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CORPORATEGOVERNANCE

CorporateGovernanceOverview
.

Theresponsibilitiesincorporategovernanceapplylargelytoaccountabilityandethicalstrategy

PINCIPLES OF CORPORATE
GOVERNANCE
Accountability
Transparency
Fairness
Integrity
Responsibility

Code:ATFIR
17

CorporateGovernance

WorldCOM
ListedatNASDAKUSAStock
Exchange

Tookover
60
Companies

Paid
$37Billion
&bought
60
Companies

$7Billion
expenses
not
recorded

$2Billion
additional
income
shown

Default
declaredin
2002
$41billion

Worldlargest
Bankruptcy
AT&Tisnumber1,
W.ComwasNo.2
NowW.Comisbeing
rununder
BusinessHorizon

UseofCorporate
GovernanceisnowMust

ResolutionpassedinBoard
Meeting

Inmeeting

Through
Circulation

Meetingis
counted

Meetingisnot
counted

Question:TestofKnowledge
Adirectorisservingontheboardof10listedcompanies
includingthreelistedsubsidiarycompaniesofaholding
company.Ishecompliantwiththerequirementofmaximum
numberofdirectorshipsoftherevisedcode?

Yes,maximumnumberofdirectorshipsofsevendoesnot
includelistedsubsidiariesofalistedholdingcompany.

DirectorinBoard
Independent
Directors

Maximum
Executive
Directors

MaximumnumberofExecutive
Directorscannotbemorethan
1/3rdofelecteddirectors
includingCEO

Oneindependentdirector
ismandatory

whilepreferenceisfor1/3rd
ofthetotalmembersofthe
boardtobeindependent
directors.

Representationoffollowing
DirectorsinBoard

Independent

DirectorsRepresenting
MinorityInterestsOnIts
BoardOfDirectors

Nonexecutive
Directors

Directors:
TaxPayer&NotDefaulted

Alltheresident
directorsofthe
companyare
registeredas
taxpayers

Noneofthemhas
defaultedinpaymentof
anyloantoabanking
company,aDFIoran
NBFI

IfDirectorisa
memberofastock
exchange,hasnot
beendeclaredasa
defaulterbythat
stockexchange

RemunerationofDirectors

FormalAndTransparent
ProcedureToBe
Followed

DisclosureOf
Aggregate
Remuneration
InTheAnnual
Report.

TrainingoftheBoardof
Directors
Itwillbemandatory
fordirectorsof
listedcompaniesto
attain
CERTIFICATION
underanydirector
trainingprogram

TrainingProgram
mustwhich
meetsthe
criteriaspecified
bytheSECP.

TrainingoftheBoardofDirectors
Itwillbemandatoryfordirectorsoflisted
companiestoattaincertificationunderany
directortrainingprogram(DTP)offeredbyany
institution(localorforeign),whichmeetsthe
criteriaspecifiedbytheSECP.

Thecriteriaareavailableatthewebsitesof
thestockexchangesandtheSECP.

BoardEvaluation

WithinTwoYearsOfThe
ImplementationOfThe
Code2012

TheBoardHasToPutIn
Place/Develop

MechanismForUndertaking
AnnualEvaluationOfThe
PerformanceOfTheBoard.

MaximumDirectorship
Adirectorcanbeontheboardof7listed
companiesatthemostatanyonetime.
However,thelimitdoesnotinclude
directorshipinlistedsubsidiariesofalisted
holdingcompany.

MaximumDirectorship

Adirectorcanbe
ontheboardof7
listedcompaniesat
themostatanyone
time

Excluding

Private
Company

SMC

Subsidiary
Companies
Unlisted
Company

BoardEvaluation
Withintwoyearsoftheimplementationofthe
Code2012,theBoardhastoputinplacea
mechanismforundertakingannualevaluation
oftheperformanceoftheBoard.

Chairman&CEO
TheChairmanandCEOshallnotbethesame
person,unlessspecificallyprovidedinany
otherlaw.
TheChairmanshallbeelectedfromamongst
thenonexecutivedirectorsofthelisted
company.

ChiefExecutive
Officer

TheChairmanof
BoardofDirectors

shallnot
beCEO
Shallbeelectedfrom
amongsttheNon
ExecutiveDirectorsofthe
listedcompany.
unlessspecifically
providedinany
otherlaw

shallnotbe
Chairman

DirectorsTrainingProgram
Alllistedcompaniesshallmakeappropriate
arrangementstocarryoutorientationcoursesfortheir
directorstoacquaintthemwiththiscode,applicable
laws,theirdutiesandresponsibilitiestoenablethem
toeffectivelymanagetheaffairsofthelisted
companiesforandonbehalfofshareholders.
Itshallbemandatoryforallthedirectorsofthelisted
companiestohavecertificationunderanydirectors
trainingprogramofferedbyinstitutionslocalor
foreignthatmeetthecriteriaspecifiedbytheSECP:

Ifaforeigndirectorontheboardofalistedcompanyhasalready
participatedinadirectortrainingprogramabroad,thenwillitstillbe
mandatoryforhimtoattendtheorientationanddirectortraining
programasrequiredbytheCode2012?

Itismandatoryforthecompanytoprovideorientationto
alldirectors localandforeign.
Anorientationshouldcovertherelevantinformationabout
thecompanyaswellastherelevantgoverninglaws,rules
andregulations.
Foreigndirectorswhohavereceivedtrainingaboardshall
beexemptfromDirectorsTrainingProgram(DTP)
requirementoftheCode2012iftheprogramtheyattended
broadlycoveredtheareasstatedinthecriteriaspecifiedby
theSECPforthepurpose.

ApprovalofAccountswhich
aredulyreviewed&
Audited

TheBoardOf
Directors

SecondQuarter&
AnnualAccounts

Audit
Committeeor

OR
SecondQuarter&
AnnualAccounts

CirculationofQuarterly
AccountstoMembers,ROC,
SECP,StockExchange

Companies
Ordinance

Corporate
Governance

Doesnotrequire
Directorsreview
report

AddalsoDirectors
reviewreport

AttendingofMeetingof
BoardMeeting

CFO

Company
Secretary

CFOandCompanySecretaryshallnotattendsuchpartofameeting
oftheBoardofDirectors,whichinvolvesconsiderationofanagenda
itemrelatingtotheCFOandCompanySecretaryrespectively

Removal

Company
Secretary

InternalAudit
Head

BytheapprovalofBoardofDirectors

OutsourceInternalAudit

Allowedbut

Mustnotbe
Statutory
Auditors

Otherthan
StatutoryAudit
Firm

OutsourcingInternalAuditFunction
Theinternalauditfunctionmaybeoutsourcedbya
listedcompanytoaprofessionalservicesfirmorbe
performedbytheinternalauditstaffoftheholding
company.
Intheeventofoutsourcingtheinternalauditfunction,
thecompanyshallappointordesignateafulltime
employeeotherthantheCFO,asHeadofInternal
Audit,toactascoordinatorbetweenthefirmproviding
internalauditservicesandtheboard.

OUTSOURCINGOFINERNALAUDIT
CanCFOworkasheadofInternalAuditif
companyhastakenservicesfromoutside?
NOHeisaccountingman.Audit&
Accountingaretwodifferentwork.
ANInternalAudithadmustbeappointedwhether
outsourceoptionisavailedornot.

OutsourcingInternalAudit
Function

MayBeOutsourcedBy
AListedCompanyToA
ProfessionalServices
FirmOr

BePerformedByThe
InternalAuditStaffOf
TheHoldingCompany.

InternalAuditStaff
OfTheHolding
Company

Intheeventof
outsourcingtheinternal
auditfunction,the
companyshallappointor
designateafulltime
employee.
otherthantheCFO,as
HeadofInternalAudit,
toactascoordinator
between

thefirmproviding
outsourceInternal
auditservicesand
theboard

BoardofDirectors

Mustappoint
HeadofInternal
Audit

Incaseofout
Source,He
liaisonthe
Professionalfirm
BOD
with
Departmentsof
organization

Wholooksafter
theInternal
Control&Audit
Functions

AuditCommittee:
TheChairmanoftheauditcommitteeshallbean
independentdirector,whoshallnotbethe
chairmanoftheboard.
AuditCommitteeshallcompriseofnonexecutive
directors.
ThesecretaryofAuditCommitteeshalleitherbe
theCompanySecretaryorHeadofInternalAudit.
However,theCFOshallnotbeappointedasthe
secretarytotheAuditCommittee

AuditCommittee

Establishedby
ListedCompany

3Members

Outof3one
membermust
understand
Financial
Statementsand
Economics

One
Chairman

2other
Members

Normally
membersarenon
ExecutiveDirector
ButIndependent
Directorsare
preferred

HumanResource&Remuneration
Committee
Members
(Preferred
Independent
Director)

CEOisalso
IncludedbyBoardin
HR&RC

Responsible
Recommending
toBoardfor

CEO
Chairman
Gives
Othermembers

Consideration
aboutpeople
reportingtohim

Shallnot
participate

Ifproceedings
relatestoCEO
benefits

HRPolicy
SuccessionPlan
ExecutiveCompensation
ConsiderationforCEO

ChairmanAuditCommittee

ShallBeAn
INDEPENDENT
DIRECTOR

ShallNotBeThe
ChairmanOfThe
Board.

MinimumMeetingofAudit
Committeeatleastone
meetingineachQuarter

Quarter1

Quarter2

Morethan1meetingin
eachquarterispossible

Quarter3

Quarter4

WhocanbeappointedasthesecretaryoftheAudit
Committee?

ThesecretaryoftheAuditCommitteeshall
eitherbetheCompanySecretaryorHeadof
InternalAudit.
However,theCFOshallnotbeappointedas
thesecretarytotheAuditCommittee.

Secretary

AuditCommittee

Maybe

Headof
InternalAudit

Notpossible

CompanySecretary

ChiefFinancial
Officer

AuditCommitteeMeeting

ATLEASTONCE
EVERYQUARTER

approvalofinterimand
finalresultsofthe
companyandasrequired
bytheCCG

HeadofInternalAudit

NopersonshallbeappointedastheHeadofInternalAuditofalisted
companyunlesshe/shehas5yearsofrelevantauditexperienceand

CertifiedFraud
Examiner

CertifiedInternal
ControlAuditor

Certified
Internal
Auditor;

Memberofa
recognized
bodyof
professional
accountants;

individualsservingasHeadofInternalAuditofalistedcompanyforthelast
fiveyearsatthetimeofcomingintoeffectofthisCodeshallbeexempted
fromtheabovequalificationrequirement

HeadofInternalAudit

adirectorcannotbeappointed,

inanycapacity,
intheinternalauditfunction

Appointment,
RemunerationandTermof
Employment

InternalAudit
Head

Company
Secretary

DeterminebyBoardofDirectors

CFO

SeparatePerson

Company
Secretary

Headof
InternalAudit

Canthepositionsofcompanysecretaryandinternalauditor
begiventoonepersonwithinalistedcompany?

No.Thetwopositionscarryminimalsynergy
and,therefore,shouldbeperformedby
separatepersons.

Mr.Aliboth

Company
Secretary

Mr.AlicannotbeSecretaryofAuditCommittee.
Anyemployeewhoisconversantinsecretarialworkthenbe
appointedasSecretaryauditCommittee.

CFO

PreferredSeparatePerson

Company
Secretary

IfCFOandCompanySecretaryaresamepersonthanCompany
SecretarycannotbeSecretaryofAuditCommittee.Any
employeewhoisconversantinsecretarialworkthenbe
appointedasSecretaryauditCommittee.

CFO

Preferredtobedifferent
Person

Company
Secretary

Thoughtheirworkaretosomeextent
samebutLegalAdvisorshouldbedifferent
Person

LegalAdvisorof
theCompany

HoldingCompanymay
provide
PROFESSIONALSERVICETO
SUBSIDIARY

However,duecareshouldbeexercisedto
complywiththedirectivesoftheSECPin
appointingexternalauditorstoprovide
otherprofessionalservices

HoldingCompanycanprovide
ProfessionalServicestoSubsidiaries
Incaseofaholdingcompanyandasubsidiary(notwholly
owned),bothbeinglistedcompanies,cantheholding
companyforthepurposeofhandlingoperationaland
financialactivities,provideprofessionalservicestothe
subsidiarythroughaservicecontract
Theholdingcompanymayprovideprofessionalservicesto
itssubsidiary.
However,duecareshouldbeexercisedtocomplywiththe
directivesoftheSECPinappointingexternalauditorsto
provideotherprofessionalservices.

CEO

CFO

aremandatedtopresentto

Audit
Committee

Board

AnnualAccounts
(BothSeparateAndConsolidated)And
Secondquarter(OnlySeparate/Standalone)
ReviewedAndInitialedByExternalAuditor,

ForThePurposesOfIdentification,theresponsibilityofpreparationof
financialstatementsrestswiththemanagementinaccordancewith
provisionsoftheCompaniesOrdinance,1984

Areconsolidatedaccountsforthesecondquarterrequiredtobereviewedby
thestatutoryauditors?

Consolidatedaccountsforthesecondquarter
arenotrequiredtobereviewedbythe
statutoryauditors.
Therequirementfortheauditorstoinitialthe
financialstatementshasbeenintroducedto
ensurethatonlytheaccountsdulyreviewed
orauditedarepresentedfortheapprovalof
theAuditCommitteeandtheboard.

Whatismeantbyclosedperiod?
Theclosedperiodisaperiodduringwhichno
director,CEOorexecutiveshall,directlyor
indirectly,dealinthesharesofthelisted
companyinanymanner.

Itisexpectedthatsucharestrictionwouldhelp
minimizetheriskofinsidertradingbykey
management/directorsofthecompany.

CLOSEDPERIOD
RESTRICTIONPeriod
APERIODDURINGWHICH
NO

DIRECTOR,

CEO

EXECUTIVE

DIRECTLYORINDIRECTLY

DealInTheSharesOfTheListedCompanyIn
AnyManner

sucharestriction
wouldhelpminimize
theriskofinsider
tradingbykey
management/directors
ofthecompany

CLOSEDPERIOD
RESTRICTIONPeriod

Start

ShallStartFromTheDayWhen
AnyDocument/Statement,Which
FormsTheBasisOfPriceSensitive
Information

IsSentToTheBoardOfDirectors

Terminate

AfterThe
InformationIsTold
To/MadePublic

CanthesamepersonbeappointedastheCFOandthe
CSofalistedcompany?

Thetermsofreferenceofthetwopositionsare
distinct.Itis,therefore,preferredthatseparate
personshandlethefunctionsoftheCFOand
companysecretarywithinalistedcompany.
TheSECPCircularNo15ofJuly8,2003also
requireslistedcompaniestohavefulltime
employeedesignatedtoperformspecific
assignmentsofcompanysecretary

Requirementtoattendboardmeetings
TheCFOandCompanySecretaryofalisted
companyorintheirabsence,thenominee,
appointedbytheboard,shallattendallmeetings
oftheBoardofDirectors.
InthefollowingissuesCFO&CompanySecretary
shallnotattendmeetingoftheBoardof
Directors,
whichinvolvesconsideration(Incentive,increments,
benefits)ofanagendaitemrelatingtotheCFOand
CompanySecretaryrespectively.

Passingofresolutionnoinmeetingbut
bycirculation

Nofacetofacemeeting.
Resolutionisacceptablebut
meetingIsnotcounted

Canabrokerbeappointedasadirectorofalistedcompany?
TheCode2012doesnotrestrictelection/nominationof
brokersontheboardsoflistedcompanies.
However,theCompaniesOrdinancestatesthatnoperson
shallbeappointedasa
Directorofalistedcompanyifhe/sheisengagedinthebusiness
ofbrokerage,orisaspouseofsuchpersonorisasponsor,
directororofficerofacorporatebrokeragehouse.

Thereforeabrokercannotbeappointedasadirectoron
theboardofalistedcompany.

Shouldthedisclosureinthedirectors'reportregardingthe
numberofboardmeetingsheldduringayearincludethe
numberofresolutionspassedbytheboardbycirculation?

Thenumberofresolutionspassedbythe
boardofdirectorsofalistedcompanythrough
circulationshouldnotbeconsideredin
determiningthenumberofboardmeetings
heldduringayearforthepurposeoftheCode
2012.

Canadirectorofalistedcompanybeappointed
astheheadofinternalauditofthecompany?

Theinternalauditfunctionofalisted
companymustbeindependentfromthe
management/directorsofalistedcompany.
Therefore,adirectorcannotbeappointed,in
anycapacity,intheinternalauditfunction.

Cantheofficesofcompanysecretaryandlegaladvisorbeheldbyoneperson,
sincebothofthemarerequiredtobelawyersundertheCode2012andthe
Companies(AppointmentofLegalAdvisors)Act,1974,respectively?

Thepositionoflegaladvisorinacompanyisakeyappointmentand
isofexecutivenature,dutiesofwhichshouldnotbeexpectedtobe
fulfilledbyapersonwhoisalsoengagedinotherresponsibilities.
Asperthe1974RulesalegaladvisormustbeanAdvocateand
notmerelyalawyer.Thereforequalificationforthetwopositionsin
notthesame.31
Also,theSECPvideitsCircularNo15ofJuly8,2003,reinforcesthat
companiesshouldengagefulltimeemployeestoperformfunctions
ofa"wholetimesecretary".

SignificantPolicies

Governance
RiskManagement
Investorsrelations
ProcurementofGoods&Services
Marketing
DeterminationofCreditterms&Discounts
WritingoffBadDebts
Investment&Disinvestmentoffunds
Planning&Controls
Expenditurecapitalinnature
HumanResourceManagement&SuccessionPlans
CodeGRIPMDWIPEH

DisclosureofRelatedParties

Partywisemaintenanceofrecord
Supportingdocuments
Terms&Conditions
Receivedorpaidinadvance
Amountoftransaction
Nameofrelatedparties
Natureofrelationship
Natureoftransaction

SecretarialComplianceCertificate
CompanySecretaryshallfurnishannually
ComplianceCertificateinprescribedformto
ROC
ItmeansallLegalComplianceasperlawhas
made&fulfilled/CompletedbyCompany.

AuditCommittee
WhoarenotallowedtobepartofAudit
Committee?
CEO
CFO
HeadInternalAudit
TheBestpersonforAuditcommitteeare
ExecutiveDirectors

QualificationofInternalAuditor
MemberofProfessionalBody
CA,ACCA,CIMA,ICMA,CPA,CIA
MasterdegreeinBusinessadministrationwith
specializationinFinance.(MBAFinance),
M.Com inFinance.
LocalorMasterdegreeinFinance.
Experience3years

OutSourceofInternalAuditFunction
ItispreferredtohaveinsideInternalAudit
FunctionDepartment
Companymusthireproperexperienced&
qualifiedpeoplewhoperformInteraudit
functions
Lawallowstotakeservicesofoutsidersbut
StatutoryAuditorsarenotallowedtoserve
InternalAuditfunctions

Description

Executive Directors

NonExecutiveDirectors

Normally/Generally

Paid(ONpayrollof
Company)

unpaid

Powers

DependenttoBaord

IndependenttoBoard

Devotion

Work fulltime

Normallydonotworkfull
time

Involvementin
Managementaffairs

More

Less

Directors

ThoughAppointment

Generallybyelection

ItemsmentionedonDividendwarrant

Grossamountofdividend
Deductionoftax
DeductionofZakat
NetAmount

WhenChangedoesnotmeanChangeofName

RemovalofPrivateLimited
TCS(Pvt)Limited
IFITBECOMESPublicCompanyitbecomesTCS
Limited

AdditionofPrivateLimited
UnileverPakistanLimitedisapublicCompany
IfitbecomesprivatecompanyitbecomesUnilever
Pakistan(Private)Limited

Description

Executive Directors

NonExecutiveDirectors

Normally/Generally

Paid(ONpayrollof
Company)

unpaid

Powers

DependenttoBoard

IndependenttoBoard

Devotion

Work fulltime

Normallydonotworkfull
time

Involvementin
Managementaffairs

More

Less

Directors

ThoughAppointment

Generallybyelection