BUSINESS & CORPORATE LAW

CODE OF CORPORATE GOVERNANCE 2017

Code of Corporate Governance 2017
• Issued by SECP in August 2017
• Full name: Listed Companies (Code of Corporate Governance) Regulations,
2017
• Applicable to publicly listed companies only
• Came into force on January 01, 2018

Business & Corporate Law: Code of Corporate

2
Governance 2017
Code of Corporate Governance 2017 –
Number of Directorship & Board Composition
• Number of Directorship:
• No person shall be elected or nominated or hold office as a director of a listed company,
even as an alternate director, of more than 5 listed companies, simultaneously
• This limit of 5 simultaneous directorship holdings does not include directorships in the
listed subsidiaries of a listed holding company
• This rule is made to counter the number of people becoming directors of several
companies, simultaneously, & not being able to effectively conduct their duties of
directorship due to burden of holding so many directorships

Business & Corporate Law: Code of Corporate

3
Governance 2017
Code of Corporate Governance 2017 –
Number of Directorship & Board Composition
• Representation of Minority Shareholders:
• Minority Shareholders: in the context of a holding company, these are those
shareholders who, collectively, do not hold more than 50% shares of the company, i.e.
there is another holding company which holds more than 50% shares of their company
• Minority shareholders, as a class, are allowed to contest elections of directorship
• To facilitate this process, the listed company is required to:
• Send a notice to all shareholders of the elections of directorship, which must include a statement by
a candidate, including a profile of the candidate, from among the minority shareholders who seeks
to contest the elections
• Provide information regarding members & shareholding structure to the candidate
• Attach an additional copy of the proxy form filled in by such candidate to the notice

Business & Corporate Law: Code of Corporate

4
Governance 2017
Code of Corporate Governance 2017 –
Number of Directorship & Board Composition
• Independent Director:
• Must not be less than 2 members or ⅓ of the total members of the board, whichever is
higher
• Must submit a declaration to the company that he / she qualifies the criteria of
independence (criteria of independence is in Companies Act 2017, section 166)
• Declaration is submitted to the Chairman of the Board at first meeting in every financial
year as well as on an event of any change affecting his / her independence

• Female Director: Board of Directors must have at least 1 female director

Business & Corporate Law: Code of Corporate

5
Governance 2017
Code of Corporate Governance 2017 –
Number of Directorship & Board Composition
• Executive Director:
• A director who devotes the whole, or a substantial amount, of his / her time, paid or
unpaid, to the operations of the company
• Including the CEO, cannot be more than ⅓ of its Board of Directors

• Chairman of the Board:

• Chairman of the Board & CEO of a company cannot be the same person
• Chairman must be elected as per Section 192 of Companies Act, 2017

Business & Corporate Law: Code of Corporate

6
Governance 2017
Code of Corporate Governance 2017 –
Responsibilities of the Board of Directors
• Board of Directors are responsible for:
• Risk governance
• Determining the company’s level of risk tolerance by establishing risk management
policies
• Must perform, at least once a year, an overall review of business risks to make sure
that the management maintains a sound system of:
• Risk identification,
• Risk management, &
• Related systemic & internal controls to safeguard assets, resources, reputation, &
interest of the company & its shareholders

Business & Corporate Law: Code of Corporate

7
Governance 2017
Code of Corporate Governance 2017 –
Responsibilities of the Board of Directors
• Board of Directors must make sure that:
• A vision and/or mission statement and overall corporate strategy for the company is
prepared, adopted and reviewed as and when deemed appropriate by the board
• A formal code of conduct is in place that promotes ethical culture in the company and
prevents conflict of interest in their capacity as member of the board, senior
management and other employees
• Code of conduct must be distributed throughout the company along with supporting policies and
procedures and must also be put on the company’s website
• Adequate systems and controls are in place for identification and rectification of any
grievances arising from unethical practices
• Good internal controls are established, which are effectively implemented and
maintained at all levels within the company
• 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
Business & Corporate Law: Code of Corporate
8
Governance 2017
Code of Corporate Governance 2017 –
Responsibilities of the Board of Directors
• Board of Directors must maintain a complete record of particulars of the
significant policies along with their date of approval or modifications
• These significant policies can include but are not limited to:
• Governance of risks and internal control measures;
• Human resource management including preparation of a succession plan;
• Procurement of goods and services
• Communication policy and investors’ / shareholders’ relations
• Marketing
• Determination of terms of credit and discount to customers
• Write-off of bad / doubtful debts, advances and receivables
• Sale and lease of assets, undertaking, capital expenditure, planning and control
Business & Corporate Law: Code of Corporate
9
Governance 2017
Code of Corporate Governance 2017 –
Responsibilities of the Board of Directors
• These significant policies can include but are not limited to (continued):
• Investments and disinvestment of funds
• Debt coverage
• Determination and delegation of financial powers
• Transactions or contracts with associated companies and related parties
• Environmental, Social and Governance (ESG) including health and safety aspects in
business strategies that promote sustainability, & this includes Corporate Social
Responsibility (CSR) initiatives and other philanthropic activities, donations /
contributions to charities and other social causes
• Whistle blowing policy, by establishing a mechanism to receive, handle complaints in a
fair and transparent manner while providing protection to the complainant against
victimization
Business & Corporate Law: Code of Corporate
10
Governance 2017
Code of Corporate Governance 2017 –
Responsibilities of the Board of Directors
• Chairman of the Board must, at the beginning of term of each director, issue
letter to directors setting out their role, obligations, powers and
responsibilities in accordance with the Companies Act 2017 and company’s
Articles of Association, their remuneration and entitlement

• All directors of a company must attend its general meeting(s), (ordinary and
extra-ordinary), unless authorized not to do so, due to any reasonable cause

Business & Corporate Law: Code of Corporate

11
Governance 2017
Code of Corporate Governance 2017 –
Directors’ Training Program
• Directors’ Orientation Program: all companies must make appropriate
arrangements to carry out orientation courses for their directors to acquaint
them with these rules & regulations, applicable laws, their duties and
responsibilities to enable them to effectively govern the affairs of the listed
company for and on behalf of shareholders

• Directors’ Training: mandatory for all companies to make sure that:

• By June 30th, 2019, at least half of the directors on their boards;
• By June 30th, 2020, at least 75% of the directors on their boards; and
• By June 30th, 2021, all the directors on their boards have acquired the prescribed
certification under any director training program offered by institutions, local or foreign,
that meet the criteria specified by& the
Business SECP
Corporate and
Law: Code
Governance 2017
ofapproved
Corporate by it 12
Code of Corporate Governance 2017 –
Directors’ Training Program
• Directors’ Training:
• A newly appointed director on the board must acquire, unless exempted or already in
possession of the required certification, the directors training program certification
within one year from the date of appointment as a director on the board
• A director having a minimum of 14 years of education and 15 years of experience on the
board of a listed company, local and/or foreign, will be exempt from the directors
training program
• Mandatory for every company to arrange training for:
• At least one female executive every year under the Directors’ Training program from the year starting
June 30th, 2019
• At least one head of department every year under the Directors’ Training program from the year
starting June 30th, 2021

Business & Corporate Law: Code of Corporate

13
Governance 2017
Code of Corporate Governance 2017 –
CFO, Company Secretary, Head of Internal Audit
• Board of Directors will determine appointment, remuneration, terms and
conditions of employment of CFO, Company Secretary and Head of Internal
Audit of companies
• Board of Directors will also approve the removal of CFO, Company Secretary
and Head of Internal Audit of companies

Business & Corporate Law: Code of Corporate

14
Governance 2017
Code of Corporate Governance 2017 –
Responsibility of Financial Reporting & Corporate Compliance

• CEO and the CFO must endorse the quarterly, half-yearly and annual financial
statements with their signatures before those financial statements are
considered & approved by the Board of Directors
• CEO and CFO must have the annual and interim financial statement (both
separate and consolidated, where applicable) initialed by the external auditors
before presenting it to the audit committee and the board of directors for
approval

Business & Corporate Law: Code of Corporate

15
Governance 2017
Code of Corporate Governance 2017 –
Committees of the Board
• Audit Committee:
• Consists of at least 3 directors (non-executive directors & at least 1 independent
director)
• Must meet at least once every quarter of the financial year
• CEO & CFO must not attend any meeting of the audit committee, except by invitation
only

• Human Resource & Remuneration Committee:

• Consists of at least 3 directors (non-executive directors & at least 1 independent
director)
• CEO must also be a member
• Must meet at least once in aBusiness
financial year
& Corporate Law: Code of Corporate
16
Governance 2017
Code of Corporate Governance 2017 –
Committees of the Board
• Nomination Committee:
• Number & class of directors depends on the circumstances
• Responsible for:
• Considering & making recommendations to the Board in regards to the Board committees & the
chairmanship of the Board committees
• Keeping the structure, size, & composition of the Board under regular review & make
recommendations to the Board in regards to any necessary changes

• Risk Management Committee:

• Number & class of directors depends on the circumstances
• Responsible for reviewing the effectiveness of risk management procedures & present a
report to the Board
Business & Corporate Law: Code of Corporate
17
Governance 2017
Code of Corporate Governance 2017 –
Internal Audit
• Internal Audit:
• Must be in every publicly listed company
• Head of internal audit must functionally report to the audit committee and
administratively to the CEO
• A director cannot be appointed, in any capacity, in the internal audit function to ensure
independence of the internal audit function

Business & Corporate Law: Code of Corporate

18
Governance 2017
Code of Corporate Governance 2017 –
External Audit
• External Audit:
• No company can appoint as external auditors, a firm of auditors, which has not been
given a satisfactory rating under the Quality Control Review program of the Institute of
Chartered Accountants of Pakistan and registered with Audit Oversight Board of
Pakistan
• No company can appoint as external auditors, a firm of auditors, which is non-compliant
with the International Federation of Accountants' Guidelines on Code of Ethics, as
adopted by the Institute of Chartered Accountants of Pakistan
• No company shall appoint its auditors to provide services in addition to audit and must
require the auditors to observe applicable International Federation of Accountants
guidelines in this regard
• All listed companies in the financial sector shall change their external auditors every five
years
• All listed companies other than those in the financial sector must, at a minimum, rotate
the engagement partner after every
Business five
& Corporate years
Law: Code of Corporate
Governance 2017
19
Code of Corporate Governance 2017 –
Reporting & Disclosure
• Directors’ Report:
• Must accompany quarterly unaudited financial statements of companies
• Must state directors’ review of the affairs of the company
• Must list composition of the Board in regards to number of directors, independent directors,
non-executive directors, & executive directors
• Names of all of the directors
• Directors’ remuneration & the remuneration policies of directors

• Compliance Statement & Auditor Review:

• All companies must publish and circulate a statement along with their annual reports showing
the status of their compliance with the requirements of Code of Corporate Governance
• All companies must ensure that the statement of compliance is reviewed and certified by
Business & Corporate Law: Code of Corporate
statutory auditors, & they should highlight any non-compliance, thereof, in their review report
Governance 2017
20