Corporate Governance - Implementation Guide. Saleh Hussain

      1.6.2 Other Matters Related to Appointment of Directors

      Companies should also consider the following guidelines/ rules while appointing directors of the board.

      1.6.2.1 Limitation on Number of Directorships

      With the view to enhance the effectiveness of those serving as board members, both CG Code and CBB advise that the number of directorships should be limited so that the person may focus on his fiduciary and other responsibilities towards the company.

      CG Code – Principle 1.2: One person should not hold more than three directorships in public companies in Bahrain with the provision that no conflict of interest may exist, and the Board should not propose the election or reelection of any director who does.

      CBB Rulebook – HC-1.3.12: No Board member may have more than one Directorship of a Retail Bank or a Wholesale Bank. This means an effective cap of a maximum of two Directorships of financial institutions inside Bahrain. Two Directorships of licensees within the same Category are not permitted. Banks may approach the CBB for exemption from this limit where the Directorships concern banks or financial institutions within the same group.

      1.6.2.2 Tenure of Membership

      Code of Corporate Governance of Bahrain requires that the maximum tenure of board membership should not exceed three years; however the Code does not put any restriction on re-election for further terms (Section 4.3). Moreover, the Company Law specifies the tenure of board membership should be three years (Article 172).

      There is no doubt that fixing the number of years for a director or fixing the number of times of election constitutes a major problem for many companies, especially those working in Middle East region. This is because there are inadequate numbers of appropriately qualified board members. Secondly, the shareholders in this region are wary of trusting someone who does not own shares in the company with the responsibility of corporate management as they perceive there may be risks of divided loyalty or conflict of interest. Thus, we may continue to see board members remaining in their offices for many years. However, it is important to understand the underlying philosophy for fixing tenure of membership – to make sure that the board members are adding value to the company instead of just occupying office for an indefinite period. Having a checkpoint after three years ensure that a thorough review is undertaken before a board member is re-elected for another period.

      1.6.2.3 Appointment Letter for New Directors

      Each new director should expressly provide his consent to act on the board of directors. The explicit consent needs to be documented in form of appointment agreement. CG Code provides guidance on what should be included in the appointment letter.

      CG Code – Principle 1.1: The company should have a written appointment agreement with each director which recites the director’s powers and duties and other matters relating to his appointment including term, the time commitment envisaged, the committee assignment if any, his remuneration and expense reimbursement entitlement, and his access to independent professional advice when that is needed

      In addition to above, it is recommended that each new director should read, understand and sign the following documents:

      •Conflict of interest policy of the company

      •Code of conduct for the Board members

      A detailed explanation of what should be included in above two documents will be provided in subsequent chapters.

      A sample appointment letter for board members is provided in Appendix ‘A’ of this guidebook.

      1.6.2.4 Director’s Orientation/ Induction Training

      As with any other key position in the company, it is very important to acquaint the new director with company processes, board rules and regulations and his detailed responsibilities. It is however noted that this process is not properly laid down in many companies. The CG Code has recommended that a formal orientation and induction training program should be adopted by the Board for each new director.

      CG Code – Principle 1.1: When a new director is inducted, the chairman of the board, assisted by company legal counsel or compliance officer, should review the board’s role and duties with that person, particularly covering legal and regulatory requirements and this Code.

      The above is also mandated by CBB vide CBB Rulebook: HC-4.5

      The chairman of the board should ensure that each new director receives a formal and tailored induction to ensure his contribution to the board from the beginning of his term. The induction should include:

      •Meetings with senior management

      •Visits to company facilities

      •Presentations regarding strategic plans

      •Significant financial, accounting and risk management issues,

      •Compliance programs

      •Meetings with internal and independent auditors, and legal counsel

      It is advisable that all continuing directors should be invited to attend orientation meetings and all directors should continually educate themselves as to the company’s business and corporate governance.

      In addition to induction training, it is also recommended that periodic refresher courses or presentations should be arranged for directors so that the directors may keep themselves abreast with latest developments in the field of company’s business. This is also mandated by the CG Code.

      CG Code – Principle 4.5: Management, in consultation with chairman of the board, should hold programs and presentations to directors respecting the company’s business and industry, which may include periodic attendance at conferences and management meetings. The Nomination Committee shall oversee directors’ corporate governance educational activities.

      In order to help board members acquire, maintain and deepen their knowledge and skills and to fulfill their responsibilities, the board should ensure that board members have access to programs of tailored initial and ongoing education on relevant issues. The board should dedicate sufficient time, budget and other resources for this purpose. (Basel Committee on Banking Supervision: Principles for Enhancing Corporate Governance, 2010)

      1.7 BOARD CHARTER/ TERMS OF REFERENCE

      CG Code – Principle 1.1: The Board should adopt a formal board charter or other statement specifying matters which are reserved to it, which should include but need not be limited to the specific requirements and responsibilities of the directors.

      1.7.1 Board Charter

      The responsibilities and powers of the Board of Directors and individual Board Members must be documented in form of a formal Board Charter or Terms of Reference document. The charter should also include rules on number of board meetings, proxy rules, number of board members, tenure of membership, appointment and re-appointment procedures, and should refer to the code of conduct for the Board.

      Every board is encouraged to have a board charter outlining