In the world of global corporatisation, corporate governance is becoming increasingly important in all areas of governance. Bhutan is no exception. This reality necessitates that corporate decision-makers be highly efficient, cautious, and accountable for their actions. Failure to provide proper direction should result in serious criminal sanctions.
Corporate governance refers to the “framework that governs the direction and control of companies.” The board of directors play a crucial role in corporate governance as a “bridge between the company’s shareholders and its executives and management.” The board must ensure that the company’s “operations align with the interests of all stakeholders, including shareholders, employees, customers, and the broader community.” When individuals join as board members, they establish a fiduciary relationship and have a duty to act in good faith for the benefit of the company and ensure that there is no negligence on their part.
However, despite numerous reports of poor performance in Bhutan’s corporate sector, the accountability of board members and chief executive directors remains minimal. This is concerning, as the Royal Monetary Authority recently suspended most of the country’s financial institutions from disbursing loans due to serious issues with non-performing loans (NPL).
For example, the recent conviction of a man who managed to obtain multiple loans on single collateral or limited collateral but poorer sections of the public continues to face multiple problems even for a small loan.
The Companies Act of Bhutan does not provide clear liabilities of the board of directors, particularly in situations like those that lead to NPL. While the Penal Code of Bhutan provides that the board of directors and high managerial agents of the company can be prosecuted and imposed fines and/or sentenced to imprisonment for conducting the corporation’s or other business association’s affairs purposely engaged in a persistent course of criminal conduct, this provision applies only in cases of criminal offences and not in negligence of duties as a board.
In contrast, Singapore even holds CEOs and directors accountable for workplace safety lapses if they are culpable for workplace safety and health (WSH) lapses. Similarly, in the United States, Shell company’s 11 board directors are being personally sued for allegedly failing to adequately manage the risks associated with the climate emergency for mismanaging climate risk, breaching company law by failing to implement an energy transition strategy that aligns with the 2015 Paris Agreement.
In Australia, the law requires that once a company is registered, liabilities of the board of directors exist, even after the company ceases to function or is deregistered for failures such as debts incurred by the company when it is unable to pay those debts as and when they fall due and payable.
Therefore, as Bhutan establishes more corporate bodies, companies must prioritise corporate accountability and establish clear guidelines for board members and executives and take action for failures. Bhutan needs a robust company law that fixes the accountability of decision-makers in addition to its lower or middle-level officers to reduce such risks.
Disclaimer: The views expressed in this article are author’s own.