- Independent directors act as trustees for public stakeholders
- Bangladesh should follow peer countries by having one-third of its board members be independent directors
- State and non-listed entities also need independent directors
- Independent directors need satisfactory remuneration
- BSEC to triple meeting fees for independent directors
- Independent directors need to be trained, evaluated
Independent directors, who are neither shareholders nor executives of a company, are supposed to act as trustees for public shareholders and other stakeholders on the boards of public companies.
In Bangladesh, they are failing to play their due role. It is high time to fix issues that hinder the essential independence of independent directors to keep up with the world in terms of corporate governance, opined experts at a recent webinar organised by the Institute of Chartered Secretaries of Bangladesh (ICSB).
Bangladesh Securities and Exchange Commission (BSEC) Chairman Professor Shibli Rubayat-Ul-Islam spoke as the chief guest at the seminar titled "Role of Independent Directors in the Corporate World."
He said his commission had observed that most of the independent directors had failed to play their due roles on the boards of publicly listed companies as they could not stop the boards or management concerned from embezzling shareholders' money or continuing irregularities.
BSEC is working on bringing the right people as independent directors and it will do everything needed to that end, said the chief of the Bangladeshi securities regulator.
CS Nesar Ahmad, former president of the Institute of Company Secretaries of India (ICSI), presented the keynote paper at the continuing professional development seminar of the ICSB participated by over 100 corporate governance professionals.
He said the corporate world follows two models to ensure corporate governance in public interest entities.
"The first and most popular one is the Anglo-US model where ownership and management are kept as distant as possible, and outsiders as independent directors look after the interest of public shareholders," he explained.
"On the other hand, the Japanese model ensures good corporate governance through complex procedures despite the fact that the boards are controlled by holding companies that own the business operating companies," said the guest speaker from India.
"This has ensured a remarkable transformation in corporate governance following some corporate scandals in the late 2000s," he added.
In the United States and most Asian countries, regulations demand that at least one-third of board members of companies be independent directors and in many cases, the requirement is that up to half be independent directors.
Unlike India, Bangladesh is yet to include the matters of independent directors in the Companies Act. However, primary regulators like the central bank and the insurance regulator have made it mandatory to have some independent directors on company boards.
BSEC, as the protector of investors' rights, has come up with a stricter provision to fill at least 20% of board seats with deserving professionals able to play supervisory and advisory roles.
However, the 20% requirement is also insufficient as independent directors end up as minorities on boards in case of any disagreement, and BSEC should make it 33% to catch up with the peer countries in corporate governance, opined session chair Mohammad Sanaullah, the immediate past ICSB president and the chairman of ICSB Professional Development Committee.
He also recommended not treating nominee directors as independent directors because they prefer protecting the nominators' interests instead of those of the public by not allowing any shareholder director to chair any board or board committee at listed companies.
The corporate governance expert also recommended the mandatory appointment of sufficient independent directors to state entities and non-listed companies as good governance is needed everywhere.
He also stressed the need for the training, performance evaluation and accountability of independent directors.
Md Eunusur Rahman, former senior secretary to the government and the present chairman of the Dhaka Stock Exchange, said poor remuneration is also a point behind the inadequate role of independent directors in Bangladesh.
Citing a World Bank study, he said an independent director in Bangladesh can earn a meagre amount, less than $2,000 a year, in meeting attendance fees despite having the best qualifications and experience while the Companies Act in India allows meeting fees five times higher, by default, and companies can also add remuneration for independent directors if the shareholders approve.
The BSEC chairman informed the meeting that his commission is planning to make independent directors' meeting fees three times higher for shareholder directors.
Noting some proposals by the discussants, Professor Shibli Rubayat-Ul-Islam said the regulator will work together with experts to train a group of experts and experienced professionals so that they can play their due roles on boards.
Special Guest Dr Md Mizanur Rahman, a commissioner at the BSEC, said, "There is a problem that the voices of a large number of shareholders and some stakeholders cannot reach management. Independent directors need to handle the interests of different stakeholders and also mitigate their conflict."
"Every director should be individually and jointly responsible for what management is doing," he added.
ICSB President Muzaffar Ahmed FCS, Council Member Akhter Matin Chaudhury FCA, FCS and Professional Development Sub Committee Member Secretary Nazrul Islam Chowdhury ACS also spoke at the seminar.