1. ROLE OF BOARDROLE OF BOARD
M.PHIL (FINANCE) An Under- Doctorate StudyM.PHIL (FINANCE) An Under- Doctorate Study
2. What is Corporate Governance? (DEFINATION)
Literature Review (Dr. Tariq Hassan)
Literature Review (WEB ACCESS)
Role of Board Under section 174-197 of the
Companies Ordinance 1984:
◦ Check List (Overview)
◦ Explanation of Each Section of C/O 1984 mentioned above
3. Corporate governance is a term that refers broadly to the
rules, processes, or laws by which businesses are
operated, regulated, and controlled. The term can refer to
internal factors defined by the officers, stockholders or
constitution of a corporation, as well as to external forces
such as consumer groups, clients, and government
In Pakistan Corporate Governance is carried out through
Companies Ordinance 1984 under the supervision of
Securities and Exchange commission of Pakistan (SECP)
and Company Courts.
4. Board is a collective name of directors. It is the top
administrative organ of a company with wide
powers in regard to management of company.
5. A board of directors is a vital part of any corporation.
While staff and management take care of the day-to-
day activities, a board of directors sets the policies
that govern that corporation,
6. The roles of the board of directors include :-
Establish vision, mission and values
Determine the company's vision and mission to
guide and set the pace for its current operations
and future development.
Determine the values to be promoted throughout
Determine and review company goals.
Determine company policies
7. Review and evaluate present and future
opportunities, threats and risks in the external
environment and current and future strengths,
weaknesses and risks relating to the company.
Determine the business strategies and plans.
Ensure that the company's organizational
structure and capability are appropriate.
8. Exercise accountability to shareholders and be
responsible to relevant stakeholders
Ensure that communications both to and from
shareholders and relevant stakeholders are effective.
Monitor relations with shareholders and relevant
stakeholders by gathering and evaluation of
Promote the goodwill and support of shareholders
and relevant stakeholders.
9. Delegate authority to management, and monitor
and evaluate the implementation of policies,
strategies and business plans.
Determine monitoring criteria to be used by the
Ensure that internal controls are effective.
Communicate with senior management.
10. Every listed company shall ensure
a. Statement of Ethics and Business practices is
b. Board of directors to adopt vision statement, and
overall corporate strategy; formulate significant
policies (for the purpose of risk management,
c. Establish internal control
d. Documentation by resolutions passed in meetings
on all serious issues. i.e. investment and dis-
investment of funds, loans, write-off of bad debts
11. To make calls on shareholders in respect of moneys unpaid on
To issue Shares/ Debentures
To borrow money
To invest the funds of the company
To make loans
To approve Accounts (Annual, Half Yearly, Quarterly.
12. Non-Executive Director (NED) or outside
director is a member of the board of directors of a
company who does not form part of the executive
management team. He or she is not an employee of
the company or affiliated with it in any other way. They
are differentiated from inside directors, who are
members of the board who also serve or previously
served as executive managers of the company.
Non-executive directors have responsibilities in the
following areas, according to the Higgs Report,
commissioned by the British Government and
published in 2003.
13. Strategy: Non-executive directors should
constructively challenge and contribute to the
development of strategy.
Performance: Non-executive directors should
scrutinize the performance of management in meeting
agreed goals and objectives and monitoring, and
where necessary removing, senior management and in
Risk: Non-executive directors should satisfy
themselves that financial information is accurate and
that financial controls and systems of risk management
are robust and defensible.
People: Non-executive directors are responsible for
determining appropriate levels of remuneration of
executive directors and have a prime role in
14. Avoidance of potential conflicts of interest
Protection of Minority Shareholders’ Rights
Exercising Independent Judgment
Independent Directors as counter balance
15. A director of a listed company who has a direct
or indirect interest in any contract or
arrangement to which the company is or intends
to be a party must disclose the nature of this
interest at a meeting of the directors.
Where a director – or his relative – has such an
interest, he may not deliberate or vote on the
matter, and his presence does not contribute to
the formation of a quorum. Where a director
represents a substantial shareholder, he should
consider himself as having an interest and
proceed on that basis.
16. In addition to reporting on the financial statements and
accounting notes, the annual directors’ report must
report on the state of the company’s affairs, and disclose
any material changes affecting its financial position or
the nature of the business. Where a loss is incurred, this
must be explained. The report must also provide a
reasonable indication of future profit prospects.
Debt defaults must also be fully disclosed and explained.
The directors of a listed company are criminally liable for
failure to comply with these statutory disclosure
17. The SECP code requires the boards of directors of
listed companies to provide for a code of conduct
which the company and its personnel must observe.
Non-compliance constitutes a breach of the listing
rules and could affect the listing of the company’s
securities. Subject to this requirement, compliance
is left to each individual company
Apart from issues relating to taxation, related-party
transactions are governed by company law. All such
transactions must be shown to have been
concluded on an arm’s-length basis. The SECP
code requires the approval of all such transactions
by the audit committee and the board of directors.
19. In the context of Pakistan, the need for good corporate governance assumes a
more significant dimension given the corporate culture and the fact that an
overwhelming number of companies are closely held. The need for reasonable
representation in corporate decision-making process for all stakeholders of a 4
company thus assumes a striking significance in the scheme of corporate
governance in Pakistan. The board of directors in a company has the overall
responsibility for management and direction of its affairs. In this regard, the
directors should exercise strategic oversight of business operations while directly
monitoring, measuring and rewarding management’s performance. The board
should also ensure the integrity of accounting and financial reporting systems and
oversee the process of disclosure and communications. The board’s responsibilities
inherently demand the exercise of judgment. Guiding business strategy,
determining an appropriate corporate appetite for risk or selecting a chief executive
from a pool of candidates involves decision-making that cannot be reduced to a
mechanical series of steps. Monitoring and supervisory functions may comprise a
range of reasonable approaches. In the end, healthy corporate profits do not
guarantee that directors performed well, nor losses prove that directors were
careless or incompetent. The board of directors has the responsibility to ensure that
corporate behavior conforms to best governance practices. This requires directors
to exhibit certain behavioral norms, including:
(a) informed and deliberative decision-making;
b) division of authority;
(c) effective monitoring of management; and
20. The above norms stand in contrast to business practices that
often prevail in family or closely run companies abundant in
Pakistan. In closely held companies, a single family or group
appoints the entire board of directors. The governance of such
companies often relies on private, informal decision making,
deference to authority and loyalty based on long-term personal
relationships; in such cases, even if legal norms clearly fix
directors’ duties, human nature and cultural patterns can lead to
divided loyalties. The relatively large number of listed, family –
run firms in Pakistan and other emerging markets makes the
transition to internationalized behavioral norms particularly
important and challenging. Behavioral norms also affect
shareholders and regulators. For both cultural and practical
reasons, Asian shareholders often prove reluctant to litigate or to
assert formally their legal rights. This reluctance places greater
pressure on regulators and raises capacity and infrastructural
challenges for Asian corporate governance frameworks.
21. 1. Provide continuity for the organization by setting up a corporation or legal existence, and to
represent the organization's point of view through interpretation of its products and services, and
advocacy for them
2. Select and appoint a chief executive to whom responsibility for the administration of the
organization is delegated, including:
- to review and evaluate his/her performance regularly on the basis of a specific job
description, including executive relations with the board, leadership in the organization, in
product/service/program planning and implementation, and in management of the organization and its
- to offer administrative guidance and determine whether to retain or dismiss the executive
3. Govern the organization by broad policies and objectives, formulated and agreed upon
by the chief executive and employees, including to assign priorities and ensure the organization's
capacity to carry out products/services/programs by continually reviewing its work
4. Acquire sufficient resources for the organization's operations and to finance the
5. Account to the stockholders (in the case of a for-profit) or public (in the case of a
nonprofit) for the products and services of the organization and expenditures of its
- to provide for fiscal accountability, approve the budget, and formulate policies related to
contracts from public or private resources
- to accept responsibility for all conditions and policies attached to new, innovative, or
22. Board Source, in their booklet "Ten Basic Responsibilities of Nonprofit
Boards", itemize the following 10 responsibilities for nonprofit boards.
(However, these responsibilities are also relevant to for-profit boards.)
1. Determine the Organization's Mission and Purpose
2. Select the Executive
3. Support the Executive and Review His or Her Performance
4. Ensure Effective Organizational Planning
5. Ensure Adequate Resources
6. Manage Resources Effectively
7. Determine and Monitor the Organization's Products, Services and
8. Enhance the Organization's Public Image
9. Serve as a Court of Appeal
10. Assess Its Own Performance
23. 174 Minimum number of directors
175. Only natural persons to be directors
176. First directors and their term
177. Retirement of directors
178. Procedure for election of directors
179. Circumstances in which election of directors may be
180. Term of office of directors
181. Removal of director
182. Creditors may nominate directors
183. Certain provisions not to apply to directors
representing special interests
184. Consent to act as director to be filed with registrar
24. 185. Validity of acts of directors
187. Ineligibility of certain persons to become director
188. Vacation of office by the directors
189. Penalty for unqualified person acting as director, etc.
190. Ineligibility of bankrupt to act as director, etc.
191. Restriction on director's remuneration, etc.
192. Restriction on assignment of office by directors
193. Proceedings of directors
194. Liabilities, etc., of directors and officers
195. Loans to directors, etc.
196. Powers of directors
197. Prohibition regarding making of political contributions
197-A Prohibition regarding distribution of gifts
25. (a) Every single member company shall have at
least one director.
(b) Every other Private Company shall have not
less than two Directors.
(c) Every Public Company other than a listed
company shall have not less than three
(d) Every listed company shall have not less
seven directors to be elected in a general
meeting in the manner provided in this
27. The first Directors shall be
determined in writing by a majority of
the subscribes of the memorandum.
The First directors shall hold office
until the election of directors in the
first annual general meeting.
28. On the date of first annual general meeting of a
company all directors of the company for the time
being who are subject to election shall stand
retired from office.
29. Any person who seeks to contest an election to the
office director shall whether he is a retiring
director or otherwise, file with the company not
later than 14 days before the date of meeting.
Election of Directors:
The candidate who gets the highest number of
votes shall be declared elected as director and
then the candidate who gets the next highest
number of votes shall be declared and so on until
the total number of directors to be elected has
been so elected.
30. On the application of Members holding not less
than twenty per cent of the voting power in the
Company, made within thirty days of the date
31. The director elected under section 178 shall
hold office for a period three years unless he
earlier resigns, becomes disqualified from being
32. A company may be resolution in general meeting
remove a director appointed under section 176
(First Director) and Section 180 (Resigns or
completion of three years.)
33. A company may have directors nominated by the
company’s Creditors or other or other special
interests by virtue of contractual Agreement.
34. Nothing in section 178 (Procedure Election of
Directors, Section 180 Terms of office of Directors,
Section 181 Removal of Directors
Directors nominated by the Federal Government or
Provincial Government on the Board of Directors of
35. No person shall be appointed or nominated as a
director or chief Executive of a company, unless such
person or such other person has given his consent in
writing for such appointment or nomination.
36. No Act of a Director or of a meeting of Directors
attended by him, shall be invalid merely on the
ground of any defect subsequently discovered in his
appointment to such office.
37. Fails to comply with any of the provisions of section
174 to 185 shall be Liable to a fine which may be
extend to ten thousand rupees.
38. is a minor
Is of unsound mind
Involving immoral act
Lack of fiduciary behavior
Declared defaulter by the court.
Is member of Stock exchange.
39. He absents himself from three consecutive meetings
of the directors for continuous period of three
41. If any person being an un discharged insolvent acts
as Chief Executive, director or managing agent of a
company, he shall be liable to imprisonment for a
term not exceeding two year, or fine not exceeding
ten thousand rupees or both.
43. No effect unless and un till it is approved by a
special resolution of the company.
44. The quorum for a meeting of directors of a
listed company shall not be less than one
third of their number or four which ever is
45. Any liability which virtue of any law would
otherwise attach to him in respect of any
negligence, default, breach of duty or breach of
trust of which he may be guilty in relation to the
company, shall be void.
46. The Directors shall Exercise the following power on behalf of the
To make calls on shareholders in respect of moneys unpaid on their shares
To issue Shares/ Debentures
To borrow money
To invest the funds of the company
To make loans
To approve Accounts (Annual, Half Yearly, Quarterly.
To approve bonus to employees.
To incur capital Expenditure.
To declare interim dividend
Accounts Related matters
Write off bad debts, advance and receivables.
Write off inventories and other assets of the company.
47. Any political party for any political purpose to any
individual or body.
Every director and officer of the company who is
knowingly and willfully in default shall be
punishable with imprisonment of either description
for a term which may extend to two year and shall
be liable to fine.
48. o A company shall not distribute gifts in any form to
its members in its meetings.
o Fine not exceeding five hundred thousand rupees.
49. The directors report regarding their responsibility
for preparing the annual report is set out in the
directors report and the independent auditors
report regarding their reporting responsibility
51. APPOINTMENT AND APPROVAL
QUALIFICATION OF CFO AND COMPANY
REQUIREMENT TO ATTEND BOARD
52. THE DIRECTORS’ REPORT TO
FREQUENCY OF FINANCIAL REPORTING
RESPONSIBILITY FOR FINANCIAL REPORTING
AND CORPORATE COMPLIANCE
DISCLOSURE OF INTEREST BY A DIRECTOR
HOLDING COMPANY’S SHARES
AUDITORS NOT TO HOLD SHARES
53. The Chairman of a listed company, if present, shall preside
over meetings of the Board of Directors.
The Board of Directors of a listed company shall meet at
least once in every quarter of the financial year. Written
notices (including agenda) of meetings shall be circulated
not less than seven days before the meetings, except in the
case of emergency meetings, where the notice period may
be reduced or waived.
The Chairman of a listed company shall ensure that minutes
of meetings of the Board of Directors are appropriately
recorded. The minutes of meetings shall be circulated to
directors and officers entitled to attend Board meetings not
later than 30 days thereof, unless a shorter period is
provided in the listed company’s Articles of Association.
54. In the event that a director of a listed company is of the
view that his dissenting (disagreed) note has not been
satisfactorily recorded in the minutes of a meeting of the
Board of Directors, he may refer the matter to the
Company Secretary. The director may require the note
to be appended (Add) to the minutes, failing which he
may file an objection with the Securities and Exchange
Commission of Pakistan.
ANNUAL GENERAL MEETING