Principle 1 The Company Shall be Headed by an Effective, Collegial and Informed Board

1.1 The Board's Role and Responsibilities. All directors should understand the board's role and responsibilities under the Company Law, in particular:

•   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 the officers (whom the board appoints and oversees), and
•   the board's fiduciary duties of care and loyalty to the company and the shareholders (see Principle 2 below).

The board's role and responsibilities include but are not limited to the overall business performance and strategy for the company; causing financial statements to be prepared which accurately disclose the company's financial position; monitoring management performance; convening and preparing the agenda for shareholder meetings; monitoring conflicts of interest and preventing abusive related party transactions; and assuring equitable treatment of shareholders including minority shareholders.

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.

Recommendation: When a new director is inducted, the chairman of the board, assisted by company legal counsel or compliance officer, should review the board's role and duties with that person, particularly covering legal and regulatory requirements and this Code.
Recommendation: The company 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.
Recommendation: 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 directors.

1.2 The Board's Decision-Making Process. The board should be collegial and deliberative, to gain the benefit of each individual director's judgment and experience. The chairman should take an active lead in promoting mutual trust, open discussion, constructive dissent and support for decisions after they have been made. The board should meet frequently but in no event less than four times a year, all directors should attend the meetings whenever possible and the directors should maintain informal communication between meetings.

The chairman should 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 should receive the same board information. At the same time, directors have a legal duty to inform themselves and they should ensure that they receive adequate and timely information and should study it carefully.

Recommendation: 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.
Recommendation: 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. 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.

1.3 Directors' Independence of Judgment. Every director should bring independent judgment to bear in decision-making. No individual or group of directors should dominate the board's decision making and no one individual should have unfettered powers of decision. Executive directors should provide the board with all relevant business and financial information within their cognizance, and should recognize that their role as a director is different from their role as an officer. Non-executive directors should be fully independent of management and should constructively scrutinize and challenge management including the management performance of executive directors.

Recommendation: At least half of a company's board should be non-executive directors and at least three of those persons should be independent directors as determined under Appendix A. (Note the exception for controlled companies in 1.4 below.)
Recommendation: The chairman of the board should be an independent director and in any event should 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.
Recommendation: The board should review the independence of each director at least annually in light of interests disclosed by them and the criteria in Appendix A. Each independent director shall provide the board with all necessary and updated information for this purpose.
Recommendation: 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.

1.4 The Board's Representation of all Shareholders. Each director should consider himself as representing all shareholders and should act accordingly. The board should avoid having representatives of specific groups or interests within its membership and should 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 should recognize its or their specific responsibility to the other shareholders, which is direct and is separate from that of the board of directors. In companies with a controlling shareholder, at least one-third of the board should be independent directors. Minority shareholders should generally look to independent directors' diligent regard for their interests, in preference to seeking specific representation on the board.

Recommendation: 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 Principle 2 below) and also of rights that minority shareholders may have to elect specific directors under the Company Law or if the company has adopted cumulative voting for directors. The chairman of the board should take the lead in explaining this with the help of company lawyers.

1.5 Directors' Access to Independent Advice. The board shall 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 should be in accordance with the company's policy approved by the board. Individual directors should also have access to the company secretary, who should have responsibility for reporting to the board on board procedures. Both the appointment and removal of the company secretary should be a matter for the board as a whole, not for the CEO or any other officer.

Recommendation: 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. Upon resignation, a nonexecutive director should provide a written statement to the chairman, for circulation to the board, if he has any such concerns.

1.6 Directors' Communication with Management. While management members are not entitled by right to attend board meetings, 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.

Recommendation: 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.

1.7 Committees of the Board. The board should create specialized committees when and as such committees are needed. In addition to the Audit, Remuneration and Nominating Committees described elsewhere in this Code, these may include an Executive Committee to review and make recommendations to the whole board on company actions, or a Risk Committee to identify and minimize specific risks of the company's business. The board or a committee may invite non-directors to participate in a committee's meetings so that the committee may gain the benefit of their advice and expertise in financial or other areas. 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. Committees could be combined provided that no conflict of interest might arise between the duties of such committees.

Recommendation: Every committee should have a formal written charter similar in form to the model charters which are set forth in Appendices B, C and D below for the Audit, Nominating and Remuneration Committees.

1.8 Evaluation of the Board and Each Committee. At least annually the board shall conduct an evaluation of its performance and the performance of each committee and each individual director. The MOIC may issue non-mandatory templates to assist with such evaluation. The evaluation process shall include:

•   assessing how the board operates, especially in light of Principle 1 of this Code,
•   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,
•   reviewing each director's work, his attendance at board and committee meetings, and his constructive involvement in discussions and decision making, and
•   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.
Recommendation: While the evaluation is a responsibility of the entire board, it should be organized and assisted by an internal board committee and, when appropriate, with the help of external experts.
Recommendation: The board should report to the shareholders, at each annual shareholder meeting, that evaluations have been done.