed on the statement of corporate governance
helps to establish employee to employee relations.

Table 13: Corporate governance practice helps to establish a good code of ethics
between the management and the employees.

Respondent No of respondents % of respondents

Strongly Agreed 10 33.33%
Agreed 10 33.33%
Undecided 4 13.33%
Strongly Disagreed 3 10.00%
Disagreed 3 10.00%
Total 30 100

Table 13 indicates that majority of the respondents agreed or strongly agreed with the
statement. The percentage of agreed and strongly agreed is together 66%.
Table 14: Trade unions are the sign of good communication among corporate
governance guidance between the management and the employees.

Respondent No of respondents % of respondents

Strongly Agreed 11 36.67%
Agreed 10 33.33%
Undecided 2 6.67%
Strongly Disagreed 2 6.67%
Disagreed 5 16.67%
Total 30 100

On the statement of trade unions contribution, 70% respondents agreed.

Analyzing research questions according to hypothesis:

We have used spearman’s coefficient of rank correlation to analyses the hypotheses. Thus the
hypotheses are accepted or rejected for and acceptable decision.

The formula for spearman’s coefficient of rank correlation is-

1 – 6 ∑d2
r=
𝑛(𝑛2 − 1)

Where:

r = coefficient of the correlation

d = the difference between the rank of each pairs

n = the number of paired observations.

In order to know the strength of the relationships between the pairs (rank 1 and 2), the
spearman’s rank correlation shall be converted to t – statistics using the formula below-

𝑟 𝑛−2
t= √
1−𝑟 2

Where:

n = number of element (Pair observation)

t = student’s t – distribution.

However, the null and alternative hypotheses are:

H0: The rank correlation in the population is zero.

Hi: There is a positive association among the ranks

Hypothesis 1:

Ho: Organizational success or otherwise does not depend greatly on the quality of internal
control of sub-ordinates and corporate governance.

Hi: Organizational success or otherwise depends greatly on the quality of internal control of
sub-ordinates and corporate governance.

Questions 1 (table 6) and 2 (table 7) in section B of the questionnaire are used to be tested as
hypothesis one. Therefore, let X represents question 1 and let Y represents question 2.

Respondents X Y RX RY RX – RY (RX –
RY)2
Strongly Agreed 8 9 2 5 -3 9

Agreed 10 7 5 4 1 1
Undecided 2 3 1 1 0 0
Strongly 6 6 3 3 0 0
Disagreed
Disagreed 4 5 4 2 2 4
Total 30 30
Here, Computed value of t = 4

Degree of freedom (d.f) = n – 2 but n = 5

d.f = 5 – 2 = 3

Since the value could either be positive or negative, the test is one-tailed test. Therefore one
tailed value of t-distribution schedule was used.

At d.f 3 and 0.05 (5%) level of significance, tabulated value of t = 2.353

Decision: The computed value is greater than table value, thus null hypothesis is rejected and
alternative hypothesis is accepted.

Hypothesis 2:

Ho: There exist no significant relationship between internal control of the sub-ordinates,
corporate governance and organizational development.

Hi: There exist significant relationship between internal control of the sub-ordinates,
corporate governance and organizational development.

Questions 6 (table 10) and 7 (table 11) in section B of the questionnaire are used to be tested
as hypothesis one. Therefore, let X represents question 1 and let Y represents question 2.

Respondents X Y RX RY RX – RY (RX – RY)2

Strongly Agreed 8 12 4 5 -1 1
Agreed 12 8 5 4 1 1
Undecided 3 4 1 1.5 -0.5 0.25
Strongly 4 2 3 2 1 1
Disagreed
Disagreed 3 4 1 1.5 -0.5 0.25
Total 30 30 3.5
Here, Computed value of t = 3.5

Degree of freedom (d.f) = n – 2 but n = 5

d.f = 5 – 2 = 3

Since the value could either be positive or negative, the test is one-tailed test. Therefore one
tailed value of t-distribution schedule was used.

At d.f 3 and 0.05 (5%) level of significance, tabulated value of t = 2.353

Decision: The computed value is greater than table value, thus null hypothesis is rejected and
alternative hypothesis is accepted.

Hypothesis 3:
Ho: Ineffective internal control of management and poor corporate governance do not affect
organizational development.

Hi: Ineffective internal control of management and poor corporate governance do affect
organizational development.

Questions 9 (table 13) and 10 (table 14) in section B of the questionnaire are used to be tested
as hypothesis one. Therefore, let X represents question 1 and let Y represents question 2.

Respondents X Y RX RY RX – RY (RX – RY)2

Strongly Agreed 10 11 2.5 5 -2.5 6.25
Agreed 10 10 2.5 4 -1.5 2.25
Undecided 4 2 3 1 2 4
Strongly 3 2 1.5 1 0.5 0.25
Disagreed
Disagreed 3 5 1.5 3 -1.5 2.25
Total 30 30 15
Here, Computed value of t = 15

Degree of freedom (d.f) = n – 2 but n = 5 d.f = 5 – 2 = 3

Since the value could either be positive or negative, the test is one-tailed test. Therefore one
tailed value of t-distribution schedule was used.

At d.f 3 and 0.05 (5%) level of significance, tabulated value of t = 2.353

Decision: The computed value is greater than table value, thus null hypothesis is rejected and
alternative hypothesis is accepted.
Recommendations:
In the course of carrying out this research work, many factors were found responsible for
ineffective communication and poor corporate governance in the small and medium scale
entrepreneurs, and global financial rises. For this reason, the following recommendations
were made to help the organizations perform greater in small and medium scale economy to
grow.

There is need for more awareness on the importance of good internal control and corporate
governance to embrace corporate governance being a system that encourages efficient use of
available scarce resources in order to achieve organizational objectives in the small and
medium scale industries (SMI) and other sectors of the economy.

The top management staff of every organization should do away with fraudulent acts and
unethical behaviors; There should be more severe punishment for the leaders or top manager
that involved in any fraudulent acts; As it was proved that, ineffective leadership and poor
corporate governance hinders the development of small and medium scale entrepreneurs,
government should encourage and educate them by organizing seminars, workshops, public
lectures, etc about the dangers of ineffectiveness and mismanagement.

It was found that corporate governance aids the achievement of an organizations budget
through adequate implementation and monitoring, every organization is hereby advice not to
handle corporate governance system with levity but with all seriousness to achieve greater
result

Conclusion:
Our main objective is to find out the way of the communication among the management and
their sub-ordinates. Here from the analysis, we can see that the relation between management
and its sun-ordinates are very crucial. And it plays vital role the production as well as the
whole work environment of the organization.

Besides it creates job satisfaction among the employees which creates greater option to both
the organization and the related parties. Mostly every organization depends on the particular
management system and corporate governance helps to find the best way out of the possible
patterns.
References:
1. M.Tarek Youssef 2007, Corporate Governance- formal the process of governing.
2. Osuala, E.C (2005) Introduction to Research Methodology, Principles and Practice
3. Keasey, K. Thompson, S. and Wright, M. (2005) Corporate Governance:
Accountability, Enterprise and International Comparisons
4. Letza, S. Sun, X. and Kirkbride, J (2004) Shareholding versus stakeholding: a critical
review of Corporate Governance, Corporate Governance: An International Review
5. Ostroff, F. (2006) Change Management in government, Harvard Business Review
6. Parker (2002) Governing the Corporation in Bloomsbury References Book, London:
Bloomsbury Publishing Plc.
7. Shleifer A. and Vishiny R.W (1977) A survey of Corporate Governance, Journal of
Finance, 52, No 2, June
Appendix:

Questionnaire:

Personal Information:

Please tick (√) the appropriate answer from the options provided

Information Option 1 Option 2 Option 3 Option 4 Option 5

Gender Male Female - - -
Age 21-30 31-40 41-50 51-60 61-70
Education S.S.C H.S.C Graduation Post- Above
Graduation
Work Experience 0-3 years 3-5 years 5-8 years 8-10 years Above

SA A UD SD D

Corporate governance helps to develop internal code of conduct

1.
for the management and it’s sub-ordinates

Relation between management and its subordinates are very

2.
much important for the organizations development.

Management’s willingness to contact more with the subordinates

3.
helps to create better work environment.

Good communication between management and the employee

4.
enhances the job satisfaction.

Employee to management and management to employee both

5.
sided communication notably increase the performance.

Implementation of corporate governance guidelines extends the

6.
management and employee relationship.

Corporate governance practice creates more opportunity to excise

7.
accountability and decentralization in the organization.

Corporate governance helps to establish employee to employee

8.
relations.

Corporate governance practice helps to establish a good code of

9.
ethics between the management and the employees.

Trade unions are the sign of good communication among

10. corporate governance guidance between the management and the
employees.

The abbreviations below will helpful for answering the questions above.

(SA) (A) ( D) (SD) (D)

Strongly Strongly
Agreed Undecided Disagree
Agreed Disagree