Executive Summary

The Corporate Governance Code and the Commercial Companies Law

Application of Module HC (Corporate Governance) to those CBB Licensees subject to Module HC in other CBB Rulebook Volumes

Structure of this Module

The Comply or Explain Principle

Monitoring and Enforcement of Module HC

Legal Basis

Effective Date

HC-A.2.1

This Module was first issued in July 2011 by the CBB, following the issuance of the Corporate Governance Code by the Ministry of Industry and Commerce in March 2010. This Module was drafted to be in line with the new Code and to include requirements that are considered best practice in the capital market. Any material changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made: Chapter UG-3 provides further details on Rulebook maintenance and version control.

HC-A.2.2

A list of recent changes made to this Module is detailed in the table below:

HC-B.1.1

The content of this Module, with the exception of Chapter 10 to listed companies. Chapter 10 of this Module applies to all CMSPs who are not listed companies.

HC-B.1.2

Listed companies must comply with the rules stated in this module and comply to explain their adherence to the guidance. CMSPs must comply to explain their adherence to Chapter 10 of this Module.

Overseas Capital Market Service Providers

HC-B.2.1

Bahraini listed companies and CMSPs must ensure that, as a minimum, the same or equivalent provisions of this Module apply to their branches, whether located inside or outside the Kingdom of Bahrain, such that these are also subject to effective corporate governance. In instances where local jurisdictional requirements are more stringent than those applicable in this Module, the local requirements are to be applied.

HC-B.2.2

Bahraini listed companies and CMSPs must satisfy the CBB that activities conducted in subsidiaries and other group members are subject to the same or equivalent arrangements for ensuring effective corporate governance over their activities.

HC-B.2.3

Where a listed companies or CMSP is unable to satisfy the CBB that its subsidiaries and other group members are subject to the same or equivalent arrangements, the CBB will assess the potential impact of risks — both financial and reputational — arising from inadequate corporate governance in the rest of the group of which it is a member. In such instances, the CBB may impose restrictions on dealings between the listed company, CMSP and other group members. Where weaknesses in controls are assessed by the CBB to pose a major threat to the stability of the listed company or CMSP, then its authorisation may be called into question.

HC-B.3.1

Approved Person(s) — Approved Persons are individuals holding certain specified positions in CBB licensees; they must be approved by the CBB prior to taking on those positions and must demonstrate that they are fit and proper. This list of positions subject to the CBB's Approved Persons regime vary according to the CBB license category, but generally cover directors and senior management, as well as certain other positions. Approved Persons requirements are specified in the relevant Rulebook Volume for the license category in question.

HC-B.3.2

"Capital Market Service Provider" (hereinafter referred to as CMSP) means any person licensed, or authorised or involved in providing any activity specified under Article 80 of the CBB Law and includes SROs and their members. For the purposes of this Module, listed companies are not included in the definitions of CMSP companies; they are subject to different requirements under this Module (CMSPs only have to comply with Chapter 10 while listed companies must comply with all Chapters other than Chapter 10).

HC-B.3.3

"CEO" means a company's Chief Executive Officer. The board shall determine that person's actual title, which may be "CEO", "Chief Executive Officer", "President", "Managing Director", or another title.

HC-B.3.4

"Company" for the purpose of this Module means listed company.

HC-B.3.5

"Connected Party Transactions" means a transaction between the CMSP and a 'connected person'.

HC-B.3.6

"Connected Person(s)" means:

HC-B.3.7

"Controlled Functions" means a function carried on by an approved person in relation to a listed company or CMSP that requires prior CBB approval, as per the relevant licensing Module.

HC-B.3.8

"Controlling Shareholder" means any shareholder who holds 10% or more of the share capital or is able to exercise (or control the exercise of) 10% or more of the voting power in the company.

HC-B.3.9

"Executive Director" means a director who is an officer or employee, or is otherwise involved in the day-to-day management of either:

In this definition, the word "company" which is a controller of the listed company or CMSP excludes sovereigns such as government owned entities and government ministries.

HC-B.3.10

"Independent Director" means a director whom the board has specifically determined has no material relationship which could affect his independence of judgment, taking into account all known facts. The board should consider that, although a particular director meets the formal requirements, he may not be independent owing to specific circumstances of the person or the company, ownership structure of the company, or for any other reason. The board's determination should be a good faith finding after diligent review and full discussion.

Formal Requirements — "Independent director" means a director of the company who, or whose family shareholders either separately or together with him or each other, does not have any material pecuniary relationships or transactions with the company (not counting director's remuneration for this purpose) and in particular who, during the one year preceding the time in question met all the following conditions:

Volumes 1 and 2 CBB licensees should consult the guidance issued under the definition of "Independent Director" in the Glossary of Volumes 1 and 2 with respect to the CBB's interpretation of the above formal requirements.

HC-B.3.11

"Listed Company" means a company who should have been admitted for trading of the official list of a licensed exchange in Bahrain.

HC-B.3.12

"Non-Executive Director" means any director who is not an Executive Director.

HC-B.3.13

"Overseas Capital Market Service Providers" means a CMSP that is incorporated and operates in an overseas jurisdiction and operates via branch presence, or such other equivalent license, in the Kingdom of Bahrain.

HC-B.3.14

"Remuneration" means all types of compensation including but not limited to salary, fee and non-cash benefits such as grants of stocks, stock options or pension benefits.

HC-B.3.15

"Securities" means shares or bonds issued by shareholding companies, government debt instruments and the following financial instruments:

HC-B.3.16

"Senior Manager/Management" refers to individuals occupying the position of CEO or head of function.

HC-B.3.17

"SRO" means a self-regulatory organisation being a Licensed Exchange, Licensed Market Operator, or a Licensed Clearing House under Module MAE and/or Module CSD respectively.

HC-B.3.18

"Subsidiary" means a company or other enterprise controlled by another company or enterprise (the parent or the holding company).

HC-1.1.1

With the exception of single person companies, all companies must have a Board of Directors ('the board'). All companies shall be headed by an effective, collegial and informed board.

HC-1.2.1

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

In particular, all directors must understand:

HC-1.2.2

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

HC-1.2.3

The directors are responsible both individually and collectively for performing these responsibilities. 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-1.2.4

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

HC-1.2.5

When a new director is inducted, the chairman of the board, or the company'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 rule HC-4.5.1).

HC-1.2.6

The company must 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 is responsible for ensuring that the systems and controls framework, including the board structure and organisational structure of the company, is appropriate for its business and associated risks (see HC-1.2.4 c). The board must ensure that collectively it has sufficient expertise to identify, understand and measure the significant risks to which the company is exposed in its business activities.

HC-1.2.8

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

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 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

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. 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-1.3.5

The board must have no more than 15 members and no less than 5 members; taking into consideration the representation of women and men in the formation of the board. The board must regularly review its size and composition to assure 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 must recommend changes in board size to the shareholders when a needed change requires amendment of the company’s Memorandum of Association. The company must disclose statistics regarding the composition of the board disaggregated by women and men in the company’s annual report.

HC-1.3.6

Potential non-Executive Directors should be made aware of their duties before their nomination, particularly as to the time commitment required. 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. Without prejudice to other HC Volumes in the CBB Rulebook, one person should not hold more than three directorships in public companies in Bahrain with the provision that no conflict of interest may exist (which includes having an interest in companies in the same line of business), and the board should not propose the election or re-election of any director who does.

HC-1.3.7

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-1.3.8

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-1.3.9

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. Companies 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-1.3.10

In the event that a board member has not attended at least 75% of board meetings in any given financial year, the company 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 (where relevant) of the CBB Law, is appropriate. Unless there are exceptional circumstances, it is likely that the CBB will take disciplinary action.

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 an officer.

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

At least half of a company'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.)

HC-1.4.5

The chairman of the board should be be an independent director and in any event must not be the same person as the CEO, so that there will be an appropriate balance of power and greater capacity of the board for independent decision-making.

HC-1.4.6

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-1.4.6A

The Chairman and/or Deputy Chairman must not be the same person as the Chief Executive Officer.

HC-1.4.7

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 judgment.

HC-1.4.8

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-1.4.9

All decisions made by directors must be accurately recorded, including the details of any reservations or objections by any individual or group of directors, for both board meetings as well as any committee formed by the board.

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 company has a controlling shareholder (or a controlling group of shareholders 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 companies with a controlling shareholder, 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 companies with a controlling shareholder, both controlling and non-controlling shareholders should be aware of controlling shareholders' specific responsibilities regarding their duty of loyalty to the company and conflicts of interest (see chapter HC-2) and also of rights that minority shareholders may have to elect specific directors under the Commercial Companies Law or if the company has adopted cumulative voting for directors. The chairman of the board or other individual delegated by the chairman of the board should take the lead in explaining this with the help of company lawyers.

HC-1.6.1

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

HC-1.6.2

Individual directors must also have access to the company'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 company 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

While management members other than those that are executive directors, are not entitled by right to attend board meetings, 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 company'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. In addition to the Audit, Remuneration and Nominating Committees described elsewhere in this Module, these may include an Executive Committee to review and make recommendations to the whole board on company actions, a Risk Committee, to identify and minimize specific risks, or an Insider or Prohibition of Market Abuse Committee to manage and provide oversight of the trading of directors and general compliance with market regulations, as well as any other committee required by the CBB or other regulations (e.g. TMA Module).

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 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-1.8.4

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

HC-1.8.5

Every committee 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-1.8.6

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

HC-1.8.7

The terms of reference, number of meetings and attendance at such meetings should be disclosed in respect of each committee in the annual report of the company.

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.

HC-2.1.1

The directors and officers must have full loyalty to the company.

HC-2.2.1

Each member of the board must understand that under the Commercial Companies Law he is personally accountable to the company and the shareholders if he violates his legal duty of loyalty to the company, and that he can be personally sued by the company or the shareholders for such violations.

HC-2.2.2

The duty of loyalty includes a duty not to use property of the company for his personal needs as though it was his own property, not to disclose confidential information of the company or use it for his personal profit, not to take business opportunities of the company for himself, not to compete in business with the company, and to serve the company's interest in any transactions with the company in which he has a personal interest.

HC-2.2.3

For purposes of Rule HC-2.2.2, a director or officer should be considered to have a "personal interest" in a transaction with the company if:

is a party to the transaction or has a material financial interest in the transaction. (Transactions and interests which are de minimis in value should not be included.)

HC-2.3.1

Each director and officer must make every practicable effort to arrange his personal and business affairs to avoid a conflict of interest with the company.

HC-2.3.2

The board must establish and disseminate to its members and management, policies and procedures for the identification, reporting, disclosure, prevention, or strict limitation of potential conflicts of interest. It is senior management's responsibility to implement these policies. In particular, the CBB requires that any decisions to enter into transactions, under which approved persons would have conflicts of interest that are material, should be formally and unanimously approved by the full board. Best practice would dictate that an approved person must:

HC-2.4.1

Each director and officer must inform the entire board in writing of conflicts of interest immediately as they arise. Board members must abstain from voting on the matter in accordance with the relevant provisions of the Commercial Companies Law. This disclosure must include all material facts in the case of a contract or transaction involving the director or officer. The directors and officers must understand that any approval of a conflict transaction is effective only if all material facts are known to the authorising persons and the conflicted person did not participate in the decision and that such information must be disclosed in the annual report.

HC-2.4.2

The board should establish formal procedures for:

HC-2.4.3

Any conflict transaction or contract that could be considered material should be tabled at a shareholders meeting for approval.

HC-2.5.1

The company must disclose to its shareholders in the Annual Report any abstention from voting motivated by a conflict of interest and must disclose to its shareholders any authorisation of a conflict of interest contract or transaction in accordance with the Commercial Companies Law.

HC-3.1.1

The board must have rigorous controls for financial audit and reporting, internal controls, risk management and compliance with the law.

HC-3.2.1

The board must establish an audit committee of at least three directors, of which the majority must be independent including the Chairman. The committee must:

HC-3.2.2

In its review of the systems and controls framework in Paragraph HC-3.2.1, the audit committee must:

HC-3.2.3

Companies should set up an internal audit function, which reports directly to the Audit Committee and administratively to the CEO.

HC-3.2.4

The CEO must not be a member of the audit committee

HC-3.3.1

The audit committee must adopt a written charter which shall, at a minimum, state the duties outlined in rule HC-3.2.1 and the other matters included in Appendix A to this Module.

HC-3.3.2

A majority of the audit committee must have the financial literacy qualifications stated in Appendix A.

HC-3.3.3

The board should adopt a "whistleblower" programme under which employees can confidentially raise concerns about possible improprieties in financial or legal matters. Under the programme, concerns may be communicated directly to any audit committee member or, alternatively, to an identified officer or employee who will report directly to the Audit Committee on this point.

HC-3.4.1

To encourage management accountability for the financial statements required by the directors, the company's CEO and chief financial officer must state in writing to the audit committee and the board as a whole that the company's interim and annual financial statements as prepared in accordance with IAS and IFRS present a true and fair view, in all material respects (including providing adequate provisions), of the company's financial condition and results of operations in accordance with applicable accounting standards.

HC-4.1.1

The company must have rigorous procedures for the appointment, training and evaluation of the board.

HC-4.2.1

The board must establish a Nominating Committee of at least three directors which must:

HC-4.2.2

The committee must include only independent directors or, alternatively, only non-executive directors of whom a majority must be independent directors and the chairman must be an independent director. This is consistent with international best practice and it recognises that the Nominating Committee must exercise judgment free from personal career conflicts of interest.

HC-4.2.3

The Nominating Committee should establish a reasonable timeframe to be included in its terms of reference sufficient for it to be able to perform its necessary due diligence in respect of the recommendations prior to such nominations being tabled at any shareholders meeting.

HC-4.3.1

The Nominating Committee must adopt a formal written charter which must, at a minimum, state the duties outlined in rule HC-4.2.1 and paragraph HC-4.2.3 and the other matters included in Appendix B to this Module, as well as any relevant training and competency requirements required by regulatory authorities.

HC-4.4.1

Each proposal by the board to the shareholders for election or re-election of a director must include:

HC-4.4.2

The chairman of the board should confirm to shareholders when proposing re-election of a director that, following a formal performance evaluation, the person's performance continues to be effective and continues to demonstrate commitment to the role. Any term beyond six years (e.g. two three-year terms) for a director should be subject to particularly rigorous review, and should take into account the need for progressive refreshing of the board. Serving more than six years is relevant to the determination of a non-executive director's independence.

HC-4.5.1

The chairman of the board must ensure that each new director receives a formal and tailored induction to ensure his contribution to the board from the beginning of his term. The induction must include meetings with senior management, visits to company facilities, presentations regarding strategic plans, significant financial, accounting and risk management issues, compliance programmes, its internal and external auditors and legal counsel.

HC-4.5.2

All continuing directors must be invited to attend orientation meetings and all directors must continually educate themselves as to the company's business and corporate governance.

HC-4.5.3

Management, in consultation with the chairman of the board, should hold programmes and presentations to directors with respect to the Commercial Companies Law, the company's Memorandum and Articles of Association, as well as the company's business and industry, which may include periodic attendance at conferences and management meetings. The Nominating Committee shall oversee directors' corporate governance educational activities.

HC-5.1.1

The company must remunerate directors and officers fairly and responsibly.

HC-5.2.1

The board must establish a remuneration committee of at least three directors which must:

HC-5.2.2

Prior to any vote by the shareholders, the chairman of the board should ensure that full disclosure of all material facts has been made to the shareholders.

HC-5.2.3

The committee may be merged with the nominating committee.

HC-5.3.1

The committee must adopt a written charter which must, at a minimum, state the duties in Rule HC-5.2.1 and other matters in Appendix C of this Module.

HC-5.3.2

The committee should include only independent directors or, alternatively, only non-executive directors of whom the majority are independent directors and the chairman is an independent director. This is consistent with international best practice and it recognises that the remuneration committee must exercise judgment free from personal career conflicts of interest.

HC-5.3.3

[This Paragraph was deleted in January 2012].

HC-5.4.1

Remuneration of both directors and officers must be sufficient enough to attract, retain and motivate persons of the quality needed to run the company successfully, but the company must avoid paying more than is necessary for that purpose.

HC-5.5.1

Remuneration of non-executive directors must not include performance-related elements such as grants of shares, share options or other deferred stock-related incentive schemes, bonuses, or pension benefits.

HC-5.6.1

Remuneration of officers must be structured so that a portion of the total is linked to the company and individual performance and aligns their interests with the interests of the shareholders.

HC-5.6.2

Such rewards may include grants of shares, share options and other deferred stock-related incentive schemes, bonuses, and pension benefits which are not based on salary.

HC-5.6.3

If an officer is also a director, his remuneration as an officer must take into account compensation received in his capacity as a director.

HC-5.6.4

All share incentive plans must be approved by the shareholders.

HC-5.6.5

All performance-based incentives should be awarded under written objective performance standards which have been approved by the board and are designed to enhance shareholder and company value, and under which shares should not vest and options should not be exercisable within less than two years of the date of award of the incentive and include principles of deferred payment, claw back provisions and prevention of distribution during non-profit years, as well as other remuneration principles issued by relevant industry supervisory bodies.

HC-5.6.6

All policies for performance-based incentives should be approved by the shareholders, but the approval should be only of the plan itself, and not of the grant to specific individuals of benefits under the plan.

HC-6.1.1

The board must establish a clear and efficient management structure.

HC-6.2.1

The board must appoint officers whose authority must include management and operation of current activities of the company, reporting to and under the direction of the board. Unless otherwise exempted under the relevant licensing or listing Module, the officers must include at a minimum:

and must also include such other officers as the board considers appropriate, or as required by the relevant licensing or listing Module.

HC-6.2.2

The board must ensure that the management structure caters for the following functions, where relevant:

HC-6.3.1

The board must adopt by-laws prescribing each senior officer's title, authorities, duties and internal reporting responsibilities. This must be done with the advice of the Nominating Committee and in consultation with the CEO, to whom the other officers should normally report.

HC-6.3.2

These provisions must include but should not be limited to the following:

HC-6.3.3

The board should also specify any limits which it wishes to set on the authority of the CEO or other officers, such as monetary maximums for transactions which they may authorise without separate board approval.

HC-6.3.4

The corporate secretary should be given general responsibility for reviewing the company's procedures and advising the board directly on such matters. Whenever practical, the corporate secretary should be a person with legal or similar professional experience and training.

HC-6.3.5

At least annually the board shall review and concur in a succession plan addressing the policies and principles for selecting a successor to the CEO, both in emergencies and in the normal course of business (including deputation while the CEO is unable to perform his functions). The succession plan should include an assessment of the experience, performance, skills and planned career paths for possible successors to the CEO.

HC-7.1.1

The company must communicate with shareholders, encourage their participation, and adhere to their rights.

HC-7.2.1

All shareholders of the same type, class and series must be treated equally.

HC-7.2.2

Within any type, series or class, all shares must carry the same rights. All investors should be able to obtain information about the rights attached to all types, series or classes of shares before they purchase. Any changes in voting rights must be subject to approval by those shareholders which are negatively affected.

HC-7.2.3

Minority shareholders must be protected from abusive actions by, or in the interest of, controlling shareholders acting either directly or indirectly, and must have effective means of redress.

HC-7.2.4

The board and corporate secretary must encourage the attendance of shareholders at all shareholder meetings, in order for shareholders to exercise their right to vote at such meetings.

HC-7.2.5

Where shareholders are unable to attend, companies must make provision for such shareholder to vote by proxy, subject that such proxy is revocable and provides for two-way voting item by item (yes/no) and where proxies are provided to board members or senior management, that such proxy shall not exceed 5% of the eligible votes.

HC-7.2.6

Votes must be cast by custodians or nominees in a manner agreed upon with the beneficial owner of the shares.

HC-7.2.7

Impediments to cross border voting must be eliminated.

HC-7.2.8

Processes and procedures for general meetings must allow for equitable treatment of all shareholders. Company procedures must not make it unduly difficult or expensive to cast votes.

HC-7.3.1

The Corporate Governance framework of a company must protect and facilitate the exercise of shareholders' rights.

HC-7.3.2

Basic shareholders rights include but are not limited to:

HC-7.3.3

Shareholders must have the right to participate in, and to be sufficiently informed on decisions concerning fundamental corporate changes, such as:

HC-7.4.1

The board must observe both the letter and the intent of the Commercial Companies Law's requirements for shareholder meetings. Among other things:

HC-7.4.2

The company should require all directors to attend and be available to answer questions from shareholders at any shareholder meeting and, in particular, ensure that the chairs of the audit, remuneration and nominating committees are ready to answer appropriate questions regarding matters within their committee's responsibility (it being understood that confidential and proprietary business information may be kept confidential).

HC-7.4.3

The company should require its external auditor to attend the annual shareholders' meeting and be available to answer shareholders' questions concerning the conduct and conclusions of the audit.

HC-7.4.4

A company should maintain a company website. The company should dedicate a specific section of its website to describing shareholders' rights to participate and vote at each shareholders meeting, and should post significant documents relating to meetings including the full text of notices and minutes. The company may also consider establishing an electronic means for shareholders' communications including appointment of proxies. For confidential information, the company should grant a controlled access to such information to its shareholders.

HC-7.4.5

In notices of meetings at which directors are to be elected or removed, the company should ensure that:

HC-7.5.1

The chairman of the board (and other directors as appropriate) must maintain continuing personal contact with major shareholders to solicit their views and understand their concerns. The chairman must ensure that the views of shareholders are communicated to the board as a whole. The chairman must discuss governance and strategy with major shareholders. Given the importance of market monitoring to enforce the "comply or explain" approach of this Module, the board should encourage investors, particularly institutional investors, to help in evaluating the company's corporate governance.

HC-7.5.2

Institutional investors acting in a fiduciary capacity must disclose their overall corporate governance and voting policies with respect to their investments, including the procedures that they have in place for deciding on the use of their voting rights.

HC-7.5.3

Institutional investors acting in a fiduciary capacity must disclose how they manage material conflicts of interest that may affect the exercise of key ownership rights regarding their investments.

HC-7.6.1

In companies with one or more controlling shareholders, the chairman and other directors must actively encourage the controlling shareholders to make considered use of their position and to fully respect the rights of minority shareholders.

HC-8.1.1

The company must disclose its corporate governance.

HC-8.2.1

In each company:

HC-8.3.1

The company must disclose in its annual report the following:

HC-8.3.2

Ownership of Shares:

HC-8.3.3

Board, Board Members and Management:

HC-8.3.4

Committees:

HC-8.3.5

Corporate Governance:

HC-8.3.6

Auditors:

HC-8.3.7

Financial Information:

Announcements of financial results must be in line with International Financial Reporting Standards and must include at least the following:

HC-8.3.8

Conflict of interest:

HC-8.3.9

Board of Directors — whether or not the board, its committees and individual directors are regularly assessed with respect to their effectiveness and contribution.

HC-8.3.10

Other:

HC-9.1.1

Companies which refer to themselves as "Islamic" must follow the principles of Islamic Shari'a.

HC-9.2.1

Islamic companies which are guided by the principles of Islamic Shari'a have additional responsibilities to their stakeholders. Companies which refer to themselves as "Islamic" are subject to additional governance requirements and disclosures to provide assurance to stakeholders that they are following Shari'a principles. In ensuring compliance with Shari'a principles, each Islamic company must establish a Shari'a Supervisory Board consisting of at least three Shari'a scholars.

HC-9.2.2

In addition to its duties outlined in chapter HC-3 and Appendix A, the Audit Committee shall communicate and co-ordinate with the company's Corporate Governance Committee and the Shari'a Supervisory Board ("SSB") (where applicable) to ensure that information on compliance with Islamic Shari'a rules and principles is reported in a timely manner.

HC-9.2.3

The board shall set up a Corporate Governance Committee (see also chapter HC-8). In this case, the Committee shall comprise at least three directors to co-ordinate and integrate the implementation of the governance policy framework.

HC-9.2.4

The Corporate Governance Committee established under chapter HC-9 shall comprise at a minimum of:

HC-9.2.5

The Corporate Governance Committee shall be empowered to:

HC-10.1.1

With respect to CMSPs, the applicable guidance paragraphs are included in Chapter HC-10. The Comply or Explain Principle (see paragraph HC-A.1.10) applies to the content of Chapter HC-10. Notwithstanding this paragraph, the CBB may at any time provide notice to a CMSP that it must meet some or all of the requirements of this Module.

HC-10.1.2

All CMSP's should be headed by an effective, collegial and informed Board of Directors ("the board") and comply or explain its adherence to the provisions of this Chapter.

Role and Responsibilities

Composition

Decision Making Process

Directors' Communication with Management

HC-10.2.1

Directors and officers shall have full loyalty to the CMSP.

Personal Accountability

Avoidance of Conflicts of Interest

Disclosure of Conflicts of Interest

Disclosure of Conflicts of Interests to Shareholders

HC-10.3.1

The board shall have rigorous controls for financial audit and reporting, internal control and compliance with law.

CEO and CFO Certification of Financial Statements

HC-10.4.1

The CMSP should have rigorous procedures for appointment, training and evaluation of the board.

Induction and Training of Directors

HC-10.5.1 HC-10.5.1

The CMSP should remunerate approved persons fairly and responsibly.

HC-10.6.1

The board should establish a clear and efficient management structure.

Establishment of Management Structure

Titles, Authorities, Duties and Reporting Responsibilities

Titles, Authorities, Duties and Reporting Responsibilities

HC-10.7.1

The CMSP should communicate with shareholders, encourage their participation, and respect their rights.

Conduct of Shareholders' Meetings

Direct Shareholder Communication

Controlling Shareholders

HC-10.8.1

The CMSP should disclose its corporate governance.

Disclosure of Corporate Governance Guidelines

HC-10.9.1

Companies which refer to themselves as "Islamic" should follow the principles of Islamic Shari'a.

Governance and Disclosure per Shari'a Principle