ISLAMBAD: The Securities and Exchange Commission of Pakistan has notified Listed Companies (Code of Corporate Governance) Regulations, 2017, a statement said on Wednesday. It will replace the Code of Corporate Governance, 2012 (CCG 2012) issued under the Pakistan Stock Exchange (PSX) listing regulations and are seen as a stride towards aligning corporate governance practices in Pakistan with best international standards. The regulations will come into effect from January 1, 2018, it added. The regulations are aimed at strengthening governance structures, bringing consistency in the corporate practices and promoting transparency through enhanced disclosure requirements. Further, the role and responsibilities of directors have been enhanced, independent decision-making has been encouraged, gender diversity has been supported and mechanism for transparency and accountability has been strengthened. The regulations have been finalised after rigorous in-house debate and extensive public consultations, the statement said. The task force formed to suggest changes to the CCG 2012 was led by Ebrahim Sidat. It included representative of the SECP, PICG, Central Depository Company, Pakistan Stock Exchange, corporate practitioners and industry representatives. Meanwhile, the Companies Act, 2017 has been promulgated, which included enabling provision to provide for framework of corporate governance. It was ensured that the regulations are concise, avoid duplication of requirements of act or any other statutory requirements and retained the best corporate principles as also endorsed by the 2012 Code and task force. The draft regulations were placed on the SECP’s website in August 2017 to solicit public opinion. In view of the request from stakeholders, the deadline of providing comments was extended by a month. Further, consultative session with stakeholders was held in October to deliberate on the stakeholders’ views. Noteworthy requirements of the regulations, among others, include decreasing the limit of permissible directorship in listed companies of a director from seven to five. The statement also said the regulations aims at strengthening presence and role of independent directors; therefore, the board of directors are mandated to have at least two or one-thirds of the number of directors, whichever is higher, as independent directors. The independent directors would be required to file a declaration, confirming that statutory criteria for independence, has been duly complied with. One of the significant requirements of the act is to prescribe female directors, which has been incorporated in the regulations by mandating one female director within one year of the notification of regulations or reconstitution of board, whichever is later. This would strengthen gender balance on boards. Moreover, in order to encourage inclusion of competent female directorship, companies are required to train at least one female executive under the directors’ training programme, the statement said. The Companies Act gives extensive powers, responsibilities and duties to directors. In addition, the regulations provides additional responsibilities, ie, overall review of risk, code of conduct, internal controls, whistle blowing mechanism, sustainable business practices, grievance handling and maintaining record of significant policies. The directors’ have been mandated to attend general meetings and participate in framing and considering significant policies, it said. To promote accountability, formal and effective mechanism for annual evaluation of the board’s own performance and its committees has been made mandatory. Formal policy and procedures to determine directors’ remuneration are also mandatory and companies are encouraged to post key features of same on their websites. The regulations have also added stringent quorum requirements for board meetings in case of conflict of interests. The effectiveness of the audit and HR committees has been strengthened by mandating chair of the two committees to be an independent director. Further, the audit committee is to include at least one member who is “financially literate” defined as a person who is a member of a recognised body of professional accountants or has a postgraduate degree in finance from a university or equivalent institution. The formation of two separate committees, ie, nomination and risk committees are encouraged and their terms of references have also been recommended. It is foreseen that in addition to banks, other companies also embrace role of risk committee in assessing and reviewing risk. The provision pertaining to directors’ training programme have been revised in a manner that the data bank of trained individuals should be strengthened.
