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Summary of Current Corporate Governance

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SUMMARY OF CURRENT CORPORATE GOVERNANCE GUIDELINES ISSUED BY CENTRAL BANK OF UAE FOR BANK DIRECTORS’

The current version is 84 pages long. We have captured the key elements in this four page note. Please contact us if there is any point that requires clarification.

“ There is an urgent need to enhance the standards and understanding of corporate governance, the risks associated with inaction, and the clear opportunities to be gained from implementing strong governance structures.”

HE Sheikha Lubna Al Qassimi

“Banks are expected to show the way on corporate governance because corporate governance is essential for their success. The Guidelines reflect international best practice and banks need a plan to achieve full compliance with them. The onus is on the Board of directors. Changes will be value-adding; the banks will be more trusted by all stakeholders including foreign investors who have higher governance standards. “

Foreword by HE Sultan Bin Nasser Al Suwaidi, Governor, Central Bank of UAE.

Purpose of Guidelines

For a business to be competitive, it must have high corporate governance standards. There is growing convergence of corporate governance principles and standards many of which are set out in the Guidelines and which should be seen as a supplement to existing laws and regulations.

What is Corporate Governance?

How companies are directed and controlled though accountability, transparency, balancing wealth creation with control, recognising that there is particular emphasis on the role of the Board.

Director, not Manger or Shareholder.

Directors are stewards of the business acting on behalf of all shareholders not just the appointing shareholder. They have to be fit and proper people, leaving operational management to the executives. Independent directors have an important role exercising judgement not clouded by actual or perceived conflicts of interest.

Directors

Focus on 4 main areas: strategy, performance, risk and people. They need to learn the “tools of the trade”, i.e. be well informed, attend meetings, challenge constructively, exercise independent judgment, and not to subordinate the bank to the interests of others.

Induction and Continuing Development

All new directors should receive a well thought-out induction process led by the Chairman.

Role of the Board

The Board is responsible for strategic direction, management supervision, adequate internal controls and setting the companies values and ethical standards. Key elements of internal controls are setting tone from the top, risk assessment, control activities, information and communication and monitoring. Key policies include conflicts of interest, fair and timely release of information, accounts prepared in accordance with IFRS and IAS. Matters reserved for the Board’s decision have to be clearly understood and board delegations, which should be appropriate, must be clearly set out in an organization manual.

Board Procedures

The Board needs detailed procedures covering agenda setting, length of board papers/presentations; minutes and personal conduct, ( e.g. mobiles turned off)

Board Committees

The Board should delegate specific responsibilities to Board committees, audit, remuneration, nomination, credit, executive committees. (NB greater focus should be given to risk).

Role of the Chairman

The Chairman, Vice Chair and CEO roles must be held by different persons. The Chairman has a key role in ensuring effectiveness of the Board with many separate responsibilities, i.e. appropriate information flow, communication with stakeholders, succession planning, developing individual directors.

Rights and Duties of Directors

Directors must act in good faith, exercising reasonable care, avoiding and managing conflicts of interest, dealing fairly with employees and treating information confidentially

Further Legal and Regulatory Requirements.

It is important to have a general understanding of other key areas including capital adequacy, risk management, and anti money laundering.

Board Performance Evaluation

The Board and its committees should be evaluated once a year as this allows Boards to assess their effectiveness. There are many ways to conduct the evaluation exercise but use of an the external facilitator is advisable .

Example Model Documents.

These will require adjustment to fit the circumstances of each bank.

Model Corporate Governance Guidelines, Independent Director Guide, Board Charter, Executive Committee Charter, Audit &Compliance Committee Charter, Remuneration Committee Charter, Committee Charter, Credit Committee Charter, Risk Committee Charter, Code of Ethics, Whistleblowing

About Majlis Partners.

Majlis provides a wide range of consulting services within the financial services sector. It boasts a world-class team of corporate governance experts, focused on financial services.

The team is led by Mr David Brimacombe, who has extensive international and regional experience. His previous roles include head of corporate governance at Standard Chartered Bank, both in GCC and globally.


For more information please contact the Corporate Governance Department of Majlis Partners