• HC-1 HC-1 The Board

    • HC-1.1 HC-1.1 Principle

      • 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.

        July 2011

    • HC-1.2 HC-1.2 Role and Responsibilities

      • 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:

        (a) The board's role as distinct from the role of the shareholders (who elect the board and whose interests the board serves); and the role of officers (whom the board appoints and oversees); and
        (b) The board's fiduciary duties of care and loyalty to the company and the shareholders (see section HC-2.1).
        July 2011

      • HC-1.2.2

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

        (a) The overall business performance and strategy and business plan for the company;
        (b) Causing financial statements to be prepared which accurately disclose the company's financial position;
        (c) Monitoring management performance;
        (d) Convening and preparing the agenda for shareholder meetings;
        (e) Monitoring conflicts of interest and preventing abusive related party transactions;
        (f) Selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing succession planning;
        (g) Aligning key executive and board remuneration with the longer term interests of the company and its shareholders;
        (h) Ensuring a formal and trans-group board nomination and election process;
        (i) Ensuring the integrity of the corporation's accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards;
        (j) Assuring equitable treatment of shareholders including minority shareholders;
        (k) Ensuring compliance with the relevant rules and requirements relating to the issuing and offering of securities;
        (l) The ongoing obligations in respect of the listing requirements, including but not limited to issues relating to disclosure, dissemination of price sensitive information and other communication, and the prevention of market abuse and insider trading;
        (m) Compliance with the company's founding documentation, including but not limited to its Memorandum and Articles of Association and other relevant by-laws and resolutions;
        (n) Ensure that any loans provided by the company are approved by the board in accordance with their authority for such items, including the respective limits and other relevant terms; and
        (o) Providing approval in respect of the relevant fees, charges, subscriptions, commissions and other business and administrative sanctions, where relevant.
        Amended: January 2012
        July 2011

      • 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.

        July 2011

      • 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:

        (a) The adoption and annual review of strategy;
        (b) The adoption and review of management structure and responsibilities;
        (c) The adoption and review of the systems and controls framework; and
        (d) Monitoring the implementation of strategy by management.
        July 2011

      • 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).

        Amended: January 2012
        July 2011

      • 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.

        July 2011

      • 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.

        July 2011

      • 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.

        July 2011

    • HC-1.3 HC-1.3 Decision-Making Process

      • HC-1.3.1

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

        July 2011

      • 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.

        July 2011

      • 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.

        July 2011

      • 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.

        July 2011

      • HC-1.3.5

        The board should have no more than 15 members, and should 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 should recommend changes in board size to the shareholders when a needed change requires amendment of the company's Memorandum of Association.

        July 2011

      • 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.

        July 2011

      • 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.

        Meetings per year 75% Attendance requirement
        4 3
        5 4
        6 5
        7 5
        8 6
        9 7
        10 8
        July 2011

      • 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).

        July 2011

      • 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.

        July 2011

      • 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.

        July 2011

    • HC-1.4 HC-1.4 Independence of Judgment

      • 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.

        July 2011

      • 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.

        July 2011

      • 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.

        July 2011

      • 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.)

        July 2011

      • 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.

        Amended: January 2012
        July 2011

      • 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.

        July 2011

      • HC-1.4.6A

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

        Added: January 2012

      • 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.

        July 2011

      • 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.

        July 2011

      • 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.

        July 2011

    • HC-1.5 HC-1.5 Representation of All Shareholders

      • 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.

        July 2011

      • 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.

        July 2011

      • 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.

        Amended: January 2012
        July 2011

    • HC-1.6 HC-1.6 Directors' Access to Independent Advice

      • 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.

        July 2011

      • 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.

        July 2011

      • 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

        July 2011

      • 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.

        July 2011

    • HC-1.7 HC-1.7 Directors' Communication with Management

      • 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.

        July 2011

      • 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.

        July 2011

    • HC-1.8 HC-1.8 Committees of the Board

      • 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).

        July 2011

      • 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.

        July 2011

      • 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.

        July 2011

      • HC-1.8.4

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

        July 2011

      • 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.

        July 2011

      • 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.

        Amended: January 2012
        July 2011

      • 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.

        July 2011

    • HC-1.9 HC-1.9 Evaluation of the Board and Each Committee

      • 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.

        July 2011

      • HC-1.9.2

        The evaluation process must include:

        (a) Assessing how the board operates, especially in light of chapter HC-1;
        (b) Evaluating the performance of each committee in light of its specific purposes and responsibilities, which shall include review of the self-evaluations undertaken by each committee;
        (c) Reviewing each director's work, his attendance at board and committee meetings, and his constructive involvement in discussions and decision-making; and
        (d) Reviewing the board's current composition against its desired composition with a view toward maintaining an appropriate balance of skills and experience and a view toward planned and progressive refreshing of the board.
        July 2011

      • 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.

        July 2011

      • HC-1.9.4

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

        July 2011