Listed firms: independent director cannot become chief of audit panel: SECP

Independent director who is serving as the chairman of the board cannot be the chairman of audit committee under the Listed Companies (Code of Corporate Governance) Regulations, 2017. This was stated by the SECP in the frequently asked questions (FAQs) answered by the Commission regarding Listed Companies (Code of Corporate Governance) Regulations, 2017 issued Wednesday.
To a question whether an independent director serving as chairman of the board is eligible to be chairman of audit committee, the SECP responded in negative. In terms of Regulation 28, the independent director who is serving as the chairman of the board cannot be the chairman of audit committee.
Although prior experience in the listed company is not mandatory, yet keeping in view essence of best practices, it is preferred that companies appoint such individual who have experience of working in finance or audit departments of a listed company, the SECP said.
To another query, the SECP said that the board of directors will ensure that a formal and effective mechanism is put in place for an annual evaluation of the board's own performance, members of board and of its committees. Annual evaluation can be undertaken either in-house directly or by engaging external independent consultants and if so appointed, a statement to that effect shall be made in the directors' report disclosing name, qualification and major terms of appointment. The only condition for such evaluation is ensuring that such individuals/team carry out their assignment objectively and independently.
About the difference between an executive and a non-executive director, the SECP said that section 181 (2) of the Act defines non-executive director. Generally, executive directors are the working, whole-time directors of a company. Non-executive directors, on the other hand, are those who are not from among the executive management team and may or may not be independent. An executive director cannot be categorically defined as a "paid director" and a non-executive director as one who is "not a paid director".
The guiding factor in distinguishing between executive and non-executive directors of a company is the extent of their involvement in managing the affairs of the company rather than their pecuniary interests.