Corporate Governance

It is the system by which companies are directed and controlled by senior officers.

Who is responsible for corporate governance?

Executive Directors (EDs)

They are involved in day-to-day activities, that is, provide the direction for the operations.
Examples:-

Non-Executive Directors (NEDs)

They are not involved in the day-to-day operations, but they are involved in the top level
meetings.
NOTE:-

Corporate Governance 1 By:- Haris Hanif

NEDs should be Neutral, that is, Independent
- No major stakeholder should be NED

- No relative of ED should be NED

- Former (previous) ED should NOT be the NED of the same company.

- No business relation (customers/suppliers) with the company.

- No salary of NEDs, no commission, no PRP, they should be only remunerated with

the meeting fees.

- No Cross directorship.

Workings of NEDs
- Scrutinise the work of E.D.s

- Challenge the work of E.D.s in constructive manner.

- Ensure that decision making should be in favour of the company.

- Give healthy advice to the BOD

- Ensure the long term decision making.

- Bring/share the outside expertise the company.

Corporate Governance 2 By:- Haris Hanif

Company and the Structure of BOD

Nomination Committee
- Consider the skills of the BOD
- Nominate the suitable candidates for the BOD
- Present capable directors in AGM – for final approval of shareholders.

Remuneration Committee

Risk Committee

Corporate Governance 3 By:- Haris Hanif

Audit Committee
- At least 3 members on audit committee – this is for large P.L.C.
- At least 2 members on audit committee – this is for S.M.E.s
- At least 1 person should be the member of professional accountancy body.
- Chairman of the company should NOT sit in the audit committee.

Roles of Audit Committee

- Recommendations in the appointment/removal of auditors and also advice on their
remuneration.
- Discuss and resolve the ethical, professional issues of the auditors.
- Review the financial statements, internal controls and also take part in the risk
management.
- Oversight the audit.
- Encouraging whistle blowing provisions in the company.

Features of GOOD Corporate Governance

- At least 50% NEDS on the BOD.
- Chairman and CEO should be two different individuals.
- Chairman should be NED.
- Greater independency and Transparency.
- No misleading information.
- Greater accountability of directors.
- Good internal controls.
- Establishing internal audit department.
- All NEDs should be independent and should NOT serve more than 9 years.
- Sub-BOD committees.
- Maximum disclosures in the F.S.
- Conduct AGM along with the proxy access.
- Less/No dominancy of EDs.
- BOD should focus on the long term and performance and reward system should be
based on the long term performance.
- Maximum healthy debate in the BOD meetings.
- EDs should not serve for too much long time period, there should be re-election.

Corporate Governance 4 By:- Haris Hanif