In what is being seen as a major setback to corporate governance in Bangladesh, only 86 companies, or less than a third of the total listed companies, have so far complied with the Securities and Exchange Commission's (SEC) directive on appointing independent directors to their boards.
Market regulator SEC had, in a gazette notification on April 26, 2006, asked all listed companies to appoint at least one independent by June 2008. With just about two months to go before the SEC's June deadline expires, officials at the regulator now fear most companies would fail to comply with the directive.
“So far, companies' response has been very poor. I don't know how they will meet with the deadline with only two months and 20 days in hand,” a senior SEC official told The Daily Star requesting anonymity.
The regulator has recently issued letters to the companies that are yet to comply with the order and sought their compliance by June. "The companies that have not complied with the SEC order would have to explain why they failed to appoint independent directors," the official said.
Companies, however, say there is a dearth of qualified individuals who could be considered for directorship. "Further, there is no organized database of such individuals," said a corporate CEO, who did not wish to be named.
When contacted, Mahmood Osman Imam, professor, department of finance, Dhaka University, said, "The role of independent directors needs to be defined properly. Also, there are no provision for penalties on companies which do not comply with the SEC guidelines."
In fact, banks, the bedrock of any economy, have been the most reluctant to appoint independent directors. Only two private banks out of the 29 listed have followed the SEC guidelines.
Of the 86 companies that have appointed independent directors, 13 are banks and non-bank financial institutions (NBFIs). There are 46 banks NBFIs listed in the stock exchanges. The two banks that have complied with the SEC directive are Prime Bank Limited and Uttara Bank Limited.
For banks, the issue is more important, given their stiff resistance to Bangladesh Bank's suggestion to appoint directors to their boards from the depositor community. They could have a strong defensive argument had they at least complied with the SEC directive of roping in independent directors to their boards.
Nazrul Islam Mazumder, Chairman, Bangladesh Association of Banks, had on Sunday told The Daily Star that bank owners preferred recruiting independent directors as per the 2006 SEC guidelines than that of the depositors. But till date, bulk or to be precise, 27 private banks of the 29 listed, have not got independent directors on board.
Independent directors were defined as individuals who do not hold any share in the company or who hold less than one percent share of the total paid-up capital of a company. The person can't have any relationship with the promoters or directors.