Monday, March 9, 2020

Company Secretary as Independent Director

The concept of independent director (ID) remains of primary importance in protecting investors amidst a more demanding economic and regulatory environment. In Bangladesh, in particular, there is increasing recognition of the pivotal role of IDs - play in providing an independent, objective view and in balancing the interests of different stakeholders. It is not disputed that there has been an ever increasing role and importance of IDs to further strengthen the corporate governance (CG) of listed companies as they are the key to good CG. The need for quality ID is imperative particularly in light of the development of our economic globalization and recent examples of massive corporate failures which forces us effectively to play by a new set of rules to conform to globally accepted practices. That is, one that demands much greater integrity, transparency and accountability than in the past.

There have been substantial changes concerning CG rules, although each jurisdiction may emphasise different aspects of CG after taking into account the special features in its local community but one thing is certain across all jurisdictions: the increasing burden placed upon IDs of listed companies. Bangladesh is also not an exception to this. There have been significant changes in the Guidelines on Corporate Governance Practices and the introduction of the ID is one of them. The present revised Corporate Governance Guideline – ‘Comply basi's’ (BSEC, 3rd July, 2012) replaced the former Guideline of Corporate Governance – ‘Comply or explain basis’ (BSEC, 20th February, 2006). This recent change to the CG Guideline is evidence of the growing significance of independent directors to act as not only valuable strategic advisers in providing to the board valuable knowledge, expertise and experience but also corporate guardians of shareholders’ interests.

Independent directors’ requirement is gaining increasing significance and importance. The statutory framework exists with regard to appointment of ‘Independent Directors’. Such framework also prescribes certain qualifications and attributes to IDs that should be understood in the right perspective. However, boards of listed companies in Bangladesh are facing extreme snag on how to identify the right one as ID apart from how increasing demand for IDs will be met. Keeping this perspective in mind, one should consider the role of company/chartered secretaries (CS) as ‘independent directors’. How company/ chartered secretaries, by virtue of their knowledge and training is eminently to fit in the role of independent directors, is portrayed hereunder.

The Profile of a Company Secretary 

CS has important fiduciary and company law responsibilities. The CS is the nodal point for the Board to get feedback on the status of compliance by the organization in regard to provisions of the company law, listing agreements, BSEC regulations, shareholder grievances, etc. CS occupies a pivotal position in ensuring that their companies function in certain critical areas and such functions are value based. While accounting could be properly described as a mirror reflecting the entire face of the company and auditing could be considered as the function that adds credibility to what are stated in the financial statements. CS should function as conscience keepers. It is this role that would earn them an enviable position. It depends on individuals. It depends on his or her vision, the length and breadth of his or her profile, preparedness, presence of mind and involvement. So, it is very clearly that within an organization, a CS plays an important role, which is unique in nature. However, this is not the role that a CS as an ‘Independent Director’ is expected to do. ‘Independent Directorship’ is a different cup of tea. It is important to know what is expected of ‘Independent Directors’. This will help CS to cause a substantial shift in their role to become ‘Independent Directors’.

Company Secretaries as ‘Independent Directors’

According to BSEC Guideline, independent director shall be a knowledgeable individual with integrity who is able to ensure compliance with financial, regulatory and corporate laws and can make meaningful contribution to business [Condition 3.1 (i)]. The person should be a business leader/ corporate leader/ bureaucrat/ university teacher with economics or business Studies or law background/ professionals like Chartered Accountants, Cost & Management Accountants, Chartered Secretaries. The independent director must have at least 12 (twelve) years of corporate management/ professional experiences [Condition 3.1 (ii)]. In special cases, the above qualifications may be relaxed subject to prior approval of the Commission [Condition 3.1 (iii)].

Independence is a state of mind and it could change from time to time. In this perspective one has to see whether CS could add value to a company as its ‘Independent Directors’. While occupying the position of an ‘independent director’, a CS should not attempt to leverage his professional achievements to obtain any assignment for his firm or any entity in which is he is interested. He must understand that he should be able to speak out what he thinks about an arrangement. If he looks up to the company or its promoters or managers for favours, he cannot be independent in the true sense of the word. Experienced CS, will certainly have an edge over others. An experienced CS carries with him enormous amount of knowledge. In view of the position he would have occupied in his career as a CS of any large enterprise, he would have become so matured to understand not only what is obvious but also what is not obviously revealed. A CS has the unique distinction of having the required skills to analyze and understand the real import of an arrangement or transaction or proposal. A CS would be the best-suited person to keep his observations on the one side and consider the objectives and perspectives of the proposals or arrangements on the other side and consider them in the light of the letter and spirit of the applicable regulatory framework. He will be able to not only assist the Board in its decision making process but also add value. The ability of CS to understand the growing complexities of modern day business, their co-coordinating skill sets would help them become lead ‘Independent Directors’. As conscience keepers, Company Secretaries become the befitting professionals to lead as ‘Lead Independent Directors’.


Following the implementation of the revised CG Guideline, the independent directors are expected to play more important roles and have more responsibilities, as evidenced by their representation in the different board committees which are required or recommended to be set up, as the case may be. In an attempt to advance the pivotal role of independent director in CG, representation of company/chartered secretary as ID on board will definitely aid in improving the standards of CG. Besides the apparent benefits, the presence of company/chartered secretary (as ID) will strengthen the hands of the CEO in resisting the usual pulls and pressures to which the entities are subject to. Company/chartered secretaries who have the ability to visualize the complete ramifications of any arrangement or proposal or transaction would be able to function effectively. As ‘Independent Directorship’ is a coveted post, original application of mind is needed to occupy such positions. One must understand the nature of the job and train his thoughts accordingly. In order to be ‘independent directors’, company/chartered secretary have to be courageous and confident and their approach should be broad.

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