LEGAL VIEWPOINT: Legal issues on corporate governance – Dr. AbdelGadir Warsama Ghalib, LEGAL COUNSEL

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Dr AbdelGadir Warsama Ghalib, Legal Counsel

A basic principle of corporate governance (CG) relates to the Board of Directors of the company, wherein the company shall be headed by an effective, collegial and informative Board of Directors.

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You need as an executive or board member to ask yourself, where do we (as a company) stand in this ?

To achieve the ultimate goal and rationale of corporate governance, all members of the Board of Directors should understand the exact role and responsibilities of the Board as stipulated, inter alia, in the Company Law, the Articles & Memorandum of Association of the company, the corporate culture and the corporate governance code.

The outcome of this in particular highlights that the role of the Board is different from the role of the shareholders of the company (whose interests the Board serves) and the role of the officers at the different levels working in the company. In particular, members of the Board of Directors should understand the Boards fiduciary duties of care and loyalty to the company, the shareholders and the stakeholders.

All members of the Board of Directors in each company are responsible both individually and collectively for performing these responsibilities, which cannot be transferred nor delegated to other persons or to other bodies of the company.

When a new Board Director is appointed, the Chairman of the Board, assisted by the legal advisor of the company, should review the Boards role and duties with all members of the Board of Directors, particularly covering the legal and regulatory requirements and the particulars stipulated in the Code of Corporate Governance.

The company should have a written appointment agreement with each member of the Board of Directors which includes the directors powers and duties and other matters relating to his appointment including his tenure term, the time commitment envisaged, the committee(s) assignment if any, his remuneration and expense reimbursement entitlement, and his access to independent professional advice when and if needed. Having independent professional advice is very important to enable him to participate more effectively and knowledgably.

The Board of directors should consider adopting a formal “Board Charter” or other statement in a legal document specifying matters which are reserved to the Board, which should include but need not be limited to the specific items stated in the Company Law. An alternative is a formal statement or by-law stating the functions and authority delegated to the officers as mentioned in the Company Law.

The Board of Directors should be collegial and deliberative, to gain the benefit of each member of the Board of Directors judgment and experience. There is great need to benefit from the knowledge, knowhow and the wisdom of each Board member. The Chairman should take an active lead in promoting mutual trust, open discussion, constructive dissent and support for decisions after they have been made. To achieve such goals, the Board of Directors should meet frequently, usually more than the minimum required by law..

All members of the Board of Directors should attend the meetings, and the Board of Directors should maintain informal communication between meetings. Unexcused absence(s) is not welcomed as it may disturb the functions of the Board of Directors and indicates that the person is not the type of those needed for efficient Board of Directors as stipulated in the Corporate Governance Code. Regarding attendance, more control measures are required and continuous absence could lead to termination of membership. In this, we believe that, perseverance and loyalty are necessary elements for consideration at the time of appointing each member un the Board of Directors… It goes without saying, this includes independent directors, as well.

Commitment and accountability reflects the effectiveness of the Board and are essentially required and should be observed by members of the Board of Directors, taking in account that they are supposed to excel and give good example to all related parties in the company, the shareholders and community stakeholders. If you are a Board member, you need to ask yourself where do you stand in this and are you effective enough to make your Board of Directors more effective, as required for corporate governance purposes.