Mr. Humayun Zafar Choudhry Assistant Professor Institute of Business Management Karachi.
Dear Mr. Choudhry,
Attached please find our term report titled Corporate Governance in Pak Brunei Investment Company Limited.
This report revolves around various aspects of the Code of Corporate Governance practiced at Pak Brunei Investment Company Limited. Also discussed are the role and responsibilities of the BOD, Various Committees, Company Secretary, and other such related matters.
Table of Contents Definition of Corporate Governance ............................................................................................................ 4 Corporate Governance in Pakistan ............................................................................................................... 4 Introduction of the Company ....................................................................................................................... 4 Responsibility of the Board: .......................................................................................................................... 5 Performance Measurement Review ............................................................................................................. 6 Composition of the Board ............................................................................................................................. 7 Board and Senior Management Remuneration ............................................................................................ 9 Compensation of Directors and Executives for the year ended 2011 .............................................. 9 Meetings ..................................................................................................................................................... 10 Board meetings: .............................................................................................................................. 10 Audit Committee: ............................................................................................................................ 10 Human Resource Committee: ......................................................................................................... 11 Management Committees .............................................................................................................. 11 Role of Company Secretary ......................................................................................................................... 12 Information ................................................................................................................................................. 12 Register of Interest ..................................................................................................................................... 13 Voting at Share Holders Meetings .............................................................................................................. 13 Financial Statements ................................................................................................................................... 13 Board Appointments ................................................................................................................................... 14 Audit ............................................................................................................................................................ 14 Environmental Concerns ............................................................................................................................. 14 Succession Planning .................................................................................................................................... 15 Conclusion ................................................................................................................................................... 16 References .................................................................................................................................................. 17
Corporate Governance 2013
Pak Brunei Investment Company
Definition of Corporate Governance
"Corporate governance is the system by which companies are directed and controlled. The boards of directors are responsible for the governance of their companies. The shareholders role in governance is to appoint the directors and the auditors to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the companys strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The boards actions are subject to laws, regulations and the shareholders in general meeting." Cadbury Report Definition of Corporate Governance Corporate Governance in Pakistan
The Securities and Exchange Commission of Pakistan (SECP) endeavored to raise the corporate governance standards in the country. The first major effort was made in March 2002, when the Code of Corporate Governance (Code) was issued by SECP under the chairmanship of Khalid Mirza. It was subsequently made part of the listing regulations of the three stock exchanges and became applicable to all public listed companies. The Code is a first step in the systematic implementation of principles of good corporate governance in Pakistan.
Furthermore, in order to keep pace with the constantly evolving corporate sector and financial markets and the resultant governance benchmarks, the process of revising the Code was initiated which resulted in the revised Code of Corporate Governance, 2012 which the Federal Minister for Finance Dr. Abdul Hafeez Shaikh launched at a formal ceremony organized by the Securities and Exchange Commission of Pakistan (SECP), on April 10, 2012.
Introduction of the Company
Pak Brunei Investment Company is an Investment Finance Company established as a joint venture between Government of Pakistan and Brunei Investment Agency (BIA). The Company commenced operations in August 2007 after its notification as a Development Finance Institution.
Pak Brunei defines itself as a full service Merchant Bank which includes all Investment Banking activities such as Project Finance, Corporate Finance & Advisory Services, Treasury/ Trading and Distribution as well as Capital Market operations. Since commencement, the Company has Corporate Governance 2013
Pak Brunei Investment Company
successfully closed a number of Advisory mandates including arrangement of financing through syndications of almost PKR 35 billion for a diverse client pool. Deal credentials include financing Greenfield and BMR projects, Rehabilitation mandates, Mergers, Acquisitions and Strategic Advisory transactions.
It is relevant to mention here that the Code was made applicable to the Company through regulation G-1 of the Prudential Regulations for Corporate / Commercial Banking issued by the State Bank of Pakistan. Though PBICL is not a listed company, it follows the Code of Corporate Governance as a GOOD GOVERNANCE practice, to the maximum of its abilities.
Organogram
Responsibility of the Board:
The Board assumes its role independent of the influence of the management. It knows its responsibilities and powers in clear terms. The Board is accountable for overall supervision of the risk management process. They also meet every quarter to consider the following: Approval of quarterly results Approval of Budget, Business plans Approval of the Annual Report and Accounts Approval of overall policies, supervising and ensuring their proper implementation Approval and monitoring of corporate strategy and objectives to achieve Company mission under the overall vision provided to management Board of Directors Company Secretary / Chief Financial Officer Managing Director Group Head Operations Chief Information Officer Senior Manager, Capital Markets Head of Compliance Head of Credit Risk Group Head, Corporate and SME Banking Group Group Head Advisory & Strategic Investment Group Head Administration & HR ---------------------------- Head of Internal Audit Board Audit Committee Corporate Governance 2013
Pak Brunei Investment Company
Ensuring that systems and controls are in place in the Company so that transactions that take place are within company policy and regulatory requirements Defines the authorities and responsibilities of the senior management Regular, periodic and independent contact with Internal audit
As mentioned in the responsibilities above, the board of directors focuses on approval of policies, general direction, oversight and supervision of the affairs and business and does not play any role in the day to day operations, as that is the role of the management.
The Board is the ultimate governance body of the Company. The Board attends to all matters which are not reserved to the General Meeting or another governance body of the Company by law, the Articles of Association or these Regulations.
Performance Measurement Review
Meetings are held at regular intervals in which the Company reviews the terms of reference of Board and subcommittees when needed. Reports are produced on a yearly basis detailing the boards objectives for that year and progress against these objectives. However, no third party evaluation of the Board, such as by an external auditor takes place at Pak Brunei.
PBICL has an audit committee as mentioned below, with its meetings being conducted quarterly. At each of these meetings, Internal Auditor presents all outstanding Audit findings to the Board Audit Committee, ranking these in terms of critical impact on the Company. The Quarterly results are reviewed by the internal auditors, while the half yearly and annual results are reviewed by both the internal and external auditors.
The Boards Audit Committee recommends decisions to be taken by the Board of Directors. The Audit Committee does not include the CEO. There is an independent internal audit function within the company who reports to the Audit Committee.
Corporate Governance 2013
Pak Brunei Investment Company
The external auditors are rotated after 05(five) years as per requirements of the Code of Corporate Governance and it is mandatory to produce an internal audit plan which is reviewed annually.
Composition of the Board
Member of the Board of Directors of the Company are appointed by the Government of Islamic Republic of Pakistan (GoP), represented by Ministry of Finance, and the Brunei Investment Agency (BIA). The GoP and the BIA both appoint two directors on their behalf who are nominated directors. There are therefore 4 (four) directors serving on the board of PBICL.
At present three (03) directors are Non Executive directors and one (01) director is an executive director. Out of which the Pakistani nominated directors are Certified Directors through Pakistan Institute of Corporate Governance. One of the weaknesses of the Corporate Structure of the Company is that there are only four directors on the Board and the Managing Director is always the nominee of one shareholder. This means that the full Board has no real authority in appointment of the Managing Director.
The Board members are nominated for a three year term that can be renewed by the nominating shareholder. In this Company, the positive aspect is that directors are all highly qualified and experienced. Directors from Brunei are on the Boards of companies around the world and bring an international perspective to the Board.
In the past also, Board members have included CFAs and Chartered Accountants. A negative however is that the Board size is too small and there are no independent members.
Present Board includes:
Hjh Hartini binti Haji Abdullah Chairperson (Non Executive) Appointed in 2010 as Chairperson of Pak Brunei Investment Company, Hjh Hartini is currently the Managing Director of Brunei Investment Agency. Prior to holding this position, she was Assistant Managing Director responsible for the Agency's global exposures Corporate Governance 2013
Pak Brunei Investment Company
in publicly listed equity and fixed income markets. Hjh Hartini obtained her BSc and MBA from the UK.
Ms. Sumaira K. Aslam (Non Executive Director) Ms. Aslam brings over twenty five years of experience in Public Finance, Commerce and Trade issues relating to Government, Multinationals and International agencies. She has worked in the Ministry of Finance, Pakistan in various positions and has previously also held the position of Commercial Counselor and Alternate Permanent Representative to UNESCAP for Pakistan in Bangkok.
Ms. Aslam holds finance degrees from LSE and Georgetown University. She has also attended numerous training programs of the World Bank and IMF. She has been on teaching faculty of UMASS, Amherst; Williams College, USA.
Mr.Junaidi bin Haji Masri (Non Executive Director) Mr. Masri joined the Brunei Investment Agency in 1991. As Assistant Managing Director, he heads Venture Capital and Strategic Investments, managing the Agency's investments across several countries. He has a deep understanding of international markets and asset classes.
Mr. Masri holds a B.Sc Degree in Computer and Management Sciences from Keele University, United Kingdom.
Ms. Ayesha Aziz - Managing Director (Executive) Ms. Aziz was responsible for setting up Pak Brunei Investment Company and succeeded in positioning it at the forefront amongst its larger and more established peers, in terms of size and profitability.
Ms. Aziz has rich and diverse experience in investment banking, asset management, treasury, and portfolio management. Subsequently, Ms. Aziz was involved in establishing and managing business operations and subsidiaries of Pak Oman Investment Company, including a Microfinance bank and an Asset Management company, where she acted as a Corporate Governance 2013
Pak Brunei Investment Company
member on the board and CEO, respectively. She was also responsible for developing a regional investor base comprising private and public sector institutions, successfully raising equity for telecom, energy and financial sector transactions in Pakistan.
Ms. Aziz is an MBA from the Institute of Business Administration and a CFA Charterholder.
Board and Senior Management Remuneration
PBICL has a Human Resource Committee of the Board as mentioned below. There is also a written remuneration policy of Company, but they do not disclose the policy in the annual report. However, the company does disclose the remuneration given to the board members and the senior management of PBICL in their annual reports.
Compensation
Compensation of Directors and Executives for the year ended 2011 (Rupees in 000) *Chief Executive Directors **Executives Fees - - - Managerial Remuneration 21,200 - 67,406 Contribution to defined contribution plan 1,055 - 3,430 Utilities 303 - 14,460 Medical 341 - 2,153 Travelling Allowances 228 3,234 302 23,127 3,234 87,751 *The Chief Executive is also provided with a Company maintained car. **Executives mean employees other than the Managing Director and Directors, whose basic salary exceeds five hundred thousand rupees in a financial year.
Corporate Governance 2013
Pak Brunei Investment Company
Meetings Board meetings:
The Board meetings are conducted quarterly. Composition
Names Directorship Hjh Hartini binti Haji Abdullah Chairperson Non Executive Mr. Junaidi bin Haji Masri Director Non Executive Ms. Sumaira Aslam Director Non Executive Ms. Ayesha Aziz Managing Director Executive
Since the Board is quite small, the quorum of the board meeting is that all directors of the board committee should attend the meeting. The minimum time required to circulate the minutes to other directors / board members is 02 (two) weeks.
Audit Committee:
The Audit Committee meetings are also conducted quarterly.
Composition
Names Directorship Hjh Hartini binti Haji Abdullah Chairperson Non Executive Mr. Junaidi bin Haji Masri Member Non Executive Ms. Sumaira Aslam Member Non Executive
The quorum required is full attendance. The minimum time required to circulate the minutes to other directors / board members is 02 (two) weeks.
Corporate Governance 2013
Pak Brunei Investment Company
Human Resource Committee:
The Human Resource Committee meetings are also conducted quarterly.
Composition
Names Directorship Mr. Junaidi bin Haji Masri Chairman Non Executive Ms. Sumaira Aslam Member Non Executive Ms. Ayesha Aziz Member Executive
The quorum requirement of the meeting is that all members should attend the meeting. The minimum time required to circulate the minutes to other directors / board members is 02 (two) weeks.
Management Committees
Different Committees have been set up to review different kinds of risks. The meetings of these committees are conducted monthly and the minutes of the Risk Management Committee is reviewed quarterly by the BOD. They are as follows:
Risk Management Committee Assets and Liabilities Committee Credit Committee IT Steering Committee Purchase Committee Equity Investment Committee Strategic Investment Committee
Corporate Governance 2013
Pak Brunei Investment Company
Role of Company Secretary
The minimum criteria for the appointment of company secretary within the Company is that he / she should have a Masters Degree from a recognized university having at least 5 (five) years experience of handling corporate affairs of a company, along with being conversant with all the regulatory framework and should meet the fit and proper criteria of its regulator, the State Bank of Pakistan.
The tenure of the company secretary is determined by the board. Responsibilities of the company secretary include calling board meetings, recording minutes of meetings, keeping statutory record books, proper payment of dividend, interest payments (if any).
The company secretary reports to the Board of Directors, and is also a certified director from PICG. In this Company, the Co Secretary is also the CFO, for which a special relaxation has been taken from the State Bank of Pakistan. For all Company secretarial functions, his reporting line is to the Board.
Information
The information disclosed in the Annual Report is as per the Guidelines given by the State Bank of Pakistan and the Accounting Standards. All the information required for the meeting, such as the agenda items etc.
Approval of annual financial statement, appointment of external auditors, declaration of Dividend (if any), and nomination of director is revealed to the shareholders in advance of the Annual General Meeting. The minutes of the previous meeting are read and approved in the following meeting, in which the responsibility of action (if any) is also clearly defined. After which the organization undertakes a review to ensure that actions decided have been taken.
All related party transactions are reviewed and approved by the board on quarterly basis and are disclosed in the annual report of the company. Corporate Governance 2013
Pak Brunei Investment Company
Register of Interest
All Directors are required to disclose their personal interest in the Company such as Ownership of shares of the Company and Subsidiary Companies. The company however, does not maintain a register of interest. This is because the Company is not a listed entity and 100% shareholding rests with two shareholders.
Voting at Share Holders Meetings
The shareholders send their nominees to shareholder meetings. Since there are only two shareholders, there are two nominees. The Company Secretary is present in shareholder meetings as is the CEO. Hence there is no need for proxy voting guidelines in this case.
PBICL follows the guidelines of the Companies Ordinance in this regard. The resolutions are circulated in the working papers of the meeting, which are separate for separate matters (appointment of external auditor, dividend declaration, change in articles/memorandum of the company etc)
Financial Statements
IFRS and IAS are followed in preparation of financial statements which are reviewed and duly signed by the Board of Directors.
SQL based financial system for accounting records Daily backups are kept in hard room. A separate server is maintained at data recovery centre where a back up is maintained at all times through satellite link. Also, backups are taken physically and maintained in a secure location by Group Head Operations BCP Site for the retrieval and access of Financial Information is located in a safe location in Clifton. Drills are conducted regularly to check effectiveness.
Corporate Governance 2013
Pak Brunei Investment Company
Board Appointments
The Shareholders themselves recommend candidates for the appointment of board of directors. The Company Secretary plays a vital role in spelling out the boards responsibilities respectively and also informs them of any trainings that might be suitable and effective for the company and for the directors
Audit
Audit being the backbone of CG in a financial services company is treated accordingly in the companys Corporate Governance framework.
A report on the Internal Audit function is produced by the Audit Committee Appointment of external auditor of repute. Internal Audit plan is also mandatory. Internal Audit plan is reviewed periodically. Independent internal audit function.
Environmental Concerns
While the Company is still very new, it has done some work on the CSR side. However, there is no clear policy or guidelines in this area.
The Company so far, has gone about it in a relatively disorganized manner. Recommendations are made to the Board by the MD and every year the Company makes donation based on these recommendations. The minimum requirement is that five years audited statements of the don ne should be in place. Contributions so far include Citizens Foundation and IBA (Center for Entrepreneurship)etc.
Corporate Governance 2013
Pak Brunei Investment Company
The company ensures that all projects that are funded by it have a NoC on environmental safeties that apply. Also, the Company has advised clients on carbon credits (such as those available in bio gas projects).
There is a steering committee comprising of the senior most female employee (other than MD) who is the chairperson of the committee , the CFO as well as Head of HR that monitors and takes action for any type of harassment reported to it through a proper complaint process. This process ensures complete confidentiality. This committee looks into complains such as verbal or physical harassment including sexual harassment and all decisions made are reported for final approval by MD. There is also a disciplinary process outlined in the policy.
The Company does follow the equal employment opportunities policy. In fact there is a strong culture of not tolerating any type of prejudice and cases of sectarianism are also dealt with quite harshly under special direction of the board. Also women make up almost 35% of the total workforce and these are equally distributed at all levels of the Company.
There is a Chief Compliance Officer (CCO) whose role is defined by the regulatory body, in this case State Bank of Pakistan (SBP). He ensures all transactions fall within legal/regulatory parameters as well as internal policy and any exception is reported by him to senior management and also separately to the board in a compliance report. Any complaint made that goes unaddressed by management, whether from a client, a regulator, or an employee is also communicated to the Board. The Company has two reputable law firms on its panel. These firms both qualify on the SBP panel of lawyers as well.
No advisors except external auditors who point out any exception to the code in their report.
Succession Planning
PBICL has a succession planning policy. The departing CEO recommends the succession plan to the Board and in fact this plan comes into action even when the CEO is on leave/absent for more than three days. Corporate Governance 2013
Pak Brunei Investment Company
The role of the Board is quite active as succession plan is reviewed on a biannual basis and justification for each position has to be given. As the CEO position is filled by a nominee of any one shareholder (alternating every three years), therefore the succession plan for CEO position is always a senior resource from within the Company as this is a temporary vacancy.
All other senior management positions succession is mostly through internal resources. These internal resources are identified in advance and are selected through rigorous performance evaluations. Only in rare cases are external resources taken on board to fill vacancies.
This is a critical exercise because in financial markets, there is quite a lot of turnover. Many people move to bigger banks for better salaries etc. A financial institution cannot afford to have critical positions lying vacant or filled in by inexperienced resources for too long.
The Company has a policy of focusing strongly on external and internal training programs for its employees at each level to have a strong low and middle management resources who are upwardly mobile.
Conclusion
Despite being a new institution which is only five years old, Pak Brunei is recognized as a market leader amongst its peers in terms of profitability, size, external credit ratings (AA+), quality of human resources and product range. Management attributes this to its culture of merit and integrity and therefore the code is an integral part of the systems followed in the Company.
However, there is always room for improvement and we have made some recommendations here. Some of the issues relate to the way the Company is structured, as a joint venture between two countries where the requirements of the code are overlooked. To change this would need a basic amendment in the original agreement which may at some point be necessary.
Corporate Governance 2013
Pak Brunei Investment Company
Recommendations:
Increase in the size of the board Nomination of independent directors on the board Appointment of CEO through transparent head hunting process instead of appointment by the board of the nominee of one shareholder Separation of the office of CFO and Co Secretary Listing on the stock exchange to widen shareholder base, further enhance transparency and inculcate accountability to the market System to evaluate performance of the board of directors by third party
References
1. http://www.corpgov.deloitte.com/site/CzEng/corporate-governance/ 2. http://www.dailytimes.com.pk/default.asp?page=2012%5C04%5C11%5Cstory_11-4- 2012_pg5_7 3. http://en.wikipedia.org/wiki/Development_finance_institution 4. http://www.pakbrunei.com.pk/ 5. Interview with Company Secretary/ CFO, Internal Auditor and CEO