Major Changes in Revised Code of Corporate Governance ......Greenbury report 1995 Director...
Transcript of Major Changes in Revised Code of Corporate Governance ......Greenbury report 1995 Director...
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Major Changes in Revised
Code of Corporate
Governance & ICAB
Recommendations
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Contents
CCG – Global and Bangladesh Perspective
Conditions of proposed CCG
Major changes in draft CCG and ICAB
recommendation
Reconciliation between 2012 and 2017
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Corporate Governance
Definition
Corporate governance is the system of rules,practices and processes by which anorganization is directed and controlled.
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CCG – Global Perspective
UK Code of corporate governance
Cadbury report 1992 Organizations monitoring & assessment
Greenbury report 1995 Director Remuneration
Hampel Report 1998 List of good corporate principles
Code of corporate governance 1998
Turnbull report 1999 & 2005 Framework for internal control
Higgs report 2003 Role of NED
Tyson Report 2003 Guidance on NED
Smith Report 2003 Role of auditors and Audit Committee
CCG 2003
CCG 2006
Corporate Governance in the UK
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After more than two decades of evolving corporategovernance in the UK, many of you may be thinking, isthere anything left to improve?
The economic, commercial and regulatory environmentscontinue to change, and governance practice andguidance must keep pace.
Simon Lowe, Chairman GT Governance Institute
CCG – Global Perspective
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CCG – Global Perspective
Corporate Governance in the USA
In the first half of the 1990s, the issue of corporate governance inthe U.S. received considerable press attention due to a spate ofCEO dismissals.
In the early 2000s, the massive bankruptcies of Enron andWorldcom as well as corporate scandals led to increased politicalinterest in corporate governance.
This was reflected in the passage of the Sarbanes-Oxley Act of2002.
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The G20/OECD Principles of Corporate Governance, first published as the OECDPrinciples in 1999
Revised in 2004
Revised again and endorsed by the G20 in 2015
This internationally agreed benchmark consists of more than fifty distinctdisclosure items across five broad categories:
Auditing
Board and management structure and process
Corporate responsibility and compliance in organization
Financial transparency and information disclosure
Ownership structure and exercise of control rights
CCG – Global Perspective
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Blame the deluded board members for
Carillion's collapse- The GuardianResponsibility for Carillon collapse lies in the boardroom. It is the job of the directors to manage riskand the eight pages of Carillion’s last annual report devoted to the subject clearly only scratched thesurface.
Carillion directors were boasting in March last year of having “substantial liquidity with some £1.5bn ofavailable funding” yet the company ran out of money 10 months later.
As usual with the construction sector, the immediate cause of failure is a mix of badly priced contracts,badly managed risks plus too much debt. On a good day, contracting firms run on tight operatingmargins of 3%. If debt is too high, there is little room to absorb calamitous contracts. When threecontracts go sour in quick succession, the numbers can spiral out of control.
Carillion, outrageously, was declaring a fatter dividend for shareholders only last spring. Given what weknow now, the correct action would have been to go to those investors and ask for a big injection ofcapital via a rights issue. Half the board would have had to resign, but an over-stretched balance sheetmight have been repaired. Instead Carillion seems to have chosen to chase more low-margin contractsin a desperate attempt to keep its revenue line moving.
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CCG – Bangladesh Perspective
Introduced in 2006
Revised in 2012 with certain major improvements
Revamped in the draft of 2017 with six chapters 14
Conditions in 78 pages
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Conditions of revised CCG
Sl Condition Sl Condition
1 Board of Directors 8 Executive Committee
2 Governance of BoD of Subsidiary Company
9 Environment and Social Responsibility committee
3 MD/CEO/CS/CFO/HIAC/HICT 10 Financial Reporting and Disclosure
4 Board Committee 11 External/Statutory Auditors
5 Audit Committee 12 Exchange's Roles on compliance of CCG
6 Nomination and Remuneration Committee
13 Reporting and compliance of CCG
7 Risk Management Committee 14 Compliance of other laws
* Bold stands for 2012 conditions
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Major Changes in the Draft CCG and ICAB Recommendations
Composition of the Board
General shareholders representative will be included as a BoD from General
Shareholders portion
One of the BoD shall be female
ICAB Recommendations
1/10th of the BoD shall be young. If a listed company has got 5 directors
1/10th comes to 0.5. Hence a separate sentence to be added as “ Any
fraction shall be considered to the next integer/whole number for calculating
the number of such director. (1.1)(iii)
Change age bracket from 25 to 40 years to 30 to 40 years (1.1)(iii)
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Major Changes in the Draft CCG and ICAB
Recommendations
Independent Director
Cannot hold any shares
An individual can be appointed as Independent Director for 5 Listed
Companies
Prior approval from BSEC is required to appoint Independent Director
Cooling period proposed (1+1+0+1)
ICAB Recommendations
If a company appoints one Independent Director, he/she must be a
professional accountant. Remaining Independent Directors, if any, may
be selected from other categories of the panel. (1.2)(i)
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Major Changes in the Draft CCG and ICAB
Recommendations
ICAB Recommendations
An Independent Director cannot be an executive for two years not only of
the entity but also its related company (Parent, Subsidiary, JV, etc.)
Number of Independent Directors in Banking Company should at least be
equal to non-banking company. Rather this number should be increased for
banking companies
Exclude members of extended family*. It will be difficult for the
Independent Director to determine shareholding by their extended family
*Spouse, son, daughter, father, mother, brother, sister, stepfather, step-mother, step-brother, step-sister, adopted son, adopted daughter, mother-in-law, father-in-law, son-in-law, daughter-in-law,brother-in-law, sister–in- law, grand- son, grand- daughter, grand-father, grand- mother, uncle, aunt,cousin, nephew and niece shall be considered as family members and extended family members
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Major Changes in the Draft CCG and ICAB
Recommendations
Qualification of Independent Director
Business Leader, Corporate leader, Bureaucrat or Government
Official’s qualification has been well defined
Role of Board of Directors
Detailed code of conducts of the BoD and Senior Management
of the company introduced
The code must be posted in the company website
Annual signed compliance statement must be included in the
Annual Report
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Major Changes in the Draft CCG and ICAB
Recommendations
Chairperson of the Board
The Chairperson/ MD/CEO of a Listed Company shall not hold the same
position in another listed company
Meetings of the BoD
Conduct the meetings and record the minutes in line with Bangladesh
Secretarial Standards (BSS)-1 and BSS -3
ICAB recommendations
BoD will be evaluated through self evaluation – define KPI (1.4)(ii)(k)
How BoD will be trained? (1.4)
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Responsibility of the Board
Former Chairman of the BoD of General Motors, John G. Smale wrote in
1995: "The board is responsible for the successful perpetuation of the
corporation. That responsibility cannot be relegated to management.
A BoD is expected to play a key role in corporate governance. The
board has responsibility for: CEO selection and succession; providing
feedback to management on the organization's strategy; compensating
senior executives; monitoring financial health, performance and risk;
and ensuring accountability of the organization to its investors and
authorities.
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Major Changes in the Draft CCG and ICAB
Recommendations
Nomination and Remuneration Committee
NRC shall assist the BoD in formulation of the nominationcriteria or policy for determining qualifications, positiveattributes, experiences and independence of directors and keymanagerial personnel and senior management as well as apolicy for remuneration.
All members of the Committee shall be Non-ExecutiveDirectors, the majority of whom shall encourage beingindependent directors who shall be the Chairman of theCommittee
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Major Changes in the Draft CCG and ICAB
Recommendations
Risk Management Committee
The RMC shall be responsible for the overall process of riskmanagement, such as framing, implementing and monitoring the riskmanagement plan, including the related system of internal control ofthe company
The RMC shall consist of at least 3 members who are appointed bythe BoD from its Non-Executive Directors together with the MD/CEO
ICAB Recommendation
The HIA and Auditor may be invited to assist RMC to make effectivedecisions – this will create advocacy threat
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Major Changes in the Draft CCG and ICAB
Recommendations
Executive Committee
The EC shall assist the BoD or its sub-committees to deal withthe day-to-day activities of the company and to develop andimplement the business plans, policies, and budget of thecompany and report and recommend to the BoD and its sub-committees
The Committee shall comprise of at least top 5 executives
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Major Changes in the Draft CCG and ICAB
Recommendations
Environmental and social responsibilities
ESRC shall be responsible for making Environmental Issues policy in line withprovisions /directives/ notifications/ requirements as per respective governmentauthority as applicable for the respective industry/service sector as well as theimplementation and monitoring of REI policy in compliance with the regulatoryrequirements.
ESRC shall also make a statement that the implementation and monitoring of REIpolicy is in due compliance with the regulatory requirements, which shall also bedisclosed in the Directors’ Report as annexed in the Annual Report of thecompany.
Need to comply with the above condition within 31 December 2020.
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Major Changes in the Draft CCG and ICAB
Recommendations
Financial Reporting and Disclosures
Some existing conditions have been brought under this condition which already exist in DSE Listing Regulations 2015:
10.1 PREPARATION OF FINANCIAL STATEMENTS Regulation-14 of DSE Listing 2015
10.2 AUDITING OF FINANCIAL STATEMENTS Regulation-15 of DSE Listing 2015
10.3 ADOPTION OF QUARTERLY FINANCIAL STATEMENTS Regulation-16 of DSE Listing 2015
10.4 SUBMISSION OF QUARTERLY FINANCIAL STATEMENTS Regulation-17 of DSE Listing 2015
10.5 SUBMISSION OF ANNUAL FINANCIAL STATEMENTS AND OTHER REPORTS Regulation-18 of DSE Listing 2015
10.6 ADOPTION OF ANNUAL FINANCIAL STATEMENTS Regulation-19 of DSE Listing 2015
10.7 AUTHENTICATION OF FINANCIAL STATEMENTS Regulation-20 of DSE Listing 2015
10.8 POSTING OF FINANCIAL STATEMENTS IN THE WEBSITE Regulation-21 of DSE Listing 2015
10.9 SUBMISSION OF ANNUAL REPORT Regulation-22 of DSE Listing 2015
10.10 ANNUAL GENERAL MEETING Regulation-24 of DSE Listing 2015
10.12 WEBSITE Regulation-44 of DSE Listing 2015
10.13: E-FILING OF INFORMATION/DOCUMENTS Regulation-41 of DSE Listing 2015
10.14: DISCLOSURE OF PRICE SENSITIVE INFORMATION Regulation-33 of DSE Listing 2015
10.15 DECLARATION OF SPONSORS OR DIRECTORS FOR BUYING AND SELLING
OF SECURITIES
Regulation-34 of DSE Listing 2015
10.16 SUBMISSION OF STATEMENT OF MONTHLY SHAREHOLDING POSITION
AND FREE FLOAT REPORTING
Regulation-35 of DSE Listing 2015
Why are we making the code thicker?
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Major Changes in the Draft CCG and ICAB
Recommendations
Role of Exchange’s on corporate governance
The exchange shall review the reports on compliance ofcorporate governance
The exchange shall inspect every listed company once inevery two years
The exchange will also make a pool of prospectiveindependent directors
Are they ready?
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Major Changes in the Draft CCG and ICAB
Recommendations
Reporting related recommendations
Since BAS/BFRS will no longer be used amendment is required
in the following conditions:
1.6 (xv), Annexure D
Since BSA/BAPS will no longer be used amendment is required
in condition 10.2 (5).
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Major Changes in the Draft CCG and ICAB
Recommendations
Reporting related recommendations Both basic and diluted EPS should be considered while adopting Financial
Statements in the following conditions:
10.3 (2)
10.6 (2)
Annual FS should be audited within 120 days instead of 90 days (10.5)
Exclude the following disclosure in quarterly FS (10.4)
Detailed break-up or composition of shareholders’ equity- paid-up capital, share premium and number of ordinary shares
with face value & date of issue, Preference Share Capital, number of preference shares with face value & date of issue,
conversion features of preference shares (if any) with conversion date, conversion features of any other securities (if any)
with conversion date, detailed break-up of reserve & surplus (10.4)(a)
In addition to disclosures on direct method of cash flows, a reconciliation of Net Income or Net Profit with Cash Flows
from operating activities- making adjustments of for noncash items, for non-operating items and for the net changes in
operating accruals. (10.4)(e)
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Major Changes in the Draft CCG and ICAB
Recommendations
Reporting related recommendations
To exclude product-wise performance (1.6)(ii)
To include if any for clause (1.6)(xxxii). Compare such financial
performance/results and financial position as well as cash flow with
the peer company explaining industry scenario
To include notes to the Financial Statement as component of
Financial Statements (5.1 (v) (Explanation)
Define industry specific ratio and Exclude unnecessary ratio on the
FS as per Annexure-C (10.5)(2) (f)
Annexure-C.pdf
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Major Changes in the Draft CCG and ICAB
Recommendations
Hierarchy related recommendations
Senior management has been defined in the explanation of 1.2
(h). The hierarchy should be MD/CEO/CFO/CS/HIAC/HICT but the
same has not been followed in the following conditions:
1.6 (xxviii)(c) (e), (xxxii)
3.1 (i), (ii), (iii), (iv),(v)
3.2
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Major Changes in the Draft CCG and ICAB
Recommendations
CFO related recommendation
No person shall be appointed as Chief Financial Officer (CFO) by
the BoD without being a Professional Accountant (3.1)(i)
CFO should be part of the Risk Management Committee (7.1)(1)
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Major Changes in the Draft CCG and ICAB
Recommendations
External Auditor
Not only the Partners and employees of audit firm but also their
family members cannot hold shares of an audit client
Will be required to submit a signed declaration to the company
Will be required to be present during the AGM to answer the
queries of Shareholders
ICAB Recommendation (11.0)
Clause (1) (viii) should be re-numbered as clause (2) and (2) and
(3) should be re-numbered as (3) and (4)
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Major Changes in the Draft CCG and ICAB
Recommendations
Other recommendations
In the terms of reference of the Audit Committee instead of writing the audit
committee shall it should be re-written like (5.4)
The Terms of Reference (ToR) of the Audit Committee shall be clearlyset forth in writing covering the areas of financial and other reporting,audit and internal control, and Corporate Governance in accordancewith best practices which shall include:
The company shall not get its FS audited by any firm of chartered
accountants who has been convicted by the Council of ICAB. (10.2)(6)
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Major Changes in the Draft CCG and ICAB
Recommendations
The Company should disclose only material information onlitigation, conviction, violation of securities laws, loandefaulters etc. rather than all litigation, conviction, violationof securities laws, loan defaulters etc. (1.6) (xxxi)
The timeline for submission of Q1 financial statements ofcompanies other than life insurance company should beextended to 45 days from 30 days (10.4)
Since a company is required to upload annual report in theirwebsite, requirement of sending annual report through emailmay be made as optional (10.9)(2)
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Major Changes in the Draft CCG and ICAB
Recommendations
Specific guidelines should be mentioned for whistle blowingpolicy (10.12)(f)
The BSEC should insert a Preamble/Preface to the Guidelinessetting out underlying principles of good corporate governanceas well as the purpose for formulating and reformingGuidelines.
CS will be part of all the committees including signing the FSbut in clause 3.3 (Duties of MD/CEO/CFO), CS has not beenincluded – lessons learnt prior to SOX. Sign in Annexure-D
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Reconciliation of CCG of 2012 vs 2017
Presentation\Recon of CCG of 2012 vs 2017.xlsx
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Questions
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Presenter Contact Details
Snehasish Barua, FCA (ICAB), ACA (ICAEW)
Partner
Snehasish Mahmud & Co
Chartered Accountants
+8801819319319
www.smac-bd.com