Code of Corporate Governance

1. Presentation on the Corporate Governance Awareness Workshop, Kurumba Island, Maldives (August 2007) Fathimath Shafeega Chief Executive Officer Capital Market Development Authority Code of Corporate Governance

2. Key Issues Considered in Drafting • Government ownership • Conflicts of Interest • Related party transactions • Directors mandated under Companies Act to hold shares in Company • Lack of capacity for enforcement purposes • Lack of qualified professionals in accounting and legal fields • Lack of training and awareness • Enhancement of Public Governance • Desire to use CG as tool for economic development

3. Main Provisions • Board Matters • Remuneration Matters • Accountability And Audit • Communication With Shareholders

4. What Code Says – Key Items • Integrity in personal and professional dealings • Wisdom and ability to take appropriate decisions • Ability to read and understand financial statements • An acknowledged record of business expertise and achievement so as to effectively contribute to the company’s management • Ability to deal with others with a sense of responsibility, firmness, and cooperation • Ability to interact with and consult with the company’s employees in order to achieve high management standards • A track record of a range of skills and experience as well as the ability to think strategically and with foresight • Each director must be able and prepared to devote sufficient time and effort to his duties as a director

5. Applicability • Stand-alone and given legislative bite through Listing Manual and Securities Act? • Compulsory for listed companies, but with some voluntary • Voluntary for public unlisted, private • More prescriptive approach

6. Definition At a minimum, Governance involves • organisational structures • rules of conduct • that acts as a check on insiders misusing their position or knowledge against the interest of other stakeholders The idea is to have GOAL POSTS

7. CG Summarised R = Responsibility A = Accountability F = Fairness T = Transparency RAFT contributes to effectiveness!

8. Board Issues • Composition – executive, non-executives, independents – numbers of each - Appropriate definitions • Independent directors – Importance & Sufficient numbers • Leadership • Chief Executive Officer separate from chairman • Qualifications • Role • Sub-committees of the board: • Nominating Committee • Remuneration • Audit • Training • Attendance at meetings / Quorum • Evaluation of board performance • Access to information • Tenure

9. Who To Appoint? And How? • CG Code provides: • Should be a formal and transparent process for the appointment of new directors to the Board • Recommends that key information and the names of the directors submitted for election or re-election be disclosed to enable shareholders to make informed decisions • Disclose the process for the selection and appointment of new directors to the Board as this ensures greater transparency in the nomination process

10. Executive and Non-Executive Directors • Executive directors are the employees of the company. • Paid salary • Non-Executive directors (‘NEDs’) are not the employees of the company and they do not hold any other office of profit in the company or in a related company. • Paid directors’ fees

11. Who Is An Independent Director? • Have not held, or whose immediate family members have not held, during the last one (1) year, a key position in the company, such as CEO, general manager, or any immediate employment position; • Have not, and their immediate family members have not, during the last one (1) year had any substantial financial dealings, including the receipt of remuneration, commissions, professional fees, payment for goods and services, etc with the company; • Definition of Family Member - spouse and children • Role • Constructively challenge and help develop proposals on strategy; and • Review the performance of Management in meeting agreed goals and objectives and monitor the reporting of performance. Independence = State of Mind!!

12. Who Is A Nominee Director • Person appointed to board of directors by an appointor: • Substantial shareholder • JV Partner • Investor • Creditor • Right to appoint contained in: • Articles of association • Contractual documents – JVA

13. Mix On The Board - Typical Chairman CEO Executive Directors Independent Directors • Size of Board = large enough to include directors with diverse expertise and experience to suit the specific requirements of a company and its business. • Guide = board sizes range from 7 to 10 directors, depending on the size of the company. • Rotate the Board – maximum 6 years Non-Executive Directors • Recruiting the right team • Guidance in CMDA Code

14. Main duties of the Board • The Board must always act in the best interests of the company and shareholders as a whole. • Provide leadership, set strategic aims, direction to the Management, and ensure that the necessary financial and human resources are in place for the company to meet its objectives; • Establish a framework of prudent and effective internal controls which enables risk to be assessed and managed, and monitor and assess the effectiveness of the internal controls established; • Review Management performance and determine its remuneration; and • Set the company’s values and standards, and ensure that obligations to shareholders and others are understood and met.

15. Chairman’s Role • Lead the Board to ensure its effectiveness on all aspects of its role and set its agenda; • Ensure that the directors receive accurate, timely and clear information; • Encourage constructive relations between the Board and Management; • Facilitate the effective contribution of non-executive directors • Encourage constructive relations between executive directors and non-executive directors; • Not to unilaterally issue policies without consulting with the Board as a whole with full frank and discussions being completed • Ensure effective communication with shareholders; • Promote high standards of corporate governance.

16. Board Committees - Maldives

17. Remunerate Fairly And Responsibly • Ensure that level and composition of remuneration is sufficient and reasonable • Ensure that its relationship to corporate and individual performance is defined • Means companies need to adopt remuneration policies that attract and maintain talented and motivated directors and employees so as to encourage enhanced performance of the company • Important that there be clear relationship between performance and remuneration • Important that policy underlying executive remuneration be understood by investors.

18. Performance Appraisal • Identification of performance indicators • Evaluation against performance indicators • Evaluation should be conducted at least once a year

19. Disclosure Of Remuneration • To disclose in Annual Report collectively: • the remuneration of directors during the year as: • Director fees • Other benefits, including share options, long term incentive schemes, pension benefits and preferential entitlements • To disclose voluntarily each director’s and top management remuneration

20. Key Duties And Liabilities • The primary duties of directors include the following: • good faith; • acting without conflict of interest; • not competing with the company • care and skill; • disclosure; • prohibition of lending to director; • filing returns; • keeping proper records and preparing financial reports; and • obligations under the Listing Manual.

21. Same Duty For All Directors?

22. Management • Definition – The management must comprise the CEO, executive directors & key managers of the company involved in day to day activities. • Role • Relationship with board • Access to information

23. Company Secretary • Necessary? YES • Qualifications • Understanding of compliance • Imply accountants, lawyers etc can play impt role • Scope of functions • Board • Management • Committees

24. Shareholder Communications • How to engage • Information to provide • Electronic participation • Resolutions on substantially separate issues to be kept separate • Requirement for effective shareholder remedies

25. Disclosure, Transparency, Accounts • Financial statements to comply with Accounting Standards • Non-financial statements: • Conflict of interest • Compliance with CG measures implemented • Director remuneration • Companies operating procedure • Risk management concerns • Format for disclosure

26. Training • Absolutely essential • Train the trainers • For board & management • Legal (including duties and liabilities) and accounting concerns • Roles and specific functions to gain better understanding • Business and strategic issues • Economic issues and changing conditions, and impact on company’s businesses • For employees: • Details of policies of company • Specific roles and duties and responsibilities, including liabilities

27. Criteria for CG Award • Work undertaken to adopt governance principles • Contribution to significant development of corporate governance practices • Promotion of initiatives for the enhancement of future corporate governance practices

28. System to raise concerns • Main scope: • Fraudulent financial reporting • Misstatements arising from misappropriation of assets • Improper or unauthorized expenditures (including bribery and other improper payment schemes) • Self-dealings (including kickbacks) • Violations of laws and regulations (including those that expose the company or its agents to regulatory or criminal actions, e.g. securities frauds, signing false audit confirmations)

29. Pre-requisites For Enforcement • Market maturity & level of sophistication • Level of awareness of directors of their duties • Shareholders of their rights and • Presence of reputatable intermediaries • The presence of enforcing institutions • Integrity and efficacy of regulatory agencies • Judicial system • The supporting legal framework • Relevant laws in the corporate and financial system must be firmly in place

30. Timelines

31. Challenges Ahead • Change of culture • Legal reform • More training & awareness • Shareholder activism • Independent Directors

32. Initiatives for Implementation • A series of training workshops have been held 2002 1st Seminar on CG 2005 Training Programme on CG Code 2006 Seminar on CG 2007 Corporate Governance Awareness Workshop More workshops to be arranged….

33. Thank You! For more information Log onto: www.cmda.gov.mv