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 Bahrain Commercial Companies Law (2001), as amended 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

With respect to Subparagraph HC-1.2.2(j), the Board should set a materiality threshold so that contractual obligations above this set threshold are regularly reported to the Board. In setting the materiality threshold, the Board will consider the financial impact the contractual obligation may have in relation to its capital.

HC-1.2.4

The members of the board of directors are responsible both individually and collectively for performing the responsibilities outlined in Paragraph HC-1.2.2 and must have sufficient expertise as a Board to understand the important issues relating to operation and control of the licensee. 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. This statement must be clearly communicated to Board members and senior management.

HC-1.2.5

When a member of the board of directors is inducted, the chairman of the Board, or the licensee's legal counsel or compliance officer, or other individual delegated by the chairman of the board, should review the Board's role and duties with that person, particularly covering legal and regulatory requirements and Module HC (see also HC-4.3.1).

HC-1.2.6

The licensee should have a written appointment agreement with each director which recites the directors' powers and duties 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.

HC-1.2.7

The Board should adopt a formal Board charter or other statement specifying matters which are reserved to it, which should include but need not be limited to the specific requirements and responsibilities of board directors.

Additional Guidance

HC-1.3.1

The Memorandum and Articles of Association of licensees must adequately set out procedures for the appointment, removal and retirement of directors.

HC-1.3.2

The Board should have a minimum of 3 members and no more than 5 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-1.3.3

It is not expected that every Board member is proficient in all areas, but collectively the Board is expected to have the required expertise. The CBB expects Board members to undertake relevant training on a regular basis to help them fulfill their responsibilities as board members.

HC-1.3.4

Potential non-executive directors should be made aware of their duties before their nomination, particularly as to the time commitment required. Where applicable, the Nominating Committee 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 company. 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-1.3.5

To fulfil its responsibilities outlined in Section HC-1.2, the Board of licensees must periodically assess its composition and size and, where appropriate, reconstitute itself and its committees by selecting new directors to replace long-standing members or those members whose contributions to the licensee or its committees is not adequate.

HC-1.3.6

To demonstrate compliance with Rule HC-1.3.5, the Board should be able to demonstrate that it regularly considers (e.g. every one or two years) the mix of executive, non-executive and independent non-executive Directors, and skills and experience, that it requires. See also Paragraph HC-1.3.2.

HC-1.3.7

A Board member must not serve in two or more competing licensees.

HC-1.3.8

The appointment of Board members is conditional on the approval of the CBB (See Section AU-1.2).

HC-1.4.1

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

HC-1.4.2

The Board must meet frequently 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-1.4.3

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 by proxies for board meetings are prohibited at all times.

HC-1.4.4

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-1.4.5

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

HC-1.4.6

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-1.4.7

To meet its obligations under Rule HC-1.4.3 above, the Board should meet preferably no less than four times per year. The CBB recommends that meetings should take place 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-1.4.8

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. 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.

HC-1.4.9

The Board must maintain adequate records of its meetings, such that key decisions and how they are arrived at can be traced.

HC-1.5.1

The Board must ensure that it has at least one independent director, in order to provide sufficient independent scrutiny of management.

HC-1.5.2

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 must have unfettered powers of decision.

HC-1.5.3

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 an officer.

HC-1.5.4

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

HC-1.5.5

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-1.5.6

The chairman and/or deputy chairman must not be the same person as the CEO.

HC-1.5.7

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

HC-1.5.8

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-1.5.9

Where a Chief Executive Officer of an ancillary service provider 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-1.6.1

The Board should ensure 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

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-1.6.3

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 should 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-1.8.1

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-1.8.2

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

HC-1.8.3

Committees should 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-1.8.4

Committees may be combined provided that no conflict of interest might arise between the duties of such committees.

HC-1.8.5

Every committee should have a formal written charter similar in form to the model charter.