24 companies with various characteristics were selected and one person from each was interviewed to answer the survey. Interviewees were CEO (11), board member (10), Chairman (3), executive director (4) and CFO (2). Our report is based on the survey results, the information we collected during interviews and our knowledge of market and CG situation supported by experts and regulators’ points of view.

1. Corporate Governance
Country Report
CSR Development Center

2. Delivering the Survey
▫ 24 companies with various characteristics were selected and one
person from each was interviewed to answer the survey.
▫ Interviewees were CEO (11), board member (10), Chairman (3),
executive director (4) and CFO (2).
▫ Our report is based on the survey results, the information we
collected during interviews and our knowledge of market and CG
situation supported by experts and regulators’ points of view.

3. Tehran Stock Exchange: Market Profile
▫ Number of companies rose from 217 in 1997 to 345 in main market and
182 in OTC market
▫ Value of the market rose from $3.2bn in 1999 to $40bn in 2005 to $65bn
in 2010 to more than $100bn in 2011
▫ 2 waves of privatization: 1993-2003, 2006-2011
 In 1st wave many non-strategic companies were privatized and companies in
strategic industries like electricity, communications, petrochemical, oil,
energy,, mining, etc. were not privatized because of a conflict with the
constitution
 2nd wave started with a new interpretation on the constitution to separate
ownership and control: the government will keep 20% golden shares and
privatize other shares: 40% through TSE and 40% through Justice Share
program
▫ Legal support of this growth
 Law of Foreign Investment in Exchange and OTC Markets
 Law of Development of New Financial Instruments and Institutes

4. Tehran Stock Exchange: Structure
▫ Ownership structure is dominated and controlled by a few institutional
investors, usually founders, governmental and semi-governmental
companies like banks, Pension Funds, Social Security companies,
Bonyads, and etc. These shareholders usually keep a close working
relationship with senior managers and directors of the company.
Percentage of ownership required to invite
the General Assembly
Only holders of shares above 20 percent
can
Board’s system One-tier Board
Independent board members It’s not common in Iran, we have non-
executive members
Board Committee It’s not common in Iran
Disclosure of information about board and
managers
In listed firms, records and
qualifications of board and CEO
should be reported.
Compensation of the board services Board’s fees and remuneration will be
exposed cumulative.
Ownership Disclosure Yes - but understanding the ownership
structure and identifying ultimate
owner is very difficult

5. Tehran Stock Exchange: Corporate
Governance
▫ In 2003, Securities and Exchange Organization(SEO) was
founded to divide the regulatory of the market from execution.
▫ SEO first turned to CG in 2004 , As an attempt to develop a draft
CG code, Malaysia was chosen as benchmark and the code of
corporate governance was drafted in 2009.
 CG code does not emphasize centralized ownership structure of
the market and uses the model like UK and USA.
 In 2010 the code was officially adopted by TSE but not
mandatory yet.
▫ TSE drafted different facets of CG in bylaws, approved and
ratified them for companies. Examples are bylaws on Investor
Relations, Internal Control and Disclosure. Another bylaw,
namely “Temporary De-listing”, was also ratified to fine or
sanction companies upon non-compliance.

6. Tehran Stock Exchange: Setbacks and Limitations
▫ The capital market in Iran is quite young and rather inefficient.
▫ State ownership remains extensive, the Government directly holds 35
percent of the TSE, while securing another 40 percent through related
companies.
▫ The size of the capital market is still small, relative to money market or
GDP of the Iran
▫ Free float shares are as low as 15% of the market.
▫ Liquidity is low and some shares are not traded for notable periods
relatively.
▫ Although Justice Shares have been ceded, they have not been paid and
they are not being traded. Since 40% of 56 giant companies were in the
program, these companies need special governance attention.

7. CG Situation in Iran
Major CG Promotional Activities
National Conference on “Capital Market, Iran’s driving force of economic development”,2004
Accounting doctoral course in “ Accounting views and thoughts development and teaching
audit”2004
Seminar on “Financial Reporting and Transitions ahead”, 2004
Seminar on “System of Corporate Governance and Internal Audit’, 2005
Publication of the Second edition of Corporate Governance Code , 2007
Workshop on CG and insurance Industry by ICC 2008
Workshops on “Corporate Governance”, 2007 by CSRIran
Forming Corporate Governance Task force 2010 by CSRIran
Seminar on Internal Audit 2010
Seminar on “Corporate Governance and Fraud Detection , 2010
2 CG Study Tours by CSRIran in Turkey and Pakistan
Round table meeting on Corporate Governance 2011 in TSE by CSRIran
The code of corporate governance has not been mandatory yet but promotional
and capacity building activities to enable the enforcement of this code has been
undergoing.

8. Results of the Survey
• Awareness and Commitment to Good Corporate
Governance Practices
• The Board Responsibilities
• Control Environment and Processes
• Disclosure and Transparency
• Shareholders’ Rights and the Key Duties of Owners
• Stakeholder Rights

9. Awareness and Commitment to Good Corporate
Governance Practices
▫ How much are you familiar with Corporate Governance and its principles?
▫ Perceived importance of the implementation of Corporate Governance

10. Awareness and Commitment to Good
Corporate Governance Practices
Adapted to the principles of Corporate Governance? (OECD / Iranian Code)
Mechanisms on board selection criteria 13%
Nomination procedure 22%
Board committees (Internal Audit Committee, risk management,
nomination and selection committee and ...)
9%
Developing compensation and remuneration mechanisms for
board of directors and executives
31%
Board Evaluation Instructions 13%
Separation of chairman from CEO 68%
Independent and non-executive board members 27%
Developing procedures governing deals with related parties and
preventing conflicts of interest
40%
Instructions for protecting shareholder and stakeholder rights 4%

11. Awareness and Commitment to Good Corporate
Governance Practices
Barriers to improve Corporate Governance practices
Lack of effective rules and regulations 68%
Due to information disclosure and transparency as a part of Corporate Governance, we
prefer to keep our financial information away from competitors and rival stakeholders
18%
We don’t find any use in it regarding the Iranian legal and business structure / We simply
don’t see any value engaging with it.
9%
Lack of professional experts and consultants 54%
Lack of knowledge and expertise available to the company 77%
I do not see obstacle 4%

12. Awareness and Commitment to Good Corporate
Governance Practices
Benefits of adopting Corporate Governance practices:
Increasing information disclosure 50%
Improved brand and credibility 68%
Improved risk management system 72%
Compliance with legal and judicial requirements 59%
Defending Shareholders Rights 50%
Improved strategic decision-making process 77%
Better access to capital and foreign partners and move towards internationalization 40%

13. The Board Responsibilities
• The board of directors met on average ten to
twelve times a year in 45% of the surveyed sample.
• The Role of the Board

14. The Board Responsibilities
• Internal bylaws or statements for board functioning was not identified in studied
companies. Only in one quasi government companies, a board duties booklet was
handed upon selection.
• Only in one of the companies we observed to manage succession planning, a group of
managers were elected and the shadow board was formed.
• No self-assessment system exists for board members or CEO.

15. The Board Responsibilities
• No formal evaluation of the board performance had been conducted in the previous
two years by 90% of the respondents. Board’s evaluation exists for
subsidiary/member companies.
• Only in one of the respondent companies, a Swiss-Iranian joint venture, we observed
that there exists an internal code that one of the board members must specifically be
expert in finance. Board composition is ignored.
• SEO obliged all listed companies through a bylaw that the CEO and chairman of the
board have to be separated.

16. Control Environment and Processes
• In survey by TSE, 132 of 330 responded regarding their audit committees,
▫ 52 did not have an audit committee
▫ 80 did have audit committees
 4 confirmed that the committee reports to the board
 4 had internal auditors. 3 of them reported to the CEO while only one reported to chairman
 60 audit committees reported to CEO
• Although auditor rotation each 3 years is mandatory, 30% had not changed their
external auditor in the past five years

17. Control Environment and Processes
• Internal Auditor Functions in companies with audit committee

18. Disclosure and Transparency
• Disclosure Method
▫ Companies website
▫ TSE information portal
• Disclosure Items
▫ annual and mid-term reports, financial statements, reports of Annual General Assembly,
events affecting the activities, new or severe financial conditions, publisher’s results of
operation
• Compliance
▫ Items: listed companies published only financial statements and annual performance reports
▫ Method: 33% of the respondents did not make their annual reports available on their websites
▫ Shareholders and investors continue to report problems in accessing companies’ information
• Factors Preventing Disclosure of voluntary information
▫ 83% responded to absence of legal requirements

19. Disclosure and Transparency
• Disclosure of Material and Related-Party Transactions
▫ Problem: some holding companies have large subsidiary/member companies while they have
prominent exchanges in between. It may both affect disclosure requirements and shareholder
rights.
▫ 4.0% disclosed related party transactions, 4.0% disclosed significant transactions, 19.0%
disclosed both., Seventy-three (73.0%) disclosed neither.
• severe reluctance was noticed to provide voluntary information related to articles of
associations, related-party transactions, remuneration of the board members, market
share, sales and marketing data, environment and social responsibility, and stock
options policy.
• Currently, some holding companies have remarkably large subsidiary/member
companies while they increasingly have prominent ambiguous exchanges between
themselves
▫ This can severely harm transparency, quality of disclosure and shareholder rights

20. Shareholders’ Rights and the Key Duties of Owners
• 46% of the respondents stated that more than 50% of all shareholders attended the last AGM.
• Electronic voting mechanisms are not used by any of the respondents;
• With respect to treatment of shareholders when changes of control occur, 91% did not have clear
policies and none had block-voting mechanisms. Only in one company use of Silent Voting
mechanism have been noticed.
• Evidence was found of an increasing number of related-party transactions among responding
companies, with 80% of the respondents stating that under a governing document or law it was
mandatory to disclose related-party transactions. In addition, 67% stated that the related-party
transactions should be verified by the external auditors
• According to by law of behaviour in TSE accepted upon entering the market, companies are to
treat all shareholders’ rights equally. This by law also requires the companies to ensure
availability and presence of all shareholders in the General Assembly, to ensure presence of CEO,
board members and auditor in the General Assembly meeting, to allocate enough time for
shareholders’ questions and to disclose the dividend in the meeting.
• Regarding the dividend, listed companies on the average divided and distributed 80% of their
annual profit between shareholders, but generally there are no way for a minority shareholder to
affect the amount and distribution method of the profit to be divided.

21. Stakeholder Rights
availability and prevalence of different codes and guidelines
Code of Conduct 8%
Code of Ethics 13%
Consumer-rights Guideline 13%
Anti-Bribery 0%
Employees Representative on Board 4%
• There is no provision in the law requiring that board members treat all stakeholders
fairly; However, some companies started some initiatives on the protection of
stakeholders’ interest.
• Just one company has a board-approved CSR policy.

22. Key Obstacles of CG in Iran
• Capital market structure and situation
• Low awareness on Corporate Governance functions and benefits in various
stakeholders
• Non-conducive business environment in Iran
• Lack of institutional laws to fully support responsible business, property right and
stakeholder rights