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Code of Corporate Governance - Listed Companies - Pakistan
- 1. Code of Corporate Governance 2017 (Effective January 01, 2018)
- 2. Number of Directorships 5 Listed Companies • Includes: Alternate Directorship • Excludes: Listed Subsidiaries • Effective later of: • Next Board Constitution • 1 Year of regulations Compiled by Ather Saleem
- 3. Composition of Board of Directors As Group: • Core Competencies • Diversity • Requisite Skills • Knowledge • Experience • In context of Co. business Representation of Minority Shareholders: • Should be Facilitated • Attaching with notice: • Minority shareholder profile • Proxy form in favor (On cost of Co.) • Provide Shareholder details Compiled by Ather Saleem
- 4. Composition of Board of Directors Independent Directors: • 2 or 1/3rd whichever is higher • Professional indemnity Insurance Cover (Preferred) • Declare each financial year that he qualifies criteria of independence. • Max 4 terms consecutive Female Director: • At least One • Later of: • Next Board Constitution • 1 Year of regulations Compiled by Ather Saleem
- 5. Composition of Board of Directors Executive Director: • Means: • Whole or substantially Whole (time) • Paid or not • To operations of Co. • Max 1/3rd including CEO Chairman: • Separate from CEO • Elected as Chairman Compiled by Ather Saleem
- 6. Responsibilities of Board of Directors Fiduciary Duties: • Sense of Objective Judgement • Good Faith • Best interest of: • Share holders • Stakeholders Governance of Risk: • Establish Risk Management Policy • Determine Co. Risk tolerance level • At least annually Review: • Management maintains system of risk identification • Controls & Risk management to safeguard (Co. & Shareholders ): • Assets • Resources • Reputation & Interest Compiled by Ather Saleem
- 7. Responsibilities of Board of Directors Duties • Preparation & Review of: • Vision • Mission • Corporate Strategy • Formal Code of Conduct: • Promote ethical culture • Prevents conflict of Interest • Should be disseminate • Put on web site • Grievance addressal system • Arising from unethical practices • Adequate system & Control • Effective System of Internal Control • Board performance appraisal • Formal & Effective Mechanism • Annual evaluation • BoD, Members & Sub-committees Compiled by Ather Saleem
- 8. Responsibilities of Board of Directors Duties • Documented Resolutions for: • Investments / Disinvestments with maturity period of 6 months or more • Determination of loans & advances made & their limit • Define materiality level • Attend Shareholders meetings (unless reasonable cause) • Shall Maintain Record of Significant Policies • Governance of risks & internal control • HRM & Succession Planning • Permissible Fee for Non-Executive & Independent Directors • Procurement • Communication & Investor Relations • Marketing Compiled by Ather Saleem
- 9. Responsibilities of Board of Directors Duties (Policies) • Credit & Discount • Write off Receivables • Sale & Lease of Assets / undertakings • Capital Expenditure • Planning & Control • Investments & Disinvestments of funds • Debt Coverage Duties (Policies) • Financial Powers • Transactions with Associated Companies & Related Parties • Environment & Social • Health & Safety • CSR • Whistle Blowing (including mechanism) Compiled by Ather Saleem
- 10. Chairman Responsibility At beginning of each term: • Issue letter to BoD members • Setting their role • Obligations & Responsibilities • Powers • Remuneration & Entitlement Meetings • 7 Days Notice • Along with Agenda & Material • Ensure reasonable time is available for discussion • Emergency Meeting • Reduced Time or Complete Waiver Compiled by Ather Saleem
- 11. BoD Meetings Minutes: • Minutes are kept properly • Co. Secretary to act as Secretary of BoD • Dissenting Note: • To be recorded properly • Be notified to Secretary first • If not resolved, raised with Commission Attendance: • CFO & CS to attend • In absence their nominees • Nominees to be appointed by BoD Compiled by Ather Saleem
- 12. Issues before BoD CEO to place • Foresee any risk of default of loans • Annual Business Plan • Cash Flow Projections • Forecasts • Strategic Plan • Budgets (Capital, Man Power, Overhead) • Budget Variations CEO to place • Matters recommended by BoD sub- committees • Quarterly Operating Results • Internal Audit Reports (if material): • Fraud • Bribery • Corruption • Irregularities7 Days Notice Compiled by Ather Saleem
- 13. Issues before BoD CEO to place • Management Letter • Details of Agreements with/of • JV • Collaboration • Distributors & Agents • New law or financial reporting standard affecting company CEO to place • Status & Implications of material law suite (made or likely to be made) • Significant accident, fatality, pollution & environment hazards • Risks (Management, Analysis & Communication): • Management & Compliance • Reputational Compiled by Ather Saleem
- 14. Issues before BoD CEO to place • Disputes with Labor: • Their Solutions • Agreements (Labor Union or Collective Bargaining Agent) • Charter of Demand • Synopsis of issues raised under Whistle Blowing Policy and their resolution CEO to place • Reports on Implementation of: • Environmental • Social • Governmental • Health & Safety • CSR • Other Regulatory Framework • Payment of: • Goodwill • Brand Equity • Intellectual Property Compiled by Ather Saleem
- 15. Issues before BoD CEO to place • Material / Significant sale of (Not Ordinary business) • Assets & Investments • Interests in Subsidiaries / undertakings • Quarterly details of material foreign exchange rate exposure & safeguards taken Compiled by Ather Saleem
- 16. Related Party (Audit Committee) Optional: BoD if recommended for review & Approval • Details • If majority of Directors are interested party then place before Shareholders • Not executed at Arm Length: • Place before BoD (Separately) Compiled by Ather Saleem
- 17. Issues before BoD Conflict of Interest • Director’s Interest • Specific Quorum: At least Two independent Directors present • First Time when matter is considered • Requirement in addition to normal quorum • Video Link is fine Compiled by Ather Saleem
- 18. Remuneration of Directors Policy • Formal • Transparent • Individual Directors • BoD • Sub-Committee Determination • Cannot self determine • Levels • Link with Responsibility & Expertise • Attract & Retain Directors • Encourage Value Addition • Should not be such that perceived to compromise independence • Independent consultant can be engaged to determine Compiled by Ather Saleem
- 19. Directors Training Program Purpose • Equip Directors with • CCG • Applicable Laws • Duties & Responsibilities Certification • 50% June 2019 • 75% June 2020 • 100% June 2021 • New Director (Within One Year) • Exemption by Commission: • 14 years of Education • 15 Years of Listed BoD Compiled by Ather Saleem
- 20. CFO, CS , HIA BoD Powers • Appoint • Fix Remuneration • Removal / Non-Renewal • HIA can be recommended by Audit Committee Qualification CFO • Experience in Audit/Accounting/Financial/Corporate Matters • CA / CMA (3 years) • Member Accounting Body & Post Graduation accepted by HEC (5 Years) • Post Graduation accepted by HEC (5 Years) • Graduation accepted by HEC (7 Years), Commission approval needed Compiled by Ather Saleem
- 21. CFO, CS , HIA Qualification HIA • Experience in Audit/Finance/Compliance • CA / CMA 3 Years • CIA / CFE / CICA / Post Graduate (5 Years) • Graduate (7 Years) , Commission to approve Qualification CS • Yet to be regulated by Commission under new law • Old qualification to continue till then Compiled by Ather Saleem
- 22. Financial Statements Endorsement • CEO & CFO • Quarterly • Half Yearly • Annual • Prior to placement / circulation to BoD for approval • External Auditor (Initials) • Before presenting to Audit Committee Compiled by Ather Saleem
- 23. Audit Committee Composition • 3 Members (Minimum) • Non-Executive Directors • At least One Independent • Independent be Chairman • Chairman of BoD cannot be Chairman AC • One must be CA / CMA / Post Graduate in Finance • Secretary: CS or HIA Meeting • Once in every quarter • Between completion of audit and before BoD meeting • Can be requested by HIA or Auditors • HIA and Auditor to attend when audit or accounts are discussed • CEO / CFO on invitation only • Once in year AC to meet auditors without HIA & CFO • Once in year AC to meet HIA & IA team without auditors & CFO Compiled by Ather Saleem
- 24. Audit Committee TORs • BoD to determine • Adequate authority & resources to be provided • Documented and shall include: • Measures to safeguard Assets • Review of preliminary announcements of results • Discussion with auditors and their highlighted points • Review of Management Letter TORs • Review of Financial Statements focusing on: • Major Judgmental Areas • Significant Audit Adjustments • Going Concern Assumption • Changes in Accounting Policy • Compliance with Accounting Standards • Compliance with Regulations • Related Party Transactions Compiled by Ather Saleem
- 25. Audit Committee TORs • Ensure coordination between internal & external auditors • BoD to determine • Internal Audit Review: • Scope • Extent • Plan • Reporting framework & Procedures • Adequate Resources TORs • Review major internal findings on: • Fraud • Corruption • Abuse of Power • & Management Response thereon • Review Internal Control Systems for: • Financial & Operational Controls • Accounting System (Timely and Appropriate recording) • Reporting Structure (Adequate & Effective) Compiled by Ather Saleem
- 26. Audit Committee TORs • Review of Co. Statement on Internal Control Systems before BoD • Special Assignments by BoD • Special Projects • Value for Money studies • In Consultation with • CEO • Auditors • Other Experts TORs • Check compliance with statutory requirements & CCG • Review arrangement for staff and Management to share concerns in confidence • Recommend BoD on Auditors: • Appointment / Renewal • Fee • Any other service • BoD to record reasons if they act against recommendation of AC Compiled by Ather Saleem
- 27. Audit Committee Reporting Procedure • Before BoD meeting • Circulate Minutes to: • Members • Directors • HIA • CFO (if required) • If Circulation not practical: • Synopsis to BoD • Minutes immediate after BoD Compiled by Ather Saleem
- 28. Human Resource & Remuneration Committee Composition • 3 Members (Minimum) • Majority Non-Executive Directors • At least One Independent • Independent be Chairman • CEO can be member Meeting • Once every financial year • Can be requested by: • BoD member • Committee itself • CEO • Head HR or BoD appointee can be Secretary • Attendance by invitation: • CEO (If not member) • Head HR (If not secretary) Compiled by Ather Saleem
- 29. Human Resource & Remuneration Committee TORs • Recommend Policy Framework to the BoD for: • Remuneration of Directors • Members of Senior Management (1st layer below CEO –BoD can decide) • Performance Evaluation: • BoD • BoD Committees • Directly or through Consultant • Consultant name, qualification & terms to be notified in Directors Report TORs • Recommend HR Policies to BoD • Recommend Selection, Evaluation, Development, Compensation of: • COO • CFO • CS • HIA Compiled by Ather Saleem
- 30. Human Resource & Remuneration Committee TORs • On Recommendation of CEO: • Approve / Recommend key management positions: • Directly reporting to: • CEO / COO • Appointment of HR / Remuneration consultants: • Credentials known to HRRC • Their any other connection with Co. Compiled by Ather Saleem
- 31. Nomination Committee BoD may constitute • Class & number to be decided TORs • Recommend to BoD • For BoD Committees • Members & Chair of Committees • Keep under review: • Structure • Size • Composition • of BoD Compiled by Ather Saleem
- 32. Risk Management Committee BoD may constitute • Class & number to be decided • TORs • Review of effectiveness of Risk management TORs • May Include: • Monitoring & Review of Material Controls: • Financial • Operational • Compliance • Risk mitigating measures • Integrity of Financial Information • Disclosure of Co. risk framework & Internal Control in Directors Report Compiled by Ather Saleem
- 33. Internal Audit Shall be IA Function • HIA functionally reports to AC • Administratively to CEO • Joint Appraisal of HIA by AC Chairman & CEO • Director cannot be HIA • BoD to ensure: • IA team is / comprises: • Experts of relevant head of accounts Functional Profile • Co. to ensure: • HIA is experienced, qualified, well versed with Co. policies and procedures • Outsourced Function: • Professional Firm • Internal Audit of Holding Co. • Fulltime HIA other than CFO • External auditors cannot be appointed • External Auditors to get IA reports to discuss major points with AC Compiled by Ather Saleem
- 34. External Audit Qualification • QCR from ICAP • Registered with Audit Oversight Board • IFA Code of Ethics non-compliant cannot be appointed • BoD to recommend name and remuneration • AC recommendation to be included in Directors Report • Reason for recommendation other than retiring be disclosed in DR • No additional task other than audit • Except if provided in: • CCG • IFA guidelines • Auditors not to: • Perform Management Functions • Make Management decisions Compiled by Ather Saleem
- 35. External Audit Can not be appointed • External Auditor of a Co. of close relatives • Spouse • Parents • Dependent / Non-dependent children • Of: • Director • CEO • CFO • CS • HIA • Management Letter: • Within 45 days of audit report • Significant Matter • In writing • To BoD • Prior to approval Compiled by Ather Saleem
- 36. External Audit • Rotation: • Every 5 years • Minimum (Non-Financial) Rotate partner every 5 years • Financial Service Cos./Group to have same auditor Compiled by Ather Saleem
- 37. Reporting & Disclosure Directors Report • Quarterly unaudited: • Directors Review on affairs of Co. • Composition: • Male / Female • Independent / Executive / Non-Executive • Committees: • Members • Remuneration: • Policy for Non-Executive Directors • Encouraged to post on Website • Co. Annual Report to disclose: • Separately for Executive and Non- Executive Directors: • Salary / Fee • Perquisites • Benefits • Performance Linked incentives Compiled by Ather Saleem
- 38. Reporting & Disclosure • Key Policies on its website • Compliance Statement: • With CCG • Circulate with Co. Annual Report • Reviewed and Certified by Auditors • Non-Compliance to be highlighted • Penalty for Non-Compliance: • Person • Rs. 5 million • Rs. 100k per day of continuation • Commission can relax CCG • On application by Co. • If not practical Compiled by Ather Saleem
- 39. Statement of Compliance Contents • Number & Composition of Board • Directors serving on max 5 Cos. • Code of conduct disseminated across Co,. • BoD has developed Mission/Vision/Corporate Strategy • BoD meetings presided by Chairman • In absence by Elected Director • Minutes properly recorded • Formal policy for Directors Remuneration • DTP arranged if required • BoD approved appointment of CFO, CS, HIA • CFO & CEO endorsement of FSs • Board Committees formed • TORs of Committees formed Compiled by Ather Saleem
- 40. Statement of Compliance Contents • Frequency of meetings • Internal Audit Function establishment • Auditors fulfills all qualifications • Auditors have not engaged in any other services except provided in law or allowed by IFAC • CCS complied with as a whole Compiled by Ather Saleem
- 41. Thank you Compiled by Ather Saleem