HC-1.1.1

All licensees must be headed by an effective, collegial and informed board of directors ('the board').

HC-1.2.1

All directors must understand the board's role and responsibilities under the Commercial Companies Law and any other laws or regulations that may govern their responsibilities from time to time. In particular:

HC-1.2.2

The board's role and responsibilities include but are not limited to:

HC-1.2.3

The precise functions reserved for the board, and those delegated to management and committees will vary, dependent upon the business of the licensee, its size and ownership structure. However, as a minimum, the board must establish and maintain a statement of its responsibilities for:

HC-1.2.4

The directors are responsible both individually and collectively for performing the responsibilities outlined in Paragraph HC-1.2.1 to HC-1.2.3. Although the board may delegate certain functions to committees or management, it may not delegate its ultimate responsibility to ensure that an adequate, effective, comprehensive and transparent corporate governance framework is in place.

HC-1.2.5

In its strategy review process under Paragraphs HC-1.2.3 a) and d), the board must:

HC-1.2.6

Licensees must notify the CBB in writing of all major proposed changes to the strategy of the licensee prior to implementation.

HC-1.2.7

The board is expected to have effective policies and processes in place for:

HC-1.2.8

When a new director is inducted, the chairman of the board, assisted by the licensee's legal counsel or compliance officer, should review the board's role and duties with that person, particularly covering legal and regulatory requirements and Module HC (see also HC-4.5.1).

HC-1.2.9

The licensee must have a written appointment agreement with each director which recites the directors' powers, duties, responsibilities and accountabilities and other matters relating to his appointment including his term, the time commitment envisaged, the committee assignment if any, his remuneration and expense reimbursement entitlement, and his access to independent professional advice when that is needed.

Risk Recognition and Assessment

HC-1.3.1

The board must be collegial and deliberative, to gain the benefit of each individual director's judgment and experience.

HC-1.3.2

The chairman must take an active lead in promoting mutual trust, open discussion, constructive dissent and support for decisions after they have been made.

HC-1.3.3

The board must meet frequently to enable it to discharge its responsibilities effectively but in no event less than four times a year. All directors must attend the meetings whenever possible and the directors must maintain informal communication between meetings.

HC-1.3.4

Individual board members must attend at least 75% of all board meetings in a given financial year to enable the board to discharge its responsibilities effectively (see table below). Voting and attendance proxies for board meetings are prohibited at all times.

HC-1.3.5

The absence of board members at board and committee meetings must be noted in the meeting minutes. In addition, board attendance percentage must be reported during any general assembly meeting when board members stand for re-election (e.g. board member XYZ attended 95% of scheduled meetings this year).

HC-1.3.6

In the event that a board member has not attended at least 75% of board meetings in any given financial year, the licensee must immediately notify the CBB indicating which member has failed to satisfy this requirement, his level of attendance and any mitigating circumstances affecting his non-attendance. The CBB shall then consider the matter and determine whether disciplinary action, including disqualification of that board member pursuant to Article 65 of the CBB Law, is appropriate. Unless there are exceptional circumstances, it is likely that the CBB will take disciplinary action.

HC-1.3.7

To meet its obligations under Rule HC-1.3.3 above, the full board should meet once every quarter to address the board's responsibilities for management oversight and performance monitoring. Furthermore, board rules should require members to step down if they are not actively participating in board meetings. Board members are reminded that non attendance at board meetings does not absolve them of their responsibilities as directors. It is important that each individual director should allocate adequate time and effort to discharge his responsibilities. All directors are expected to contribute actively to the work of the board in order to discharge their responsibilities and should make every effort to attend board meetings where major issues are to be discussed. Licensees are encouraged to amend their articles of association to provide for telephonic and videoconference meetings. Participation in board meetings by means of video or telephone conferencing is regarded as attendance and may be recorded as such.

HC-1.3.7A

At least half the Board meetings of Bahraini licensees in any twelve-month period must be held in the Kingdom of Bahrain.

HC-1.3.8

All licensees are required to submit, on an annual basis, as an attachment to the year-end quarterly PIR, a report recording the meetings during the year by their board of directors. For a sample report, refer to Appendix BR-5.

HC-1.3.9

The chairman is responsible for the leadership of the board, and for the efficient functioning of the board. The chairman must ensure that all directors receive an agenda, minutes of prior meetings, and adequate background information in writing before each board meeting and when necessary between meetings. Therefore it is vital that the chairman commit sufficient time to perform his role effectively. All directors must receive the same board information. At the same time, directors have a legal duty to inform themselves and they must ensure that they receive adequate and timely information and must study it carefully (See also Chapter HC-7 for other duties of the chairman).

HC-1.3.10

The board should have no more than 15 members, and should regularly review its size and composition to ensure that it is small enough for efficient decision making yet large enough to have members who can contribute from different specialties and viewpoints. The board should recommend changes in board size to the shareholders when a needed change requires amendment of the licensee's Memorandum of Association.

HC-1.3.11

Potential non-executive directors should be made aware of their duties before their nomination, particularly as to the time commitment required. Where there is a nominating committee, it should regularly review the time commitment required from each non-executive director and should require each non-executive director to inform the committee before he accepts any board appointments to another licensee.

HC-1.3.12

One person should not hold more than three directorships in public companies in Bahrain with the provision that no conflict of interest may exist, and the board should not propose the election or reelection of any director who does.

HC-1.4.1

Every director must bring independent judgment to bear in decision-making. No individual or group of directors must dominate the board's decision-making and no one individual should have unfettered powers of decision.

HC-1.4.2

Executive directors must provide the board with all relevant business and financial information within their cognizance, and must recognise that their role as a director is different from their role as a member of management (see HC-2.3.2).

HC-1.4.3

Non-executive directors must be fully independent of management and must constructively scrutinise and challenge management including the management performance of executive directors.

HC-1.4.4

Where there is the potential for conflict of interest, or there is a need for impartiality, the Board must assign a sufficient number of independent board members capable of exercising independent judgement.

HC-1.4.5

At least half of a licensee's board should be non-executive directors and at least three of those persons should be independent directors. (Note the exception for controlled companies in Paragraph HC-1.5.2.). Due to the nature of the business carried out by licensees, and government participation in such entities, government representatives are considered independent for the purpose of this Module.

HC-1.4.6

The chairman of the board should be an independent director, so that there will be an appropriate balance of power and greater capacity of the board for independent decision making.

HC-1.4.7

The chairman and/or deputy chairman must not be the same person as the chief executive officer (CEO).

HC-1.4.8

The chairman must not be an executive director.

HC-1.4.9

The board should review the independence of each director at least annually in light of interests disclosed by them, and their conduct. Each independent director shall provide the board with all necessary and updated information for this purpose.

HC-1.4.10

To facilitate free and open communication among independent directors, each board meeting should be preceded or followed with a session at which only independent directors are present, except as may otherwise be determined by the independent directors themselves.

HC-1.4.11

Where an independent director has served three consecutive terms on the board, such director will lose his/her independence status and must not be classified as an independent director if reappointed.

HC-1.4.12

Where a Chief Executive Officer of a microfinance institution licensee, who is also a Board member, no longer occupies the CEO position, whether due to resignation, retirement or termination, his/her Board Membership must also be immediately terminated.

HC-1.5.1

Each director must consider himself as representing all shareholders and must act accordingly. The board must avoid having representatives of specific groups or interests within its membership and must not allow itself to become a battleground of vested interests. If the licensee has controllers (as defined by Section GR-4.2) (or a group of controllers acting in concert), the latter must recognise its or their specific responsibility to the other shareholders, which is direct and is separate from that of the board of directors.

HC-1.5.2

In licensees with a controller, at least one-third of the board must be independent directors. Minority shareholders must generally look to independent directors' diligent regard for their interests, in preference to seeking specific representation on the board.

HC-1.5.3

In licensees with controllers, both controllers and other shareholders should be aware of controllers' specific responsibilities regarding their duty of loyalty to the licensee and conflicts of interest (see Chapter HC-2) and also of rights that minority shareholders may have to elect specific directors under the Company Law or if the licensee has adopted cumulative voting for directors. The chairman of the board should take the lead in explaining this with the help of the licensee's lawyers.

HC-1.6.1

The board must ensure by way of formal procedures that individual directors have access to independent legal or other professional advice at the licensee's expense whenever they judge this necessary to discharge their responsibilities as directors and this must be in accordance with the licensee's policy approved by the board.

HC-1.6.2

Individual directors must also have access to the licensee's corporate secretary, who must have responsibility for reporting to the board on board procedures. Both the appointment and removal of the corporate secretary must be a matter for the board as a whole, not for the CEO or any other officer.

HC-1.6.3

Whenever a director has serious concerns which cannot be resolved concerning the running of the licensee or a proposed action, he should consider seeking independent advice and should ensure that the concerns are recorded in the board minutes and that any dissent from a board action is noted or delivered in writing.

HC-1.6.4

Upon resignation, a non-executive director should provide a written statement to the chairman, for circulation to the board, if he has any concerns such as those in Paragraph HC-1.6.3.

HC-1.7.1

The board must encourage participation by management regarding matters the board is considering, and also by management members who by reason of responsibilities or succession, the CEO believes should have exposure to the directors.

HC-1.7.2

Non-executive directors should have free access to the licensee's management beyond that provided in board meetings. Such access should be through the chairman of the audit committee or CEO. The board should make this policy known to management to alleviate any management concerns about a director's authority in this regard.

HC-1.8.1

The board must create specialised committees when and as such committees are needed.

HC-1.8.2

In addition to the audit, remuneration and nominating committees described elsewhere in this Module, specialised committees may include an executive committee to review and make recommendations to the whole board on the licensee's actions, or a risk committee to identify and minimize specific risks of the licensee's business.

HC-1.8.3

The board shall establish a corporate governance committee of at least three independent members which shall be responsible for developing and recommending changes from time to time in the licensee's corporate governance policy framework.

HC-1.8.4

The board or a committee may invite non-directors to participate in, but not vote at, a committee's meetings so that the committee may gain the benefit of their advice and expertise in financial or other areas.

HC-1.8.5

Committees must act only within their mandates and therefore the board must not allow any committee to dominate or effectively replace the whole board in its decision-making responsibility.

HC-1.8.6

Committees may be combined provided that no conflict of interest might arise between the duties of such committees, subject to CBB prior approval.

HC-1.8.7

Every committee must have a formal written charter similar in form to the model charters which are set forth in Appendices A, B and C of this Module for the audit, nominating and remuneration committees.

HC-1.8.8

Where committees are set up, they must keep full minutes of their activities and meet regularly to fulfill their mandates.

HC-1.9.1

At least annually the board must conduct an evaluation of its performance and the performance of each committee and each individual director.

HC-1.9.2

The evaluation process must include:

HC-1.9.3

While the evaluation is a responsibility of the entire board, it should be organised and assisted by an internal board committee and, when appropriate, with the help of external experts.

HC-1.9.4

The board should report to the shareholders, at each annual shareholder meeting, that evaluations have been done and report its findings.