1. Presentation on the
Corporate Governance
Umer Awan (M.com II)
MC 12
UCP

2.  Government ownership
 Conflicts of Interest
 Related party transactions
 Directors mandated under Companies Act to hold shares in Company
 Lack of capacity for enforcement purposes
 Lack of qualified professionals in accounting and legal fields
 Lack of training and awareness
 Enhancement of Public Governance
 Desire to use CG as tool for economic development

3. Main Provisions
• Board Matters
• Remuneration Matters
• Accountability And Audit
• Communication With Shareholders

4. What Code Says – Key Items
• Integrity in personal and professional dealings
• Wisdom and ability to take appropriate decisions
• Ability to read and understand financial statements
• An acknowledged record of business expertise and achievement so as to
effectively contribute to the company’s management
• Ability to deal with others with a sense of responsibility, firmness, and
cooperation
• Ability to interact with and consult with the company’s employees in
order to achieve high management standards
• A track record of a range of skills and experience as well as the ability to
think strategically and with foresight
• Each director must be able and prepared to devote sufficient time and
effort to his duties as a director

5.  Stand-alone and given legislative bite through Listing Manual and
Securities Act?
 Compulsory for listed companies, but with some voluntary
 Voluntary for public unlisted, private
 More prescriptive approach

6. At a minimum, Governance involves
organisational structures
rules of conduct
that acts as a check on insiders misusing their position or knowledge
against the interest of other stakeholders
The idea is to have GOAL POSTS

7. R = Responsibility
A = Accountability
F = Fairness
T = Transparency
R = Responsibility
A = Accountability
F = Fairness
T = Transparency
RAFT contributes to
effectiveness!
RAFT contributes to
effectiveness!

8. Board Issues
 Composition – executive, non-executives, independents – numbers of each
- Appropriate definitions
 Independent directors – Importance & Sufficient numbers
 Leadership
 Chief Executive Officer separate from chairman
 Qualifications
 Role
 Sub-committees of the board:
 Nominating Committee
 Remuneration
 Audit
 Training
 Attendance at meetings / Quorum
 Evaluation of board performance
 Access to information
 Tenure

9. • CG Code provides:
• Should be a formal and transparent process for the appointment
of new directors to the Board
• Recommends that key information and the names of the
directors submitted for election or re-election be disclosed to
enable shareholders to make informed decisions
• Disclose the process for the selection and appointment of new
directors to the Board as this ensures greater transparency in the
nomination process
Who To Appoint? And How?

10. Executive and Non-Executive Directors
• Executive directors are the employees of the company.
– Paid salary
• Non-Executive directors (‘NEDs’) are not the employees of the company
and they do not hold any other office of profit in the company or in a
related company.
– Paid directors’ fees

11. Who Is An Independent Director?
• Have not held, or whose immediate family members have not held, during
the last one (1) year, a key position in the company, such as CEO, general
manager, or any immediate employment position;
• Have not, and their immediate family members have not, during the last
one (1) year had any substantial financial dealings, including the receipt of
remuneration, commissions, professional fees, payment for goods and
services, etc with the company;
• Definition of Family Member - spouse and children
• Role
• Constructively challenge and help develop proposals on strategy; and
• Review the performance of Management in meeting agreed goals and
objectives and monitor the reporting of performance.
Independence = State of Mind!!Independence = State of Mind!!

12. Who Is A Nominee Director
• Person appointed to board of directors by an appointer:
– Substantial shareholder
– JV Partner
– Investor
– Creditor
• Right to appoint contained in:
– Articles of association
– Contractual documents – JVA

13. ChairmanChairman
Executive
Directors
Non-
Executive
Directors
Independent
Directors
• Recruiting the right team
• Guidance in CMDA Code
• Recruiting the right team
• Guidance in CMDA Code
CEO
• Size of Board = large enough
to include directors with
diverse expertise and
experience to suit the specific
requirements of a company
and its business.
• Guide = board sizes range
from 7 to 10 directors,
depending on the size of the
company.
• Rotate the Board – maximum
6 years
• Size of Board = large enough
to include directors with
diverse expertise and
experience to suit the specific
requirements of a company
and its business.
• Guide = board sizes range
from 7 to 10 directors,
depending on the size of the
company.
• Rotate the Board – maximum
6 years

14. Main duties of the Board
 The Board must always act in the best interests of the company and
shareholders as a whole.
 Provide leadership, set strategic aims, direction to the Management,
and ensure that the necessary financial and human resources are in
place for the company to meet its objectives;
 Establish a framework of prudent and effective internal controls which
enables risk to be assessed and managed, and monitor and assess the
effectiveness of the internal controls established;
 Review Management performance and determine its remuneration; and
 Set the company’s values and standards, and ensure that obligations to
shareholders and others are understood and met.

15. Chairman’s Role
 Lead the Board to ensure its effectiveness on all aspects of its role and
set its agenda;
 Ensure that the directors receive accurate, timely and clear
information;
 Encourage constructive relations between the Board and
Management;
 Facilitate the effective contribution of non-executive directors
 Encourage constructive relations between executive directors and non-
executive directors;
 Not to unilaterally issue policies without consulting with the Board as a
whole with full frank and discussions being completed
 Ensure effective communication with shareholders;
 Promote high standards of corporate governance.

16. Audit Nominating Remuneration
No of Members 3 3 -
Chairman Independent Independent Independent
Composition Entirely non-
executive, majority
including chairman
independent
Entirely non-
executive, majority
including chairman
independent
Entirely non-
executive, majority
including chairman
independent
Qualifications Min 2 with accounting
or financial expertise
or experience
- -

17.  Ensure that level and composition of remuneration is sufficient and
reasonable
 Ensure that its relationship to corporate and individual performance is
defined
 Means companies need to adopt remuneration policies that attract and
maintain talented and motivated directors and employees so as to
encourage enhanced performance of the company
 Important that there be clear relationship between performance and
remuneration
 Important that policy underlying executive remuneration be understood by
investors.
Remunerate Fairly And Responsibly

18. • Identification of performance indicators
• Evaluation against performance indicators
• Evaluation should be conducted at least once a year
Performance Appraisal

19.  To disclose in Annual Report collectively:
 the remuneration of directors during the year as:
▪ Director fees
▪ Other benefits, including share options, long term
incentive schemes, pension benefits and preferential
entitlements
 To disclose voluntarily each director’s and top management remuneration
Disclosure Of Remuneration

20.  The primary duties of directors include the following:
 good faith;
 acting without conflict of interest;
 not competing with the company
 care and skill;
 disclosure;
 prohibition of lending to director;
 filing returns;
 keeping proper records and preparing financial reports; and
 obligations under the Listing Manual.
Key Duties And Liabilities

21. Roles
Duties &
Responsibilities
Accountability
Same Duty For All Directors?

22.  Definition – The management must comprise the CEO, executive
directors & key managers of the company involved in day to day
activities.
 Role
 Relationship with board
 Access to information

23.  Necessary? YES
 Qualifications
 Understanding of compliance
 Imply accountants, lawyers etc can play impt role
 Scope of functions
 Board
 Management
 Committees

24.  How to engage
 Information to provide
 Electronic participation
 Resolutions on substantially separate issues to be kept separate
 Requirement for effective shareholder remedies

25.  Financial statements to comply with Accounting Standards
 Non-financial statements:
 Conflict of interest
 Compliance with CG measures implemented
 Director remuneration
 Companies operating procedure
 Risk management concerns
 Format for disclosure

26. • Absolutely essential
• Train the trainers
 For board & management
 Legal (including duties and liabilities) and accounting concerns
 Roles and specific functions to gain better understanding
 Business and strategic issues
 Economic issues and changing conditions, and impact on company’s
businesses
 For employees:
 Details of policies of company
 Specific roles and duties and responsibilities, including liabilities

27. Criteria for CG Award
• Work undertaken to adopt governance principles
• Contribution to significant development of corporate governance
practices
• Promotion of initiatives for the enhancement of future corporate
governance practices

28.  Main scope:
 Fraudulent financial reporting
 Misstatements arising from misappropriation of assets
 Improper or unauthorized expenditures (including bribery and
other improper payment schemes)
 Self-dealings (including kickbacks)
 Violations of laws and regulations (including those that expose
the company or its agents to regulatory or criminal actions, e.g.
securities frauds, signing false audit confirmations)

29. • Market maturity & level of sophistication
– Level of awareness of directors of their duties
– Shareholders of their rights and
– Presence of reputatable intermediaries
• The presence of enforcing institutions
– Integrity and efficacy of regulatory agencies
– Judicial system
• The supporting legal framework
– Relevant laws in the corporate and financial system must be firmly in
place
Pre-requisites For Enforcement

30. Timelines

31.  Change of culture
 Legal reform
 More training & awareness
 Shareholder activism
 Independent Directors

32.  A series of training workshops have been held
2002 1st
Seminar on CG
2005 Training Programme on CG Code
2006 Seminar on CG
2007 Corporate Governance Awareness
Workshop
More workshops to be arranged….

33. Thank You!