Discuss some salient features of corporate governance code with particular reference to functions of the audit committee.
1. The code of Corporate Governance was introduced by the SECP in October 2001. It was incorporated in the listing regulations in March 2002 and is now applicable to all public companies listed on three stock exchanges of Pakistan.
2. The Code is not applicable to the government controlled large corporations for example Pakistan Steel, Pakistan Railways and electrical corporation. The Code is also not applicable to financial sector.
3. The code permits a person to be a non executive director for upto 10 companies.
4. Quarterly accounts are required to be dispatched to the shareholders within one month of the closure of quarter.
5. Annual accounts are to be passed in AGM within 4 months of the closure of accounts.
6. The code prescribes companies to hold periodic fair elections of the Board of directors including representation from minority shareholders.
7. The audit committee of the Board shall have minimum of three members, majority of whom shall be from among non – executive directors. –
8. “A statement of ethics and business practices, vision, mission and overall corporate strategy and significant policies” shall be formulated and circulated to all concerned.
9. External auditor shall be forbidden to take up some other professional task of the company.
10. The half – yearly financial statements shall need to carry an audit opinion thereon.
Some people think that the Code is over regulating the companies. The regulations involve substantial costs. As a result, some companies have opted to delist from the stock exchanges. Some companies have converted from public to private companies.
In the context of good corporate governance, give your suggestions for improvement of the following procedures:
1.Same individual is the CEO and chairman.
2. Board remuneration is approved by the chairman.
3. Internal auditor reports to finance director.
4. The executive board annually evaluates performance of the chairman.
1.Duties of chairman and CEO should be segregated so that no one
individual has wide powers and authority to run the business.
2. Board remuneration should be approved by an independent remuneration committee consisting of at least three non executive directors.
3. The internal auditor should report to audit committee to enhance its independence. Otherwise, he will always have fear of losing his job. .
4. The performance should be evaluated by non executive directors.
5. Evaluation of performance of chairman by executive board may not be free from bias.