Code of Corporate Governance

2017 (Effective January 01, 2018)

 Number of Directorships

5 Listed Companies

• Includes: Alternate Directorship

• Excludes: Listed Subsidiaries
• Effective later of:
• Next Board Constitution
• 1 Year of regulations

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 Composition of Board of Directors
Representation of Minority
As Group:
Shareholders:
• Core Competencies • Should be Facilitated
• Diversity • Attaching with notice:
• Minority shareholder profile
• Requisite Skills
• Proxy form in favor (On cost of Co.)
• Knowledge • Provide Shareholder details
• Experience
• In context of Co. business

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 Composition of Board of Directors

Independent Directors: Female Director:

• 2 or 1/3rd whichever is higher • At least One
• Professional indemnity Insurance Cover • Later of:
(Preferred) • Next Board Constitution
• Declare each financial year that he • 1 Year of regulations
qualifies criteria of independence.
• Max 4 terms consecutive

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 Composition of Board of Directors

Executive Director: Chairman:

• Means: • Separate from CEO
• Whole or substantially Whole (time) • Elected as Chairman
• Paid or not
• To operations of Co.

• Max 1/3rd including CEO

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 Responsibilities of Board of Directors

Fiduciary Duties: Governance of Risk:

• Sense of Objective Judgement • Establish Risk Management Policy
• Good Faith • Determine Co. Risk tolerance level
• Best interest of: • At least annually Review:
• Share holders • Management maintains system of risk
• Stakeholders identification
• Controls & Risk management to safeguard
(Co. & Shareholders ):
• Assets
• Resources
• Reputation & Interest

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 Responsibilities of Board of Directors

Duties

• Preparation & Review of: • Grievance addressal system

• Vision • Arising from unethical practices
• Mission • Adequate system & Control
• Corporate Strategy
• Effective System of Internal Control
• Formal Code of Conduct:
• Board performance appraisal
• Promote ethical culture
• Formal & Effective Mechanism
• Prevents conflict of Interest
• Annual evaluation
• Should be disseminate
• BoD, Members & Sub-committees
• Put on web site

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 Responsibilities of Board of Directors
Duties
• Documented Resolutions for:
• Investments / Disinvestments with
maturity period of 6 months or more
• Determination of loans & advances made
& their limit
• Define materiality level
• Attend Shareholders meetings (unless
reasonable cause)
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• Shall Maintain Record of Significant
Policies
• Governance of risks & internal control
• HRM & Succession Planning
• Permissible Fee for Non-Executive &
Independent Directors
• Procurement
• Communication & Investor Relations
• Marketing
 Responsibilities of Board of Directors

Duties (Policies) Duties (Policies)

• Credit & Discount • Financial Powers

• Write off Receivables • Transactions with Associated
Companies & Related Parties
• Sale & Lease of Assets / undertakings
• Environment & Social
• Capital Expenditure
• Health & Safety
• Planning & Control
• CSR
• Investments & Disinvestments of
funds • Whistle Blowing (including
mechanism)
• Debt Coverage

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 Chairman Responsibility

At beginning of each term: Meetings

• Issue letter to BoD members • 7 Days Notice

• Setting their role • Along with Agenda & Material
• Obligations & Responsibilities
• Powers
• Ensure reasonable time is available for
• Remuneration & Entitlement discussion
• Emergency Meeting
• Reduced Time or Complete Waiver

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 BoD Meetings

Minutes: Attendance:

• Minutes are kept properly • CFO & CS to attend

• Co. Secretary to act as Secretary of • In absence their nominees
BoD
• Nominees to be appointed by BoD
• Dissenting Note:
• To be recorded properly
• Be notified to Secretary first
• If not resolved, raised with Commission

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 Issues before BoD

CEO to place CEO to place

• Foresee any risk of default of loans • Matters recommended by BoD sub-

committees
• Annual Business Plan
• Quarterly Operating Results
• Cash Flow Projections
• Internal Audit Reports (if material):
• Forecasts
• Fraud
• Strategic Plan • Bribery

• Budgets (Capital, Man Power, • Corruption

Overhead) • Irregularities7 Days Notice

• Budget Variations

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 Issues before BoD
CEO to place
• Management Letter
• Details of Agreements with/of
• JV
• Collaboration
• Distributors & Agents
• New law or financial reporting
standard affecting company
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CEO to place
• Status & Implications of material law
suite (made or likely to be made)
• Significant accident, fatality, pollution
& environment hazards
• Risks (Management, Analysis &
Communication):
• Management & Compliance
• Reputational
 Issues before BoD

CEO to place CEO to place

• Disputes with Labor: • Reports on Implementation of:

• Environmental
• Their Solutions
• Social
• Agreements (Labor Union or Collective • Governmental
Bargaining Agent)
• Health & Safety
• Charter of Demand • CSR
• Other Regulatory Framework

• Synopsis of issues raised under • Payment of:

Whistle Blowing Policy and their • Goodwill
resolution • Brand Equity
• Intellectual Property

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 Issues before BoD

CEO to place

• Material / Significant sale of (Not

Ordinary business)
• Assets & Investments
• Interests in Subsidiaries / undertakings

• Quarterly details of material foreign

exchange rate exposure & safeguards
taken

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 Related Party (Audit Committee)
Optional: BoD if recommended for
review & Approval
• Details
• If majority of Directors are interested
party then place before Shareholders
• Not executed at Arm Length:
• Place before BoD (Separately)

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 Issues before BoD

Conflict of Interest

• Director’s Interest
• Specific Quorum: At least Two
independent Directors present
• First Time when matter is considered
• Requirement in addition to normal
quorum
• Video Link is fine

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 Remuneration of Directors

Policy Determination

• Formal • Cannot self determine

• Transparent • Levels
• Link with Responsibility & Expertise
• Individual Directors
• Attract & Retain Directors
• BoD • Encourage Value Addition
• Should not be such that perceived to
• Sub-Committee compromise independence

• Independent consultant can be

engaged to determine

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 Directors Training Program

Purpose Certification

• Equip Directors with • 50% June 2019

• CCG
• 75% June 2020
• Applicable Laws
• Duties & Responsibilities
• 100% June 2021
• New Director (Within One Year)
• Exemption by Commission:
• 14 years of Education
• 15 Years of Listed BoD

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 CFO, CS , HIA

BoD Powers Qualification CFO

• Appoint • Experience in
Audit/Accounting/Financial/Corporate
• Fix Remuneration Matters
• Removal / Non-Renewal • CA / CMA (3 years)

• HIA can be recommended by Audit • Member Accounting Body & Post

Committee Graduation accepted by HEC (5 Years)
• Post Graduation accepted by HEC (5
Years)
• Graduation accepted by HEC (7 Years),
Commission approval needed

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 CFO, CS , HIA

Qualification HIA Qualification CS

• Experience in • Yet to be regulated by Commission

Audit/Finance/Compliance under new law
• CA / CMA 3 Years • Old qualification to continue till then
• CIA / CFE / CICA / Post Graduate (5
Years)
• Graduate (7 Years) , Commission to
approve

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 Financial Statements

Endorsement

• CEO & CFO

• Quarterly
• Half Yearly
• Annual

• Prior to placement / circulation to BoD

for approval
• External Auditor (Initials)
• Before presenting to Audit Committee

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 Audit Committee
Composition
• 3 Members (Minimum)
• Non-Executive Directors
• At least One Independent
• Independent be Chairman
• Chairman of BoD cannot be Chairman
AC
• One must be CA / CMA / Post
Graduate in Finance
• Secretary: CS or HIA
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Meeting
• Once in every quarter
• Between completion of audit and before BoD
meeting
• Can be requested by HIA or Auditors
• HIA and Auditor to attend when audit or
accounts are discussed
• CEO / CFO on invitation only
• Once in year AC to meet auditors without
HIA & CFO
• Once in year AC to meet HIA & IA team
without auditors & CFO
 Audit Committee

TORs TORs

• BoD to determine • Review of Financial Statements

focusing on:
• Adequate authority & resources to be
• Major Judgmental Areas
provided
• Significant Audit Adjustments
• Documented and shall include: • Going Concern Assumption
• Measures to safeguard Assets
• Changes in Accounting Policy
• Review of preliminary announcements of
• Compliance with Accounting Standards
results
• Compliance with Regulations
• Discussion with auditors and their
highlighted points • Related Party Transactions
• Review of Management Letter

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 Audit Committee

TORs TORs

• Ensure coordination between internal • Review major internal findings on:

& external auditors • Fraud
• BoD to determine • Corruption
• Abuse of Power
• Internal Audit Review: • & Management Response thereon
• Scope
• Review Internal Control Systems for:
• Extent
• Financial & Operational Controls
• Plan
• Accounting System (Timely and
• Reporting framework & Procedures Appropriate recording)
• Adequate Resources • Reporting Structure (Adequate &
Effective)

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 Audit Committee

TORs TORs

• Review of Co. Statement on Internal • Check compliance with statutory

Control Systems before BoD requirements & CCG

• Special Assignments by BoD • Review arrangement for staff and

Management to share concerns in
• Special Projects confidence
• Value for Money studies
• Recommend BoD on Auditors:
• In Consultation with • Appointment / Renewal
• CEO
• Fee
• Auditors
• Any other service
• Other Experts
• BoD to record reasons if they act against
recommendation of AC

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 Audit Committee

Reporting Procedure

• Before BoD meeting

• Circulate Minutes to:
• Members
• Directors
• HIA
• CFO (if required)

• If Circulation not practical:

• Synopsis to BoD
• Minutes immediate after BoD

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 Human Resource & Remuneration Committee

Composition Meeting

• 3 Members (Minimum) • Once every financial year

• Majority Non-Executive Directors • Can be requested by:

• BoD member
• At least One Independent • Committee itself
• Independent be Chairman • CEO

• Head HR or BoD appointee can be

• CEO can be member Secretary
• Attendance by invitation:
• CEO (If not member)
• Head HR (If not secretary)

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 Human Resource & Remuneration Committee

TORs TORs
• Recommend Policy Framework to the • Recommend HR Policies to BoD
BoD for:
• Remuneration of Directors • Recommend Selection, Evaluation,
Development, Compensation of:
• Members of Senior Management (1st
layer below CEO –BoD can decide) • COO
• Performance Evaluation: • CFO
• BoD • CS
• BoD Committees • HIA
• Directly or through Consultant
• Consultant name, qualification & terms to
be notified in Directors Report

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 Human Resource & Remuneration Committee

TORs

• On Recommendation of CEO:
• Approve / Recommend key management
positions:
• Directly reporting to:
• CEO / COO

• Appointment of HR / Remuneration
consultants:
• Credentials known to HRRC
• Their any other connection with Co.

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 Nomination Committee

BoD may constitute TORs

• Class & number to be decided • Recommend to BoD

• For BoD Committees
• Members & Chair of Committees

• Keep under review:

• Structure
• Size
• Composition
• of BoD

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 Risk Management Committee

BoD may constitute TORs

• Class & number to be decided • May Include:

• Monitoring & Review of Material
Controls:
• TORs • Financial
• Operational
• Review of effectiveness of Risk
management • Compliance

• Risk mitigating measures

• Integrity of Financial Information
• Disclosure of Co. risk framework &
Internal Control in Directors Report

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 Internal Audit
Shall be IA Function
• HIA functionally reports to AC
• Administratively to CEO
• Joint Appraisal of HIA by AC
Chairman & CEO
• Director cannot be HIA
• BoD to ensure:
• IA team is / comprises:
• Experts of relevant head of accounts
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Functional Profile
• Co. to ensure:
• HIA is experienced, qualified, well versed
with Co. policies and procedures
• Outsourced Function:
• Professional Firm
• Internal Audit of Holding Co.
• Fulltime HIA other than CFO
• External auditors cannot be appointed
• External Auditors to get IA reports to
discuss major points with AC
 External Audit

Qualification
• QCR from ICAP • No additional task other than audit
• Registered with Audit Oversight Board • Except if provided in:
• IFA Code of Ethics non-compliant • CCG
cannot be appointed • IFA guidelines
• BoD to recommend name and • Auditors not to:
remuneration
• Perform Management Functions
• AC recommendation to be included in
Directors Report • Make Management decisions

• Reason for recommendation other than

retiring be disclosed in DR

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 External Audit

Can not be appointed

• External Auditor of a Co. of close • Management Letter:
relatives
• Spouse • Within 45 days of audit report
• Parents
• Dependent / Non-dependent children
• Significant Matter
• Of:
• In writing
• Director
• CEO
• To BoD
• CFO • Prior to approval
• CS
• HIA

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 External Audit

• Rotation:
• Every 5 years
• Minimum (Non-Financial) Rotate
partner every 5 years

• Financial Service Cos./Group to have

same auditor

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 Reporting & Disclosure

Directors Report

• Quarterly unaudited: • Remuneration:

• Directors Review on affairs of Co. • Policy for Non-Executive Directors
• Encouraged to post on Website
• Composition:
• Co. Annual Report to disclose:
• Male / Female
• Separately for Executive and Non-
• Independent / Executive / Non-Executive Executive Directors:
• Salary / Fee
• Committees:
• Perquisites
• Members • Benefits
• Performance Linked incentives

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 Reporting & Disclosure

• Key Policies on its website • Penalty for Non-Compliance:

• Person
• Rs. 5 million
• Compliance Statement: • Rs. 100k per day of continuation
• With CCG
• Circulate with Co. Annual Report
• Reviewed and Certified by Auditors
• Commission can relax CCG
• Non-Compliance to be highlighted
• On application by Co.
• If not practical

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 Statement of Compliance

Contents
• Number & Composition of Board • Formal policy for Directors
Remuneration
• Directors serving on max 5 Cos.
• DTP arranged if required
• Code of conduct disseminated across
Co,. • BoD approved appointment of CFO,
• BoD has developed CS, HIA
Mission/Vision/Corporate Strategy
• CFO & CEO endorsement of FSs
• BoD meetings presided by Chairman
• Board Committees formed
• In absence by Elected Director
• TORs of Committees formed
• Minutes properly recorded

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 Statement of Compliance

Contents

• Frequency of meetings
• Internal Audit Function establishment
• Auditors fulfills all qualifications
• Auditors have not engaged in any
other services except provided in law
or allowed by IFAC
• CCS complied with as a whole

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 Thank you

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