Legal points on corporate governance

TDT | Manama

Email: mail@newsofbahrain.com

DR. ABDELGADIR WARSAMA GHALIB

A basic golden principle of corporate governance (CG) relates to the “Board of Directors” of the company, wherein the company shall always be headed by an effective, collegial and informative Board of Directors. If, not more. In your company, you need to ask yourself, where do we stand in this? What about the whereabouts and the role of our Board of Directors?

To achieve the goal, all members of the Board of Directors should understand and comprehend the role and the responsibilities of the Board as stipulated provided for in the Company Law, the Articles & Memorandum of Association of the company, the corporate culture and, moreover, the corporate governance code.

This in particular clearly highlights that the role of the Board of Directors is totally different from the role of the shareholders of the company (whose interests the Board serves) and likewise the role of the officers staff working in the company.

In particular, in this respect, the members of the Board of Directors should understand and absorb the Board s fiduciary duties of care and loyalty to the company and the shareholders of the company.

Members of the Board of Directors, from legal perspective, are responsible both individually and collectively for performing such fiduciary responsibilities, which cannot be transferred or delegated to other persons or to other bodies related to the company.

When a new Board Director is appointed, the Chairman of the Board, assisted by the legal advisor of the company, should review the role of the Board and associated duties with all members of the Board of Directors, with particular interest to cover the legal and regulatory requirements, the Charter of the company and the Code of Corporate Governance.

The company should have a written appointment contract agreement with each member of the Board of Directors. This contract shall include the powers and duties of the Board member and other matters relating to his appointment including, among others, 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 and if needed.

The Board of directors should consider adopting 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 items stated in the Company Law and the articles and memorandum of association. An alternative is a formal statement or by-law stating the functions and authority delegated to the executives officers as mentioned in the Company Law.

The Board of Directors should be collegial and deliberative, to gain the benefit of each member of the Board of Directors 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 of Directors should meet frequently, usually more than the minimum required by law.

All members of the Board of Directors should attend the meetings, and the Board of Directors should maintain informal communication between meetings. Unexcused absence(s) is not welcomed as it may disturb the functions of the Board of Directors and indicates that the person is not the type of those needed for efficient Board of Directors as stipulated in the Corporate Governance Code. Regarding attendance, more control measures are required and continuous absence could lead to termination of membership.

Commitment and accountability reflect the effectiveness of the Board and are essentially required and should be observed by all members of the Board of Directors, taking in account that they are supposed to excel and give good example to all related parties in the company, the shareholders and community stakeholders.

If you are a Board member, you need to ask yourself where do you stand in this and are you fully eager and effective enough to make your Board of Directors more effective, as required for corporate governance purposes.

Membership in the Board of Directors has got its own legal and corporate benefits as well as more liabilities to be accountable for.

Be frank with yourself and other related parties, if you feel you are capable you can proceed in confidence, otherwise better to give the floor to others who can take care and shoulder the responsibility. Otherwise, bear the consequences.