company which is controlled by a controlling shareholder of the company.
CG Code requires that executive directors should provide the board with all relevant business and financial information within their cognizance, and should recognize that their role as a director is different from their role as an officer.
1.5.1.2 Non-Executive Director
As defined in CG Code, a Non-Executive Director is any director who is not an executive director.
Non-executive directors should be fully independent of the management and should constructively scrutinize and challenge management including the management performance of executive directors.
1.5.1.3 Independent Director
An Independent Director is a non-executive director who is also independent as defined in the CG Code copied below for easy reference).
CG Code: Appendix ‘A’ – Independent Director Formal Requirements
Independent director means a director of the company who, or whose family shareholders either separately or together with him or each other, does not have any material pecuniary relationships or transactions with the company (not counting director’s remuneration for this purpose) and in particular who, during the one year preceding the time in questions met all the following conditions:
(i)Was not an employee of the company,
(ii)Did not:
a.Make to, or receive from, the company payments of more than BD 31,000 or equivalent (not counting the director’s remuneration).
b.Own more than a 10% share or other ownership interest, directly or indirectly, in an entity that made to or received from the company payments of more than such amount,
c.Act as a general partner, manager, director or officer of a partnership or company that made to or received from the company payments of more than such amount,
d.Have any significant contractual or business relationship with the company which could be seen to materially interfere with the person’s capacity to act in an independent manner,
e.Did not own directly or indirectly (including for this purpose ownership by any family member or related person) 5% or more of the shares of any type or class of the company,
f.Was not engaged directly or indirectly as an auditor or professional advisor for the company,
g.Was not an associate of a Director or a member of senior management of the company.
1.5.2 Size of the Board
Organizations are generally faced by many questions when establishing the board of directors; like how many board members should be appointed; or what are the competencies required from a board member. Bahrain’s corporate governance rules as well as company law provide guidance on what needs to be done in this regard.
Company Law – Article 172: Company shall be managed by a board of directors the formation and term of which shall be specified in the company’s articles of association. The number of the board members shall be at least five members appointed for a period of three years renewable.
For Closed Joint Stock Companies however, the minimum number of directors should be at least 3 as per Company Law (Article 240).
CG Code – Principle 1.2: The board should have no more than 15 members, and should regularly review its size and composition to assure that it is small enough for efficient decision making yet large enough to have members who can contribute from different specialties and viewpoints.
1.5.3 Board Composition
CG Code – Principle 1.3: At least half of a company’s board should be non-executive directors and at least three of those persons should be independent directors. The Chairman of the board should be an independent director and in any event should not be the same person as the CEO.
However, in companies with a controlling shareholder, at least one-third of the board should be independent directors (CG Code – Principle 1.4).
1.5.4 Board Chairman
Company Law – Article 183: The chairman of the board is the company’s chairman, and represents it before third parties, and his signature is considered as a signature of the board of directors before third parties.
Among the board members, one person is elected as Chairman of the Board of Directors. Bahrain Company Law requires that the board chairman should be elected for a period of one year unless the company’s articles of association provide for another period (Article 181).
Basel Committee on Banking Supervision explains the role of the chairman as critical in the proper functioning of the board. In the document “Principles for Enhancing Corporate Governance” (released in October 2010), the Basel Committee states:
•The chairman of the board provides leadership to the board and is responsible for the board’s effective overall functioning, including maintaining a relationship of trust with board members. The chairman should possess the requisite experience, competencies and personal qualities in order to fulfil these responsibilities.
•The chairman should ensure that board decisions are taken on a sound and well-informed basis. He or she should encourage and promote critical discussion and ensure that dissenting views can be expressed and discussed within the decision-making process.
•To achieve appropriate checks and balances, an increasing number of banks require the chairman of the board to be a non-executive, except where otherwise required by law. Where a bank does not have this separation and particularly where the roles of the chair of the board and chief executive officer (CEO) are vested in the same person, it is important for the bank to have measures in place to minimise the impact on the bank’s checks and balances of such a situation (such as, for example, by having a lead board member, senior independent board member or a similar position).
Companies may also seek assistance from UAE’s Code of Corporate Governance while defining responsibilities of chairman of the board. UAE Code of Corporate Governance (Article 4) states that:
The tasks and responsibilities of the Chairman of the Board of Directors shall include without limitation:
•to ensure the efficiency and timely performance and discussion of any and all main issues by the Board of Directors;
•to be mainly responsible for drafting and approving the agenda of every meeting of the Board of Directors taking into consideration any matter proposed by the other Directors, this responsibility can be conferred by the Chairman to a Director or the Reporter of the Board of Directors;
•to encourage all Directors to fully and efficiently participate in handling the affairs of the Board of Directors for ensuring that the Board of Directors is working in the best interests of the Company;
•to take the proper actions for ensuring efficient communication with Shareholders and communicating their opinions to the Board of Directors; and
•to
