Family businesses passed down to new generation

Sponsor directors of 25 publicly traded companies have transferred 9.66 crore shares to their sons, daughters, spouses and other close family members over the span of the last two years, turning them into eligible candidates for the respective firm’s board of directors.

Thirty-seven sponsor directors made the tactical move to maintain dominance over company boards, and pass the torch to the next generation of business leaders, industry insiders told The Business Post.

Company disclosures submitted to the Dhaka Stock Exchange (DSE) show that among these directors, 15 transferred shares to their sons, and 10 to their daughters as gifts in accordance with the law. The others transferred shares to their spouses and sisters.

According to the Dhaka Stock Exchange (Listing) Regulations, 2015, securities can be transferred by gifting those to family members, including spouse, son, daughter, father, mother, brother, and sister.

An application has to be made to the commission in the prescribed form by paying the fees. The commission has the authority to approve the application after scrutiny.

As per a Bangladesh Securities and Exchange Commission (BSEC) directive issued on November 22, 2011, it is mandatory for all sponsor-directors to hold a minimum of 2 per cent share of a company’s paid up capital to be a director in the board.

Experts and economists say the shareholders’ move is mostly aimed at making the next generation eligible for becoming directors and maintain dominance in the board.

They added that the Bank Company Act prevents more than four members of a family from being on the company board, and this particular provision should be introduced to other listed companies to ensure good governance.

Former CEO of BRAC EPL Investments Debabrata Sarker said, “The move has been made just to induct family members into the management.”

To become director of a listed company, a person must hold at least 2 per cent of the company’s shares. After purchasing the shares, he or she requires shareholder’s approval at an annual general meeting to become a member of the board of directors.  

“But it is not necessary to buy shares if the sponsor-director, as a family member, hands over shares to them as a gift,” Debabrata explained.

AB Mirza Azizul Islam, a former advisor to the caretaker government, said, “Sponsor directors of companies transfer shares to their children or family members primarily to maintain their dominance on the board.

“This allows their successors to lead the management even when they are not present.”

He added, “Though it is done in line with the law, it undermines a company’s ability to ensure good governance. Eligible individuals are barred from shouldering company management duties despite having the necessary qualifications.

“As per the Bank Company Act, a maximum of four members of the same family are allowed to be directors in a board. To ensure good governance in non-banking financial institutions and other publicly traded companies, this particular rule should be followed.”

Sonali Life Insurance CEO Mir Rashed Bin Aman said previously a board member did not have to hold a minimum of 2 per cent share, but the BSEC last year ruled that a board member must own a minimum 2 per cent share.

“For this reason, the sponsor directors who already have family members in the board are giving them shares to maintain dominance in the company, while some are being given to those who are not members of the board.”  

According to the Dhaka Stock Exchange (DSE) data, Al-Arafah Islami Bank Ltd (AIBL) Sponsors Director Mohammed Haroon has transferred 25 per cent or approximately 1.6 crore of the bank’s shares to his son Anwar Hossain as a gift, which is the highest till date.

In 2020, Badsha Meah, one of the directors of the same bank, also gifted 1.78 crore out of 2.13 crore shares held by him to his son Rafiqul Islam. Jamuna Bank Sponsor Tazul Islam gifted 1.49 crore shares to his son Saidul Islam out of 1.69 crore shares held by him, the second highest.

Besides, Dutch-Bangla Bank Sponsor-Director Mohamed Sahabuddin Ahmed gifted 1.26 crore shares to his daughter Sadia Rayen Ahmed, who
is the shareholder director of the
bank, from his holding of 14.04 crore shares.

Capital market expert Abu Ahmed believes that the participation of the second generation in the company is increasing and gifting shares is an easy way to involve family members in the management of the company.

He said most of the directors transferred shares through gifts to their family members. The shares could have been sold in the market if they wanted, which might have had a negative effect for the stock market.

The ACME Laboratories Secretary Arshadul Kabir said that among the three entrepreneur directors who have gifted shares to their children, two of the entrepreneur directors’ children are directors. They are running the company as directors since 2021.

According to the information on the company’s website, Mizanur Rahman Sinha and Jahanara Mizan Sinha are the managing director and deputy managing director of The ACME Laboratories, respectively.

Their two children are Tasneem Sinha and Tanveer Sinha. Mizanur Rahman Sinha owns 8.21 per cent of the company, or 1.74 crore shares. Out of the figure, 44.55 lakh shares were gifted to the daughter and 44.56 lakh shares to the son, Tanveer Sinha.

Jahanara Mizan Sinha holds 3.36 percent, or 71.14 lakh shares, of the total shares of the company. Of the figure, 9.12 lakh shares were gifted equally to the son and daughter.

Another sponsor shareholder of the same company, Parveen Akhter Nasir, holds 5.46 per cent, or 1.15 crore, of the company. Of the figure, she gave 40.42 lakh shares to his three sons.

Sonali Life Insurance Company’s sponsor directors recently also gifted a large number of shares to their children.

Noor-E-Hafza is the company’s chairman, and her husband Khair Mohmmad Farookh is nominated director of Rupali Insurance Company. Their daughter, Ishra Tahiyat, is the shareholder director of the company.

Noor-E-Hafza gave 2.10 lakh shares out of 11.60 lakh shares held by her and Khair Mohmmad gave 1.27 lakh shares out of 5 lakh shares held by him to his daughter Ishra Tahiyat.

Shafia Sobhan Chowdhury, Sponsor-Director of the same company, gifted 6.50 lakh shares to her spouse, Mostafa Golam Quddus.

Mostafa Golam Quddus again gifted 14.80 lakh shares to his daughter Fauzia Quamrun Tania, who is the vice-chairman of the company, and 2.30 lakh shares to his spouse Fazlutun Nessa, who is a shareholder director of the same company.

First Security Islami Bank director Farzana Parveen gifted 32.17 lakh shares to her daughter.

Standard Bank Limited Sponsor, Harun Rashid Chowdhury, gifted 65 lakh shares to his daughter, Tanaz Tasfia Chowdhury.

Hakkani Pulp & Paper Mills Entrepreneur Director Mohammed Golam Mostafa gave his spouse 5 lakh shares and his sister Farhana Tarannum 1 lakh shares.

Premier Cement Mills Limited entrepreneur Zahur Ahamed gave his son, Mohammer Nizamuddin Ishti, 2 lakh shares.