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8/11/2019 Week 12 &13 Managment as a Key Player in the Corporate Governance
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Department of
Management
Sciences
By
Muhammad Naveed Chohan
Sunday, September 07, 2014
CORPORATE GOVERNANCE
Week 12 & 13Management as a Key Player in the
Corporate Governance
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Outline
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Role of Management in Corporate Governance
Fit and Proper Test for Key Executives
Management Performance
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PRIVATE SECTOR
EXTERNAL
GOVERRNANCE
INTERNAL
GOVERNANCEPUBLIC SECTOR
EXTERNAL
GOVERNANCE
- Investors -General Meeting of Shareholders Meets
annually to approve accounts & electdirectors who may also be employees,
advisors, consultants, etc.
- Board of Directors -
Appoints own Chairman and CEO(Who may the same person )
And has power to form sub-committees
to: Manage audit matters;
Remunerate directors;
Nominate Directors;
Performs any other activities
- Management -CEO controls
managements and
employees
Auditor
Stock
Exchange
Bank (s)
Media
Professional
Bodies
(Accounting
standards. etc.)
Market forces for
employees, raw
material etc.
FederalGovernment
Trade
Practices,
monopolies,
Price
justifications,
Share issues,
Trading , Tax,
etc.
Regional
Government
(States)
Health, Safety,
Environment
etc.
Local
Government,
Building, Tax,
Environment,
Health, Waste
Disposal etc.(Anglo-Saxon Corporate Governance)
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Role of Management inCorporate Governance
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Framework of Corporate Governance:
-- Corporate Governance is about setting up a system of entrusting the
directors and managerswith responsibilitiesin relation to running
corporate affairs--
--A set of relationship between a companys management, its board, itsshareholders and other stakeholders
-- Corporate Governance signifies the manner in which business and affairs of
the corporations are directed and managed by the board of directors and
Senior management--
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Role of Management inCorporate Governance
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Chief Executive Officer (CEO)
--A company other than a company managed by a managing agent must have
a chief executive of the company--
Appointment of Chief Executive officer (CEO):
First CEO must be appointed from the date of commencement/ within 15
days of incorporation
First CEO heads the company up first AGM or until subsequent CEO
Subsequent CEO is appointed by Directors for 3 Years
A CEO can be re-elected
Subsequent continues up to appointment of successor
Terms and Conditions of Appointment:
Determine in AGM in accordance with articles
Not already a director
Entitle to all rights and privileges subject to liabilities
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Role of Management inCorporate Governance
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Chief Executive Officer (CEO)
Restriction on Appointment:
Not eligible to appoint as CEO if not eligible to become as a director
Director disqualified to become a director will not become as CEO
Removal:
Resolution of directors in ratio
Under article of association
Can not compete with the business and will disclose
Penalty for Contravention:
Fine up to Rs,10,000
Bar to appoint as CEO for 3 years
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Role of Management inCorporate Governance
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Chief Executive Officer (CEO)
Major Issue in board:
CEO and Chairman should be separate persons
Office of CEO and Chairman can be hold by same person
CEO in the Banking Companies of Pakistan:--No member of the board of directors of banking company holding 5 percent
or more of the paid-up capital of banking company..........shall be
appointed in the bank in any capacity save as the chief executive of
bank......Prudenti al Regulation for Corporate and Commercial Banks G 1(C), 2011
Restriction to become executive in the bank:
--Not more than 25% of the total directors can be paid executives of the
bankCorporate Governance Code of Pakistan
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Role of Management inCorporate Governance
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The Company Secretary(CS)
-- Secretary is a Latin word meaning confidential writer or notary , In
commercial terms, the secretary is an employee entrusted with confidential
correspondence and record
--Any individual appointed to perform the secretarial, administrative or otherduties ordinarily perform the secretarial, administrative or other duties
ordinarily performed is called the secretary of a companyUnder Companies Ordinance 1984
Who appoints and removes the company secretary?
-- Company secretary can be appointed and removed by the CEO with
approval of the boardCorporate Governance Code of Pakistan 2002
--Maintenance of Record of CS under Section 205 of Companies Ordinance
1984, Report within 10 days in case of change--
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Role of Management inCorporate Governance
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The Company Secretary(CS)
Qualifications to become a company secretary:
A member of a recognized body of professional accounts, or;
A member of a recognized body of corporate/chartered secretaries, or;
A lawyer. Or; A graduate from a recognized university having 5 years of relevant
experience in a listed company
Corporate Governance Code of Pakistan 2002
CS in company meetings:
Can attend company meeting
can not cast vote
Can not attend that part which is relating to himCorporate Governance Code of Pakistan 2002
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Role of Management inCorporate Governance
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The Company Secretary(CS)
Limitations for company secretary:
Has no independent authority to bind company by contract
Cannot borrow money on behalf of the company
Can not register transfer until authorize by directors Can not strike a name off from the register of members without authority
Cannot call a general meeting on his own authority
Can not attend meeting relating to agenda item of CEO, CFO and CS
Secretarial Compliance Certificate:
File Secretarial Compliance Certificate within 45 days from the date of
AGM
No meeting than from the last day of the year
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Role of Management inCorporate Governance
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Chief Financial Officer (CFO)
-- The CFO or Chief accountant includes any person, by whatever name called,
who is charged with the responsibility of maintenance of books of account
of a company.
Who appoints CFO?
CEO with the approval of board of directors in case of a listed company
Remuneration, terms and condition of employment is in the hand of CEO
Qualifications to become a CFO:
A member of a recognized body of professional accounts, or;
A graduate from a recognized university having 5 years of relevant
experience in handing financial or corporate affairs of a listed company or
a bank or a financial institution
Corporate Governance Code of Pakistan 2002
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Role of Management inCorporate Governance
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Chief Financial Officer (CFO)
Duties of CFO:
Every company should give true and fair view of accounts
The books of accounts must be kept for a period of at least ten years
CFO and CEO are responsible for presenting the financial statements of alisted company
Accounts should be endorsed under their respective signature, for
consideration and approval of the board of directors
Qualifications to become a CFO: A member of a recognized body of professional accounts, or;
A graduate from a recognized university having 5 years of relevant
experience in handing financial or corporate affairs of a listed company or
a bank or a financial institution
Corporate Governance Code of Pakistan 2002
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Fit and Proper Test for Key Executives
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Issuance of FPT Criteria: SBP issued it to make smooth appointments of key bank executives
Included inPrudential Regulation G 1(A) for Corporate and Commercial
Banks, 2011
Issued through a directive BPD Cir No. 11 of 5thApril, 2003
Included in theHand Book of Corporate Governance
For Whom this Criteria was made? Directors
Chief Executive Officer (CEO)
Chief Financial Officer (CFO)/ Head of Faineance/ Head of Accounts
Head of Internal Audit Country Treasurer
Head of Credits/ Risk Management
Head of Operations
Head of Compliance
Head of Human Resource
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Fit and Proper Test for Key Executives
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Role of SBP regarding FPT:
No prior approval is required from SBP regarding FPT
Bank/DFI is itself is responsible to make sure
Bank/DFI shall report only brief information of such appointments within
7 days of joining according to given format
Non Compliance of FPT :
Inspection by SBP
Strict punitive action against the bank/DFI under BCO 1962
Dispensation from service of concerned officer if recruited afresh
In case of existing employee transferred to original post
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Fit and Proper Test for Key Executives
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Elements of FPT:
4. Financial Soundness
Not defaulter of payment of dues owed
Not defaulter of taxes in individual capacity or proprietary capacity
5. Conflict of Interest Has not more than one functional areas that give rise
Not hold any directors in his/her personal capacity in a business concern
that is also a client of the bank/DFI or any other FI. Investment Company,
Finance Company,.........
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Management Performance
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CEO think of themselves as a leader
Failure in companies like Tyco, WorldCom, Enron, Qwest, Adelphia etc.
and CEOs role
In 1990s saw one of the greatest wealth transfer ...pay of CEOs skyrocketed
.....441 tomes more than average
CEO as a dictator
What do we want from CEO?
Certainty in business
Fair forecasting and predictions
Use skills, experience and qualifications in right direction Corporate Performance Vs. Maximum Security
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Fit and Proper Test for Key Executives
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The Biggest Challenge:
Challenge is not failure but success
Example of giants of the 1960s Kodak, sears, General Motors etc.
Executive Compensation:
Stock Options Restricted Socks
Shareholder Concerns: Several Ways to Pay Day
The guaranteed bonus
Deliberate Obfuscation The Christmas tree
Compensation plans that are all upside and no downside
Loans
Phoney Cuts
Golden Hellos
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Fit and Proper Test for Key Executives
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Shareholder Concerns: Several Ways to Pay Day
Transaction bonuses
Retirement benefits
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Sunday, September 07,2014
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Thanks for Patience