Directors' tenure extension to hit governance, say economists

Enhancement of tenure of sponsor directors and inclusion of a provision for not treating wilful defaults of their subsidiary companies as defaulters draw a lot of flak from experts and economists.
According to them, such a provision will certainly affect governance in the industry, thus creating an adverse impact on the management of banking industry.
Parliament on Wednesday endorsed an amendment to the Bank Company Act-2023 with inclusion of such a provision, among others.
Dr Ahsan H Mansur, executive director of the Policy Research Institute (PRI), said the provision for raising the tenure of bank directors is 'disastrous' for the banking industry.
It might create an opportunity for many unqualified persons to run the banking business, he told the FE.
Terming such an amended provision 'unexpected', former Bangladesh Bank governor Dr Salehuddin Ahmed said enhancement of directors' tenure was detrimental to ensuring good governance in the banking sector.
"It'll certainly affect good governance and promote influence of directors. Besides, such provision will also discourage entrance of new entrepreneurs with new innovations," he added.
On the provision for not treating wilful defaulters of subsidiaries belonging to bank directors as 'not defaulters', he said usually, it is very difficult to define the concept of wilful defaulters.
Dr Zahid Hussain, a former lead economist of the World Bank, told the FE that this was just the opposite direction of the amendments.
"The amendments, mainly the issue of the raising tenure of directors, are against corporate good governance."
"This provision is opposite to the bank reforms."
Dr Hussain was critical of the definition of wilful defaulters in the amended act.
He said the definition was so "ambiguous" that this may open the door to abusing the definition.
The issue of wilful defaulter or non-wilful defaulter should be based on the bank-customer relationship, the economist observed.

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