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CORPORATE GOVERNANCE AMMENDMENTS

Presented by: Abdul khaliq khan Hamid Mahmood Aamir Maalik Waqar Younas. To Sir Tahir Mahmood. CORPORATE GOVERNANCE AMMENDMENTS. SEC RE-EVALUATION OF THE LAWS, RULES AND REGULATIONS, AND GUIDELINES ON CORPORATE GOVERNANCE. Corporation Code Securities Regulation Code (“SRC”)

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CORPORATE GOVERNANCE AMMENDMENTS

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  1. Presented by: Abdul khaliq khan Hamid Mahmood AamirMaalik WaqarYounas To Sir Tahir Mahmood CORPORATE GOVERNANCE AMMENDMENTS

  2. SEC RE-EVALUATIONOF THE LAWS, RULES AND REGULATIONS,AND GUIDELINESON CORPORATE GOVERNANCE

  3. Corporation Code • Securities Regulation Code (“SRC”) • Implementing Rules and Regulations (“IRR”) • Revised Code of Corporate Governance (“Revised Code”) THE LAW ONCORPORATE GOVERNANCE

  4. Number of directors Number of independent directors Number of directorships of an independent director Length of service of an independent director Multiple positions Director’s compensation Audit and other committees Possible Amendments

  5. Corporation Code – not less than 5 no more than 15 • Survey results – 65 out of 100 companies had 8 to 11 directors SIZE = QUALITY OF CORPORATE GOVERNANCE? RATIO: 2 out of 8 = 1:4 2 out of 15 = 1:7.5 Number of Directors

  6. WHO IS AN “INDEPENDENT DIRECTOR”? • SRC Sec. 38; Revised Code “a person other than an officer or employee of the corporation, its parent or subsidiaries, or any other individual having a relationship with the corporation, which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director” • SRC Rule 38.1 “a person who, apart from his fees and shareholdings, is independent of management and free from any business or other relationship which could or could reasonably perceived to, materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director in any covered company x xx” NUMBER OF INDEPENDENT DIRECTORS

  7. SRC - AT LEAST 2 OR AT LEAST 20%, WHICHEVER IS LESSER • IRR • all companies are encouraged to have independent directors. • Issuers of registered securities and public companies, at least 2 or at least 20% whichever is lesser although said companies may choose to have more • Exchanges should have at least 3 independent directors NUMBER OF INDEPENDENT DIRECTORS

  8. SURVEY RESULTS • IN 2009, ONLY 6 COMPANIES HAVE 4 OR MORE INDEPENDENT DIRECTORS • IN 2008, 10 COMPANIES HAD 4 OR MORE INDEPENDENT DIRECTORS • POSSIBLE REASONS • DIFFICULT TO FIND PERSONS WHO ARE INDEPENDENT, NOT CONFLICTED, WITH SUITABLE EXPERTISE • LACK OF TIME • NOT WILLING TO RISK REPUTATION OR BE EXPOSED TO SUITS NUMBER OF INDEPENDENT DIRECTORS

  9. ALL BUT ONE • NETHERLANDS • AT LEAST 50% OR MAJORITY • USA, AUSTRALIA, JAPAN, UK, FRANCE, BRAZIL, CANADA • AT LEAST 1/3 • SINGAPORE, MALAYSIA, CHINA, NEW ZEALAND • AT LEAST 20% • INDONESIA, PHILIPPINES (OR AT LEAST 2 WHICHEVER IS LESSER) • AT LEAST 3 • HONGKONG, SPAIN (+1/3) NUMBER OF INDEPENDENT DIRECTORS

  10. REVISED CODE • THE BOARD MAY CONSIDER THE ADOPTION OF GUIDELINES ON THE NUMBER OF DIRECTORSHIPS THAT ITS MEMBERS CAN HOLD IN STOCK OR NON-STOCK CORPORATIONS. THE OPTIMUM NUMBER SHOULD TAKE INTO CONSIDERATION THE CAPACITY OF A DIRECTOR TO DILIGENTLY AND EFFICIENTLY PERFORM HIS DUTIES AND RESPONSIBILITIES. NUMBER OF DIRECTORSHIPS

  11. SEC RECORDS • 2008. MAXIMUM OF 7 • 2009. MAXIMUM OF 8 • SURVEY RESULTS • 2008, MAXIMUM OF 10 • 2009, MAXIMUM OF 11 NUMBER OF DIRECTORSHIPS

  12. SEC RECORDS 2005 TO 2010 • INDEPENDENT DIRECTORS WITH ABSENCES OF MORE THAN 50% OF SCHEDULED MEETINGS FOUND IN 6 COMPANIES • AVERAGE NUMBER OF BOARD MEETINGS IN LISTED COMPANIES IN 2010 WAS 9 • AMONG 43 BANKS, ONE BANK HAD 31 BOARD MEETINGS IN 2010 • AMONG COMPANIES ENGAGED IN FOOD, MANUFACTURING, OIL, DIVERSIFIED, POWER, REAL ESTATE, SOME COMPANIES HAD 20 TO 22 BOARD MEETINGS IN 2010 NUMBER OF DIRECTORSHIPS

  13. INDIA • PRESENTLY 15 COMPANIES BUT PROPOSED AMENDMENT IS NOT MORE THAN 7 • FRANCE • MAXIMUM OF 5 COMPANIES REGISTERED IN FRANCE NUMBER OF DIRECTORSHIPS

  14. SURVEY RESULTS FOR 2009, OUT OF TOTAL OF 226 • INDEPENDENT BOARD SEATS: • 7 SEATS HELD FOR OVER 20 YEARS • 20 SEATS HELD FROM 11 TO 20 YEARS • 42 SEATS HELD FROM 6 TO 10 YEARS LENGTH OF SERVICE

  15. FACTORS TO CONSIDER: • CAPACITY • CONTINUITY • CREDIBILITY • COOPERATIVE RELATIONS WHAT SHOULD BE THE CAP? LENGTH OF SERVICE

  16. 12 YEARS – SPAIN, NETHERLANDS • 9 YEARS - HONGKONG (SUBJECT TO SEPARATE RESOLUTION BY SHAREHOLDERS), INDIA (RECOMMENDATORY) • 6 YEARS – UK (IF BEYOND SUBJECT TO RIGOROUS REVIEW), CHINA, INDIA (PROPOSED MAXIMUM) • 4 YEARS – FRANCE LENGTH OF SERVICE

  17. SURVEY RESULTS • 32% OF INDEPENDENT DIRECTORS WERE CONCURRENTLY CEOs OF OTHER COMPANIES • 25% OF INDEPENDENT DIRECTORS WERE PREVIOUSLY DIRECTORS OR OFFICERS OF THE SAME COMPANY • 68 OUT OF 100 SURVEYED COMPANIES HAD DIFFERNT INDIVIDUALS SERVING AS CHAIRMAN AND CEO • 6 OUT OF 100 SURVEYED COMPANIES HAD AS CHAIRMAN AN INDEPENDENT DIRECTOR MULTIPLE POSITIONS

  18. SURVEY RESULTS • 17 OF 100 SURVEYED COMPANIES HAD CEOs WHO WERE ALSO CEO OF THEIR LARGEST SHAREHOLDER • 26 HAD CHAIRMEN WHO WERE EITHER DIRECTORS OR EXECUTIVE OFFICERS OF THEIR LARGEST SHAREHOLDER • 14 HAD CHAIRMEN WHO WERE ALSO CHAIRMAN OF THEIR LARGEST SHAREHOLDER MULTIPLE POSITIONS

  19. REVISED CODE • The roles of Chair and CEO should as much as practicable be separate to foster an appropriate balance of power, increased accountability, and better capacity for independent decision-making by the Board. A clear delineation of functions should be made between the chair and CEO upon their election. • If the positions of Chair and CEO are unified, the proper checks and balances should be laid down to ensure that the Board gets the benefit of independent views and perspectives. MULTIPLE POSITIONS

  20. REVISED CODE • The corporations’s annual reports and information and proxy statements shall include a clear, concise and understandable disclosure of all fixed and variable compensation that may be paid, directly or indirectly, to its directors and top four (4) management officers during the preceding fiscal year. DIRECTORS COMPENSATION

  21. OGCC ACT • any and all realized and unrealized profits and/or benefits including, but not limited to, the share in the profits, incentives of members of the Board or Officers in excess of that authorized by the GCG, stock options, dividends and other similar offers or grants from corporations where the GOCC is a stockholder or investor, and any benefits from the performance of the members of the Board or officers of the Corporation acting for and in behalf of the GOCC in dealing with its properties, investments in other corporations, management of subsidiaries and other interest, are to be held in trust by such member of the Board DIRECTORS COMPENSATON

  22. SURVEY RESULTS • 93 COMPANIES HAD AN AUDIT COMMITTEE • 54 OUT OF THE 93 HAD AN INDEPENDENT DIRECTOR AS CHAIR COMMITTEES

  23. AUDIT COMMITTEE – MANDATORY; FURTHER THE CHAIR SHOULD BE AN INDEPENDENT DIRECTOR • “MAY” ORGANIZE: • NOMINATION COMMITTEE (3 MEMBERS 1 OF WHOM SHOULD BE AN INDEPENDENT DIRECTOR) • COMPENSATION OR REMUNERATION COMMITTEE (SAME) COMMITTEES

  24. SEC RECORDS • 29 LISTED COMPANIES HAVE A RISK MANAGEMENT AND GOOD GOVERNANCE COMMITTEE • LESS THAN 10 LISTED COMPANIES HAVE A: • VALUES AND FORMATION COMMITTEE • SUSTAINABILITY COMMITTEE • INVESTMENT COMMITTEE COMMITTEES

  25. PER SEC RECORDS FROM 2005 TO 2010 • THE NOMINATION COMITTEE OF 7 LISTED COMPANIES FAILED TO PRE-SCREEN OR SHORTLIST INDEPENDENT DIRECTORS • 4 LISTED COMPANIES HAD NOMINATED AND/OR ELECTED NOT QUALIFIED PERSONS TO BE INDEPENDENT DIRECTORS COMMITTEES

  26. Thank you!

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