This manual has been prepared to establish the principles of governance in Al-Sharq Financial Brokerage Company (KSC) Closed.
The Board of Directors, Executive Management, employees and shareholders believe that governance is a key element in creating an effective business strategy management system. Therefore, everyone will make every effort to understand and adhere to the principles of governance and its best practices as set forth in this manual with a view to maintain and achieve the company's objectives.
Governance is the set of policies and regulations regulating the relationship between the Company's Board of Directors, shareholders and other stakeholders. It also provides the organizational structure through which the objectives of the company are set, the means to achieve them are defined and the parties to monitor the Company's performance are identified.
Thus, it is the governance that provides both the Board of Directors and the Executive Management with the appropriate incentives to reach the goals that are in the best interest of the company, and facilitate the establishment of an effective monitoring process, and thus help the company to exploit its resources efficiently.
Corporate governance is based on a set of rules that underpin good governance practices. These rules include a set of principles and an application methodology that addresses the requirements for achieving corporate governance objectives.
The importance of implementing corporate governance is as follows:
Governance at Al Sharq Financial Brokerage is based on a set of axes that represent the basis for good governance practices to regulate the process of making all decisions within the company and to stimulate the transparency and credibility of those decisions.
One of the most important objectives of approving corporate governance rules is to protect the interests of shareholders and to segregate the authorities between the company's executive management that manages the company's day to day works and the Board of Directors that prepares and reviews the plans and policies of this company. This practice provides reassurance and enhances confidence when dealing with the company, it also enables shareholders and stakeholders to effectively monitor the company.
Corporate governance rules are the principles, systems and procedures that best protect and balance the interests of the management of the company, its shareholders and other stakeholders. The primary objective of implementing Corporate Governance is to ensure that the Company is in line with shareholders' objectives, thereby enhancing stakeholder confidence in the company's performance and its ability to cope with crises.
Corporate governance includes the following rules:
The Board of Directors of the company represents the balance point that works to achieve shareholders' objectives and follow up the executive management of the company. The Board of Directors also seeks to achieve the company's strategic objectives by ensuring that the executive management fully performs its tasks and responsibilities and that it works to enhance the competitiveness of the company, achieve high growth rates and maximize profits, and that the executive management decisions and actions are always in the interest of shareholders.
The Board of Directors' decisions have a strong impact on the performance of the Company and the integrity of its financial position. Thus, the Board of Directors has the tools and mechanisms that enable it to exercise effective control over the activities of the Executive Management and monitor the performance of leading and supervisory positions reaching to department managers. The Board of Directors is also provided with the information and data necessary to assist in making its decisions.
When forming the Board of Directors, it should be taking into consideration the Board of Directors shall have diversified practical and professional experience, skills, know-how and knowledge of the laws and regulations in force and knowledge of the activities of the company.
a) Composition of the Board of Directors
The Articles of Association sets out the number of members of the Board of Directors, and the majority of the members of the Board of Directors must be non-executive members. The Board of Directors of the Company shall consist of at least five (5) members, at least one of them shall be an independent member.
b) Term of membership
The term of office of the Board of Directors shall be three renewable years. If a new Board of Directors cannot be elected on time, the Board of Directors shall continue to manage the business of the Company until the reasons have been eliminated and a new Board of Directors has been elected.
c) Conditions of membership in the Board of Directors
Whether he is an independent member or a representative of a juridical person, the member of the Board of Directors must meet the following conditions:
d) Professional competence and technical ability requirements.
e) Integrity and honesty requirements.
f) Financial integrity requirements.
g) Conditions of membership of an independent member
Below are the conditions to be met by the independent director:
h) Termination of membership
Membership of the Board of Directors shall terminate in the following cases:
The member of the Board of Directors may not perform the following:
j) Remuneration of Board Members
The Ordinary General Assembly shall determine the remuneration and benefits of the Chairman and members of the Board of Directors in accordance with the laws in force and as specified in the Articles of Association of the Company.
The Board of Directors shall have all the powers and authorities necessary for the management of the Company. The ultimate responsibility for the Company shall lie with the Board of Directors in accordance with its authorities. The functions and responsibilities of the Board of Directors shall be clearly defined in the organizational structure of the Company, which reflects the balance of powers and authorities between the Board of Directors and the Executive Management and ensures that none of them have absolute powers, in order to facilitate the process of accountability of both the Board of Directors and the Executive Management by the shareholders of the company. As the Board of Directors has all the powers and authorities necessary to manage the company, the functions and responsibilities of the Board of Directors include the following:
a) Strategy, budget and organizational structure
b) Financial statements and control
- To ensure that the executive management operates in accordance with the policies and regulations approved by the Board of Directors.
- To hold periodic meetings with the executive management to discuss the work and the obstacles and problems, and to explore and discuss important information related to the company's activity.
- To approve performance standards for the executive management, consistent with the company's objectives and strategy.
- To evaluate the performance of the executive management and overall performance of the company.
- To approve the limits of the administrative and financial powers for senior executives and department managers.
c) Management of risk and internal control
d) Delegation of authorities
The Articles of Association of the Company and the Charter of the Board of Directors shall specify all matters relating to the organization of the activities of the Board of Directors, including meetings, quorum, voting and writing down the minutes of meetings.
The meeting of the Board of Directors shall be held whenever it is needed. The number of meetings of the Board of Directors shall not be less than six meetings per year and not less than one meeting every quarter. The Board of Directors decisions indicated within the minutes of meetings shall be mandatory and become part of the Company's records.
The Chairman of the Board of Directors shall consult with the Chief Executive Office on the important topics proposed to be included in the agenda of the Board meetings. Members of the Board of Directors shall be provided with adequate data and information well in advance of Board meetings to take the necessary decisions. The Board Secretary shall also record the discussions of the Board of Directors, the suggestions of the Board members and the results of any voting conducted during the Board meeting. The responsibilities of the Chairman and members of the Board of Directors shall be specified in writing and shall not contradict with the relevant legislation and regulations.
The Chairman of the Board of Directors shall be responsible for the proper functioning of the Board of Directors in an appropriate and effective manner and ensuring complete and correct information is provided to the Board members and independent members in a timely manner. The duties and responsibilities of the Chairman of the Board of Directors shall include, but not limited to, the following:
The company shall have a Board Secretary from among the employees of the company. His main role is to assist the Board of Directors and the Chairman of the Board of Directors in managing the Board of Directors affairs.
The duties and responsibilities of the Board Secretary should be explained in detail in the job description and included in the Board of Directors' Charter. Responsibilities of the Board Secretary include, but not limited to, the following:
a) To ensure that the Board's minutes of meeting are prepared in a timely manner in conjunction with the Chairman of the Board and the Chief Executive Officer.
b) To organize and coordinate the meetings of the Board of Directors and shareholders.
c) To keep the minutes and drafts of the Board meetings.
d) To execute any instructions issued by the Board of Directors.
e) To prepare the invitation letters to the Board Members.
f) To ensure compliance with all legal requirements in relation to the affairs of the Board of Directors.
The Board of Directors shall form permanent and provisional specialized committees, in order to enable the Board of Directors to carry out its duties and responsibilities effectively in accordance with the Company's needs. The committees are divided into the following:
a. Permanent committees:
Permanent committees are the committees that should be established by the Board of Directors on need-to-have basis. The formation decision shall specify the duration and composition of each committee:
b. Provisional Committees:
Provisional committees are the committees established by the Board of Directors to consider a particular topic or objective. The committees’ formation decision shall also define term and composition.
The Board of Directors shall take into account the following when forming Board committees:
a) The formation of Board committees shall be in accordance with the internal regulations established by the Board of Directors. The formation decision shall specify the committee's duties, term, mode of functioning, the powers granted to it during the term of service and the manner of the Board's oversight thereof. The Committee shall report, to Board of Directors, its findings, conclusions or decisions in a transparent manner.
b) The Board of Directors shall approve the proposed amendments resulting from the annual review conducted by the Board committees.
c) The Board of Directors shall approve all regulations, procedures and charters for all the permanent Board committees, and follow up the activities of the committees on a regular basis to ensure their performance of the tasks entrusted to them.
d) The committees are responsible for their actions before the Board of Directors, but this does not exempt the Board of Directors from responsibility for the activities of these committees.
e) To appoint a sufficient number of members of the Board of Directors in the formed committees.
The existence of a risk committee is one of the key characteristics of the application of good governance. This committee develops risk management policies and regulations in line with the Company's risk appetite, identifying internal or external factors that have led to or lead to such risks and developing ways to address them.
In this regard, sound risk management must have effective internal control systems that provide oversight over the integrity of financial statements, the efficiency of the business of the Company and the assessment of compliance with the regulatory controls.
The Committee shall be composed of three members under the following conditions:
Duties and responsibilities related to risk management and follow-up:
In the event of any conflict between the recommendations of the Risk Committee and the Board of Directors' decisions, including when the Board of Directors refuses to follow the Committee's recommendations, the Board of Directors shall incorporate in the Corporate Governance Report included in the Company's Annual Report a statement clearly detailing these recommendations and the reason or reasons for the Board's decision not to comply with them.
The Committee shall meet on a regular basis at least once every three months (four times a year) in conjunction with the meetings of the Board of Directors, as well as when necessary. The Committee's Charter shall clarify the powers and regulations of its meetings and documentation of its activities.
The existence of an internal Audit Committee is one of the main characteristics of the application of the rules of good governance. The committee shall perform the following to establish a culture of commitment within the company by ensuring the soundness and integrity of the financial reports of the company and ensure the adequacy and effectiveness of the internal control systems applied in the company.
The Committee shall be composed of three members under the following conditions:
The Committee shall hold four meetings per year as well as when necessary. The Committee's Charter shall clarify the powers and regulations of its meetings and documentation of its activities.
The Nomination and Remuneration Committee aims to assist the Board of Directors in fulfilling its supervisory responsibilities related to the nomination and independence of Board members and the integrity of the remuneration, benefits, incentives and salaries strategy of the Company.
The Committee shall be composed of three members under the following conditions:
a. To recommend nomination and re-nomination to the Board of Directors and Executive Management.
b. To establish a clear policy for the remuneration of the members of the Board and the Executive Management, with annual review of the skills required for Board membership. It shall also attract applicants to occupy executive positions as needed, study and review such applications, and identify the various segments of remuneration to be awarded to employees; such as the fixed bonus segment, the performance bonus segment, the shares bonus segment and the end of service bonus segment.
c. To develop job descriptions for executive members, non-executive and independent members.
d. To ensure that the independent board member's independence is not breached.
e. To prepare a detailed annual report on all the remuneration granted to the members of the Board of Directors and the Executive Management, whether amounts, interests or benefits of any nature or name, provided that this report is submitted to the company's General Assembly for approval and to be read by the Chairman of the Board. The Company shall follow the standards of accuracy and transparency when preparing the remuneration report, so that all remuneration given, whether directly or indirectly, shall be disclosed and any attempt to conceal or mislead is avoided.
f. Annual review of required skills for Board membership.
g. To ensure that anyone wishing to run for membership of the Board of Directors or Executive Management has the following:
- Academic and scientific qualifications consistent with the candidate field of employment.
- Appropriate professional experience in a field consistent with the nature of the company's work and the candidate's job.
- Technical, leadership and administrative capabilities that allow him to work independently, expedite the decision making and understand all technical requirements and developments related to the progress of work.
- To develop job descriptions for executive members, non-executive and independent members.
h. To propose the nomination and re-nomination of independent members and ensure that the independent Board member's independence is not breached.
i. To ensure that new board members receive induction programs to ensure that they have a proper understanding of the company's progress of activities and operations, and that development opportunities and ongoing education are available to all members.
j. To conduct the annual evaluation of the performance of the Board of Directors, the members of the Board of Directors and the Board Committees and submit the performance evaluation report to the Board.
k. The Nomination and Remuneration Committee may seek the assistance of consultants from an independent advisory body whom the Committee may deem appropriate to carry out its functions or some of its functions. The Company shall bear the relevant consultancy fees.
l. To perform any duties assigned to it by the Company's Board of Directors.
a. To establish a clear remuneration policy for the Board members and senior executives, taking into account compliance with the remuneration granting policy's criteria set out below.
b. To identify the various segments of remuneration to be awarded to employees; such as the fixed bonus segment, the performance bonus segment, the shares bonus segment and the end of service bonus segment.
c. To ensure that the remuneration is awarded as set forth in the policy.
d. To review the remuneration policy annually and evaluate its effectiveness in achieving the desired objectives of attracting the human cadres and maintaining the professional staff and technical capabilities necessary to promote the position of the company.
e. To prepare a detailed annual report on all the remuneration granted to the members of the Board of Directors and the Executive Management, whether amounts, interests or benefits of any nature or name, provided that this report is submitted to the company's General Assembly for approval.
The Nomination and Remuneration Committee shall meet on a regular basis at least once a year and whenever necessary. The Committee's Charter shall clarify the powers and regulations of its meetings and documentation of its activities.
The Executive Management of the company is the group of officials assigned to manage the day-to-day operations of the company (i.e., the Chief Executive Officer and the Executive Managers).
Members of the Company's Executive management must have high level professional knowledge and experience as well as personal characteristics that enable them to perform their responsibilities in accordance with the highest levels of integrity and professionalism.
The Executive Management should also be fully aware of its role in governance, in addition to understanding its functions and responsibilities to implement the legal requirements and instructions of the Board of Directors in a way that serves the company's interests.
The Executive Management is responsible for the optimal performance of the businesses, while ensuring that the information relevant to the operational activities are credible, complete and available to the Board of Directors on request and in a timely manner.
The main role of Executive Management is as follows:
The following are some of the duties and responsibilities be adhered to by the Executive Management in light of the powers and authorities vested in it by the Board of Directors:
The executive management shall draw up a charter for the permanent administrative committees of the company, if any, and lay down the bases and criteria for selecting the members of these committees.
The Board of Directors has the ability to understand and analyze the nature and volume of the risks facing the Company's activities to eliminate risks as much as possible, as well as to set the appropriate procedure for dealing with them, including identifying the internal or external factors that have led or lead to the occurrence of such risks and the development of countermeasures.
The Company's organizational structure (approved by the Board of Directors) has an independent risk management unit reporting to the Board of Directors. Risk management and follow-up works mainly to measure, monitor and limit all types of risks facing the company, as follows:
The organizational structure of the Company has an independent internal audit unit reporting to the Board Audit Committee. The Unit Manager shall be appointed directly by the Board of Directors based on a recommendation of nomination from the Board Audit Committee.
The Internal Audit Unit works primarily to ensure the adequacy of the internal control systems and maintain the financial integrity of the company, the accuracy of its data as well as the efficiency of its operations in various aspects. The Board of Directors shall determine the duties and responsibilities of the Internal Audit Unit.
The Internal Audit Unit prepares a report that includes a review and assessment of the Company's internal control systems, provided that the report includes:
The procedures for nominating the external auditor shall be in accordance with the provisions of the Companies Law and the Company's Articles of Association. The external auditor must be independent, qualified and appointed according to the recommendations of the Board Audit Committee. The External Auditor provides the Board of Directors and the shareholders with an impartial and objective assurance that the financial statements have been prepared in accordance with the applicable laws and regulations and in accordance with the International Financial Reporting Standards (IFRS), in addition to verifying their accuracy in highlighting the company's financial performance and position.
The External Auditor shall be fully independent of the Company and the members of the Board of Directors and shall not have any conflict of interest that may affect their relationship with the Company. The External Auditor shall attend the Ordinary General Meeting of the Company to discuss their annual report and to answer any questions or concerns. They shall also be invited to attend the quarterly meetings of the Board Audit Committee to discuss the financial statements before submitting the same to the Board of Directors for the approval.
The external auditor shall be accountable to the shareholders and be committed to the company to carry out the audit task with all diligence, care and professionalism.
The Company expects Board members and employees of the company to perform their works to the fullest as much as possible and to act in a manner that shall showcase and enhance the Company's image and reputation. Accordingly, the Company is committed to establishing a code of professional conduct and ethical values that includes the standards of conduct and behavior to be followed by each board member, officer and employee when dealing with the stakeholders in the Company and the public.
The Code of professional conduct is based on a set of parameters and criteria to be followed by Board members, employees and other parties dealing with the Company. Such criteria include the following:
The Company shall apply the policies and regulations required by the Corporate Governance Rules as follows:
The Company has a Board approved conflict of interest policy. This policy contains clear examples of conflicts of interest and how to deal with and address them. For example:
The company has developed a disclosure and transparency system that complies with the provisions of the Companies Law, which defines aspects and areas of disclosure, in order to provide all basic data in a timely, regular and accurate manner.
The disclosure policy clarifies the information and data disclosed through the appropriate means of disclosure, whether it is the daily press or the Company's annual report or website.
Information disclosures includes but are not limited to the following:
The Company has developed a policy for related party transactions, which aims to provide a framework for the related parties' transactions with the Company. This policy sets forth the necessary rules and controls to deal with the related parties in a transparent and purely commercial manner, and to ensure that dealing with the members of the Board of Directors and the related parties is carried out under the same conditions adopted by the Company when dealing with various stakeholders, without any discrimination or preferential conditions.
The provisions of this policy shall apply to all related parties defined in accordance with IAS 24; such as Chairman and members of the Board of Directors, members of the Senior Executive Management, and the companies in which any of such members owns a controlling interest, and parent, subsidiary, sister or allied companies. And applies also to:
This policy regulates the company's relations with all stakeholders including shareholders, employees, suppliers, customers, etc., to preserve the rights of the company and all these parties. The laws in force in the State of Kuwait and the contracts are the main source for determining the rights and duties of all stakeholders. The Company shall specify and clarify such contracts, the rights and obligations of the contractors and the way to perform the same, the consequences of default in performance, limits of liability and the manner of settlement of disputes that may arise as a result of the execution of these contracts, in a way that guarantees the protection of the company's related parties.
The Company seeks to incorporate a full coverage of all legal aspects within its contracts and agreements concluded with the stakeholders, with a view to keep the company and the stakeholders away from any potential disputes.
Protection of stakeholders' rights policy includes:
The Company's Articles of Association and internal regulations shall include the procedures and controls necessary to ensure that shareholders exercise their rights in a manner not inconsistent with applicable laws and regulations.
This policy aims to ensure that the company achieves the following:
The company has developed a social responsibility policy with a view to achieve the following:
The company has developed a policy for the training of members of the Board of Directors and the Executive Management, which aims at developing the mechanisms that enable the members of both the Board of Directors and the Executive Management to receive continuous training programs and courses to provide them with appropriate understanding and knowledge of all subjects related to the Company's activities.
These programs include, at a minimum:
The Company has developed a policy aimed at establishing systems and mechanisms to evaluate the performance of the members of the Board of Directors and the Executive Management on a regular basis by developing a set of performance measurement indicators linked to the extent to which the Company's strategic objectives are achieved, risk management quality and adequacy of internal controls systems. Performance assessment policy include the following:
The company has developed a risk management policy to add the highest possible value to all of the company's activities. Risk management should be a continuous and evolving process that is applied in all strategic aspects of the company and throughout the implementation of its strategy. All risks surrounding the Company's past, present or especially future activities must be addressed theoretically. It should also be integrated into the company culture through a policy and program managed by senior management.
Risks are assessed by analyzing, identifying, describing and assessing the risks that the Company may face.
The company has developed a social responsibility policy with a view to achieve the following:
The company has established the contracts and tenders awarding policy in order to regulate the relationship between the company and the stakeholders and to specify the relevant systems and procedures, in order to achieve the following:
The Company has established a nomination and remuneration policy with a view to set criteria to assist the Board of Directors in performing the following:
The company has developed a protection of shareholders' rights policy in order to ensure that the company achieves the following: