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CODE OF CORPORATE

GOVERNANCE 2012

Chapter 3 Munir Hussain


CG in Pakistan
In March 2002, the Securities and Exchange Commission of
Pakistan issued the Code ofCorporate Governance

Under Section 34(4) of the Securities and Exchange


Ordinance, 1969,

the SEC issued directions to the Karachi, Lahore and


Islamabad stock exchanges to incorporate the provisions
of the Code in their respective listing regulations:
best practices
to provide a framework
safeguarding the interests of stakeholders
promoting market confidence
Code is a first step in the systematic implementation of
principles

22 March 2012, revised the Code of Corporate Governance


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Executive Director
paid executives of the company from among
senior management
Maximum number of Executive Directors cannot
be more than 1/3rd of elected directors
including CEO.
to design, develop and implement strategic
plans for their organization

Video: Failure
of Directors
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Non-executive directors
not from among the executive management
team and may or may not be independent.
are expected to lend an outside viewpoint to
the board of directors of a company
do not undertake to devote their whole
working time to the company.
The guiding factor in distinguishing between
executive and non-executive directors of a
company is the extent of their involvement
in managing the affairs of the company
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Independent directors
is not connected or does not have any other relationship,
with the listed company, its associated companies,
subsidiaries, holding company or directors. The test of
independence principally emanates from the fact whether
such person can be reasonably perceived as being able to
exercise independent business judgment without being
subservient to any form of conflict of interest.
The Chairman of the audit committee shall be an
independent director
One independent director is mandatory while preference is
for 1/3rd of the total members of the board to be
independent directors.
Composition of the Board
in Pakistan

2.
1. Non- 3.
Executive Executive Independen
Directors Directors t Directors

Maximum 1/3rd
rd of
1/3rd of total Approx 75% total
directors of all directors
including directors 1
CEO Mandatory

Example: If there are seven directors on the board of a listed company,


the composition as per the Code 2012 will be: one independent director,
two executive directors (including the CEO) and four non-executive
Maximum number of directorships to be
held by a director

No person shall be elected or nominated as a


director of more than seven listed companies
simultaneously:
Committees of the board

The board of directors of every listed company shall


establish an Audit Committee, at least of three
members comprising of non-executive directors. The
chairman of the committee shall be an independent
director, who shall not be the chairman of the board.
The board shall satisfy itself such that at least one
member of the audit committee has relevant financial
skills/expertise
Frequency of and experience.
Audit Committee meeting: at least
once every quarter of the financial year
Internal Auditors shall meet the External Auditors
once a year
The Board shall provide adequate resources and
authority to enable the Audit Committee carry out its
responsibilities effectively
Committees of the board
There shall also be a Human Resource and
Remuneration (HR&R) Committee at least of three
members comprising a majority of non-executive
directors, including preferably an independent director.
The CEO may be included as a member of the
committee but not as the chairman of committee. The
CEO if member of HR&R Committee shall not
participate in the proceedings of the committee on
matters that directly relate to his performance and
Responsibilities
compensation.for recommendations in;
i) Human resource management policies to the board;
ii) The board the selection, evaluation, compensation (including
retirement benefits) and succession planning of the CEO, COO,
CFO, Company Secretary and Head of Internal Audit;
iv) Consideration and approval on recommendations of CEO on
key management positions who report directly to CEO or COO
Responsibilities, powers and functions of
board of directors

professional standards and corporate values are put in


place that promote integrity for the board, senior
management and other employees in the form of a Code
of Conduct

adequate systems and controls are in place for


identification and redress of grievances arising from
unethical practices.

a vision and/or mission statement and overall corporate


strategy for the listed company is prepared and adopted
Policy guidelines for BODs
Governance, risk management and compliance issues
Human resource management including preparation of a
succession plan;
Procurement of goods and services;
Investors relations including but not limited to general investor
awareness, complaints and communication, etc.;
Marketing;
Determination of terms of credit and discount to customers;
Write-off of bad/doubtful debts, advances and receivables;
Capital expenditure, planning and control;
Investments and disinvestment of funds;
Borrowing of moneys;
Determination and delegation of financial powers;
Transactions or contracts with associated companies and related
parties;
The corporate social responsibility (CSR) initiatives and other
philanthropic activities including donations, charities, contributions
and other payments of a similar nature;
Health, safety and environment; and
Meetings of the board
All written notices, including the agenda, of meetings shall be
circulated at least seven days prior to the meetings, except in the
case of emergency meetings

The Chairman shall ensure that the minutes of meetings of the


board of directors are appropriately recorded. The Company
Secretary shall be secretary to the board.
Significant issues for Decision of BODs

Annual business plan, cash flow projections, forecasts and strategic


plan;

Budgets;

Matters recommended and/or reported by the committees of the


board;

Internal audit reports;

Management letter issued by the external auditors;

Amendment to a law, rule or regulation;

Status and implications of any law suit or proceedings of material


nature;

Any show cause, demand or prosecution notice received from


revenue or
Continues..... Significant issues for Decision of
BODs

Any significant accidents, dangerous occurrences and instances of


pollution and environmental problems involving the listed company;

Significant public or product liability claims;

Report on governance, risk management and compliance issues;

Disputes with labour and their proposed solutions, any agreement


with the labour union or collective bargaining agent and any charter
of demands on the listed company;

Whistle blower protection mechanism;

Report on CSR activities; and

Payment for goodwill, brand equity or intellectual property.


Appointment and Removal

CEO, Chairman, Chief Financial Officer, Company Secretary and


Head of Internal Audit should be appointed or removed by
approval of the BODs.

Directors remuneration
There shall be a formal and transparent procedure for fixing the
remuneration packages of individual directors. No director shall be
involved in deciding his/her own remuneration.