DSE leadership vacuum: Power play stalls appointment of MD

Shareholder directors of the Dhaka bourse wanted a green signal for the IPO proposal of Best Holdings in 2020, no matter what flaws the management identified while scrutinising the fundraising plan.

Positive opinions from the management of the Dhaka Stock Exchange (DSE) could facilitate the approval of the securities regulator. But Kazi Sanaul Hoq, the then managing director (MD) of the DSE, led the management as it submitted a report to the market watchdog with its critical views about the issuer company.

Mr Hoq said he had felt trapped between the demands of the DSE board members and lobbying by the issuer company. It is not only in the case of IPO proposals that he saw his authority squeezed; he also had to navigate the intervention of shareholder directors in management affairs and regulatory monitoring.

Finally, Mr Hoq, unable to bear the burden of the job, resigned just 11 months after he had joined as the head of the premier bourse. The tenure of DSE chiefs is three years.

Including Mr Hoq, 11 management heads of the premier bourse resigned prematurely between 1998 and 2024. Only two managing directors (the title of the DSE head after the 2013 demutualisation) and one chief executive officer (the title used before the demutualisation) could complete their tenures.

This is the backdrop against which the position of MD has remained vacant since May last year, when Dr ATM Tariquzzaman left the role to join the Bangladesh Securities and Exchange Commission (BSEC) as a commissioner.

Well aware of the undue pressure that the professional role invites, potential candidates are not so willing to apply.

On the other hand, the DSE board has also not put in much effort to hire people for the position. It has published adverts twice since May seeking applications for the post of MD.

The bourse has concluded that the applicants did not qualify for the role.

Apart from the MD, two other top positions-chief financial officer (CFO) and chief regulatory officer (CRO)- have also remained vacant for more than a month. The exchange cited the same reason for these vacancies: a lack of qualified applicants.

Former DSE MD KAM Mazedur Rahman said the internal governance of the exchange has deteriorated due to the board's failure to fill these critical roles. "The MD has to work under pressure from both the regulator and the shareholder directors," he said. "That's why qualified professionals feel discouraged from joining the DSE."

DSE directors pursue self-interest

The FE correspondent talked to half a dozen former MDs. All of them said they had little freedom to exercise the authority clearly outlined by laws.

According to the demutualisation act, the MD is responsible for ensuring investor protection and maintaining transparency and efficiency in the exchange's operations.

But in practice, they say, this has rarely been the case.

Mr Tariquzzaman said MDs felt caught between pressure from the DSE board and the BSEC.

"Independent directors-many of whom are political appointees-tend to speak in board meetings, with their own investments in mind," he said.

The matter hardly comes to the surface. There is a widely-reported case of former independent director Dr Abdullah Al Mahmud, who executed large share transactions to his benefit using insider information while he was on the board, in breach of regulations.

DSE chiefs find their hands tied

The demutualisation act, which was intended to separate the ownership and the management to ensure good governance, provides that the CRO reports only to the BSEC without notifying the chief of the bourse.

Critical inspection and audit reports prepared on listed companies and brokerage firms are submitted to the regulator directly by the CRO, bypassing the MD altogether.

A former MD, requesting anonymity, said he had faced frequent interventions by the board members while trying to address matters tied to the IT infrastructure of the bourse.

Many shareholder directors deploy the exchange's executives for their purposes, for example, to get market and management-related information.

"They [the executives] provide information to shareholder directors, keeping the chief in the dark," the former MD said.

In a situation like that, Mr Hoq said, "I left the exchange for the sake of my career."

The IPO proposal of Best Holdings, operator of the five-star hotel Le Meridien, which he and his management team had opposed, remained suspended until June 2023 over issues of non-compliance.

The major concern was that the company had increased its paid-up capital in the two years prior to the submission of the IPO proposal, which violated the IPO rules.

In July 2023, the BSEC allowed the company to raise Tk 3.5 billion, deciding to discount the breach of public issue rules.

How effective is DSE without MD?

With the top position remaining vacant, the DSE has been spearheaded by acting MDs.

One of the former DSE chiefs, who talked to The FE, said the bourse prefers to run the management by acting MDs.

"An acting MD signs no contract, has no specific goals, and cannot be held accountable for failures," said another former chief of the exchange. "Yet, the DSE continues to rely on temporary leadership."

That is because the acting MDs are appointed from within the organisation. They remain loyal to the directors. Moreover, the overhead cost is lower without an MD.

DSE incumbent director Md Shakil Rizvi said 20 candidates had attended interviews following DSE job circulars for the position of MD. The DSE did not find anyone eligible for the job.

"Now, the DSE is set to seek help from renowned recruitment agencies to find an MD."

One of the applicants, Nizam U Ahmed, however, said he did not understand what the DSE was looking for in the selection process.

He had worked as deputy general manager at the DSE until 2017 and successfully discharged his responsibilities.

Mr Ahmed said he had left the premier bourse as global agency FLEX TRADE offered him a lucrative role as senior project manager at its office in Singapore. On behalf of FLEX TRADE, Mr Ahmed implemented its OMS (order management system) project in the capital market of the Philippines.

He also worked as a short-term consultant for the World Bank to improve the operating efficiency of the BSEC.

"I said [during his interview] I would float shares of the bourse within a year if appointed. The shares were supposed to be issued by 2018.

"I wonder what qualifications are required for the position."

mufazzal.fe@gmail.com