the Non Executive Directors in particular and to promote constructive relations between Executive and Non Executive Directors.
1.6 APPOINTMENT OF DIRECTORS
CG Code – Principle 4: The Company shall have rigorous procedures for appointment, training, and evaluation of the Board.
1.6.1 Criteria for Appointment as Board Members
Considering the importance of hiring the right candidate to serve on company’s board, it is important to highlight the processes and competencies required for appointing directors. Central Bank of Bahrain requires that “licensees must have rigorous and transparent procedures for appointment, training and evaluation of the Board” (CBB Rulebook: HC-4.1.1).
Both the CG Code and CBB require creation of Nomination Committees to formalize the appointment process. We shall discuss Nomination Committees in more details in subsequent chapters.
1.6.1.1 Fit and Proper Requirements
A director needs to have appropriate experience and skill set in order to perform his role and responsibilities diligently. Accordingly, the requirements from a potential director should be well defined and articulated. Central Bank of Bahrain has mandated that financial institutions are required to request CBB’s clearance before appointing any person as Director, CEO or Senior Manager of a controlled function. CBB uses ‘Fit and Proper’ criteria to evaluate suitability of the person.
CBB requires that a person should be able to demonstrate:
•Professional integrity, honesty and good reputation
•Professional competence, experience and expertise, sufficient for the function for which authorization is being applied for, and given the scale, complexity and nature of the business concerned
•Financial soundness
CBB’s Fit & Proper Requirements (CBB Rulebook: Licensing Requirements – LR-1A.3.1)
In assessing a person's fitness and propriety, the CBB will consider previous professional and personal conduct (in Bahrain or elsewhere) including, but not limited to, the following:
•The propriety of a person's conduct, whether or not such conduct resulted in a criminal offence being committed, the contravention of a law or regulation, or the institution of legal or disciplinary proceedings;
•A conviction or finding of guilt in respect of any offence, other than a minor traffic offence, by any court or competent jurisdiction;
•Any adverse finding in a civil action by any court or competent jurisdiction, relating to fraud, misfeasance or other misconduct in connection with the formation or management of a corporation or partnership;
•Whether the person has been the subject of any disciplinary proceeding by any government authority, regulatory agency or professional body or association;
•The contravention of any financial services legislation or regulation;
•Whether the person has ever been refused a license, authorization, registration or other authority;
•Dismissal or a request to resign from any office or employment;
•Disqualification by a court, regulator or other competent body, as a Director or as a manager of a corporation;
•Whether the person has been a Director, partner or manager of a corporation or partnership which has gone into liquidation or administration or where one or more partners have been declared bankrupt whilst the person was connected with that partnership;
•The extent to which the person has been truthful and open with supervisors;
•The extent to which the person has appropriate professional and other qualifications for the controlled function in question;
•The extent to which the person has sufficient experience, or is otherwise able to perform the functions of the controlled function in question;
•Whether the person has ever been adjudged bankrupt, entered into any arrangement with creditors in relation to the inability to pay due debts, or failed to satisfy a judgment debt under a court order.
1.6.1.2 Attributes of a Director
In addition to CBB requirements, some of the other skill sets and attributes that companies should look for while evaluating suitability of a person for directorship include the following:
1.6.2 Other Matters Related to Appointment of Directors
Companies should also consider the following guidelines/ rules while appointing directors of the board.
1.6.2.1 Limitation on Number of Directorships
With the view to enhance the effectiveness of those serving as board members, both CG Code and CBB advise that the number of directorships should be limited so that the person may focus on his fiduciary and other responsibilities towards the company.
CG Code – Principle 1.2: One person should not hold more than three directorships in public companies in Bahrain with the provision that no conflict of interest may exist, and the Board should not propose the election or reelection of any director who does.
CBB Rulebook – HC-1.3.12: No Board member may have more than one Directorship of a Retail Bank or a Wholesale Bank. This means an effective cap of a maximum of two Directorships of financial institutions inside Bahrain. Two Directorships of licensees within the same Category are not permitted. Banks may approach the CBB for exemption from this limit where the Directorships concern banks or financial institutions within the same group.
1.6.2.2 Tenure of Membership
Code of Corporate Governance of Bahrain requires that the maximum tenure of board membership should not exceed three years; however the Code does not put any restriction on re-election for further terms (Section 4.3). Moreover, the Company Law specifies the tenure of board membership should be three years (Article 172).
There is no doubt that fixing the number of years for a director or fixing the number of times of election constitutes a major problem for many companies, especially those working in Middle East region. This is because there are inadequate numbers of appropriately qualified board members. Secondly, the shareholders in this region are wary of trusting someone who does not own shares in the company with the responsibility of corporate management as they perceive there may be risks of divided loyalty or conflict of interest. Thus, we may continue to see board members remaining in their offices for many years. However, it is important to understand the underlying philosophy for fixing tenure of membership – to make sure that the board members are adding value to the company instead of just occupying office for an indefinite period. Having a checkpoint after three years ensure that a thorough review is undertaken before a board member is re-elected for another period.
1.6.2.3
