Lecture 4

The Main Pillars of Corporate Governance

1. General Assembly of Shareholders
o Composition
➢ Composed of all shareholders, each according to his portion of shares.
o Participation
➢ Arrangements should be made for encourage & facilitating their participation including choice of
the appropriate place and time.
➢ Companies with large number of members can use electronic means and different
communication systems.
o Procedures
➢ The General Assembly must be conducted to enable shareholders to express their views in
accordance with the company's bylaws and articles of association.
➢ The company's management is required to fully disclose and provide relevant information on
agenda items to help shareholders make informed decisions, rather than merely fulfilling formal
meeting requirements.
o Resolutions
➢ When electing the Board, shareholders should be furnished with short CV about each candidate.
➢ It`s recommended that the cumulative voting system is adopted so that the results of the
election reflect the relative representation of all shareholders.

2. Board of Directors
o Composition
➢ Made up of an adequate number of members.
➢ perform its functions and duties, including formation of committees.
➢ The majority of members must be non-executives, and at least two of them are independent
members with technical and analytical skills.
➢ The composition of the board should ideally be diverse and unbiased in terms of gender and
faith, following international best practices.
➢ The Board is responsible for electing the Chairman and appointing the Managing Director.
➢ It is advised that the roles of Chairman and Managing Director should not be held by the same
person, if it's not possible, the company should disclose the reasons in its annual report and on
its website.
o Procedures of Board Meetings
➢ The Board must meet at least once every three months and can invite individuals from inside or
outside the company to discuss company-related issues.
➢ Meetings can be conducted through modern communication means such as video conferences,
if allowed by the company's articles of incorporation.
o Responsibilities of the Board Chairman
➢ He is responsible for ensuring the overall effectiveness of the Board including guiding and
directing the Board to ensure its proper functioning.
➢ The Chairman should possess the required expertise, competencies, and personal qualities to
fulfill these responsibilities.

3. Board Committees
➢ The Board of Directors can form committees from non-executive and independent members.
➢ International best practices recommend that no executive member of the Board should be part
of these committees.
➢ The committees must consist of at least three members and are responsible for submitting
reports and recommendations to the Board of Directors.
➢ It's important to note that committees do not have the authority to make decisions on behalf
of the Board; their role is limited to providing recommendations for the Board to consider and
act upon.

o Audit Committee
➢ Consists of independent and non-executive members of the Board or external individuals, with
at least one member having financial and accounting experience.
➢ Its responsibilities include reviewing internal controls, preparing a report on its opinions and
recommendations about the controls, reviewing financial statements before submission to the
Board of Directors, reviewing accounting policies, and nominating external auditors while
defining their qualifications, competencies, and independence.

o Nomination Committee
➢ Consists of independent and non-executive members of the Board, with the committee
chairman being an independent member.
➢ Responsible for regularly reviewing and identifying the necessary skills for board membership
and top management positions, defining the responsibilities of different board members and
outlines job descriptions for senior executive management within the organization.

o Remuneration committee
➢ Consists of independent and non-executive members of the Board.
➢ Its responsibilities include proposing clear remuneration policies for directors, committee
members, and senior executives, using performance-based criteria for compensation, and
conducting annual reviews of these policies after necessary studies and surveys on
remuneration packages.

o Risk Management Committee

➢ Consists of independent and non-executive members of the Board.
➢ Its responsibilities include setting executive frameworks, measures, and rules approved by the
Board to address various types of risks facing the company, such as strategic, operational,
market, credit, reputational, information systems, data protection, and any other risks that
could negatively impact the company's activity and sustainability.

o Governance Committee
➢ Consists of independent and non-executive members of the Board.
➢ Its responsibilities include evaluating the governance system, creating manuals, codes, and
policies for implementing governance principles, preparing annual reports on the company's
compliance with corporate governance principles, and establishing measures for full
implementation of these principles.

o Other Committees
➢ Established to fulfill specific duties based on the company's nature and business requirements.
➢ The board will decide the duration, authority, composition, financial compensation, and
operational structure of these committees.
➢ Such as: Executive Committee, Environment Protection Committee, Investment Committee,
Occupational Safety and Health Committee or Social Responsibility Committee.

4. The Internal Control System

➢ Is a set of policies, procedures, guidelines, and regulations developed by company departments
and approved by the Board.
➢ It separates responsibilities and duties within the business, and this segregation is reflected in
the company's organization chart.
➢ The system serves as an administrative, organizational, and planning tool, preserving the
company's assets.
➢ The Audit committee regularly evaluates the system and makes recommendations to the Board.

o Its responsibilities
➢ Separation of responsibilities and authorities among its staff.
➢ Ensuring the accuracy and quality of information provided both internally and externally.
➢ Protecting physical assets from risks and maintaining accurate records of these assets.
➢ Improving production efficiency and meet targets with minimal expenses while maintaining
quality standards.
➢ Ensuring the accurate implementation of instructions and corporate governance rules.
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The failure of corporate governance can be attributed to several factors:
1. Unclear roles and responsibilities of the CEO.
2. Self-interest taking precedence over the common organizational goal.
3. Inadequate selection of CEO and board members.
4. Neglecting the protection of stakeholders' interests.
5. Lack of clarity regarding the company's mission and vision.