Amid a change of wind over the past decade, board diversity has become a major consideration in entrepreneurship - globally. Dialogue about stakeholder- versus-shareholder capitalism has gained momentum and there has been a steady growth of ESG-focused investing since 2013. Diversity and inclusion in boardrooms are core global ESG considerations for sound and sustainable corporate-governance practices. Enhancing board diversity has been an important goal of many entrepreneurs, investors, and entrepreneurial support organisations. This should be the goal for Bangladesh as well, in keeping with the latter-day global trend.
Why it is so important is a moot question deserving illustration be for adoption of the modern-day managent modality. It needs no explanation that with the right combination, room for voicing opinions, fairness and timely compliance, a boardroom can be a powerful strategic asset. Directors are required by law to act in good faith and in an informed manner. Some of the core functions of the board of an enterprise are to appoint the MD/CEO and other C-suite managers, monitor and control management functions, monitor compliance with laws and internal policies, and provide information, network and counsel.
Two of the most vital things to keep in mind in relation to a board's responsibility are (a) the board is ultimately responsible for navigating any conflicts that arise, and (b) the MD/CEO reports to the board, and the board can veto any decision an MD/CEO may have made if the board perceives the decision not to be in the company's best interests.
Duty incumbent on board members: Directors owe a fiduciary duty to the company. Primarily, duty of care and duty of loyalty define board members' fiduciary duties. Additionally, legal obligations include the duty of confidentiality and the duty of disclosure. Fiduciary duty is the highest standard of care the law can vest in someone. This requires acting in the best interest of the company and the fiduciary must not profit from their position as a fiduciary unless the principal (in this case, the company) consents to.
But, being on a board is more than legal and fiduciary responsibilities-- it involves ethical responsibilities, too.
Why women in focus: Here instances can be drawn from management recasts in the outer world. The Chairman and CEO of BlackRock Inc, world's largest asset- management company, the famous Larry Fink, wrote in one of his legendary annual open letters to CEOs (2017) that diverse boards are less likely to succumb to 'groupthink' or to miss new threats to a company's business model, and they are better able to 'identify opportunities that promote long-term growth.'
According to agency theory, gender diversity of a board with the presence of women directors increases board independence as women are more inclined to ask different questions than male directors. Having served in one of the two bourses of our country, Chittagong Stock Exchange, for a term as an independent director, this author can attest that her peers on the board agreed to and vocalised this exact point in full support. And researches reaffirm this dictum too.
Researchers have found that women directors on boards have a critical influence on the board's processes and effectiveness and, consequently, on the company's performance. Women directors bring alternative perspectives - in industry and gender outlook - in analysing various issues, which, in turn, enriches intellectual resources of a board in deepening understanding of the market. Moreover, gender diversity on Boards increases the understanding of complexities of the business environment, which can improve decision making about corporate resources. Researches have also found that the proportion of female directors directly correlates with board control mechanisms. Therefore, boards with a more significant proportion of female directors yield better results and gender diversity is expected to enhance the positive impact of Boards on organisational outcomes and performance.
Our position (law): The Corporate Governance Code has been issued by the Bangladesh Securities and Exchange Commission (BSEC) through a notification dated 3rd June 2018, replacing its predecessor Code of 2012, in order to enhance corporate governance in the interest of investors and the capital market on a 'comply' basis i.e. all listed companies must comply with the conditions set out in the code and certify such compliance on a year-on-year basis.
The Code requires one-fifth of the total number of directors on a listed company's board to be independent directors i.e. 20% of a listed company board should comprise independent directors. An "independent director" is defined in the Code as a person who is "…a knowledgeable individual with integrity who is able to ensure compliance with financial laws, regulatory requirements and corporate laws and can make meaningful contributions to the business." However, there is no legal or regulatory requirement of appointing women directors to a board in Bangladesh. The appointment of independent directors is made by the board and approved by shareholders in AGM (Condition 1(2)(c) of the Code). This leaves it open for such boards to appoint either men or women as their peers on the board as independent directors. The question arises now as to how this independence and discretion have been utilised up till now.
We are told, when compared to our South-Asian counterparts, Bangladesh currently leads with being in the upper tenth percentile of women participating in boards of listed companies. During the 'Ring the Bell for Gender Equality' event organised in commemoration of the International Women's Day arranged by Dhaka Stock Exchange (DSE) in partnership with the IFC, UN Women, United Nations Global Compact and the Swiss State Secretariat for Economic Affairs (SECO) this year, it was revealed that the percentage of women on boards of listed companies on the DSE rose from 18 per cent in 2022 to 19 per cent in 2023, with the percentage of women who are independent directors remaining at 6.0 per cent. Given that the author is not privy to exact numbers, reference is made to IFC's 2020 report which analysed annual reports disclosed by 294 companies listed with Dhaka Stock Exchange (for fiscal years 2015 to 2018). This report finds that out of 2,872 directors in the 294 companies, there were in total 610 independent directors of which only 5.0 per cent were women. That is, the number of women independent directors across 294 companies was 30, and the male- to-female independent-director ratio was 1.0 woman : 20 men on boards of listed companies.
A report also stated that 80 companies did not appoint any woman director on their Board at all. Let us put this in context: Out of 82,369,393 total female population of Bangladesh in 2018, only 30 women were deemed "competent", "knowledgeable" and qualified to be independent directors. (The female population now has increased to 84,760,908)
Is this arithmetic, which relates to gender parity in a broader perspective, satisfactory? Clearly not, proven by the fact that the BSEC itself is promoting the participation of women in company boards.
Women on boards around the world: Governments in many countries have emphasised gender diversity to improve corporate governance following the financial crisis in 2008. In Europe and North America, almost all countries have established minimum quotas for female representation on boards in publicly traded companies. At present, different countries around the world have started making it mandatory for companies to include women directors in the Board. For example, Norway (25%), Spain (40%), the UK (40%), India (at least 1) make it mandatory for appointing Women Directors to Boards. Interestingly, though, one State in the United States has also held such provision unconstitutional. We have yet to see how that fares eventually in appeal.
McKinsey (2015) reports that gender equality in a 'full potential' scenario where women play identical roles in the labour market as men could add up to $28 trillion to the world's output by 2050.
In fact, the Japanese government has demanded a 30-percent female board- member ratio for prime market-listed Japanese companies by 2030. The Tokyo Stock Exchange listings rules are expected to include this new goal by the end of 2023. Japan's 2023 Policies sets specific numerical targets : one or more female board members by 2025 and a female board-member ratio of 30% or more by 2030. The numerical 30% is particularly important because it is based on the critical mass theory which tells that 30% is the minimum percentage at which a minority would have an influence on a decision-making body.
Should we be following a similar path as the countries mentioned above (amongst many more) and include representation of women on a 'comply' basis in the Code? The author will obviously vote in the positive being a female… however leaving it to be movers and shakers of the Government and businesses to deliberate on this, two other considerations that should not be overlooked are (a) the lower participation of women in high-value functions: The unnerving reality is that across all sectors, women's presence in operational and strategic functions is significantly lower than that of men. The emphasis should be on inclusion across every critical organisational function, including the participation of women directors on one of the most important board committees i.e. audit committee, and (b) looking beyond just the gender lens and the statistical positives of including women in Board, it is important to get the mindset right -- do not just appoint women to fill in the female quota, rather, shed the gender identification and appoint directors on merit. There are enough meritorious women in Bangladesh. Can we ask our mainly male-led boards to show the confidence to be inclusive enough to diversify?
Anita Ghazi Rahman is an advocate of the Supreme Court and Managing Partner at The Legal Circle (www.legalcirclebd.com). She can be reached at [email protected]
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