Corporate Governance Code in Bangladesh

7 April, 2019 12:00 AM printer

Corporate Governance Code 
in Bangladesh

The first step on the road to the initial iteration of Corporate Governance Code was the publication of Cadbury Report 1992, an analysis of Corporate Governance in UK. After that, the corporate world was introduced with three models of Corporate Governance Code till now namely Anglo-Saxon, German and Japanese. Based on these models, we can say, a great Corporate Governance Code must have at least the four contents which are composition of the board of directors, disclosure requirements, corporate actions requiring shareholder approval and the division of responsibilities of the actors. On its continuity, a Corporate Governance Code has been adopted in Bangladesh in 3rd June of the preceding year (2018) by Bangladesh Securities and Exchange Commission for the public companies listed with any stock exchange in Bangladesh.

After observing this corporate governance code, my first impression was that it would be better to define it as a partial Corporate Governance Code in light of widely accepted corporate governance models, because this Bangladeshi code focuses only on composition of the board of directors. The other contents of disclosure requirements, corporate actions requiring shareholder approval and the division of responsibilities of the actors are extensively absent here. However, I will make a surgery on three points of this composition of the board of directors based Bangladeshi Corporate Governance Code which are not modified in recent Draft Corporate Governance Guidelines as well. Provided disclosure requirements, corporate actions requiring shareholder approval and the division of responsibilities between the actors are partly covered by our The Companies Act 1994 in some contexts.

Firstly, as per Condition 1(1) Corporate Governance Code 2018, the total number of members of a company’s Board of Directors shall not be less than 5 (five) and more than 20 (twenty). But in contrary, according to the Section 90(1) of our Companies Act 1994, every company shall have at least three directors. Here a conflict arises with those companies which were made with three directors under the Companies Act 1994 before creating of this corporate governance code, what they will do now? Are they okay with three directors or will they need to form a board of directors with at least 5 directors to comply with this code? Based on the reality, this Code could give specific directives on this point but unfortunately it has no such directives.

Secondly, Condition 1(3) of this code specifies the qualifications for Independent Directors although it doesn’t talk about qualification criteria of Dependent Directors. However, if we observe this qualification of Independent Directors, we can make an outline of qualifications through academic background of Law, Economics and Business Studies means all the Independent Directors must be from Law, Economics and Business Studies academic backgrounds. We can find out the reasons for this specifying the academic backgrounds in the Condition 1(5), which is talking about disclosures in the directors’ report prepared under section 184 of the Companies Act, 1994. Basically directors made this report on financial statements, compliance of conditions of this code, remuneration etc. Since all the jobs of directors are related with economy or law, such qualifications were logical. But in Condition 1(5) (iii), we see another point on Directors’ report about risks and concerns including internal and external risk factors of company, threat to sustainability and negative impact on environment. Note that to satisfy this point on directors’ report, Science academic background is needed, because without scientists or environmental specialists, it’s totally impossible to conduct proper work on it. As we generally assume that Law & Business education does not produce a scientist. So my recommendation on this point is science academic background must be included in the qualification criteria of Independent Director.

Thirdly, quite a lot similarly with preceding the point, we see Condition 5 (2) Of the Corporate Governance Code 2018 is indicating financial or economic professional or academic background for all three members of audit committee because Condition 5(6) imposes job to make report for audit committee on company’s economic conflicts of interests. But on this point, there should be included at least one law background carrying director mandatorily in the same manner as because Condition 5(6) directs to make report this audit committee on suspected infringement of laws, regulatory compliances including securities related laws, rules and regulations which are basically a legal mind’s job not a business mind’s.

So on the light of my above specific point wise observations and recommendations, it would be better for proper authority to amend our present Corporate Governance Code on these points within a very short period of time to ensure healthy board of directorships in our country. Especially in an era of corporate global village it’s essential.


Written by Nazmus Sakib, LL.M in International Commercial Law, North South University LL.B. North South University