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Pakistan's Revised Code Of Corporate Governance - Salient Features Of The Proposed Draft

March 03, 2012 | Comments: 0 | Views: 163


Board of Directors

  • Most of the voluntary/ suggestive provisions pertaining to the Board of Directors have been made mandatory
  • The earlier suggested 'effective representation' of independent directors has been changed into compulsory 'balance' of executive and non-executive directors (particularly independent directors) with further condition of 'requisite range of skills, competence, knowledge, experience and approach' (BPRD Circular 4 of 2007 has defined that not more that 25% directors of the same family are permitted to be on the Board & a minimum of 25% of Board of Directors of the bank/DFI shall be independent directors)
  • Number of independent directors has been increased from 'at least one independent director' (who was to represent institutional equity interest of a banking company, development finance institution, Non-banking Financial Institution etc.) to 'not less than 1/3rd or 3, whichever is higher of the total members of the board as independent directors. (Clause 6(iii) of BPRD Circular 4 of 2007 states that a minimum of 25% members of Board of Directors of a Bank/DFI shall be independent Directors)
  • Number of executive directors has been determined as 'not less than 2 and more than 1/3rd of the elected directors, including the Chief Executive (BPRD Circular 4 of 2007 states that maximum of 2 members of Board of Directors of a bank/DFI including its CEO can be Executive Directors)

Board of Directors - Responsibilities

  • It's been added that the board shall ensure that: 'adequate systems and controls are in place for the identification and redress of grievances arising from unethical practices
  • The Board is required to put in place a mechanism for undertaking annually an evaluation of the Board's own performance and of its committees
  • The issues required to be placed before the Board would further include the following:

Report on governance, risk and compliance issues

Related party transactions

Whistle-blower protection mechanism

Report on CSR (Corporate Social Responsibility) issues

Board of Directors - Independent Directors

  • Definition has been extended from, amongst others, family to 'closed relative' (which is an unspecified term) though relationship with 'executives' of the listed company has been excluded from this definition (BPRD Circular 4 of 2007 states that 'Independent Director' means such a person who is not linked directly or indirectly with bank/DFI or its sponsor or strategic shareholders).
  • Relevant experience has been made compulsory for 'at least one independent director' (Clause 4 of BPRD Circular 4 of 2007 states that Directors of the Board must have management/business experience of at least 5 years at senior level in an active capacity).
  • Tenure has been limited to two consecutive terms; though he could again come on board with a gap of at least one term (No tenure fixed by SBP)

Board of Directors - Committees

  • Audit Committee's all members will be the non-executive director (instead of earlier requirement of majority of the non-executive directors); among these non-executive directors, the independent directors should be in majority; and the chairman of the committee (who earlier was 'preferably' non-executive director) must be independent director; and at least one director will have to have relevant financial experience
  • Constitution of HR & Remuneration Committee has been made mandatory, which would comprise of non-executive directors including at least one independent director; however, the Board could make the CEO a member as well

Board of Directors - Remuneration & Insurance Cover

  • Requirement of appropriate arrangements for professional indemnity insurance cover in respect for independent directors has been added (BPRD Circular 4 of 2007 states that 'Independent Director' shall submit a declaration for his/her independence to SBP at the time of appointment)
  • Remuneration of non-executive director has specifically been made the duty of the Board, directing that it should not be at a level that could be perceived to compromise their independence (Banks follow the directive of SBP communicated through Para C (2) of BPRD Circular 3 of 2007 duly amended through BPRD Circular No.14 of 2009
  • New clause of "Directors' Remuneration Matters" has been inserted advising the Board to constitute a 'remuneration committee' comprising a majority of non-executive directors. Details of remuneration of each director would be included in the Company's Annual Report

Other Significant Changes

  • The draft Code makes it obligatory that the Chairman and the Chief Executive Officer, by whatever name called, shall not be the same person.
  • A director's number of directorships in various companies has been limited to 05 instead of 10
  • Orientation courses of directors through SECP recognized course providers other than PICG would be acceptable (Clause B(3) of BPRD Circular 43 of 2007 states that Board members should preferably attend 1-2 weeks training program at an institution like PICG or similar institution within 1st year of their directorship on Bank's Board)
  • Reporting of shareholding of more than5%, instead of earlier 10%, has been made essential. (Similar to SBP requirement)
  • Earlier definition of 'executive' of the company includes all the employees receiving more than 0.5 million basic salary annually, while the proposed definition includes only the heads/ supervisors of the functional areas
  • A listed company, if so desires, would be able to outsource its internal audit function
Source: EzineArticles
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