New Age | Why bank boards must lead, not rubber-stamp

CORPORATE governance is the framework by which corporations are directed and controlled. In essence, it seeks to ensure that management acts in the best interests of the real owners and shareholders while maintaining a balance between economic and social goals. In the banking sector, this balance becomes particularly critical due to the systemic importance of banks, the reliance of ordinary depositors on sound banking practices and the potential for widespread impact in cases of failure.

The concept of corporate governance began gaining traction in the 1970s, following a series of high-profile corporate failures. One early example was the collapse of Penn Central, a once-prominent railway company in the United States, whose board failed to prevent egregious mismanagement and financial misreporting. In response, the US Securities and Exchange Commission began pushing for independent audit committees and stricter oversight by directors. Since then, the global banking industry has come under increasing pressure to embrace governance reforms, not as formalities, but as essential tools for long-term institutional integrity.

In today’s banking environment, corporate governance is not a mere regulatory obligation; it is a driver of reputational strength, operational stability and financial sustainability. The benefits of robust governance are numerous: more efficient processes, lower cost of capital, enhanced compliance, transparency in reporting, stronger stakeholder trust and better responsiveness to crises. In contrast, weak governance often results in mismanagement, regulatory penalties, erosion of shareholder value and in severe cases, insolvency.

At the heart of this system lies the board of directors. Its composition, independence, competence and conduct determine whether a bank will be guided by prudent judgment or hijacked by political or insider interests. When all board members share similar professional backgrounds or affiliations, diversity of thought is compromised. A well-composed board brings together varied experiences, ranging from credit risk, treasury, audit and compliance to strategic leadership and international banking. It also encourages constructive disagreement, which is essential for good decision-making.

Diversity alone, however, is not enough. The board must also function independently of management and exercise oversight without undue influence. This is particularly vital in Bangladesh, where regulatory frameworks exist but enforcement remains weak and interference, both internal and external, is not uncommon. Independent directors, in theory, help counterbalance this risk, but they must be appointed for their expertise and…