CG FAQs 1. What is Corporate Governance?

Corporate Governance involves a set of relationships between a companys management, its board, its shareholders and other stakeholders. (OECD Principles Define Corporate Governance Comprehensively, 2004) 2. What are five (5) basic Parameters of Corporate Governance? Good Board Practices. Shareholder Rights. Control Environment. Disclosure & Transparency. Commitment. 3. Core values / Principles of Corporate Governance are? Accountability: The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the boards accountability to the company and the shareholders. Fairness: The corporate governance framework should protect shareholders rights and ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights. Transparency: The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership and governance of the company. Responsibility: The corporate governance framework should recognize the rights of stakeholders as established by law and encourage active co-operation between corporations and stakeholders in creating wealth, jobs and the sustainability of financially sound enterprises.

4. What are the benefits that corporate governance can bring to a company? Optimizes Operational and Financial Efficiency. Streamlines business processes, leading to better operating performance & lower capital expenditures. Improves the companys ROCE. Better share price performance, higher profitability, larger dividend payouts & lower risk levels than peers. Improves Access to Outside Capital. Improves Valuation and Lowers the Cost of Capital. Builds/Improves the Companys Reputation. 5. Elaborate different types of Directors? Executive Directors directors simultaneously serving as members of the company executive management. Non-Executive Directors Board members who are not members of the companys executive management. Independent Directors Non-executive, outside directors who meet criteria for independence. 6. Define Independence in light of Pakistans Corporate Governance Code?

The expression independent director means: a director who is not connected with the listed company or its promoters or directors on the basis of family relationship and who does not have any other relationship [] with the listed company, its associated companies, directors, executives or related parties. Any person nominated as a director under sections 182 and 183 of the CO of 1984 shall not be taken to be an "independent director" 7. Why is the Board needed? To protect the investment and return and ensure achievement of shareholders vision. Bridge between management and ownership. Formation of a legal entity to sue or be sued. Ensure objectivity in decision making. 8. What could be the reasons behind Underdeveloped Boards? Strong mgmt., who are simultaneously majority Shareholders. Large number of minority Shareholders, unable or unaware of collective action (lack of institutional investors). A general lack of understanding of the Boards role within a company. Lack of experienced directors familiar with their rights & responsibilities. 9. In a nut shell, what are directors responsible for? Adopting a vision/mission statement. Approving plans and budgets, short and long term. Preparing and circulating statement of Ethics and Business Practice. Formulating significant policies. Determining level of materiality, keeping in view the specific circumstances of the Company. Fair presentation of financial statements. Maintenance of proper records. Application of accounting policies. Safeguarding Companys assets. Establishment of adequate and sound internal controls.