Owners see it as intervention of outsiders, want no bar on handling of subsidiaries by CEOs

The latest amendment to the corporate governance code requiring appointment of at least two independent directors in listed enterprises is seen by company owners as unwanted intervention in businesses that they have built.
The securities regulator says the amendment was necessary to ensure corporate governance; independent directors can help identify any malpractice and ensure accuracy in financial reporting.
If there is only one independent director in a company, he/she can be biased while working for more than one committee, said Mohammad Rezaul Karim, spokesperson of the Bangladesh Securities and Exchange Commission (BSEC).
"The number of independent directors has been increased so that they work separately for separate committees," he added.
Before the change, companies had to include at least one independent director against every four board members.
Now, many small businesses having one independent director will have to increase their board size to comply with the new provision. For example, if a listed company is governed by a board of five members, including one independent director, the board will have to take in another director from outside.
There is another concern expressed by the Bangladesh Association of Publicly Listed Companies (BAPLC). Representative from the organisation said the BSEC had paid no heed to their request for change to the provision that forbade managing director of a company to work for any other company under the same group.
However, according to the amended governance code, chief financial officer (CFO) and company secretary may be appointed for the same position to any other listed or non-listed company under the same group for cost reduction or technical expertise, with prior approval of the commission.
Members of the BAPLC said hiring more independent directors and separate managing directors to run subsidiaries and sister concerns involved additional costs.
Besides, family-oriented businesses do not like the interference of outsiders.
The newly-elected president of the BAPLC, Rupali Chowdhury said she would sit with the securities regulator to talk on the matters in hand after taking charge of the organisation.
"A bureaucratic management system has been imposed on us," said the outgoing president of the BAPLC, M. Anis Ud Dowla.
"Many entrepreneurs have worked hard to establish their companies. Now, all (outsiders) have a tendency to get a piece [of the pie]."
Mr Dowla acknowledged the role of independent directors in corporate governance but said the sentiment of the entrepreneurs should have been taken care of.
Talking to the FE, company secretaries of several companies said they would comply with the revised provision on receiving shareholder approvals at the next annual general meetings.
Many listed banks have already become compliant with the new provision, with two or more independent directors in the board. Most of the insurers and other good companies have at least two independent directors in their board.
What more can independent directors do?
Though the association opposes the change to the provision tied to independent directors, they can play a bigger role beyond ensuring corporate governance.
Many entrepreneurs may lack innovative ideas, in which case independent directors can advise them to take businesses to different directions, said Ali Reza Iftekhar, managing director of Eastern Bank Ltd. (EBL).
"Besides, independent directors play a vital role in preparing accurate financial statements and work to protect the interest of shareholders.
Mr Iftekhar said appointment of independent directors was a practice widely appreciated and accepted across the world.
"It has been observed that many renowned independent directors added value to companies' reputation as well."
Disputes over the role of managing director (MD)
As per the previous provision, the managing director (MD) or chief executive officer (CEO), company secretary (CS), chief financial officer (CFO) and the Head of Internal Audit and Compliance (HIAC) of a listed company shall not hold any executive position in any other company at the same time.
The latest amendment changes the provision only for the CFO or CS of any listed company.
The restriction on the MD or CEO is an impediment to business expansion or further growth, said representatives of several companies.
The managing director of Berger Paints Bangladesh, Rupali Chowdhury said companies often branched out to implement expansionary plans.
"In many cases, such experiments fail. It would create an additional cost burden if a separate MD is appointed for a small entity having a paid-up capital of only Tk 250 million or Tk 500 million.
"The role of the MD may be limited to a specific number of companies of the same business group," she added.
Other changes brought to corporate governance code
As per the previous rules, independent directors were appointed by a company's board on receiving approval of shareholders in the Annual General Meeting (AGM).
The latest amendment says the board has to get permission of the securities regulator before appointing independent director(s) in consideration of the recommendation of the Nomination and Remuneration Committee (NRC) of the company.
Changes to the rules have also paved the way for appointing existing officials of the government or any statutory or autonomous or regulatory bodies to the position of independent director in a company, but they must not be below the 5th grade of the national pay scale.
In that case, his/her appointment as independent director will require clearance from the organisation that he or she has been serving.
Earlier, only former officials of the organisations would have been allowed to serve as independent director in a listed firm.
The latest amendments also exempted companies from citing business strategy or technical specifications related to products or services in the directors' reports.
The BSEC removed the obligation from the corporate governance code for the sake of 'confidentiality', as emphasised by company owners.
From now on, at least two members of the NRC Committee shall be non-executive directors, whereas previously all members of the committee were non-executive directors.

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