HC-A.1 HC-A.1 Purpose
Executive Summary
HC-A.1.1
This Module presents requirements that have to be met by
listed companies andCMSPs with respect to:(a) Corporate governance principles issued by the Ministry of Industry and Commerce as The Corporate Governance Code; and(b) Best practice corporate governance principles in line with the recommendations of IOSCO and OECD.July 2011HC-A.1.2
This Module supplements various provisions relating to the Corporate Governance Code and other provisions contained in Legislative Decree No. 21 of 2001, with respect to promulgating the Commercial Companies Law ('Commercial Companies Law').
July 2011HC-A.1.3
The purpose of this Module is to establish best practice corporate principles in Bahrain, and to provide protection for shareholders and other company stakeholders through compliance with those principles.
July 2011HC-A.1.4
Whilst this Module follows best practice, it is nevertheless considered as the minimum standard to be applied.
July 2011The Corporate Governance Code and the Commercial Companies Law
HC-A.1.5
The Corporate Governance Code supplements the Commercial Companies Law. It does not replace the Commercial Companies Law but is intended to further that Law's objectives and to provide help in understanding, complying with, monitoring performance under, and ensuring fair disclosure under that Law.
July 2011HC-A.1.6
The Commercial Companies Law already mandates many corporate governance best practices. Examples are found in the Law's rules for board and shareholder meetings, its statement of directors' and officers' fiduciary duties, and its rules for company shares. The Corporate Governance Code refers to many of those principles, but it does not repeat or incorporate them all. Thus
CMSPs should be familiar with both the Commercial Companies Law and the Corporate Governance Code.July 2011HC-A.1.7
The Corporate Governance Code goes beyond the Commercial Companies Law's requirements on several points. Examples are the Code's recommendations that the Chairman of the board and the
CEO should not be the same person, and that at least 50% of the board of directors should benon-Executive Directors .July 2011Application of Module HC (Corporate Governance) to those CBB Licensees subject to Module HC in other CBB Rulebook Volumes
HC-A.1.8
The CBB, through the issuance of this Module HC (Corporate Governance) and the updating of Module HC in the other Volumes (1–4) have harmonized the requirements, so that there are only limited differences between the respective Modules as required by the regulated activity.
July 2011HC-A.1.9
For the purpose of this Module, the only significant difference between Module HC (Corporate Governance) and Module HC in other Volumes can be found in Chapter 7 (Communication between Board and Shareholders) so as to ensure the protection of shareholders, particularly among
listed companies .July 2011Structure of this Module
HC-A.1.10
This Module follows the structure of the Corporate Governance Code and each Chapter deals with one of the nine fundamental Principles of corporate governance. The numbered directives included in the Code are Rules for purposes of this Module. Recommendations under the Code have been included either as Rules or Guidance, depending on their applicability to
listed companies andCMSPs .July 2011HC-A.1.11
The Module also incorporates other high-level controls and policies that apply in particular to
listed companies andCMSPs .July 2011The Comply or Explain Principle
HC-A.1.12
This Module is issued as a Directive (as amended from time-to-time) in accordance with Article 38 of the Central Bank of Bahrain and Financial Institutions Law 2006 ('CBB Law'). In common with other Rulebook Modules, this Module contains a mixture of Rules and Guidance (see Module UG-1.2 for detailed explanation of Rules and Guidance). All Rulebook content that is categorised as a Rule must be complied with by those to whom the content is addressed. Other parts of this Module are Guidance; nonetheless every
listed company andCMSP to whom Module HC applies, is expected to comply with recommendations made as Guidance in Module HC or explain its non-compliance by way of an annual report to its shareholders and to the CBB (see Chapter HC-8).Amended: January 2012
July 2011Monitoring and Enforcement of Module HC
HC-A.1.13
Disclosure and transparency are underlying principles of Module HC. Disclosure is crucial to allow outside monitoring to function effectively. This Module looks to a combined monitoring system relying on the board, the
listed company andCMSP's shareholders and the CBB.July 2011HC-A.1.14
The
listed company andCMSP's board should support entrepreneurship but also ensure effective monitoring and control. Thus it is important that the board be composed of bothExecutive Directors andnon-Executive Directors , including fully independentnon-Executive Directors . It is the board's responsibility to see to the accuracy and completeness of thelisted company andCMSP's corporate governance guidelines and compliance with Module HC. Failure to comply with this Module is subject to enforcement measures as outlined in the respective Licensing or Listing Module.July 2011HC-A.1.15
Given the reliance of Module HC on a flexible "comply or explain" approach in respect of guidance, shareholders, and in particular larger shareholders and institutional investors, should play an important role in evaluating a
listed company orCMSP's corporate governance and should give weight to all relevant factors that come to their attention. Shareholders should carefully consider explanations given for deviations from Module HC and make reasoned judgments in each case. They should be prepared to enter into a dialogue with the board if they do not accept thelisted company orCMSP's position, bearing in mind in particular the size and complexity of thelisted company orCMSP and the nature of the risks and challenges it faces.July 2011Legal Basis
HC-A.1.16
This Module contains the CBB's Directive (as amended from time-to-time) relating to corporate governance and is issued under the powers available to the CBB under Article 38 of the Central Bank of Bahrain and Financial Institutions Law 2006 ('CBB Law'). The Directive in this Module is applicable to
listed companies andCMSPs (including, where relevant, approved persons or those undertaking controlled functions).July 2011HC-A.1.17
For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.
July 2011Effective Date
HC-A.1.18
This Module is effective on 1st September 2011. All
listed companies andCMSP's to which the Module HC applies should be in full compliance by the financial year end 2011. At everylisted company andCMSP's annual shareholder meeting held after 1st January 2011, corporate governance should be an item on the agenda for information and any questions from shareholders regarding thelisted company orCMSP's governance. Where possible, thelisted companies andCMSP should also have corporate governance guidelines in place at that time and should have a "comply or explain" report as described in paragraph HC-A.1.10.July 2011