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Corporate
Governance
A guide for Boards and Senior Executives towards Implementing Corporate Governance in Bahraini Companies
By: Saleh Hussain
Winning through good governance
Copyright © 2017 Saleh Hussain. All Rights Reserved.
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise without the permission in writing of the Author.
Published in eBook format by eBookIt.com
ISBN-13: 978-9-9901-0374-8
WORDS OF THANKS
My sincere thanks and appreciation are extended to many people that inspired me to write this guide. People who consider Winning through Good Corporate Governance as way of their life do make the difference in making things happen. My family, friends and business colleagues are few of too many to mention.
The one person that I will not find the right words to thank enough is Mr. Shiraz Ali. He works for Arab Financial Services Company, as Head of Internal Audit. Not only he contributed in writing good number of parts of the guide but also provided remarkable expertise in reviewing, designing and using the charts and diagrams to enhance the look and contents of the guide. My utmost sincere thanks go to him.
INTRODUCTION
The collapse of high profile international businesses, giant banks and mega-multinational companies over the past several years, the recent unprecedented worldwide financial crisis starting in 2008, the power shift from public to private sector through converting state-owned enterprises to joint stock publicly-owned companies, the transfer of technology and globalization are compelling reasons for good corporate governance practices to be applied. In fact these developments have helped corporate governance to shift from the backroom to taking center stage in every boardroom around the world. More than ever, governments everywhere are very keen to revamp their corporate governance laws and regulations to address the shortcomings that surfaced. It is obvious that the majority of business failures can be attributed, in a large part, to poor corporate governance and lack of adherence to its standards and practice.
Corporate Governance has become the famous buzz word around the world, particularly as a result of the financial crisis of 2008/2009. A fundamental shift in the way corporate governance is viewed will be made and no country can afford not to revisit its existing laws and regulations.
Why This Guide?
Keeping up with its lead in the region, Kingdom of Bahrain has come up with a new code of Corporate Governance based on best practices in the leading world markets. I was privileged to be a member of the National Committee that was entrusted with the responsibility of drafting the code for the Kingdom of Bahrain. The code was based on best practices contained in more than 25 countries and well established corporations' codes worldwide.
The code which was announced and published in March 2010 calls for adherence and implementation by all companies starting from the year 2011. Banks, Insurance Companies, Financial Institutions and listed companies in the stock market of Bahrain (all fall under the supervision of Central Bank of Bahrain) will be asked to comply with the requirements of the code starting from 2011. Other types of companies will be given a period of time by Ministry of Industry and Commerce "MOIC" to comply.
This guide is intended to assist the users as a toolkit to help them implement the requirements of the new code of Corporate Governance of the Kingdom of Bahrain. However, its use is not limited to Bahrain but can certainly be helpful for use in other countries and jurisdictions, as it is based on the principles of Bahrain Code and best practices worldwide.
The guide follows the sequence of the nine principles of Bahrain code and details the actions and recommendations that need to be taken under each principle.
Contents of the Guide
The guide contains the following chapters with detailed explanation of the requirements and how best to go about implementing them:-
•The Board of Directors
•Board in Action
•Audit Committee
•Nominating Committee
•Remuneration Committee
•Shareholders
•Code of Conduct
•Governance in Islamic Finance Institutions
The appendix section of the code contains samples of number of important documents that are either mandatory or necessary for compliance with the requirements of the Corporate Governance code such as Board and committee charters, conflict of interest, whistleblower policies and code of conduct.
The Guide further gives an implementation checklist with cross referencing to the high level controls on Corporate Governance issued by CBB and specific requirements of Company Law issued by MOIC. These referencing are in line with requirements prevailing at the time of authoring this guide and due note must be taken by users to incorporate new changes as they occur.
In the contents and appendices of the guide any reference to corporate includes bank, company, institution or any entity conducting business and licensed by regulatory authority.
I hope the user finds the contents of this guide helpful.
Saleh Hussain
July 2011
Chapter 1 – THE BOARD OF DIRECTORS
1.1 THE BOARD OF DIRECTORS
1.1.1 Explaining the Term: ‘Board of Directors’
One of the main objectives of running a company is to maximize shareholder value. In order to achieve this objective, the company needs to be managed by a formalized and well established team of individuals; who would operate as per best interest of the company following a set of rules and optimal business practices. Corporate governance means the way in which business and affairs of each institution is directed and managed by their ‘Board of Directors’ (“Board”) and the ‘Management’.
The Board is the apex authority of any company; and is ultimately responsible for all past, present and future activities. The responsibilities and duties of the board as a whole have been defined in a variety of ways.
According to Bank for International Settlements (“BIS”), “the board has overall responsibility for the bank, including approving and overseeing the implementation of the bank’s strategic objectives, risk strategy, corporate
