•Ensure efficacy of systems, procedures and internal controls
•Ensure working of a right blend of human and material (technological) resources
•Ensure identification and mitigation of all risks
•Set key performance indicators of the business enterprise
•Ensure flexibility of structure, products and delivery to face the challenge of fast coming globalization
The Code of Corporate Governance of Bahrain (“CG Code”) specifies that role and responsibilities of the board include but are not limited to: (CBB Rulebook: High Level Controls (“HC”): HC-1.2.2):
CG Code – Principle 1: The company shall be headed by an effective, collegial and informed Board
•The overall business performance and strategy for the company;
•Causing financial statements to be prepared which accurately disclose the company’s financial position;
•Monitor management performance;
•Convening and preparing agenda for shareholder meetings;
•Monitoring conflicts of interest and preventing abusive related party transactions;
•Assuring equitable treatment of shareholders including minority shareholders; and
Central Bank of Bahrain (“CBB”) has endorsed the above by incorporating CG code into its rulebook. Thus CBB rulebook’s section HC-1.2.2 of High Level Controls (“HC”) module re-states the above responsibilities for all conventional bank licensees and adds that the board is also responsible for ‘establishing the objectives of the bank’.
Both the CG Code as well as CBB have emphasized that the Board should, at minimum, be responsible to perform the below roles and responsibilities.
•Duty to Approve and Monitor Company Strategy: The Board should assume overall responsibility of company’s business, risk management, and financial soundness. Thus, the Board should review, approve and monitor the objectives, strategies and overall business plans of the institution; in line with shareholders’ expectations
•Duty to Ensure Legal and Regulatory Compliance: All the members of the Board should undertake and fulfill their duties and responsibilities keeping in view their legal obligations under all the applicable laws and regulations
•Duty to Establish Optimal Management Structure: The Board should clearly define the authorities and key responsibilities of both the Directors and the Senior Management without delegating its policymaking powers to the Management and shall ensure that the Management is in the hands of qualified personnel. In addition, the Board should be responsible for human capital development process (including appointing, training, fixing the remuneration of and where appropriate, replacing senior management, and succession planning)
•Duty to Ensure Optimal Control Environment: The Board should approve and ensure implementation of policies, including but not limited to, in areas of Internal Audit & Control, Compliance, Risk Management, Human Resources, Finance, Treasury Management, Investments, Acquisition/Disposal of fixed assets, Donations/Charities, Prevention of Frauds & Forgeries and any other operational area which the ‘Board’ and the ‘Management’ may deem appropriate from time to time. The Board should also be responsible to review and update existing policies periodically and whenever circumstances justify
•Duty to Oversee Company Performance: The Board should ensure existence of an effective ‘Management Information System’ to remain fully informed of the activities, operating performance and financial condition of the institution, the environment in which it operates, the various risks it is exposed to and to evaluate performance of the Management at regular intervals
•Duty to Implement Corporate Governance: The Board of Directors should show leadership and “set the tone at the top”. The Board Chairman should place corporate governance issues on the agenda of Board meetings to ensure an efficient and timely treatment of all issues arising out in this respect. The Board should also adopt code of conduct for itself and senior management
1.3 RESPONSIBILITIES OF BOARD MEMBERS
The above section stated responsibilities of the Board collectively; however, since the Board is composed of various members, the best practices require that each member of the Board should be held individually responsible for his/ her activities as Board Member. The Directors are required to exercise their powers and carry out their fiduciary duties with a sense of objective judgment and independence in the best interests of the listed company.
The CG Code (section 1.4) states that each Director (Board Member) should consider himself as representing all shareholders and should act accordingly. Principal responsibilities of Director/ Board Member include the following:
•Duty of Good Faith: The duty of good faith demands that the director is reliable, trustworthy, act with integrity and does not seize corporate opportunities for his own self-interest. It further requires the director to act in the best interest of the company at all times and to avoid any action that causes or can cause any conflict of interest with the company. The shareholders and related stakeholders must be confident that the director will at all times deal with the affairs and decisions of the company in good faith and unquestionable trust. Without good faith and trust, no director has any business serving on the board of a company.
•Duty of Skill: The duty of skill deals with the necessity of demanding from the management timely, accurate and complete information and data relating to the affairs of the company. The director’s skill and knowledge must be used and applied in the analysis and evaluation of information and reports. Right decisions demand the honest application of brainpower and the most appropriate ways of conduct.
•Duty of Diligence: The duty of diligence makes the director’s knowledge of the industry in which the company is operating a pre-requisite for his selection to the board. The director must use such industry knowledge to pay attention to the details of all proposals referred to the board for consideration. Part of the details that need to be considered to arrive at board resolutions are the company’s relationships with its stakeholders. Those resolutions might be received by shareholders and stakeholders. The other dimension that must be looked at by the director in a diligent manner is the impact of the company’s business and decisions on others – what kind of precautions he needs to consider to mitigate any negative impact on others. ‘Others’ here include customers, service users, competitors, and the society within which the company operates. The social responsibility of the company’s business must be respected and protected.
•Duty of Care: (OECD defines “duty of care” as “The duty of a board member to act on an informed and prudent basis in decisions with respect to the company. Often interpreted as requiring the board member to approach the affairs of the company in the same way that a ’prudent man’ would approach their own affairs. Liability under the duty of care is frequently mitigated by the business judgment rule.”)
•Duty of Loyalty: (OECD defines “duty of loyalty” as “The duty of the board member to act in the interest of the company and shareholders. The duty of loyalty should prevent individual board members from acting in their own interest, or the interest of another individual or group, at the expense of the company and all shareholders.”)
CG Code – Principle 2: The Directors and Officers shall have full
