BSEC's new governance code: Right diagnosis, incomplete prescription

The draft of the new BSEC Corporate Governance Code is the right diagnosis. However, the prescriptions in the draft need improvement. The code includes several positive elements. Three of those elements are the restriction on cross-directorship among exchanges, depositories, clearing entities, brokers, and merchant banks; the requirement of obtaining approval from the board of directors prior to removing the CEO, company secretary, chief financial officer, and head of internal audit from office; and the inclusion of small and medium enterprise (SME) and alternative trading boards (ATB).

Highlights: TBS

However, several limitations in the code need to be addressed. These limitations include:

(1) An independent director is not appointed simply based on numbers. Rather than increasing the number of independent directors in accordance with a predetermined ratio, the code could provide for a transparent method for selecting and nominating them. Specifically, the code could require that:

(a) At least 50% of the candidates recommended by the Nomination and Remuneration Committee (NRC) to the BSEC must be selected from a pool curated by the BSEC. For example, using the December 2025 BSEC-IFC initiative led by Commissioner Farzana Lalarukh.

(b) Annual reports must contain information regarding how the search process for independent directors was conducted. This would include: (i) identifying who suggested each candidate and (ii) explaining why each candidate satisfies the independence criteria.

(c) An independent director may not have had either direct or indirect ties to the sponsor group for at least five years preceding his/her appointment to the board.

(d) All independent directors must sign and submit declarations confirming both their independence and fitness for service with the BSEC upon their appointment to the board.

These requirements would strengthen boards' ability to recruit qualified independent directors while ensuring they are truly independent.

(2) Chairs of listed banks, non-bank financial institutions, and conglomerates must be independent, separate from the CEO. While separating the positions of chairperson and CEO was a positive development in 2018, in practice, these two positions remain closely tied. The chairpersons of most listed companies are still family members of sponsors or nominees of sponsors. Several countries, including the United Kingdom, Korea, and India (through SEBI), now recommend that systemically important companies appoint an independent chairperson. Accordingly, the BSEC should require that an independent chairperson be appointed by all systemically important listed banks, NBFIs, and conglomerates above a certain asset threshold.

(3) There must be a real deadline for gender diversity. To date, only 138 out of 360 listed companies have appointed at least one woman as an independent director. Therefore, the requirement for gender diversity is clearly ineffective. The draft code fails to address the consequences for companies that do not meet the gender diversity requirement by December 2025. A code that is unable to enforce its existing provisions will not enforce its new provisions. Thus, the BSEC should develop and publish, alongside the final code, a graduated penalty schedule detailing delisting penalties that will be imposed regardless of the circumstances.

(4) Sustainability and environmental disclosures must be incorporated within the code. The Financial Reporting Council is planning to introduce IFRS S1 and S2 (ISSB standards) for listed companies in Bangladesh. Furthermore, the Bangladesh Bank issued its 2020 Sustainable Finance policy, which requires banks to report on sustainability. If the BSEC remains silent on climate change and sustainability disclosure, listed companies will encounter conflicting definitions and competing obligations due to overlapping mandates. Therefore, the draft code should incorporate IFRS S1/S2 as the backbone of disclosures to ensure consistency in definitions. The implementation plan should follow a phased manner, i.e., Large-cap companies from FY27, medium-cap companies from FY28, and SMEs to explain or comply from FY29. This will enable Bangladesh to join the list of over 35 jurisdictions where ISSB-aligned reporting is underway.

(5) The problem of concentration of ownership among families must be addressed. The listed markets in Bangladesh are generally controlled by family-owned enterprises. Family enterprise is not inherently a governance issue; however, when family groups maintain control over ownership, board decision-making power, executive appointments, salaries, and related matters, effective oversight by independent individuals becomes virtually impossible. As previously mentioned in my article titled 'capital market depth', although Bangladesh introduced 2% sponsor-director threshold and 30% collective shareholding limit, the resultant boards seem diverse but vote as blocks. Thus, while the draft code improves eligibility for directors – it must take it further: 

(i) disclose beneficial ownership down to 1%; (ii) disclose all related party transactions exceeding Tk 50 lakhs individually; (iii) require independent committees approve larger related party transactions rather than just reviewing them; (iv) disclose if executive directors, managing directors, CEOs, CFOs, company secretaries and heads of internal audit are close relatives of sponsor-directors or controlling shareholders. 

If such a relationship exists, the appointment, job description, evaluation, and remuneration of relevant executives should be reviewed and approved by fully independent nomination and remuneration committees, supported by fit-and-proper assessments and market benchmarks for compensation. My proposal is neither against family-owned businesses nor does it suggest that all family-owned businesses must be viewed negatively. What I am advocating for is investor confidence and credibility in our markets.

Enforcement issues

Even if a well-drafted code is adopted, its effectiveness depends on a capable regulator to enforce it. Despite cumulative fines amounting to Tk1,500 crore for share manipulation, recoveries have been negligible. The BSEC has failed to increase its enforcement capacity commensurate with its aspirations. Therefore, the new code must come with three promises:

(i) Enforcement report: Publish an annual enforcement report documenting outcome-specific details about each case.

(ii) Whistleblower protection framework: Adopt a statutory whistleblower protection framework with teeth accompanying the final code.

(iii) Clear jurisdictional delimitation: Clearly define which bodies (BSEC, BB, IDRA, FRC & RJSC) have jurisdiction over regulated entities (listed banks & insurance companies), so that regulated entities cannot play different agencies off against each other.

Timing sequencing

Bangladesh is embarking upon a uniquely congested agenda for capital markets reforms: the BSEC Act 2025; the Capital Market Stabilization Fund Act; Tk10,000 crore equity fund; whistleblower rules; and this code. Both reform fatigue and regulatory capture during consultations exist. Therefore, given the limited time frame of 31 May, the BSEC should extend the public consultation by 30 days; hold structured hearings with DSE, ICAB, ICSB, FRC and BIBM; and publish a clause-by-clause response document before finalising.

Success looks like

Bangladesh does not have a corporate governance code problem – it has a corporate governance practice problem – ie, a gap between what the rule book says and how boards operate. The draft code has narrowed this gap significantly. Closing this gap entirely will require independent chairs at systemically important firms; a transparent process of selecting & recommending independent directors; beneficial ownership disclosure below one percent; meaningful oversight over executive appointment and remunerations with regard to related persons to sponsor groups; an enforceable deadline for achieving gender balance on boards; ISSB-aligned sustainability reporting inside the code; and an enforcement architecture that justifies the rules being written.

If the BSEC can improve this draft from "stricter" to "credible", it will receive market rewards. Trust returns slowly and leaves quickly.

M Kabir Hassan is a Professor of Finance and Moffett Chair, University of New Orleans; 2016 IsDB Prize Laureate in Islamic Banking and Finance; Member, AAOIFI Ethics and Governance Board and Chairman, AAOIFI Education Board.