Transcript Code Requirements for listed companies

CONTENT


Introduction
What is new





The Corporate Governance Code
What has been Achieved
Application of the Proposed Code
Provisions in the Law to Corporate Governance Code
Requirements for listed companies



Structure of the code
Underlying relation of the Principles
Principles 1-9
2
DO COMPANIES NEED TO ADOPTCORPORATE
GOVERNANCE PRACTICES?
Importance of Corporate Governance Benefits
Improve company performance
Improve investment climate for the country
Greater access to capital
Increase competitiveness with domestic companies
Jan-10
Jan-09
Increase sustainability
Decrease cost of capital
Increase competitiveness with foreign companies
0
1
2
3
4
5
5=Very Important/1 = Not at all Important
3
The Global Crisis and Corporate Governance
100%
85.8%
92.1%
89.5%
86.8%
81.6%
82.8%
84.6%
80%
68.4%
60% 56.8%
58.2%
57.9%
52.6%
55.2%
Global crisis because of weak
corporate governance?
50.0%
40%
Financial crisis encourages
corporate governance
implementation?
20%
0%
Total
Finance Industry Trading
Business Activity
10-50
51-200
201+
Number of Employees
4
CODE REQUIREMENTS: WHAT IS NEW?
5
WHAT HAS BEEN ACHIEVED
• Established a Corporate Governance
Initiative (MOIC with the Central Bank)
• Invited position papers from audit and law
firms
• Invited public response to a Survey
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WHAT HAS BEEN ACHIEVED
• Developed posters for stakeholder use
• Produced a series of booklets for Directors
• Contracted InCite to complete and analyze
two market surveys
CONTINUED
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WHAT HAS BEEN ACHIEVED
CONTINUED
8
WHAT HAS BEEN ACHIEVED
CONTINUED
9
WHAT HAS BEEN ACHIEVED
CONTINUED
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PROVISIONS IN THE LAW RELATING TO CORPORATE
GOVERNANCE CODE
Every listed company and licensees must adopt
and publish its own corporate governance
policy. This is not required for non-listed
companies
The required contents for the code are fairly
detailed; also, they must be consistent with any
later-adopted national code
A public company must comply or explain
annually regarding its code
Mechanism for enforcement is provided
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CURRENT RULES & REGULATIONS
On Corporate Governance
•Bahrain Commercial Companies Law
•Rulebook 1-High Controls on Conventional Banks
•Rulebook2-High Controls on Islamic Banks
•Rulebook3-High Controls on Insurance companies
•Rulebook3-High Controls on Investment Businesses
•Rulebook6 : Takeover Merges & Acquisition (TMA)and Market
Abuse & Manipulation (MAM)
•Disclosure Standards
•Guidelines on Insiders
•Resolution 49/2007 in respect of Dissemination of Listed
Companies’ Financial Statements & BOD’s meetings
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APPLICATION OF THE PROPOSED CODE
The Code is applicable to all companies, both
public and private
The application will be on the basis of ‘comply
or explain’, similar to the UK model
Public listed companies and financial
institutions are required to comply
immediately on adoption of the Code
Private limited liability companies would be
given a period of time to adapt, before the
Code becomes mandatory
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PURPOSE AND BACKGROUND OF THIS CODE

The purpose of this Code is to
 establish
best-practice corporate governance
principles in Bahrain
 Provide protection for investors and other company
stakeholders through compliance with those
principles.

International experience has proven that good
corporate governance attracts investment,
protects investors and other stakeholders, and
enhances companies’ value.
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INSTITUTIONS REQUIRED TO COMPLY

Legally
 Financial
Institutions
 Listed Companies

Practically
 All
companies
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STRUCTURE OF THE CODE
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The Code states eight plus one fundamental Principles of
corporate governance, each of which is followed by one or
more numbered directives for applying the Principle.
These Principles and directives are broad and they should
be complied with by every company
Recommendations under almost all of the directives.
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
These recommendations are not required to be complied with by
every company and may not be appropriate in some companies.
However, every company should either comply with those
recommendations or explain why it does not because of its
specific situation. This is known as the “comply or explain”
principle
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UNDERLYING RELATION OF THE PRINCIPLES
Board of Directors (1, 2, 4, and 5)
 Disclosure (8)
 Shareholders (7)
 Management & Internal Controls (3 and 6)
 Special – Islamic (9)
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PRINCIPLE 1
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The Company shall be headed by an
effective, collegial and informed board
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PRINCIPLE 1.1
Board’s Role & Responsibilities
Responsible to:
Recommendations: Current:
•Ultimately Accountable
•Induction
•Overall Business
•Written duties
•Monitoring Management •Formal Board Charter
•Monitoring Conflict
•Reporting to
Shareholders
•Equal Treatment of
shareholders
THE COMPANY SHALL BE HEADED BY AN
EFFECTIVE, COLLEGIAL AND INFORMED BOARD
•Responsibilities on
accountability &
performance
•Written duties
•Charters optional, or
set in Memorandum &
Articles of Association
•Training but no
specific induction
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PRINCIPLE 1.2
Decision-Making Process
Require:
Recommendations:
• Min.4 times per Year
• Max. 15 members
meetings
• Adjust size after
• Receive agenda &
Shareholders approval
information in adequate • Review non-executive
time
member’s commitments
• Max. 3 directorship in
public companies
THE COMPANY SHALL BE HEADED BY AN
EFFECTIVE, COLLEGIAL AND INFORMED BOARD
Current:
•Min. 4 times per
year meetings
•Timely information
•Regular review of
composition
•Max. 2 directorship
of licensee
•Not within the
same category
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PRINCIPLE 1.3
Directors’ Independence of
Judgment
Require:
Recommendations:
• No domination
• No unfettered
powers
• Non-executive= fully
independent from
management
•½ non-executive
•3 members of BOD
independent
•CEO not Chairman
•Annual independence
review
•Independent directors
conduct pri-meetings
THE COMPANY SHALL BE HEADED BY AN
EFFECTIVE, COLLEGIAL AND INFORMED BOARD
Current:
•Adequate number
independent & nonexecutive (Banks)
•Min. ½ non-executive
(insurance)
•CEO not chairman
•Independent nonexecutive to meet
without executive
management
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INDEPENDENT DIRECTOR
Code
• Where he/she and family
members (separately or
together) in the last 2 years:
• No material relationship
• Not an employee
• Make/receive directly/
indirectly payment
>BD31,000
• Own directly/indirectly <5%
• Not engaged
directly/indirectly as auditor
of company
Current
• Not a controller
• Not an Associate/business
partner of Director or senior
management
• Not a professional Advisor
• Not a large depositor or
borrower (>10% of capital
base)
• No significant
contractual/business
relationship
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PRINCIPLE 1.4
BOD’s Representation of All
Shareholders
Require:
Recommendation:
• Representation of all • 1/3 independent if
controlling
shareholders
shareholders
• Minority shareholders
• Conflict of interest
• Minority
shareholders’ rights
THE COMPANY SHALL BE HEADED BY AN
EFFECTIVE, COLLEGIAL AND INFORMED BOARD
Current:
• Adequate number
independent & nonexecutive (min. 1local banks)
represent Minority
shareholders’ rights
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PRINCIPLE 1.5
Access to Independent Advice
Require:
Recommendation:
Current:
•Access to professional
Advice
•Access to Board
Secretary (BS)
•Boards’ responsible for
Appointment &
Removal of (BS)
• If serious concerns:
•Seek Independent
Advice
•Recorded in Board
meeting
•Seek independent
professional Advice
THE COMPANY SHALL BE HEADED BY AN
EFFECTIVE, COLLEGIAL AND INFORMED BOARD
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PRINCIPLE 1.6
Directors’ Communication with
Management
Require:
Recommendation:
• Encourage
management
participation:
• Free access to
• Effective polices and
management by
process in place for
Non-executive
overseeing
directors
succession planning
• Facilitate induction to
management
• Business
• Succession
planning
THE COMPANY SHALL BE HEADED BY AN
EFFECTIVE, COLLEGIAL AND INFORMED BOARD
Current:
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PRINCIPLE 1.7
Committees of the Board
Require:
Recommendation:
Current:
• Audit
• Remuneration
• Nominating
• Others
• Written Formal
Charter for each
•Mandatory:
•Audit
•Sharia (Islamic)
•Others as required
•Maintain checks and balance
on: nomination &
remuneration of directors
•Written mandates
THE COMPANY SHALL BE HEADED BY AN
EFFECTIVE, COLLEGIAL AND INFORMED BOARD
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PRINCIPLE 1.8
Evaluation of the Board & Each
Committee
Require:
Recommendations: Current:
• Min. annually
• Board’s responsibility
• Evaluate:
• Nominating
Committee oversight
• Board
• Individual members • External expert
assistance
• Committees
• Periodical review of
size and composition
of Boards and
committees
• Regular review of
performance of
executive
management
THE COMPANY SHALL HAVE RIGOROUS PROCEDURES FOR APPOINTMENT,
TRAINING, AND EVALUATION OF THE BOARD
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PRINCIPLE 2

THE DIRECTORS AND OFFICERS SHALL
HAVE FULL LOYALTY TO THE COMPANY
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PRINCIPLE 2.1
Personal Accountability
understand:
•Loyalty
•Confidentiality
•No personal interest
•Disclosure
•Can be sued by :
•Company
•Shareholders
THE DIRECTORS AND OFFICERS SHALL HAVE
FULL LOYALTY TO THE COMPANY
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PRINCIPLE 2.2
Avoidance of Conflict of Interest
Current:
•Director/employee of competitor
•Material relationship with company
•Insider trading & market abuse
THE DIRECTORS AND OFFICERS SHALL HAVE
FULL LOYALTY TO THE COMPANY
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PRINCIPLE 2.3
Disclosure of Conflict of Interest
Require:
Recommendation:
• Inform/disclose
• Refrain from voting
• Establish formal
procedures:
• Period reporting
• Advance approval
THE DIRECTORS AND OFFICERS SHALL HAVE
FULL LOYALTY TO THE COMPANY
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PRINCIPLE 2.4
Disclosure of Conflict of Interest to
shareholders
Current:
•As per Company Law prior approval of General Assembly
•Conflict of interest to be part of the code of conduct (CBB
licensees)
•Oversee process of disclosure and communication with
internal and external stakeholders
•Procedures in place to deal with conflict of interest
•Prohibition of insider trading
THE DIRECTORS AND OFFICERS SHALL HAVE
FULL LOYALTY TO THE COMPANY
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PRINCIPLE 3

THE BOARD SHALL HAVE RIGOROUS
CONTROLS FOR FINANCIAL AUDIT AND
REPORTING, INTERNAL CONTROL, AND
COMPLIANCE WITH LAW
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PRINCIPLE 3.1
Audit Committee
Require:
Current:
• Min. 3 members
• Independent
• Mandatory
• Sufficient number
• CEO not member
• Majority independent nonexecutive
• Non-executive (Islamic)
THE BOARD SHALL HAVE RIGOROUS CONTROLS FOR FINANCIAL AUDIT AND
REPORTING, INTERNAL CONTROL, AND COMPLIANCE WITH LAW
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PRINCIPLE 3.2
Audit Committee Charter
Require:
•Written
Charter
Recommendations: Current:
• Majority has recent •Written terms of
& relevant financial
references
ability and
•Min.1 qualified
experiance
accountant (Banks)
•Whistleblower
•All financially
literate (Banks)
THE BOARD SHALL HAVE RIGOROUS CONTROLS FOR FINANCIAL AUDIT AND
REPORTING, INTERNAL CONTROL, AND COMPLIANCE WITH LAW
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COMMITTEE DUTIES AND RESPONSIBILITIES
review the company’s accounting and financial
practices,
 review the integrity of the company’s financial and
internal controls and financial statements,
 review the company’s compliance with legal
requirements, and
 recommend the appointment, compensation and
oversight of the company’s outside auditor.
 Recommend the appointment of the internal
auditor

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PRINCIPLE 3.3
CEO & Chief Financial officer
Certification of Financial Statements
Understand:
Current:
•Management
accountable
•Board of Directors
accountable
THE BOARD SHALL HAVE RIGOROUS CONTROLS FOR FINANCIAL AUDIT AND
REPORTING, INTERNAL CONTROL, AND COMPLIANCE WITH LAW
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PRINCIPLE 4

THE COMPANY SHALL HAVE RIGOROUS
PROCEDURES FOR APPOINTMENT,
TRAINING, AND EVALUATION OF THE
BOARD
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PRINCIPLE 4.1
Nominating Committee
Require:
Current:
•Min. 3 members
•All independent or nonexecutive & independent
•Chairman independent
•Set-up if Board considers
appropriate
•Required to maintain
checks & balance with
Nomination and
remuneration of Directors
THE COMPANY SHALL HAVE RIGOROUS PROCEDURES FOR APPOINTMENT,
TRAINING, AND EVALUATION OF THE BOARD
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PRINCIPLE 4.2
Nominating Committee Charter
Require:
Current:
•Written Charter
•clear written
mandates
THE COMPANY SHALL HAVE RIGOROUS PROCEDURES FOR APPOINTMENT,
TRAINING, AND EVALUATION OF THE BOARD
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PRINCIPLE 4.3
Board Nominations to Shareholders
Require:
Recommendations: Current:
• Proposal put to
Shareholders along
with:
• BOD
recommendation
• Nominating
Committee advice
• At re-elections:
• Directors election as
per CCL
• Confirm effective
commitment and
• Shareholders
performance
approval
• Independence of
• CBB’s prior approval
long term members
(financial institutions)
THE COMPANY SHALL HAVE RIGOROUS PROCEDURES FOR APPOINTMENT,
TRAINING, AND EVALUATION OF THE BOARD
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PRINCIPLE 4.4
Induction & training of Directors
Require:
Recommendations: Current:
• New members:
• Formal & tailored
training
• Existing members:
• Orientation
• Continual self
education
• Presentations by
management
• Nominating
Committee oversight
• Undertake regular
relative training to
fulfill their
responsibilities
THE COMPANY SHALL HAVE RIGOROUS PROCEDURES FOR APPOINTMENT,
TRAINING, AND EVALUATION OF THE BOARD
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PRINCIPLE 5

THE COMPANY SHALL REMUNERATE
DIRECTORS AND OFFICERS FAIRLY AND
RESPONSIBLY
43
PRINCIPLE 5.1
Remuneration Committee
Require:
Current:
• Min. 3 members
• Recommendation to
Board
•Set-up if Board considers
appropriate
•Required to maintain
checks & balance with
Nomination and
remuneration of Directors
THE COMPANY SHALL REMUNERATE DIRECTORS AND OFFICERS FAIRLY AND
RESPONSIBLY
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PRINCIPLE 5.2
Remuneration Committee Charter
Require:
• Written
Charter
Recommendations: Current:
• All independent • clear written
or non-executive
mandates
& independent
• Chairman
independent
THE COMPANY SHALL REMUNERATE DIRECTORS AND OFFICERS FAIRLY AND
RESPONSIBLY
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PRINCIPLE 5.3
Standard for All Remuneration
Require:
•Not too high not too low
•Not to pay more than necessary
THE COMPANY SHALL REMUNERATE DIRECTORS AND OFFICERS FAIRLY AND
RESPONSIBLY
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PRINCIPLE 5.4
Non-Executive Remuneration
Require:
Current:
•Not to encourage
•to include
excessive short term
performance related
or risky behaviour
elements
THE COMPANY SHALL REMUNERATE DIRECTORS AND OFFICERS FAIRLY AND
RESPONSIBLY
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PRINCIPLE 5.5
Officers’ Remuneration
Require:
Recommendations: Current:
• Significant portion
linked to individual
performance
• Officer/Director take
into account
compensation
received as Director
• Written objectives
• Approval of
shareholders on
performance based
incentives
• Not to encourage
excessive short term
or risky behaviour
• Monitor & evaluate
remuneration
package to ensure
inline with corporate
values
THE COMPANY SHALL REMUNERATE DIRECTORS AND OFFICERS FAIRLY AND
RESPONSIBLY
48
PRINCIPLE 6

THE BOARD SHALL ESTABLISH A CLEAR &
EFFICIENT MANAGEMENT STRUCTURE
49
PRINCIPLE 6.1
Establishment of management
Structure
Require:
Current:
• Min. :
• CEO
• Chief financial officer
• Corporate secretary
• Internal auditor
• Other officers
•CEO/GM
•Internal Auditor function
•Compliance officer
•Prior approval on controlled functions (Banks)
•Assess management framework
•Monitor & evaluate management
performance in implementing business plans
THE BOARD SHALL ESTABLISH A CLEAR & EFFICIENT MANAGEMENT
STRUCTURE
50
PRINCIPLE 6.2
Titles, Authorities, Duties, Reporting
Responsibilities
Require:
Recommendations: Current:
•By-laws in place at min. •Specify limits on CEO
for:
•Corporate Secretary:
•Review procedures
•CEO
and advise
•Chief financial officer
•Legal
•Corporate secretary
experience/training
•Annual review of
Succession plan
•Board approve &
review management
structure and
responsibilities
THE BOARD SHALL ESTABLISH A CLEAR & EFFICIENT MANAGEMENT
STRUCTURE
51
PRINCIPLE 7

THE COMPANY SHALL COMMUNICATE
WITH SHAREHOLDERS, ENCOURAGE THEIR
PARTICIPATION & RESPECT THEIR RIGHTS
52
PRINCIPLE 7.1
Conduct of shareholders Meetings
Require:
Recommendations: Current:
• As per Company Law
• Notices/invitation
• Adequate time &
information
• Agenda
• Participation & Proxy
• Minutes of meeting
• Attendance of:
• All directors
• Auditor
• Website
• Method of voting at
elections
• As per :
• Company Law
• Disclosure
Standards
THE COMPANY SHALL COMMUNICATE WITH SHAREHOLDERS, ENCOURAGE
THEIR PARTICIPATION & RESPECT THEIR RIGHTS
53
PRINCIPLE 7.2
Direct Shareholders Communication
Require:
Current:
•Communicate views of
shareholders
•Assistance of institutional
investors in evaluation of
CG
•Right to receive information
in timely & regular basis
•Have a right to vote
•Number of shareholders
representing 10% request
for meeting
THE COMPANY SHALL COMMUNICATE WITH SHAREHOLDERS, ENCOURAGE
THEIR PARTICIPATION & RESPECT THEIR RIGHTS
54
PRINCIPLE 7.3
Controlling shareholders
Require:
•Respect the rights on
Minority shareholders
Current:
• Equal treatment
• Right to attend regardless of
number of shares
• Number of votes=number of
shares
• Rights of minority shareholders
under TMA Module
THE COMPANY SHALL COMMUNICATE WITH SHAREHOLDERS, ENCOURAGE
THEIR PARTICIPATION & RESPECT THEIR RIGHTS
55
PRINCIPLE 8

THE COMPANY SHALL DISCLOSE ITS
CORPORATE GOVERNANCE POLICY
FRAMEWORK
56
PRINCIPLE 8.1
Disclosure Under the Company Law
Require:
Recommendation Current:
•Written CG
Guidelines
•Publish on
website
•Annual reporting
to shareholders
•Establish CG
Committee
•Min 3 Independent
•CG policy framework
• Disclosur
e in
Annual
report
THE COMPANY SHALL DISCLOSE ITS CORPORATE GOVERNANCE
57
PRINCIPLE 9
Companies which refer to themselves as
“Islamic” must follow the Principles of Islamic
Sharia’a
 9.1

 Establishing
Sharia’a Supervisory Board
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Importance of Corporate Government Principals
Disclosure of remuneration of senior officials and
managers individually
2.4
Disclosure of the remuneration of the members of
the Board of Directors individually
2.5
More than a third of the Board of Directors are
independent members
2.8
2.9
2.7
Separation between the Board of Directors and
Executive Management
3.4
3.0
3.8
Adopting a system of business dealing between the
company and major shareholders
3.4
Encouraging shareholders to participate in the
activities of the company
3.5
2010
3.8
2009
4.0
3.7
3.9
Establishing an audit committee
4.0
4.2
Board of Directors should appoint external auditors
0
1
2
3
4
5
5=Very Important/1=-Not at all Important
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MONITORING AND ENFORCEMENT








Board of Directors
Shareholders
Ministry of Industry and Commerce (MOIC)
Central Bank of Bahrain (CBB)
Bahrain Stock Exchange (BSE)
Professionals firms including auditors, lawyers and
investment advisers.
Business associations
Media
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CBB REQUIREMENTS




Appointment of BoD
Appointment of SSB
Appointment of Auditors
Appointment of
Financial managers
 Compliant officer




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Regular and special reports
Prudential meetings
Basil II
Public disclosure
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THANK YOU FOR LISTENING
Questions & Answers
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