Independent directors’ selection: SECP directs cos to exercise due diligence

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has directed companies to exercise their due diligence before picking an individual as a candidate for selection as an independent director.

According to the SECP’s new document on category-wise voting in the election of directors issued on Saturday, the independent director has to be selected from the databank maintained by the institute notified by the Commission (Pakistan Institute of Corporate Governance notified vide S.R.O. 73(I)/2018 dated January 25, 2018). The Commission has also issued the Companies (Manner and Selection of Independent Directors) Regulations, 2018 (the “ID Regulations”) through SRO 556(I)/2018 dated April 26, 2018 in which additional compliance requirements are given for an independent director.

The companies are required to exercise their due diligence before selecting an individual as candidate for selection as an independent director. Further, justification for selection of candidate for appointment as independent director is to be provided in the statement of material facts attached with the respective notice of meeting under the provisions of Section 166(3) of the Act.

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The SECP has introduced the concept of category-wise voting for the election of directors by way of amendments made mainly in the CCG Regulations through SRO 906(I)/2023 and consequential amendments made in the Companies (Postal Ballot) Regulations, 2018 (PB Regulations) through SRO 905(I)/2023 which were notified on July 7, 2023. Under the aforesaid amendments, three tier voting structure is specified and voting is to be done in three categories, ie, female, independent and other director categories.

In order to avoid legal complications, maximum number of seats in the female category is fixed as one and for independent director two or one third of the Board (whichever is higher). However, there will be no restriction on the total number of female or independent directors that can be elected on the board of a company in all categories combined.

The member on his/her discretion may cast their votes to any candidate in each category of directors contesting the election.

For voting in categories, the division of votes available to each member shall be on category-wise basis in proportion to the number of seats of directors under such category.

The number of votes for each category shall be counted separately after the completion of voting process, the SECP added.

Copyright Business Recorder, 2023