Corporate Governance - Implementation Guide. Saleh Hussain
renewable.
For Closed Joint Stock Companies however, the minimum number of directors should be at least 3 as per Company Law (Article 240).
CG Code – Principle 1.2: The board should have no more than 15 members, and should regularly review its size and composition to assure that it is small enough for efficient decision making yet large enough to have members who can contribute from different specialties and viewpoints.
1.5.3 Board Composition
CG Code – Principle 1.3: At least half of a company’s board should be non-executive directors and at least three of those persons should be independent directors. The Chairman of the board should be an independent director and in any event should not be the same person as the CEO.
However, in companies with a controlling shareholder, at least one-third of the board should be independent directors (CG Code – Principle 1.4).
1.5.4 Board Chairman
Company Law – Article 183: The chairman of the board is the company’s chairman, and represents it before third parties, and his signature is considered as a signature of the board of directors before third parties.
Among the board members, one person is elected as Chairman of the Board of Directors. Bahrain Company Law requires that the board chairman should be elected for a period of one year unless the company’s articles of association provide for another period (Article 181).
Basel Committee on Banking Supervision explains the role of the chairman as critical in the proper functioning of the board. In the document “Principles for Enhancing Corporate Governance” (released in October 2010), the Basel Committee states:
•The chairman of the board provides leadership to the board and is responsible for the board’s effective overall functioning, including maintaining a relationship of trust with board members. The chairman should possess the requisite experience, competencies and personal qualities in order to fulfil these responsibilities.
•The chairman should ensure that board decisions are taken on a sound and well-informed basis. He or she should encourage and promote critical discussion and ensure that dissenting views can be expressed and discussed within the decision-making process.
•To achieve appropriate checks and balances, an increasing number of banks require the chairman of the board to be a non-executive, except where otherwise required by law. Where a bank does not have this separation and particularly where the roles of the chair of the board and chief executive officer (CEO) are vested in the same person, it is important for the bank to have measures in place to minimise the impact on the bank’s checks and balances of such a situation (such as, for example, by having a lead board member, senior independent board member or a similar position).
Companies may also seek assistance from UAE’s Code of Corporate Governance while defining responsibilities of chairman of the board. UAE Code of Corporate Governance (Article 4) states that:
The tasks and responsibilities of the Chairman of the Board of Directors shall include without limitation:
•to ensure the efficiency and timely performance and discussion of any and all main issues by the Board of Directors;
•to be mainly responsible for drafting and approving the agenda of every meeting of the Board of Directors taking into consideration any matter proposed by the other Directors, this responsibility can be conferred by the Chairman to a Director or the Reporter of the Board of Directors;
•to encourage all Directors to fully and efficiently participate in handling the affairs of the Board of Directors for ensuring that the Board of Directors is working in the best interests of the Company;
•to take the proper actions for ensuring efficient communication with Shareholders and communicating their opinions to the Board of Directors; and
•to allow efficient participation of the Non Executive Directors in particular and to promote constructive relations between Executive and Non Executive Directors.
1.6 APPOINTMENT OF DIRECTORS
CG Code – Principle 4: The Company shall have rigorous procedures for appointment, training, and evaluation of the Board.
1.6.1 Criteria for Appointment as Board Members
Considering the importance of hiring the right candidate to serve on company’s board, it is important to highlight the processes and competencies required for appointing directors. Central Bank of Bahrain requires that “licensees must have rigorous and transparent procedures for appointment, training and evaluation of the Board” (CBB Rulebook: HC-4.1.1).
Both the CG Code and CBB require creation of Nomination Committees to formalize the appointment process. We shall discuss Nomination Committees in more details in subsequent chapters.
1.6.1.1 Fit and Proper Requirements
A director needs to have appropriate experience and skill set in order to perform his role and responsibilities diligently. Accordingly, the requirements from a potential director should be well defined and articulated. Central Bank of Bahrain has mandated that financial institutions are required to request CBB’s clearance before appointing any person as Director, CEO or Senior Manager of a controlled function. CBB uses ‘Fit and Proper’ criteria to evaluate suitability of the person.
CBB requires that a person should be able to demonstrate:
•Professional integrity, honesty and good reputation
•Professional competence, experience and expertise, sufficient for the function for which authorization is being applied for, and given the scale, complexity and nature of the business concerned
•Financial soundness
CBB’s Fit & Proper Requirements (CBB Rulebook: Licensing Requirements – LR-1A.3.1)
In assessing a person's fitness and propriety, the CBB will consider previous professional and personal conduct (in Bahrain or elsewhere) including, but not limited to, the following:
•The propriety of a person's conduct, whether or not such conduct resulted in a criminal offence being committed, the contravention of a law or regulation, or the institution of legal or disciplinary proceedings;
•A conviction or finding of guilt in respect of any offence, other than a minor traffic offence, by any court or competent jurisdiction;
•Any adverse finding in a civil action by any court or competent jurisdiction, relating to fraud, misfeasance or other misconduct in connection with the formation or management of a corporation or partnership;
•Whether the person has been the subject of any disciplinary proceeding by any government authority, regulatory agency or professional body or association;
•The contravention of any financial services legislation or regulation;
•Whether the person has ever been refused a license, authorization, registration or other authority;
•Dismissal or a request to resign from any office or employment;
•Disqualification by a court, regulator or other competent body, as a Director or as a manager of a corporation;
•Whether the person has been a Director, partner or manager of a corporation or partnership which has gone into liquidation or administration or where one or more partners have been declared bankrupt whilst the person was connected with that partnership;
•The extent to which the person has been truthful and open with supervisors;
•The extent to which the person has appropriate professional and other qualifications for the controlled function in question;
•The extent to which