Corpoarte Governance and Borrowing Powers of Directors - III

Code of Corporate Governance issued by SECP in Pakistan provides guidelines regarding the responsibilities, powers and functions of board of directors. Here is a reproduction.

RESPONSIBILITIES, POWERS AND FUNCTIONS OF BOARD OF DIRECTORS

(vii) The directors of listed companies shall exercise their powers and carry out their fiduciary
duties with a sense of objective judgment and independence in the best interests of the listed company.
(viii) Every listed company shall ensure that:

(a) a ‘Statement of Ethics and Business Practices’ is prepared and circulated annually by its Board of Directors to establish a standard of conduct for directors and employees, which Statement shall be signed by each director and employee in acknowledgement of his understanding and acceptance of the standard of conduct;
(b) the Board of Directors adopt a vision/ mission statement and overall corporate strategy for the listed company and also formulate significant policies, having regard to the level of materiality, as may be determined it;

Explanation: Significant policies for this purpose may include:

• risk management;
• human resource management including preparation of a succession plan;
• procurement of goods and services;
• marketing;
• determination of terms of credit and discount to customers;
• write-off of bad/ doubtful debts, advances and receivables;
• acquisition/ disposal of fixed assets;
• investments;
• borrowing of moneys and the amount in excess of which borrowings shall be sanctioned/ ratified by a general meeting of shareholders;
• donations, charities, contributions and other payments of a similar nature;
• determination and delegation of financial powers;
• transactions or contracts with associated companies and related parties; and
• health, safety and environment

A complete record of particulars of the significant policies, as may be determined, along with the dates on which they were approved or amended by the Board of Directors shall be maintained.

The Board of Directors shall define the level of materiality, keeping in view the specific circumstances of the listed company and the recommendations of any technical or executive sub-committee of the Board that may be set up for the purpose;

(c) the Board of Directors establish a system of sound internal control, which is effectively implemented at all levels within the listed company;
(d) the following powers are exercised by the Board of Directors on behalf of the listed company and decisions on material transactions or significant matters are documented by a resolution passed at a meeting of the Board:

• investment and disinvestment of funds where the maturity period of such investments is six months or more, except in the case of banking companies, Non-Banking Financial Institutions, trusts and insurance companies;
• determination of the nature of loans and advances made by the listed company and fixing a monetary limit thereof;
• write-off of bad debts, advances and receivables and determination of a reasonable provision for doubtful debts;
• write-off of inventories and other assets; and
• determination of the terms of and the circumstances in which a law suit may be compromised and a claim/ right in favour of the listed company may be waived, released, extinguished or relinquished;

(e) appointment, remuneration and terms and conditions of employment of the Chief Executive Officer (CEO) and other executive directors of the listed company are determined and approved by the Board of Directors; and
(f) in the case of a modaraba or a Non-Banking Financial Institution, whose main business is investment in listed securities, the Board of Directors approve and adopt an investment policy, which is stated in each annual report of the modaraba / Non-Banking Financial Institution.

Explanation: The investment policy shall interalia state:

• that the modaraba / Non-Banking Financial Institution shall not invest in a connected person, as defined in the Asset Management Companies Rules, 1995, and shall provide a list of all such connected persons;
• that the modaraba / Non-Banking Financial Institution shall not invest in shares of unlisted companies; and
• the criteria for investment in listed securities.

The Net Asset Value of each modaraba / Non-Banking Financial Institution shall be provided for publication on a monthly basis to the stock exchange on which its shares/ certificates are listed.

(ix) The Chairman of a listed company shall preferably be elected from among the non-executive directors of the listed company. The Board of Directors shall clearly define the respective roles and responsibilities of the Chairman and Chief Executive, whether or not these offices