The Bangladesh Securities and Exchange Commission (BSEC) has recently unveiled its draft Corporate Governance Rules, 2026, marking a significant evolution in its regulatory approach. By transitioning from the previous "Code"to a binding "Rules"framework, the BSEC aims to enhance transparency, safeguard the rights of minority shareholders, and drive better corporate governance across the nation's business landscape.
While this shift is undoubtedly commendable and introduces several progressive reforms, the draft remains rooted in a compliance-driven, prescriptive philosophy that misses the opportunity to adopt modern, principle-based governance practices. However, the draft deserves recognition for several progressive leaps.
Firstly, for mandating at least three independent directors or one-third of the board (whichever is higher) is a powerful step toward curbing sponsor dominance. Secondly, requiring a female director on every board while modest, is a necessary catalyst for gender diversity. Thirdly, the explicit prohibition on auditors providing non-audit services directly tackles auditor independence. Fourthly, the detailed empowerment of board committees, with specific charters and reporting lines, creates a formal infrastructure for oversight that was previously lacking.
Finally, the mandatory exit interview for resigning independent directors is an innovative, albeit procedurally heavy, tool to uncover governance red flags.
Despite these laudable advances, the draft suffers from critical thematic gaps that limit its potential to foster a modern, resilient governance culture.
For example, the absence of a "Comply or Explain" philosophy indicates a fundamental flaw in the draft. Best-practice jurisdictions, like, UK and Malaysia have proven that a "comply or explain" framework works better practice as it allows companies to embrace principle-based thinking over box-ticking when it comes to deviation from set provisions.
in The draft defines "top-level executive" as any executive two tiers below the Managing Director or Chief Executive Officer, and it tasks the Nomination and Remuneration Committee (NRC) with assisting the board in formulating nomination criteria for these executives. Such an overly prescriptive definition applied in large organizations with flatter hierarchy may create administrative nightmare and undermine focus on truly strategic roles in the process.
While the draft creates a Risk Management Committee, it notably omits a standard global requirement of a Board Declaration on the Effectiveness of Internal Controls.
Under rules like the UK's FRC Code (Corporate Governance Code issued by the Financial Reporting Council), the board must publicly state whether its risk management and control systems are effective. This annual declaration is the single most powerful tool for holding directors accountable for financial and operational failures. The Bangladesh draft is silent on this, leaving a dangerous accountability vacuum.
The draft focuses almost exclusively on the board, neglecting shareholders. There are no provisions for shareholder proposal rights, minimum thresholds for placing items on an AGM agenda, or a framework for management to engage with dissenting investors. This is a clear deviation from the OECD (Organisation for Economic Co-operation and Development) principles which explicitly recognize shareholders as a key governance pillar. This will perpetuate a passive investor culture, undermining the very transparency it seeks to create.
The draft mentions reporting "illegal behavior" without offering protection for the whistleblower. Without safe, anonymous channels and board-level oversight, reporting is a fantasy.
Equally concerning is the total absence of malus and clawback provisions for executive compensation. Unlike global norms (e.g., US Dodd-Frank, UK FRC Code) that allows companies to recover bonuses already paid, the draft is silent on dealing with employees who go rogue.
While the draft Bangladesh Corporate Governance Rules, 2026, makes a token mention of "physical, online or hybrid" board meetings and contemplates online shareholder attendance, it fundamentally fails to establish a comprehensive digital governance framework.
The draft lacks provisions on cybersecurity oversight responsibilities of the board, mandatory digital record-keeping standards, and standard protocols that are critical to ensuring good corporate governance in the digital era. Furthermore, there is no mandate for director digital literacy or annual cybersecurity awareness training are critical gaps in an era of escalating cyber threats to listed companies.
In contrast, Singapore's Code of Corporate Governance (2018) explicitly recommends that boards ensure "adequate measures are in place to safeguard the integrity of information technology systems" and encourages companies to leverage technology for shareholder engagement, including remote participation protocols.
Malaysia's Securities Commission has issued specific guidance on "Virtual General Meetings," requiring real-time interactive features, secure e-voting, and equal participation rights for remote shareholders.
Most notably, India's SEBI (LODR) Regulations 2023 now requires audit committees to review cybersecurity incidents and IT-related risks as part of their formal charter. The UK's FRC Code 2024 now requires boards to include cybersecurity resilience as a principal risk in the annual risk assessment, with clear articulation of board-level accountability.
Hence, the absence of these elements is not a minor oversight, it is a fundamental gap that undermines shareholder rights, board accountability, and corporate resilience in the digital era.
Therefore, in order to truly transform corporate behavior, BSEC must move beyond prescriptive mandates by adopting a "comply or explain" principle, mandating a board declaration on internal control effectiveness, enshrine basic shareholder rights, and embed whistleblower protections with executive pay recovery mechanisms.
Without these additions, BSEC's rules may inadvertently create a culture of mechanical compliance, at the expense of nurturing the spirit of good governance.
