Directors in share market

Directors are indispensable to modern capital markets, yet in Bangladesh their office too often becomes a mix of confused duties, open-ended liability and regulatory arbitrariness. Directors – sponsor directors, nominee directors and independent director – are commonly accepted concepts in the corporate world, yet curiously the cornerstone of corporate regulation in our country, the Bangladesh Companies Act, 1994 only defines the term “director”. There is an indirect reference to the concept of nominee directors and no definition of independent or sponsor/promoter directors at all in the legislation. “Independent directors” find their recognition rather in the Code of Corporate Governance issued by the Bangladesh Securities and Exchange Commission (“BSEC”) and thereafter in industry-specific legislation.

The Bangladesh legal landscape is open to learning and adopting from other jurisdictions – which is a good thing. However, adapting concepts on an ad-hoc basis without the basic support of the concept in legislation throws challenges akin to developing an unplanned city. It is, therefore, the aim of this article to set out why clear statutory definitions of “sponsor/promoter director”, “nominee director” and “independent director” are not an academic nicety but a practical necessity.

The Companies Act, the Code of Corporate Governance and sectoral rules leave confusing gaps between title and function. Nominee directors are expected to take instructions from their nominator; independent directors are expected to be persons of integrity who act independently without being influenced by shareholder directors, their dependents or their business concerns — but neither status is consistently defined in statute or regulation. As an IFC study (2020) notes, the result of this gap are boards where expectations and legal exposure diverge.

In the case of Sk. Abdul Momin v. Govt. of Bangladesh & ors.(2013), the High Court Division has noted that sponsor directors hold a sinecure and privileged position within the company and are therefore set up as a discriminatory class in comparison to other classes of directors, and thus can be treated differently. Yet, it is commonly known that regulators frequently target board members collectively when corporate failure occurs; which is fine when shareholders involved in day-to-day management of the company are involved in such corporate failure. However, independent or nominee directors are often non-executive and neither control nor participate in day-to-day management.

The importance of the secretarial role is also worth mentioning. Where minutes fail to capture dissent or where regulators presume tacit consent because a director did not formally dissent, the “independent” label offers little practical protection leading to increasing number of qualified individuals refusing to take on independent directorship roles for fear of personal liability and harassment, stress of the enquiry/investigation process and eventual litigation. BSEC has since October 2023 recognised and ordered that independent directors should not be treated the same as executive or sponsor directors in providing security for the listed company’s liabilities, they should not be reported in Credit Information Bureau (CIB) reporting or in civil or criminal suits against the company — but the protections are ad hoc. The Commission’s procedural guidance (Order No. 67 of 2023) that addresses reporting and party status for independent directors is welcome but again it is partial. Compounding this issue is the practical reality that CIB records are seldom updated in a timely manner, even after repeated requests, to reflect changes in directorships. As a result, this oversight creates undue hassle and administrative inefficiency during subsequent due diligence checks related to retired directors’ new engagements.

There is also lack of adequate training for directors. Anyone taking on the responsibility of a director must understand the ambit and the limits of the duty imposed on them. For example, for nominee directors, it is no doubt the duty of the agent i.e., the nominee director to conduct the business of his principal according to the direction given by the principal, but it is no part of his duty to carry out a direction which is not according to law. Since the Companies Act, 1994 does not define “nominee director”, there is no guidance in the Act as to whose interest the nominee must ultimately serve. Under common-law principles, every director owes fiduciary duties to the company as a whole, not to the appointing shareholder. This sets up an immediate conflict: the nominator expects representation, while the law expects independence of judgment. And, unlike jurisdictions that provide indemnification or safe-harbour provisions, Bangladeshi nominee directors remain personally liable for board decisions—even when they act under instructions. In fact, the High Court Division in the case of S.M. Akbar & anr. v. Bangladesh & ors. (2017) underscored that directors cannot escape statutory responsibility by invoking their nominee status noting that the definition of ‘director’in the Companies Act and the definition of ‘defaulter borrower’ in the Bank Companies Act do not distinguish between director and nominee-director and hence being a nominee does not give a nominee any extra benefit in so far as referring the nominee director’s name to the CIB where loan liability of a company is concerned. Regulators and law-enforcement agencies have similarly shown little distinction between sponsor and nominee directors when initiating proceedings.

In unlisted private companies, nominee directors often sit on boards where shareholder agreements are undisclosed and minutes are minimal. When disputes arise, they are trapped between contractual obligations to the nominator and fiduciary obligations under company law. In the absence of statutory guidance, they must rely on general equitable principles— which is an uncertain defence in criminal or regulatory proceedings.

Take the banking sector as a further example where legal scrutiny on boardroom governance is at its highest. Bangladesh Bank’s circulars and prudential regulations recognise “nominated” directors for banks and NBFIs but without a uniform definition across the corporate sector. When enforcement action is taken—for example, classification of defaulters or sanction under the Bank Companies Act—nominee directors often find themselves listed as accountable parties even when they have no operational control. As the central bank makes strides in identifying Ultimate Beneficial Owners (UBOs), the continued practice of holding non-executive nominee directors accountable in a blanket manner appears increasingly incongruous with equitable legal principles, particularly with the threat of being branded a ‘loan defaulter’. Furthermore, while recent policy clarifications (2025) shielding independent directors at NBFIs from automatic “defaulter” status represent a significant regulatory acknowledgment of this inequity, they remain a sectoral stopgap rather than a comprehensive, economy-wide solution to a systemic legal vulnerability.

The Companies Act should, therefore, clearly define the different categories of directors — “director”, “sponsor director” or “shareholder director” (a director holding shares and having a direct interest in the company), “nominee director” (a director appointed to represent a nominator, but with express statement of whether fiduciary or directive duties to nominator exist), and “independent director” (objective independence thresholds and a short code of conduct).

A concise statutory taxonomy, if included, should do four crucial things. First, it should allocate legal risk to those who actually direct or control corporate action. Second, it should provide due-process protections for directors according to type, for example a particularly important feature should be for independent directors whose value lies in frank, sometimes uncomfortable, challenge. Third, there should be clear demarcation on the duty of each type of such director and the interests that they serve. Fourth, it should give regulators a clearer yardstick for remedial measures, limiting discretionary, arbitrary or retrospective enforcement.

These amendments to the law are long overdue.

Anita Ghazi Rahman is a Senior Advocate of the Supreme Court of Bangladesh and Partner at The Legal Circle (www.legalcirclebd.com).
anita@legalcirclebd.com