Corporate
Governance
Executive
Summary
The
paper determines the level of governance portrayed in the organization in
categories such as disclosure, stakeholder role and equal treatment of
employees. In addition, it addresses measures put in place to ensure the
protection of stakeholders' rights, and BOD responsibilities. While Norfolk
Company
Background
The
organizations’ corporate financial information is a reflection of its
performance over the years. For instance, the company's stocks currently trade
at $95.38 with a volume of 638, 065.
This is a sharp drop from the previous stock price of the previous
years. Notably, stock information for 2014 indicated that NYSE price was more
than $99.00 (Ulus, Ertek & Sen 2006). The decline should serve as a wake-up
call for management to act on corporate governance reforms to turn the tables.
There is a reason to worry about investor concerns on unpleasant policies that
shield the company’s operations hence hindering transparency within the
internal business environment.
The
CG Survey Results
The
CG survey results are based on five pillars of corporate governance such as
equal treatment and protection of shareholders. Full disclosure of corporate
financial information and transparency in corporate activities form the basis
of proper corporate governance. Moreover, there should be a cordial and working
relationship between different levels of management. For example, the top level
that consist of the BOD and departmental heads should establish functional
vertical and horizontal communication channels with mid-level staff and the
subordinates.
Norfolk
Southern (NS) directors are independent as determined by the board members.
This is obligatory according to the NYSE rules and regulations. However, there
are instances where intervention on directors’ activities is imperative. Charles Moorman who chairs
the firms’ board and James
Squires CEO ) are exempted from the list of independent
directors in the organization. The
exemption is a detriment to corporate governance and operations because the two
heads and other dependent directors cannot serve in the Compensation,
Governance and Audit committees.
Therefore, it is hard to track the firm’s status in terms of corporate
governance initiatives. Besides, lack of firm leadership for such committees
encourages conflicts among the members regarding the corporate direction. In
the end, a poor relationship among employees is
imminent (See appendix).
All
NS workers are subject to Code of Ethics (CoE). Specifically, there is an
adoption of CoEC (Code of Ethical Conduct) applicable to all senior financial
officers given the sensitive nature of their offices and vulnerability to
corrupt and unethical business practices. However, the oversight is dragged
down by the lack of a firm CoE review body. In light of the drawback, a dent on
transparency cannot be understated. While periodic self-evaluations are
mandatory for all Board and committee members, lack of an assessment for junior
staff undermines the level of success of the introduced corporate governance
policies (Feeney, 2013).
It
is true that ethics and compliance hotline has been set up as an initial step
towards ensuring confidentiality of whistleblowers. Education programs on the
hotline use should be introduced to shake off fears that can arise especially
among the third parties. It is not
surprising that NS scores relatively lower (Weak 50-69 points) in the survey
instrument. Nevertheless, NS exhibits a strong potential for better performance
in the future if the proposed recommendations are implemented.
NS
should utilize its strength as an old firm with experience to forge stronger
ties with beneficial stakeholders and to widen its spectrum, especially when
wooing investors. Advancing technology
serves as an opportunity, for example, the Human Resource Information System
can be used to evaluate employee performance and to boost corporate governance
in the department. Privatization of rail
transport sector in the recent past has led to a surge in competition levels
hence a threat to NS’s existence. Besides, weak governance hampers overall firm
stock market performance.
Findings
and Conclusions
Internal
Mechanism
NS
is a vast organization with multiple departments. Without an internal mechanism
to regulate the corporate activities, proper governance is hardly within reach.
Thus, an oversight body should be put in place to monitor the progress of
governance activities. The independence of the body should be unquestionable.
It is the only way to prevent external interference by either the management or
other parties under surveillance (Bushee & Gerakos, 2013).
External
Mechanism
The
organization should submit itself to the control of external mechanisms like
government regulators, financial audit institutions, and trade unions. The submission will bar uncouth activities
within the organization, especially if there is collusion among directors and
managers to implement ulterior motives.
An independent audit from an external audit organization is often
effective when the internal audit mechanism fails to detect wrongdoing.
Conclusion
The
NS's weak score on corporate governance is contributed by multiple factors.
Such factors are easily preventable if the directors put on a concerted effort
to ensure transparency and full disclosure of financial information. It should
dawn on BOD that the tectonics is shifting: there is a need to embrace changes
in the transport sector in order to overcome the mounting pressure and
competition threatening NS's existence. As a first step, rights of shareholders
should be respected. If shareholders are unfairly treated for a continuous
period of time, a mass exit from the corporation is unavoidable. Besides, stakeholders should be playing a
bigger role in the organization. BOD
should surrender and delegate part of their bulky responsibilities to competent
stakeholders for efficiency and optimum performance to be achieved.
References
Rosenhead, J. (2013). Robustness analysis. In Encyclopedia of Operations Research
and Management Science (pp.
1346-1347). Springer US
Bushee, B. J. , Carter , M. E.
Ulus, F., Köse, Ö., Ertek, G., & Şen, S. (2006).
Financial benchmarking of transportation companies in the New York Stock
Exchange (NYSE) through data envelopment analysis (DEA) and Visualization.
Feeney, K. (2013). Railroad Audits: Some Arrived Ahead of
Schedule. The Accounting
Historians Journal, 40(1),
1.
Appendix
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COMPANY NAME
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COMPANY CODE
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CORPORATE GOVERNANCE SCORE
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65
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Company Name: XYZ COMPANY
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Category name
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No.of Questions
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GCRI Percent Weight
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Response results
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Weighed average of
overall outcome
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Category I . The rights of shareholders and key ownership
functions
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20
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20%
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13
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13%
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CategoryII. The equal treatment of shareholders
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10
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10%
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7
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7%
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Category III . The role of stakeholders
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10
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10%
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7
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7%
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Category IV. Disclosure and transparency
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20
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20%
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15
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15%
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Category V. The
responsibilities of BOD
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40
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40%
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23
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23%
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OVERALL OUTCOME
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100
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100%
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65
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65%
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A 'Y' (yes) answer denotes full compliance, a 'N' (no) answer is
a corporate governance challenge that needs to be corrected. Each time a No
response is entered a recommendation will appear to point at a possible
intervention.
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Title
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#
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Subtitle
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Indicator
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Response
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Diagnostic
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Justification: The Legal precedent
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Recommendations
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Category I . THE RIGHTS OF SHAREHOLDERS
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1
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Shareholders’ Rights I
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Company implements a
system of CG that fully recognizes the ownership rights of all shareholders.
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y
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The corporate governance
framework should protect shareholder rights including monitoring,
registering, decision making at the GSM, and electing members of the board.
Shareholders should, without any obstacles, be able to vote, attend
shareholders meetings, as well as have access to all share ownership
information, the list of all participants in attendance at the GSM, and
material and non-material financial and non-financial information.
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2
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Shareholder registration
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The company maintains a
register of the share owners of all of the company’s securities.
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Y
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The corporate governance
framework should ensure the equitable treatment of all shareholders,
including minority and foreign shareholders. The company registers
shareholders and shareholder representatives before the GSM.
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3
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Shareholders right to transfer shares
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All shareholders have the
right to assign or transfer their shares to any other person at any time,
deemed appropriate by a shareholder.
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Y
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The company charter ought
to recognize the rights of the shareholders to convey or transfer the shares
they own. The free transferability of shares in the open company cannot be
restricted, regardless of type and class.
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4
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Shareholders’ right to
information
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All shareholders of the
company have the right to full access to relevant and material information on
the corporation on a timely and regular basis.
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Y
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Access to information is
an important aspect of good corporate governance. Investors should have access to all
relevant information so that they have adequate basis to discover the price
of their shares or be able to calculate their wealth anytime.
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OECD Corporate Governance
Principles Section I A.
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5
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Shareholder participation
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Company facilitates effective
shareholder participation in key corporate governance decisions, such as the
nomination and election of board members.
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Y
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All shareholders could
fully participate in the election of board members, determining the compensation
policy for all board members and senior executive management. All
shareholders also have the right to vote the equity component of the
compensation schemes for board members and employees.
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6
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Shareholders’ right to freely elect board members
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Company’s shareholders
have the right to freely elect or remove the members of the BOD.
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N
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Electing or removing the
members of the BOD is one of the most important basic shareholder rights
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Company must develop
relevant articles in the charter to clearly provide that shareholders can
participate in the decision-making of the company through their right to vote
during the GSM. BOD should ensure that these rules should clearly show that
shareholders can control the long-term direction of the company by electing
members of the Board of Directors and by deciding on important matters that
fall within the authority of the GSM. The charter must also provide that the
right to vote can be exercised personally or by proxy. A proxy holder is
authorized to act on behalf of the shareholder and to make any decision the
shareholder could have made during the GSM. Except for limitations provided
by legislation, any individual can serve as a proxy as long as this person is
given an appropriate written or electronic proxy.
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7
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Cumulative Voting.
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The Company utilizes a
cumulative voting system to elect BOD members at its annual GSM meetings
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N
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Cumulative voting is
considered a best practice in support of minority shareholder rights. In a
cumulative voting system, each shareholder has a number of votes equal to the
number of shares held multiplied by the number of directors to be elected.
The shareholder can allocate these votes in whatever proportion preferred ‐‐
e.g. all votes could be cast for one candidate or divided equally among the
candidates. The effect of cumulative voting is to give minority shareholders
the power to elect at least one BOD candidate — by disproportionately
allocating their votes to that candidate — even though the majority of
shareholders did not cast votes in support of the candidate.
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The Company should adopt
policies whereby the chairman of the GSM invites shareholders to vote based
upon “one votes share — one vote” principle, except for cumulative voting.
Shareholders should have the right to vote on all agenda items from the
moment the GSM is opened until the moment it is closed. Voting results should
not be announced during the GSM. When the charter, by-laws, or a decision of
the GSM require voting results to be announced during the GSM, all
shareholders have the right to vote on all agenda items from the moment the
GSM is opened until the counting of votes begins. The policy should allow for
when BOD members are elected with cumulative voting, shareholders may cast
all his/her votes for one candidate or for several candidates.
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8
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Shareholder Rights II
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The Company has adopted a
written policy and procedure to extend pre‐emptive rights to its existing
shareholders in connection with an offering of shares in private placement to
new investors.
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Y
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Preemptive rights are
designed to provide for the possibility of proportional participation of all
existing shareholders in a subsequent private placement of shares. Existing
shareholders or any subset of existing shareholders should not be
unilaterally precluded from participating in such share offerings, which
would otherwise potentially infringe and or dilute their ownership rights and
interests.
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9
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Shareholders rights III
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All shareholders of the
company have the right to participate in all shareholders meetings and to
vote in accordance with shares they hold.
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N
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Legal frameworks require
that shareholders can participate in all shareholder meetings and to vote the
number of shares on all issues proposed at these meetings. OECD CG guidelines
also call for the facilitation of effective shareholder participation in key
corporate governance decisions, such as the nomination and election of the
board members.
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The GSM should be used to
inform shareholders about company activities, achievements, and plans, and to
involve shareholders in important decisions. For a minority shareholder, the
GSM is often the only chance to obtain detailed information about the
company’s operations, and to meet management and directors. The overriding
principle for organizing the GSM is that it should be conducted in such a
manner so as to facilitate effective shareholder participation and
decision-making.
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10
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Annual GSM Announcements
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For the past fiscal year,
at least 30 days advance written notice was provided to the shareholders of
record who are entitled to attend the Annual GSM.
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N
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Written advance notice of
GSM should be sent to shareholders together with a written agenda, related
summary information and copies of reports to be considered. Providing advance notice and related
documentation would enable shareholders an adequate opportunity to prepare
for, attend, and fully participate at the GSMs in exercising their
shareholders rights. The regular shareholders meeting shall be called by the
BOD and held within 4 months following the end of company’s fiscal year.
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After the completion of
proper procedures, all shareholders of record must be notified of the GSM not
less than 30 days and not more than 60 days prior to the annual GSM; and not
less than 15 days and not more than 30 days prior to the extraordinary GSM.
Sending notification of the GSM to all shareholders at least 30 days in
advance allows sufficient time for everyone to prepare for the GSM and to
contact other shareholders if necessary.
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11
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Governance of GSM
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The company has adopted a
written policy which permits shareholders sufficient time to introduce
shareholder resolutions, BOD candidate nominations, and agenda items for
discussion at the GSM.
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Y
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CG best practices
recommend that the last step in preparing for the Annual GSM is for the Board
of Directors to preliminarily approve the annual report and financial
statements. Before it does so, the audit committee should verify the annual
report and financial statements. The company may conduct the GSM once all the
preparatory steps have been completed. The GSM is a key corporate governance
event, and its proper implementation thus takes on added importance.
Convening and conducting the GSM is a complex task and a number of steps must
be followed to ensure that the GSM meets legal requirements and good
corporate governance recommendations.
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12
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GSM announcements through public media
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The BOD, or in its
absence, the
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Y
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It is good practice that
notification of the GSM should allow sufficient advance notice for all
shareholders to prepare for the GSM, with time for shareholders to contact
others, and notification is sent out at least 30 days in advance.
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13
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GSM Notification Requirements II.
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Through the past fiscal
year, company’s Annual GSM announcements included a written agenda, together
with summary information related to the agenda items to be discussed.
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Y
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The GSM notification should contain
sufficient information to enable shareholders to participate and tell them
how they will participate. It must include information pertaining to the
legal requirements and recommendations for this notification.
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14
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GSM Governance I.
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The Company has adopted a
written policy prohibiting the introduction and consideration of topics not
previously disclosed in the agenda accompanying the notice of the GSM.
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Y
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Good corporate governance
practice requires companies to respect shareholder rights by conducting GSMs
fairly, openly and transparently. Last minute changes to the previously
announced GSM agenda and proposed resolutions manifestly infringe on
shareholder rights.
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15
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Shareholder Rights
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The company has adopted
written policies and procedures, which permit a minimum 10% of its
shareholders to call an extraordinary GSM to consider a request to replace
one or more members of the BOD, including the Chairman of the BOD.
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N
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In order to ensure the
protection of the rights of all the shareholders as part of the
accountability and responsibility principles, the Chairman of the BOD must
require the participation of the external auditor, the members of the
supervisory body in the company, the members of the BOD, and the chairpersons of the Compensation
Committee, Appointment Committee, Audit Committee and any other Board
Committee at the GSM, in addition to the shareholders.
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At the opening of the GSM
the Chairman of the GSM should present the agenda to the participants. In
addition, the GSM Chairman should explain the rules of order as specified
either in the charter and by-laws or in a decision of the GSM. Per request of
the GSM Chairman, the Voting Commission should explain the voting procedures.
The invited experts should comment on agenda items before the shareholders
vote. The GSM Chairman should also ask invited experts to explain agenda
items to shareholders. The presence of the above mentioned experts is very
important for the Annual GSM, because of the nature of decisions it has to
adopt. It is good practice that: (1)
Shareholders have the opportunity to question members of the internal
supervisory body and the External Auditor; (2) Shareholders receive clear
answers to questions; (3) Questions from shareholders should be answered
immediately, or a written response should be given as soon as possible after
the GSM; (4) The GSM should be conducted so that all shareholders have an
opportunity to make balanced and informed decisions on all agenda items; (5) The
External Auditor, the General Director, and members of the Board of
Directors, the Audit Committee, the Compensation Committee, the Nomination
Committee and members of the Executive Board are present at the GSM, or their
absence explained by the GSM Chairman; (6) Key officers of the company,
including the chairmen of committees within the Board of Directors, should
speak at the GSM; (7) GSM chairman should set aside some time for
presentations by shareholders; and (8) The Chairman of the GSM should maintain
order or comply with procedural requirements.
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16
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Quality of minutes taken
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Minutes of the GSM and
the BOD are compiled within 15 business days following the meeting and sent
to each shareholder member.
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Y
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Minutes of the
shareholders meetings should be completed within a reasonable amount of time
following the meeting date and should include detailed information of the
participants, agenda, voting process, total number of votes cast, custodians
and proxies.
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17
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Determining agenda items
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Within sixty (60)
business days after the end of the fiscal year, shareholders of at least five
percent (5%) or more of the company`s common shares may submit additional
proposals to add to the agenda for the meeting.
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N
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In some cases, shareholders should have the
right to act against
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Drafting the agenda is
the first step in preparing for the Annual GSM. The agenda provides guidance
and structure for the annual GSM and lists issues that must be addressed.
Only the items properly included in the agenda in conformity with the Law on
Companies may be discussed and decisions reached at the general meetings. In
the period preceding the decision to conduct the Annual GSM, the BOD should
review all the proposals made by shareholders to include specific items on
the agenda. Within the corporate governance framework, understanding and
cooperation between the BOD and the shareholders is crucial. It would be good practice to notify
shareholders about rejected agenda items. This will not prevent the
shareholders to exercise their legal rights to include items on the agenda
following the decision to hold the GSM.
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18
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Shareholder rights
protection (dividends)
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Company shareholders
enjoy full rights to share in the profits of the corporation and to receive
dividends.
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N
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Shareholders have the
right to be involved in the distributions of a share of profits of the corporation
in the form of dividends. Dividend
distribution policy is determined by the BOD, and must be approved by the
regular GSM. The company will then announce the dividend payout to public.
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The BOD should determine
a dividend policy that addresses all the primary issues regarding this
policy. Most importantly, the BOD
should properly consider whether using net profits for dividend payout versus
re-investing these profits is in the long term best interests of the company
and protects the shareholders rights at once. Further, the BOD should
properly communicate its dividend policy to shareholders and potential
investors. The company must explain the reasons for any departures from the
announced dividend policy. Finally, the BOD should ensure that company’s
dividend policy information and dividend history is disclosed in a timely
manner.
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19
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Shareholders rights protection (dividend policy information)
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Shareholders are provided
timely information of dividend policy with the amount and date of
distribution of the dividends.
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Y
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Successful companies
produce profits that can either be retained in the company or distributed to
shareholders as dividends. There is an expectation, especially by minority
shareholders with small investments, for companies to make dividend payments
and not exclusively retain its earnings.
Most companies need additional capital, for which there is no cost
effective and easily accessible alternate source of finance other than
company’s own earnings. Internally generated financing is the best viable
source of funding, thus the decision to pay dividends may be difficult for
most growth companies. This poses a serious dilemma for many companies.
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20
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Redemption of company shares
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Company follows the
policy of redeeming the shares of the company upon demand by minority
shareholders.
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Y
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All shareholders,
especially the minority shareholders, have the right to demand the redemption
of their shares, whether acquired through any means, including through the
privatization process of a company from the controlling shareholders at the
ongoing market price.
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CategoryII. Stakeholder Policies
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21
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Markets for corporate control
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The rules and procedures
governing the acquisition of corporate control in the capital markets and
such transactions as mergers, acquisitions and sales of a significant
proportion of the assets are clearly articulated and disclosed to all
shareholders publicly.
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Y
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In some instances
companies may choose to engage in extraordinary transactions involving the
purchase to gain corporate control or the sale of a large proportion of their
assets. In this case, all transactions
should occur at transparent prices and under fair conditions to protect the
rights of all shareholders according to their class.
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22
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Related Party
Transactions—Disclosure
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The BOD discloses all
material, financial and business transactions with stakeholders, and summary
details of each related party transaction in its Annual Report as stipulated
in its charter and/or by laws.
|
Y
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The corporate governance
framework should be complemented by an effective approach that addresses and
promotes the provision of analysis or advice by analysts, brokers, rating
agencies and others, and that is relevant to decisions by investors, free
from material conflicts of interest that might compromise the integrity of
their analysis or advice.
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23
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Related Party Transactions
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During the past two years
of the tenure of the incumbent directors, there have been no complaints,
disputes, or problems regarding related party transactions.
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Y
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Members of the BOD and
key executives of the
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Please see OECD
Principles of Corporate Governance section III. Please see
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24
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Related party
transactions—Insider trading
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Company requires the
directors to report their ownership of company shares.
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Y
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A proper relationship
between directors must be ensured and monitored.
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25
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Disclosure of material interest in transactions
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The Company has written
policies that prohibit insider trading and all members of the BOD and the
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Y
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Insider trading entails
manipulation of the capital markets and is prohibited by securities
regulations, company laws and/or criminal laws. Even then it is possible when
regulatory enforcement may not be vigorous. Insider trading violates the
principle of equitable treatment of all shareholders by giving an insider the
opportunity to trade on privileged information and thus can be seen as constituting
the breach of good corporate governance practices. Further, members of the board and key
executives should be required to disclose to the board whether they directly,
indirectly or on behalf of third parties, have a material interest in any transaction
or matter directly affecting the company.
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26
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Disclosure of Information
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Company has adopted a
policy to provide full disclosure to be provided to shareholders.
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Y
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Securities legislation
requires publicly held companies to disclose a broad range of financial and
non-financial information. At times, information disclosure required by
regulations can adversely affect a company’s business and financial condition
because of the competitive harm that could result from the disclosure. Even
if many companies consider the most basic information as being commercially
sensitive, in a competitive environment harm only arises under a limited
number of circumstances. Some examples of truly sensitive information include
pricing terms, technical specifications, and milestone payments. To address
potential difficulties in disclosure, legislators and regulators have
developed systems for allowing companies to request confidential treatment of
information.
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27
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Clearing impediments to cross-border voting
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Company facilitates
voting for our international investors by allowing long notice periods and
the use of electronic technology.
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N
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International investors
face special challenges with respect to using their voting rights, and the
process of communication with such investors is an issue for the company as
well. Due to short notice, shareholders are often left with very limited time
to react to a convening notice by the company and to make informed investment
decisions. This makes cross border voting difficult. Meeting notice periods
should ensure that foreign investors in effect have similar opportunities to
exercise their ownership functions as domestic investors. In order to further
facilitate voting by foreign investors, corporate practices should allow
participation through means which make use of modern technology
|
Please see OECD
Principles of Corporate Governance, Section III A4 determine global best
practice application of this matter.
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Impediments to voting
should be discussed clearly and certain provisions must be provided in the
charter or in the by-laws of the company. It would be very useful to develop
procedures for using preemptive rights by shareholders, as well as the restriction
or withdrawal of these rights. In addition, the solutions that will support
the company’s efforts to facilitate removal of voting impediments include
delineating the way joint shareowners exercise their rights, how shareholders
can give their proxies via electronic means, the rules on facilitating
cross-border voting for international shareholders, and finally limiting the
payment of interim dividends
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28
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Voting rights
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The principle of one
share- one vote applies for the same class of shares.
|
N
|
OECD principles of CG
states that all shareholders of the same series of a class should be treated
equally and should carry the same rights. All investors should be able to
obtain information about the rights attached to all series and classes of
shares before they are purchased. Any changes in voting rights should be
subject to approval by the same class of shares that is affected.
|
|
Shareholders may attend
the GSM in person or in compliance with the law grant “power of attorney” to
a representative, also called “proxy”, who attends the GSM on behalf of the
shareholder. Shareholders may also participate in the GSM by sending
completed voting ballots to the company if allowed by the company by-law. In
the case of a listed company, a shareholder can give proxy to a person from
an approved proxy statement that includes instructions to vote, if allowed in
the charter or the by-laws. Voting is based upon the principle of “one voting
share — one vote,” except for cumulative voting. It is best practice that
shareholders whose written voting instructions were received at least two
days prior to the GSM should be automatically registered to vote. As a
measure to ensure shareholder participation in the GSM, the registration
procedure should be described in detail in the internal documents of the
company and in the GSM notification. A
voting committee or the corporate secretary may be authorized to register
shareholders on the same day as the GSM. Shareholders may only vote upon the
completion and verification of registration and announcement if a quorum is
present for the GSM.
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|
29
|
Minority Shareholders
|
Company has a mechanism
that allows for board representation for minority shareholders.
|
N
|
Minority shareholders
should be protected from abusive actions by, or in the interest of
controlling shareholders acting directly or indirectly, and should have
effective means of redress through representation at the BOD.
|
Please see OECD
principles of corporate governance.
|
In the case of a
take-over or a merger situation, the bidding company must be required to make
a bid so as to protect the minority shareholders of the target company. This
is referred to as a “mandatory bid.” The majority shareholder must acquire
shares of the remaining shareholders upon their request. This is known as
“Compulsory Acquisition of Shares from Minority Shareholders (Sell out
right)”. Especially in the case of listed companies, protection of minority
interest is of paramount importance.
|
||
|
30
|
Processes and Procedures for GSM
|
The company sends out
notice of GSMs well in advance of the
meetings, including the date of notice and the agenda.
|
Y
|
Processes and procedures for GSM should
allow for equitable treatment of all shareholders. Company procedures should not make it
unduly difficult or expensive to cast votes.
|
OECD principles of
Corporate Governance.
|
|
||
|
Category III . Shareholders Rights
|
31
|
Stakeholder rights protection
|
The Company respects the
full protection of the rights of all the stakeholders and provides the
opportunity to obtain effective redress for any issues.
|
|
Where stakeholders’
interests are protected by law, stakeholders should have the opportunity to
obtain effective redress for violation of their rights.
|
|
FALSE
|
|
|
32
|
Employee Incentive Plans
|
The Company implements an
employee incentive system or plan that clearly links objective employee
performance criteria with their compensation and bonuses.
|
N
|
Employee incentive
systems or plans should be introduced that clearly link performance levels
with compensation and bonuses. The degree to which employees participate in
CG depends on national legal frameworks and company policies.
|
Please see articles the
OECD Principles of CG section IV-C.
|
It has been shown that a
participatory mechanism benefits companies directly through readiness of
employees to invest in specific skills. An employee representation mechanism
includes representation on the boards, work councils, Employee Stock
Ownership Plans (ESOPs), or profit sharing programs. Employee participation
is a good way to incentivize employees as a right, however with the caveat
that they must take on risks as a responsibility for ownership. ESOPs are a
good way to ensure a systematic employee ownership program is available as
part of the pension program next to other pension programs.
|
||
|
33
|
Employment Policies.
|
The company implements written
policies that were disseminated to all employees covering employment
security, training, promotion, dismissal and mobility.
|
Y
|
Respecting employee
rights is the most important segment of corporate stakeholders and is central
to the success of any company. Adopting and implementing clear, written
policies on core employment rights and issues is essential to ensuring
fundamental fairness to workers.
|
|
|
||
|
34
|
Environmental and Community Policies.
|
The Board implements a
policy requiring it to disclose the impact of its activities on the
environmental and the local community.
|
Y
|
Factors such as business
ethics and corporate awareness of the environmental and societal interests of
the communities in which a company operates can also have an impact on its
reputation and its long-term success. While a multiplicity of factors affect
the governance and decision making processes of firms, and are important to
their long-term success, the Principles focus on governance problems that
result from the separation of ownership and control. Corporate governance is affected by the
relationships among participants in the governance system. Stakeholders including the community can
play an important role in contributing to the long-term success and
performance of the corporation, while governments establish the overall
institutional and legal framework for corporate governance. The rights of
stakeholders that are established by law or through mutual agreements are to be
respected
|
OECD CG Principles
section IV.
|
|
||
|
35
|
Creditors rights
|
Company has established
BOD policies to make it the fiduciary duty of the members of the board to
protect the rights of the company’s stakeholders by acting in the best
interests of both the company and the creditors by disclosing timely and
relevant information in the case of insolvency.
|
Y
|
As the creditors are key
stakeholders for all companies in accessing finance, it is important to be
transparent in the case of financial difficulties to creditors. Companies with good CG records are often
better able to gain access to finance and could borrow larger sums of credit
for less cost of capital if transparency is upheld as an important aspect of
business practice.
|
Please see OECD Corporate
Governance Principles.
|
|
||
|
36
|
Customers
|
The Company explicitly
mentions in its documentation the role of customers in its business practices
|
Y
|
The rights of
stakeholders that are established by law or through mutual agreements should
be respected.
|
Please see OECD
principles of CG.
|
|
||
|
37
|
Stakeholder access to
information
|
The Company discloses
pending legal and tax proceedings, tax assessment notices and voluntary
assessment programs that it considers to be potentially material to its
business.
|
Y
|
Where stakeholders
participate in the corporate governance process, they should have access to
all relevant, sufficient, and reliable information on a timely and regular
basis.
|
Please see OECD
Principles of CG.
|
|
||
|
38
|
|
The Company facilitates
the communication of stakeholder concerns freely and without any obstruction.
|
N
|
Stakeholders, including
individual employees and their representative bodies, should be able to
freely communicate their concerns about illegal and unethical practices to
the BOD without compromising their rights.
|
Please see OECD
Principles of CG, Section IV-E.
|
The Company should
clearly provide written rules in its by-laws about the opportunity for all
employees, customers, and other stakeholders all have their say in how the
firm markets its products. Allowing the opportunity to have a say in how a
firm should be run will mandate that a well organized firm will take all
stakeholder groups into account in formulating basic policies.
|
||
|
39
|
The role of suppliers and
business partners
|
The Company explicitly mentions the role and
rights of suppliers and business partners in its processes.
|
Y
|
The competitiveness and
ultimate success of a corporation is the result of teamwork that embodies
contributions from a range of different resource providers including
investors, creditors, employees, suppliers and all other business partners.
Recognizing the contributions of stakeholders constitutes a valuable resource
for building competitive and profitable companies with a good public
reputation.
|
OECD Principles of CG.
|
|
||
|
40
|
Social Responsibilities
|
The Company explicitly
mentions its broader obligations to society at large and/or the immediate
community.
|
Y
|
A key aspect of corporate
governance is concerned with ensuring the flow of external financial capital
to companies in the form of equity and credit. CG is also concerned with
financing ways to encourage the various stakeholders of the firm and society
at large to undertake economically optimal levels of investment in specific
human and asset capital.
|
Please see section on
stakeholders within OECD Principles of CG.
|
|
||
|
Category IV. Disclosure
and transparency
|
41
|
Quality of the Disclosed Information
|
Information made
available to shareholders are prepared and disclosed in accordance with high
quality standards of accounting and financial and non-financial disclosure.
|
Y
|
The application of high
quality standards is expected to significantly improve the ability of
investors to monitor the company by providing increased reliability and
comparability of reporting and improved insight into company
performance.
|
|
|
|
|
42
|
Audited financial statements
|
Company’s financial
statements are audited by an external auditing company
|
Y
|
Global best practices
suggest an annual audit should be conducted by an independent, competent and
qualified auditor in order to provide external and objective assurance to the
board and shareholders that the financial statements fairly represent the
financial position and performance of the company in all material
respects.
|
|
|
||
|
43
|
Official comment on audited financial statement
|
The
|
Y
|
The executive management
of the company shall be responsible for the reliability and correctness of
the accounting books and financial statements.
|
|
|
||
|
44
|
Ownership Structure II.
|
Company has a transparent
ownership structure and the share holdings of all significant shareholders
who hold 5% for more ownership as well as the company’s directors and
management are clearly disclosed to the public.
|
Y
|
Ownership structure must
be clarified. Especially the minority
shareholders must know about the main controlling structure. One of the basic rights of investors is to
be informed about the ownership structure of the company and their rights relative
to the rights of the other owners. The
right to such information should also extend to information about the
structure of a group of companies and intra-group relations. Such disclosures
should make transparent the objectives, nature and structure of the group.
|
Please see OECD
Principles of Corporate Governance, section IV, 3.
|
|
||
|
45
|
Stakeholder Policies I.
|
A written policy has been
adopted and disseminated by the BOD which defines the required annual report
disclosure of all material financial and business dealings with stakeholders,
including related party transactions.
|
Y
|
Good corporate governance
practice should provide for the full, timely, and accurate disclosure of all
material information including information about a company’s financial position,
financial indicators, and ownership and management structure in order to
enable shareholders and investors to make informed decisions. The OECD
Principles on Corporate Governance stresses the importance of disclosing all
material financial and business transactions with stakeholders and related
parties.
|
|
|
||
|
46
|
Information about main creditors and customers
|
Company has a policy to
publicly disclose information about main creditors and customers
|
Y
|
This information will
allow the investors to be able to make effective decisions about capital
allocation.
|
Please see OECD
Principles of CG.
|
|
||
|
47
|
Disclosure of information on compensation policy
|
Company discloses its
compensation policy and shareholdings for all of its board members and its
key executives.
|
N
|
Investors require
information on individual board members and key executives in order to
evaluate their experience and qualifications, and assess any potential
conflicts of interest that might affect their judgment. For board members,
the information should include their qualifications, share ownership in the
company, membership of other boards and whether they are considered by the
board to be an independent member.
|
|
The BOD should disclose
company compensation policy for members of the board and key executives.
Information about board members, including their qualifications, the
selection process, other company directorships and whether they are regarded
as independent by the board must be disclosed. Shareholders should be
provided with a clear and comprehensive overview of the company’s
compensation policy. Disclosure of
information on the compensation policy allows shareholders and investors to
assess the main parameters and rationale for the different components of the
compensation package as well as the linkage between compensation and
performance. Once the BOD develops policy, the compensation committee,
composed entirely of independent directors, should determine the level of
compensation for directors and
|
||
|
48
|
Disclosure of information about pending legal processes
|
Company follows the
policy of disclosing to the public information about any pending legal
proceedings regarding our controlling shareholders, members of the board, key
executives and other officials.
|
N
|
Information on ongoing
investigations by law enforcement institutions regarding matters of corporate
activities, owners of a control package, members of the BOD and authorized
officials of the company executive management should be disclosed.
|
|
Securities legislation
defines what information cannot be treated as confidential. The public disclosure of pending legal
proceedings involving the company is a good corporate governance practice and
suits the business ethics principles and provides reasonable doubt of the
existence of corruption. If the
information is deemed a business secret of a company, its publication will be
deemed lawful if its purpose is to protect public interests. Exceptionally,
when due to regulations governing the securities market public disclosure is
mandatory, then departure from this obligation is possible in the material
events report.
|
||
|
49
|
Website I
|
The Company maintains an
internet web site used to publish information relevant to its activities
|
Y
|
The listed companies
ought to establish and maintain corporate websites to post all information
relevant to its activities, including, but not limited to, all information
and documents for which public disclosure is required under
|
|
|
||
|
50
|
Website II.
|
For the past fiscal year,
the company has published all the financial reports (Quarterly, Semi‐Annual,
Preliminary‐Annual, and Annual) it has filed with the SEC in full on the
company website.
|
Y
|
All information and
documents for which public disclosure is required under securities
legislation should be posted in full on the company’s internet website.
|
|
|
||
|
51
|
Website III
|
For the past fiscal year,
the company has issued disclosures on all of its material event filings with
the SEC.
|
Y
|
The company should
disclose all material information regarding business operations, structure,
main organizational changes, results,
and any changes in the governance structure on its website.
|
|
|
||
|
52
|
OD directors and
|
The Company’s policy is
to publicly disclose all relevant information about the members of the BOD
and Senior Executive Management.
|
Y
|
The information
concerning individual board members, including their qualifications, the
selection process, their other company directorships, whether they are
regarded as independent by the board, and the compensation policy for members
of the board and key senior executives are especially important to disclose
to the public.
|
Please see the OECD
Principles of Corporate Governance.
|
|
||
|
53
|
Disclosure of Related Party Transactions
|
The BOD has implemented a
written policy to disclose all material financial and business transactions
to stakeholders and to disclose summary details of each related party
transaction in its Annual Report.
|
Y
|
It is good practice for
companies to voluntarily disclose material information beyond formal legal
requirements. This holds particularly true for companies operating in
emerging markets where legal and regulatory environments and enforcement mechanisms
are particularly weak. Companies should be encouraged to use existing forms
of disclosure and adhere to the same quality standards for these forms of
reporting.
|
|
|
||
|
54
|
Qualification of finance and accounting
|
The Internal audit
Committee oversees both financial and finance related affairs of the company.
|
Y
|
Internal audit committees generally oversee
and monitor the preparation of the company’s financial statements by
evaluating information obtained from management, the independent auditors and
other sources. The audit committee
oversees the work of other actors in the financial reporting process such as
the senior management, including the external auditors and outside auditors,
to endorse the process and safeguards employed by each.
|
|
|
||
|
55
|
|
The chair of the
company’s audit committee is an independent member of the Board.
|
N
|
The audit committee chair
is selected from the independent members of the BOD and the committee shall
draw conclusions and present to the board of directors on the following
matters: consistent following of accounting policies in compliance with
international standards; oversight of internal auditing and risk management
activities; ensure the accuracy of
financial statements and other economic data of the company; appoint manager and determine compensation
for staff of internal auditing unit; select an external auditor; and oversee
major areas of conflict of interest transactions.
|
|
The Audit Committee must
consist of members who are independent, able, and willing to do the job
properly and effectively. The Chairman of the Audit Committee must have the requisite
professional and human relations skills, while the members of the Internal
Audit Committee should have a public reputation as financial experts.
|
||
|
56
|
Internal Audit Committee Meeting Frequency
|
The internal audit
committee has met at least a once every other month during the past fiscal
year.
|
Y
|
Effective monitoring and
execution of Audit Committee responsibilities requires regularly scheduled
meetings. Meeting at least once each month should be considered a best
practice.
|
|
|
||
|
57
|
External Audit Meetings
|
The Internal Audit
Committee has met at least once during the past fiscal year with the
company's external auditor in the absence of senior executive management to
discuss the findings and results of the external auditor's report.
|
Y
|
Meeting with the
company’s external auditor in the absence of senior executive management is
essential to having an open and candid discussion of the adequacy of the
internal audit and financial controls as well as the processes typically
associated with a properly managed company.
|
|
|
||
|
58
|
External Auditor Policy I.
|
The BOD has implemented a
written external auditor rotation policy, requiring a change in designated
auditor at least once every four years, with at least a two‐year waiting
period before re‐appointment of the same outgoing auditor
|
N
|
The SOX recommends the
adoption of a written policy to rotate the designated corporate external
auditor to avoid conflicts of interest and to maintain external auditor
objectivity in the performance of their duties.
|
|
The BOD should establish
a rule to rotate external auditors every two years.
|
||
|
59
|
External Auditor Policy II.
|
The BOD has implemented
written policies governing the delivery and performance of external auditor
services, including, among other things, anti‐conflict‐of‐interest guidelines
limiting the delivery of services exclusively to auditing and prohibiting the
performance of other unrelated technical, administrative or consulting
services.
|
N
|
An external auditor’s
engagement to perform corporate audit and accounting services must be
exclusive and incorporate the requirements of the company’s written External
Auditor Policy. The delivery of services must be limited exclusively to
auditing and accounting services and prohibit the performance of other unrelated
technical, administrative or consulting services.
|
|
The BOD should ensure
that the Independent External Auditor examines a company’s financial and
accounting records as well as supporting documents in all material respects.
Shareholders depend upon the External Auditor to express an independent
opinion that the financial statements of an enterprise are reliable.
|
||
|
60
|
External Auditor Policy III.
|
The BOD implements
written policy requiring the selection of internationally qualified and
certified external auditor to exclusively provide only auditing services to
the company during the term of the auditor's appointment, and specifically
prohibits the performance of other unrelated technical, administrative, or
business consulting services during such appointment period.
|
Y
|
Independent audit
conducted by an internationally qualified and certified External Auditor is
an important element of the company’s control framework. External audits of the company should be
conducted by an independent, competent and internationally qualified and
certified auditor in order to provide and external and objective assurance to
the board and shareholders that the financial statements fairly represent the
financial position and performance of the company in all material respects.
External auditors are accountable to the shareholders and they must exercise
due professional care in their conduct.
|
|
|
||
|
Category 5. BOD
|
61
|
CG Policy
|
The Company has its own
corporate governance manual that clearly describes its value systems and
board responsibilities.
|
Y
|
The BOD should have clearly written guidance that reflects the
responsibilities, and duties and values of the company. Together with guiding the corporate
strategy, the BOD is chiefly responsible for monitoring managerial
performance and achieving an adequate return for shareholders, while
preventing conflicts of interest and balancing competing demands on the
corporation. The CG manual ought to provide a clear guidance on these and
additional matters.
|
OECD principles of
Corporate Governance.
|
|
|
|
62
|
The Chairman of the Board
|
The chairman of the board
of our BOD is a non-executive (and independent) director.
|
N
|
BODs should consider
assigning a sufficient number of non-executive members capable of exercising
independent judgment to tasks where there is a potential for conflict of
interest. This will especially be significant if the chairman is a
non-executive professional member.
|
OECD Principles of
Corporate Governance, section VI/1.
|
The Chairman must be
delegated sufficient and appropriate powers in order to allow him to perform
his duties appropriately. This issue also hinges upon his personal and
professional qualifications. The successful BOD Chairman should have an
outstanding professional reputation and should be recognized for the highest
level of integrity, be committed to seeking the best interests of the
company, and be well respected and trusted by shareholders and the other
directors. Companies should define the authority of the Chairman, as well as
that of the
|
||
|
63
|
BOD Size
|
The BOD is comprised of
not less than 9 and not more than 13 members
|
Y
|
BOD size should seek to
achieve a balance between too small and too large. Small boards may not have
enough resources and independent members to efficiently carry out their
assigned duties and responsibilities. Large boards, conversely, can become
too unwieldy and inefficient.
|
|
|
||
|
64
|
BOD
|
At least one‐third of the
BOD members are “independent” as defined by the
|
N
|
To minimize the potential
for internal conflicts of interest, it is recommended that at least one‐third
of the BOD members be independent from the company’s senior executive
management, and as further defined by the
|
|
Companies should choose a
size for BOD that will enable it to hold productive and constructive
discussions; make prompt and rational decisions; and efficiently organize the
work of its committees if these are established. Corporate legislation
supports that BOD for all listed firms must consist of a minimum of 9
members, with one third of them to be independent (3 independent members by
law). The BOD should establish a nomination and compensation committee to
identify qualified candidates for board membership. The company should choose
the 3 qualified independent director candidates from the nominees. All
directors should possess the necessary skills and experience to contribute to
the BOD. International practice distinguish between different categories of
directors according to the degree to which such directors are involved
relative to the affairs of the company. The three categories are executive,
non-executive, and independent directors.
A listed company must have at least three independent members of the
BOD. The concept of independent directors is a requirement under most US
state practices and defines independent board membership.
|
||
|
65
|
Legal Personality of BOD Members
|
All investors having
legal person status entitled to BOD representation have appointed a named,
natural person to serve during the designated term of office.
|
Y
|
As a best practice, legal
representation should be accomplished only through a named, designated,
natural person as the legal representative of the legal entity holding shares
in the company. This designated individual shall serve a specific term in
office as an elected BOD member. Rotational replacements of such natural
persons during the term of office are to be discouraged. Proper BOD
participation requires continuity of service.
|
|
|
||
|
66
|
The BOD Chairman and the senior management positions
|
The BOD Chairman does not
hold any senior executive management position within the company or within
any affiliated or subsidiary company.
|
N
|
Good practice calls for
the separation of BOD Chairman and any senior executive management duties
(including
|
|
In order to avoid any
conflicts of interest, the chairman of BOD cannot simultaneously hold any
senior management positions with the company. If necessary, this may only be
considered as an interim step until a suitable SME is appointed.
|
||
|
67
|
Separation of the duties of the BOD Chairman and the
|
BOD Chairman serves
exclusively as a chairman of the board for the company and does not
simultaneously hold
|
N
|
The executive manager may
be a member of the company’s board of directors, but not be the chairman of
the Board at the same time.
|
|
: Similar to the above, the BOD Chairman
should not hold a dual position as the Chairman and the
|
||
|
68
|
BOD members’ length of service
|
BOD members’ length of
service terminates at the same time the GSM is held the following year.
|
N
|
The members of the BOD
are elected on every Annual GSM. Furthermore, they can be elected on every
Extraordinary GSM, convened for that purpose. The GSM elects directors for a
term that starts from the moment that they are elected until the next Annual
GSM. Despite the expiration of a director’s term, he continues to serve until
his successor is elected. There are no limitations as to how many times
directors can be reelected.
|
|
Companies can maintain
their vitality and ability to adapt to new challenges by changing the
composition of their BOD. Non-executive directors may indeed lose some of
their (independent) edge if they remain on a Board too long. A company may
wish to impose term-limits, either for the entire BOD or a certain
percentage, to keep its members focused. Either way, reappointment should not
be automatic, but a conscious decision by the shareholder(s) and the director
concerned. In some countries a director’s mandate may not exceed six years
unless the GSM decides to renew this mandate, and directors older than 70
years may not exceed one-third of board membership. It is recommended that directors’ mandates
should not exceed four years and the number of directors over 65 years should
not exceed one-third of the board membership.
The duration of a director’s term of office stipulated in the by-laws,
should not exceed a maximum of four years, in order to enable shareholders to
rule upon their appointment with sufficient frequency.
|
||
|
69
|
Independent BOD Members on Committee
|
The BOD appoints
committees with independent members to carry out various critical
responsibilities such as audit.
|
N
|
The BOD should consider
assigning a sufficient number of independent board members (or
non-executives) capable of exercising independent judgment committees. In
order to evaluate the merits of board committees it is important that the
markets receive a full and clear picture of the purpose duties and
composition of each committee. This is
especially important for instance when the BOD sets of an audit committee
that will oversee the relations with external auditors.
|
Please see the OECD
principles of CG.
|
The existing
|
||
|
70
|
Internal Audit Committee (AC)
|
Our internal audit
committee provides oversight on various aspects of the company’s operations
and provides oversight on matters pertaining to financial controls and
reporting as well as auditing.
|
Y
|
In addition to reviewing
financial reports, AC members will often discuss complex accounting estimates
and judgments made by management and will also discuss the implementation of
new accounting principles or regulations. Audit committees interact regularly
with senior financial management such as the CFO and Controller and are in a
position to comment on the capabilities of these managers. Should significant
problems arise with accounting practices or personnel are identified or
alleged, a special investigation may be directed by the audit committee,
using outside consulting resources as deemed necessary.
|
|
|
||
|
71
|
|
Audit function is fully
independent from
|
Y
|
Ensuring the integrity of
the essential reporting and monitoring systems will require the board to set
and enforce clear lines of responsibilities and accountability throughout the
organization. The audit committee should report to the chairman for independence,
and more effective audit function.
|
Please see OECD
Principles of CG.
|
|
||
|
72
|
Disclosure of Internal Audit Committee member qualifications
|
Audit committee discloses
the profile and qualifications of the members.
|
N
|
Audit committee members
should be independent and must have finance and accounting
qualifications.
|
|
The BOD should make sure
that the majority of the Audit Committee members are independent
non-executive directors. One of them
should be appointed as Chairman of the Committee. The Chairman of the BOD should not chair
the Internal Audit Committee. At least
one member of the Internal Audit Committee needs to be an expert for accounting
and finance.
|
||
|
73
|
Internal Audit Committee Reports
|
Internal Audit committee
report provides background on company’s legal compliance relative to
financial statements and disclosure of all material information.
|
Y
|
The BOD should ensure the
full compliance of the company to the legal and regulatory requirements and
the mandate composition and working procedures should be well defined and
disclosed by the BOD.
|
Please see OECD CG
Principles.
|
|
||
|
74
|
Nomination committee
|
Nomination committee
tries to identify the most suitable candidates for various director positions
|
Y
|
The Nomination Committee
is responsible for making recommendations on Board appointments, and on
maintaining a balance of skills and experience on the Board and its
committees.
|
|
|
||
|
75
|
Compensation committee
|
The BOD has a
Compensation committee.
|
Y
|
The role of the
compensation committee is to set appropriate and support programs that are in
the organization’s best interests and aligned with its business mission and
strategy.
|
|
|
||
|
76
|
Compensation committee charter
|
Compensation committee
charter and its role and responsibilities are clearly disclosed.
|
Y
|
Company should follow the
policy of disclosing all relevant information on its web site and the annual
report.
|
Please see OECD
Principles of CG.
|
|
||
|
77
|
Committee members’ independence
|
Compensation committee
charter and its role and responsibilities are clearly disclosed.
|
N
|
Company should follow the
policy of disclosing all relevant information on its web site and the annual
report.
|
|
: The majority of the
Committee members should be independent, non-executive directors. One of them
should be appointed as Chairman of the Committee. The committee members need
to have professional and moral integrity and they should be knowledgeable
about the basic principles of economy, finance and labor law.
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78
|
BOD Accountability
|
The Board negotiates an
employment contract or other legally binding agreement for every BOD member
which specifies their terms of reference for individual duties and
responsibilities.
|
N
|
Specific terms of
reference should be incorporated into an employment contract for each BOD
member, including designated BOD members representing legal persons. This
will help ensure that each BOD member is held responsible and accountable for
their performance.
|
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The BOD members are
elected each year by the GSM and installed to their new duties by the
company’s legal department led by the Corporate Secretary. The Corporate
Secretary as a legal representative of the company has the authority to
determine the terms of contracts with directors, including their
compensation. The BOD is empowered to approve the conditions of the contract
between the company and members of the BOD. Following the approval, the
Corporate Secretary will sign the contract with each member of the BOD. The
contract with the Corporate Secretary must be counter signed by the Chairman
of BOD.
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79
|
BOD performance measurement
|
The BOD implements a
performance measurement process annually to assess BOD performance
collectively, and individually, against established benchmarks.
|
N
|
The OECD recommends as a
best practice that BODs adopt appropriate mechanisms to annually evaluate
board performance against clearly defined benchmarks ‐‐ for the BOD
collectively, and on each BOD member, individually. Performance measurement
is an essential corporate tool, which should be used to determine BOD
compensation, training needs, and whether renewal terms or term limits might
be warranted for sub‐optimal performance.
|
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The SOX Legislation and
OECD best practices recommends that at least once a year, the Board of
Directors submits to the GSM an evaluation report on the Board’s performance,
the activities of Committees and every member of the BOD. The evaluation
report about the Chairman’s work will be made by the non-executive directors.
Another way to evaluate the BOD is to invite an outside consultant, corporate
governance adviser, or a specialized corporate governance institute to
independently assess the BOD and rate the company against other. This should be a confidential process.
Rating agencies not only evaluate the BOD, but also evaluate other aspects of
the company’s corporate governance system. There are advantages and
disadvantages for undertaking the evaluation of BOD performance. The evaluation
of the BOD and directors may provide important insights into the Board’s
strengths and weaknesses.
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80
|
BOD Qualifications & Training Policy.
|
The BOD has developed and
implements written policies which specify the professional qualifications and
ongoing training and certification requirements for all of the members of the
BOD
|
N
|
Ensuring efficient
operation of the BOD requires that all directors have the appropriate
competencies and skills needed to fulfill their board roles beyond the
minimum which may be required by effective Mongolian legislation. The
adoption of a written policy as to professional qualifications and training
requirements is necessary to ensure its implementation.
|
|
The information obtained
as a result of the BOD performance evaluation can be used by the BOD to
identify training needs for the BOD as a whole, as well as individual
members. Corporate training events take on added importance with the recent
development as a result of financial crises. Directors need to be kept up to
date on changes to the legal and regulatory framework, as well as best
practices. While director training is a strongly recommended, it will also
provide an education policy for the
BOD and its directors a key success factor in developing and supporting a
competent, knowledgeable, and vigilant Board.
The minimum hour and curriculum requirements for director training and
education and certification are set by the SEC reglators.
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|
81
|
BOD Compensation Plans.
|
An incentive system or
plan has been implemented for BOD members that clearly links objective BOD
performance criteria with their compensation and bonuses.
|
N
|
Compensation and
incentive plans for BODs should be clearly linked to their individual
performance evaluations and the performance of the company as a whole.
|
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Directors may be
compensated for their work. The amount of such compensation is determined by
the GSM. The compensation policy for directors and the compensation for each
director must be disclosed in detail in the annual financial statements of
the company. Annual GSM agenda should
explicitly include this item so that shareholders have an opportunity to
debate over these matters. Director compensation is one of the contentious
issues in corporate governance, and companies must follow a cautious and
circumspect approach regarding director compensation. Excessive compensation
plans are often perceived as an unjustified privilege of power—depending upon
what is considered excessive. It is thus very important that director
compensation is competitive, while at the same time within reasonable limits.
An important distinction must be made between executive and non-executive
directors. As a rule, executive directors should not receive additional fees
for their participation on the BOD since their compensation packages allow
for service on the BOD. Non-executive directors should be compensated. The
most common form of compensation for non-executive directors is a cash fee.
Independent directors can receive an annual fee which may be paid in the form
of shares instead of cash. Their compensation package may include: a fee per
meeting attendance; fees for service on committees; and fees for additional
responsibilities, such as serving as the Chairman of the BOD or one of the
committees. Directors can also be reimbursed for travel costs and other
business expenses.
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|
82
|
|
The BOD has adopted and
implements written policies which specify the professional qualifications and
training requirements for each
|
Y
|
A written policy covering
the professional qualifications and training requirements for all senior
executive management positions should be adopted by the BOD, to ensure they
are appropriately trained to efficiently carry out their defined management
roles.
|
|
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|
83
|
|
An employment contract or
other legally binding agreement clearly setting a terms of reference has been
negotiated for each employee holding a
|
Y
|
Specific contractual
terms of reference form the basis to hold senior executive management
accountable for their performance or lack thereof.
|
|
|
||
|
84
|
Senior Executive Management (
|
The BOD implements an
annual performance measurement process to assess
|
Y
|
The BOD is responsible
for setting an overall strategic corporate plan via specific policies,
strategies and objectives. In order to measure progress towards achieving the
strategic plan, an effective.
|
|
|
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|
85
|
Sennior Exec Management Accountability
|
The BOD has critically
reviewed the performance of each employee holding a
|
Y
|
Active BOD oversight regarding the
evaluation and performance of its senior executive management is critical to
realizing the benefits of any performance measurement system. Executive
management and the
|
|
|
||
|
86
|
Strategic Management
|
A written "
|
N
|
OECD Principles of
Corporate Governance and SOX legislation emphasizes the need to publicly
disclose key corporate objectives and report on the extent to which these
objectives have been realized. This can ideally be accomplished through the
Annual Report process, as well as through the adoption of an organizational
“Mission Statement”.
|
|
The BOD and
|
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|
87
|
Risk Management.
|
The BOD has adopted and implements a
holistic company risk management plan which clearly identifies and evaluates
various risk exposures at all levels of the firm, affecting future business
and financial performance and the company's compliance with
|
Y
|
The company should follow
a holistic risk management policy that is implemented at all levels of the
firm as a function effectively monitored and firmly supervised by the BOD.
The OECD, the US SEC disclosure directives emphasize the importance of
identifying, assessing, and disclosing material risk factors facing listed
companies and the measures taken to mitigate their impact. OECD principles of
corporate governance recommends that the integrity of the corporation’s
accounting and financial reporting systems, including independent audit and
appropriate systems of control are in place, and particularly systems for
risk management in financial and operational control, and compliance with the
law and relevant standards. Risk related factors should also be discussed in
the BOD report submitted in connection with the Annual Reporting
process.
|
OECD Principles of
Corporate Governance
|
|
||
|
88
|
Corporate Performance Measurement.
|
Company has an existing
policy to implement an annual independent performance measurement system in
order to measure effectiveness of company performance relative to predefined
objectives and goals.
|
Y
|
One of the more
significant innovations in modern corporate management practice is the use of
performance measurement systems (PMS) to measure corporate performance and
effectiveness against pre‐defined objectives. Introducing accountability into
corporate management activities requires ability to measure performance
objectively. Implementation of a PMS (such as a Balanced Scorecard) at the
company, subsidiary and subsidiary levels should be explored through the
development of training initiatives for BOD members and senior executive
management.
|
|
|
||
|
89
|
Insider Trading Policy
|
The BOD has implemented
written policies and procedures applicable to all employees, BOD members and
|
Y
|
Securities Law prohibits
the trading of securities based on inside information and the disclosure of
such information. It is strongly encouraged that listed companies adopt
written corporate policies and procedures to actively discourage insider
trading and to limit the trading of the company’s listed securities during
defined periods before and after the required filing of financial disclosures
under the various articles of the US SEC Disclosure Directives.
|
|
|
||
|
90
|
Ethics Code.
|
The BOD implements a
comprehensive Ethics Code in collaboration with employees and other
stakeholders, which governs their professional behavior and introduces
procedures for confidential reporting of unethical or illegal activities.
|
Y
|
Unethical and illegal
activities by corporate officers may not only violate the rights of the
shareholders in terms of reputational effects and increasing risk of future
financial liabilities, but it is also detrimental to the stakeholders rights.
The OECD principles of CG emphasizes the importance of requiring BODs to
develop, implement and communicate compliance programs for internal codes of
ethics at the company and affiliate levels. As a key risk management process,
such a code should be adopted in consultation and collaboration with
stakeholders and employees, and introduce mechanisms to ensure the protection
of those reporting violations.
|
OECD Principles of CG.
|
|
||
|
91
|
BOD Meeting Frequency
|
The BOD has met at least
once each quarter during the past fiscal year.
|
Y
|
Although the securities
legislations and best practices mandates that the BOD meet at least once a
quarter between meetings, effective monitoring and execution of BOD
responsibilities probably requires meeting more frequently than the minimum
requirements of securities legislation. Meeting at least once each quarter
should be considered a best practice.
|
|
|
||
|
92
|
BOD Meeting Notification Requirements
|
During the past fiscal
year, at least three (3) days advance written notice was provided to all BOD members
for all scheduled BOD meetings, together with a written agenda and summary
information related to the agenda subjects to be discussed
|
Y
|
Written advance notice of
scheduled BOD meetings together with a written agenda and summary information
related to the agenda subjects to be discussed should be considered a best
practice to implement across all listed companies. The adoption of such a
practice would not preclude meetings with lesser notice under exigent
circumstances.
|
|
|
||
|
93
|
BOD Member participation at meetings
|
All BOD members have a
consistently high BOD meeting participation performance during the past 12
months.
|
Y
|
Board members should be
able to commit themselves effectively to their BOD responsibilities.
|
OECD Principles of
Corporate Governance.
|
|
||
|
94
|
Meeting attendance records
|
Company keeps a record of
board meeting attendance of individual directors and discloses it on the
website and in the annual reports.
|
N
|
The oversight on
functions of disclosure of director attendance and communications process is
firmly and effectively directed by the BOD.
|
OECD Principles of
Corporate Governance.
|
The Corporate Secretary
should keep a healthy record of director attendance at BOD meetings. Ultimate
responsibility in ensuring maximum attendance record at meetings lies with
the Chairman of the BOD.
|
||
|
95
|
Board Powers
|
The BOD has adopted a set
of written corporate governance policies and procedures that it implements
through its sub‐committees and by retaining external consultants at company
expense.
|
Y
|
If deemed necessary, the
BOD may establish permanent or temporary committees responsible for
governance matters that will be performed by professional experts.
|
|
|
||
|
96
|
Directors’ Access to Information
|
The BOD has implemented
written policies and procedures, defining the duties and activities of the
BOD members, and which authorize their access to all required corporate
information and data to enable them to perform their duties.
|
Y
|
In order to fulfill their
responsibilities, board members should have access to accurate relevant and
timely information. Board members act on a fully informed basis, in good
faith with due diligence and in the best interests of the company and the
shareholders. OECD Principles of Corporate Governance recommends in section
VI A speaks to the fiduciary duties of the BOD, with two key elements as
supreme in order to achieve the duty of care and duty of loyalty
responsibilities of the members. Otherwise decisions reached will not be in
the best interests and the BOD members will be liable.
|
|
|
||
|
97
|
Ongoing Training for BOD Members
|
Every BOD member and
corporate secretary periodically attends an external executive leadership and
corporate governance training program designed to enhance their performance
and skills as directors and this information is provided in the company
reports and on the company web site.
|
N
|
Effective best practices
requires that the members and corporate secretary of the Board of Directors
shall have attended a corporate governance training and obtained a
certificate. This is also one of the
best practices that all board members receive periodical training to upgrade
skills and develop additional capacity to perform their duties on behalf of
the company and its shareholders.
|
|
The BOD should have
necessary resources to develop and maintain the knowledge and skills of its
directors for effectively implementing corporate governance policies and
providing leadership. This information must be publicly announced on the
company reports and the web site. In order to improve their capacity and
develop skills where deficiencies exist, the BOD members must attend
certified training programs that are mainly designed on the basis of periodic
performance evaluations of the BOD and individual directors. It is
international best practice to conduct annual performance evaluations and to
disclose the results of the evaluations in the annual report. In general,
performance evaluations of the BOD could be conducted through self-evaluation
and/or by outside consultants, professional corporate governance associations
or corporate governance rating organizations. Alternatively a confidential
BOD peer evaluation may be conducted by an external legal counsel or
consultant.
|
||
|
98
|
Voting in BOD meetings
|
Each member of our board
has one vote with respect to each matter considered at BOD meetings and
should act in the best interests of all shareholders.
|
Y
|
Where board decisions may
affect different shareholder groups differently, the board should treat all
shareholders fairly. In carrying out their responsibilities, the board should
not be viewed or act as an assembly of individual representatives for various
constituencies. While specific board
members may be nominated or elected by shareholders, it is an important
feature of the board’s work that board members when they assume their
responsibilities carry out their duties in an equitable manner for all shareholders.
This principle is particularly important to establish when there are
controlling members who may actually select all directors.
|
OECD guidelines, section
V.
|
|
||
|
99
|
Corporate Secretary
|
The company has appointed
a corporate secretary to the BOD, who was proposed by the Board chairman (or
the BOD).
|
N
|
Best practices in
corporate governance require that the corporate secretary is appointed so as
to (i) maintain records and documentations of the BOD and notification of
shareholders; (ii) to ensure proper preparation for the GSM and BOD meetings;
and, (iii) to coordinate and facilitate the internal activities of the
BOD.
|
|
In order to develop a
viable corporate governance policy and implement it successfully, the company
BOD should create the position of Corporate Secretary. The corporate
secretary position is a professional, senior position that will facilitate
the business of the BOD and enhance its efficiency. The Corporate secretary’s
job description, authority and practical experiences in implementing
corporate policies and practices makes this position ideally suited to help
the company and the BOD develop a system of corporate governance. The
Corporate Secretary can play an important role in the development of the
company’s governance policies and practices. This professional will also
ensure compliance with the corporate governance policies for the company as
well as performing periodic reviews of
the corporate governance practices at the company.
|
||
|
100
|
The role of the Corporate Secretary in developing Corporate
Governance Policy.
|
The BOD has implemented
written policies and procedures designed to establish the company's corporate
governance goals and objectives beyond legally mandated minimums, and a process
to evaluate their implementation.
|
N
|
The extent to which the
company has adopted corporate governance policies and procedures establishing
goals and objectives beyond the legally mandated minimums should memorialized
in a written corporate governance policy, a summary of which should be
published as an integral part of the company’s annual report.
|
|
In developing an explicit
and clearly stated plan to improve the company’s corporate governance
policies and practices, the Corporate Secretary should lay the groundwork for
reforms in this area under the guidance of the Chairman of the BOD. Perhaps
more importantly, the corporate secretary can demonstrate the company’s
commitment to corporate governance by monitoring compliance with these
policies and informing the BOD of any breaches. The Corporate Secretary
should be responsible for administrative and organizational matters with
respect to preparing and conducting BOD meetings. While the decision to
conduct a BOD meeting is made by the Chairman, the Corporate Secretary should
be responsible for handling such matters as notifying all directors of BOD
meetings; Sending voting ballots; Collecting completed ballots and absentee
ballots; Ensuring compliance with the procedures for BOD meetings; and
keeping the minutes and verbatim reports. Finally, by reviewing the company’s
policies on a regular basis and by keeping abreast of the latest developments
in corporate governance, changes in the legal and regulatory framework, and
international best practices, the Corporate Secretary ensures that the
company’s governance consistently maintains high standards and all are
up-to-date.
|
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