Board meetings: corporate sector directed to include two independent directors

Securities and Exchange Commission of Pakistan (SECP) has directed corporate sector to include two independent directors in board meetings where conflict of interest arises among the board of directors. Through SRO 1216 (I)/2017, the SECP has issued Listed Companies (Code of Corporate Governance) Regulations, 2017, which would be applicable from December 31, 2017.
The SECP has introduced section 16 (conflict of interest) in the said regulations. For the purpose of consideration and decision by the board of directors on any agenda item, or in respect of any other matter, if any director has a conflict of interest therein in terms of the Act, then in addition to the provisions of section 207 of the Act and notwithstanding anything contained in the articles of association of a company, the directors shall ensure that the quorum of the meeting of the board shall not be deemed to be present unless at least two independent directors are also present at such meeting in person or through video link when such matter comes up for the first time for consideration of the board.
The SECP has also issued procedure on the issues to be placed for decision of board of directors. The chief executive officer of the company shall place significant issues for the information, consideration and decision, as the case may be, of the board of directors or its committees that include but are not limited to the following:
As soon as chief executive officer foresees risk of default concerning obligations on any loans (including penalties and other dues to a creditor, bank or financial institution or default in payment of public deposit), TFCs, Sukuk or any other debt instrument, the same shall be brought to the attention of board.
The issues to be placed for decision of Board of Directors included annual business plan, cash flow projections, forecasts and strategic plan; budgets including capital, manpower and overhead budgets, along with variance analysis; matters recommended and/or reported by the audit committee and other committees of the board; quarterly operating results of the company as a whole and in terms of its operating divisions or business segments; internal audit reports, including cases of fraud, bribery, corruption, or irregularities of material nature and management letter issued by the external auditors.
The issues to be placed for decision of Board of Directors included details of joint venture or collaboration agreements or agreements with distributors, agents etc.; promulgation of or amendment to a law, rule or regulation, applicability of financial reporting standard and such other matters as may affect the company and the status of compliance therewith; status and implications of any law suit or proceedings (show cause notice, demand or prosecution notice) of material nature, filed by or against the company; failure to recover material amounts of loans, advances, and deposits made by the company, including trade debts and inter corporate finance; any significant accidents, fatalities, dangerous occurrences and instances of pollution and environmental problems involving the company and significant public or product liability claims made or likely to be made against the company, including any adverse judgment or order made on the conduct of the company or of another company that may bear negatively on the company; report on governance, risk management and compliance issues. Risks to be considered shall include reputational risk and shall address risk analysis, risk management and risk communication and disputes with labor and their proposed solutions, any agreement with the labor union or collective bargaining agent and any charter of demands on the company.
The issues to be placed for decision of Board of Directors included reports on /synopsis of issues and information pursued under the whistle blowing policy, clearly disclosing how such matters were dealt with and finally resolved or concluded; implementation of environmental, social and governmental and health and safety business practices including report on corporate social responsibility activities and status of adoption/compliance of corporate social responsibility (Voluntary) Guidelines 2013 or any other regulatory framework as applicable; payment for goodwill, brand equity or intellectual property; sale of assets, investments and interest in subsidiaries and undertakings, of material amount or significant nature, which is not in the ordinary course of business and quarterly details of foreign exchange exposures and the safeguards taken by management against adverse exchange rate movement, if material, SECP added.