LISTED COMPANIES

(CODE OF CORPORATE GOVERNANCE)

REGULATIONS 2017
The Securities and Exchange Commission of Pakistan (SECP) has issued LISTED COMPANIES
(CODE OF CORPORATE GOVERNANCE) REGULATIONS, 2017, replacing the Code of Corporate
Governance, 2012, via SRO 1216 (I)/2017. The effective date of the same is period starting after
December 31, 2017.

The new Code is intended to apply to Listed Companies and all other entities where they are
required to be complied with by relevant statutes and licensing requirements.

SALIENT FEATURES OF LISTED COMPANIES

(CODE OF CORPORATE GOVERNANCE) REGULATIONS, 2017
• Roles and responsibilities of directors have been made more clear and enhanced.
• Responsibilities of CEO have been broadened.
• Promotion of gender diversity by including female directorship provisions.
• Ensuring consistency and transparency in corporate practices through enhanced disclosure requirements.
• Enhanced regulation of remuneration of directors.
• Duplications with provisions of Companies Act and other statutory requirements have been removed
• Effectiveness of Audit and HR&R Committee has been strengthened by mandating chair of both the
committees to be an independent director.
• Formal and effective mechanism for annual evaluation of the board’s own performance and its committees
is introduced to promote accountability.
• Eligibility requirements of Company Secretary have been established.

NEW PROVISIONS INTRODUCED IN LISTED COMPANIES

(CODE OF CORPORATE GOVERNANCE) REGULATIONS, 2017
BOARD OF DIRECTORS

• Number of possible simultaneous directorships reduced from seven to five. However, this will exclude the
directorships in listed subsidiaries of listed holding companies. This shall be effective from expiry of current
term of BOD or one year of effective date of new Code, whichever is earlier.
• Independent Directors should be at least 2, or equivalent to one third of total number of directors,
whichever is higher. This shall be effective after expiry of current term pursuant to effective date of the 2017
Code.
• The maximum number of executive directors on board is now one third of total number of directors instead
of one third of elected directors including CEO of the company.
• New requirement to file declaration of independence by Independent Directors to the Chairman of the
Board.
• There should be at least one female director on a Board.
• Definition of Executive Director has been altered to mean a director who devotes substantial, or all of his/
her time to the operations of the company; the proviso regarding him/her being a paid director has been
removed.
• Board now needs to undertake an overview of business risks at least annually.
• Chairman of the Board will issue a letter to directors setting their roles, responsibilities, remuneration and
entitlement.
• All directors to attend general meetings unless precluded by a reasonable cause.

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• Chairman to set the agenda of Board meetings.
• Board now needs to explicitly consider sales of assets, investments in subsidiaries and undertakings
and quarterly details of foreign exchange exposure and hedging, in addition to other specified
matters.
• Any matter in which majority of directors are interested now needs to be placed before general
meeting for approval.
• Two independent directors now necessary for quorum of a board meeting where a matter of conflict
of interest is to be considered.
• Policy for remuneration of directors needs to be established.
• Directors’ Report now needs to state the remuneration policy of non-executive directors including
independent directors.
• Code suggests to engage a consultant to determine the remuneration of directors.
• Level of remuneration now needs to be such as not to hamper independence of all directors.
• All directors need to avail Directors Training Program (DTP) by June 30, 2021.
• Commission will now grant exemption from DTP based on experience or education.
• One member of the board now needs to be financially literate, having a membership of recognized body
of accountants or a post graduate degree from an HEC recognized institution.

BOARD COMMITTEES

• Chairman of the Audit Committee now needs to be an independent director mandatorily.

• Audit Committee meetings now to be held after completion of external audit.
• Attendance of CEO and CFO in audit committee meetings is now by invitation.
• Audit Committee to now consider all related party transactions instead of only those that are significant.
• Audit Committee now authorized to arrange confidential reporting of potential wrongdoing from staff or
management to itself directly.
• HR&R Committee to have independent director as Chairman.
• New provisions for meeting and appointment of secretary to HR&R Committee have been added.
• HR&R needs to meet at least once in every financial year.
• CEO and Head of HR Committee, if not members and secretary of the committee may attend the
meetings only by invitation.
• HR&R Committee now authorized to recommend remuneration of Directors to the Board.
• Formal annual appraisal of Board and its Committees needs to be done by HR&R Committee.
• New Committees, namely Nomination and Risk Management Committees, proposed to be constituted.

CFO , HEAD OF INTERNAL AUDIT AND COMPANY SECRETARY

• CFO and Company secretary not to attend the parts of Board meeting related to their performance, terms of
employment, or any matter for which their attendance may lead to impairment of organizational discipline or
harmony.
• Eligibility for Head of Internal Audit in case he or she is not a member of ICAP or ICMA, is now five years
or more experience in finance, audit or compliance in case of post graduate degree, and seven years or
more in case of graduate. This eligibility will be granted by the Commission on application by the
company.
• Eligibility criteria of Company Secretary now to be determined by the Commission.
• Head of Internal Audit now can be removed by the BOD; the Audit Committee may recommend to
remove the Head of Internal Audit.

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• Eligibility for CFO in case he or she is not a member of ICAP or ICMA, is now five years or more experience
in finance or audit in case of post graduate degree, and seven years or more in case of graduate.
This eligibility will be granted by the Commission on application by the company.
• Performance appraisal of Head of Internal Audit now to be jointly performed by Chairman Board Audit
Committee and CEO.

OTHER PROVISIONS

• Responsibilities of CEO have been broadened.

• Companies no longer required to provide details of any failure to meet obligations in quarterly or annual
financial statements.
• The 2017 Code now prescribes following additional policies to be maintained by company;
• Permissible fee for non-executive directors including independent directors.
• Sale and lease of assets, undertaking, capital expenditure, planning and control.
• Environmental, social and governance including health and safety aspects in business strategies
that promote sustainability. This includes but is not limited to CSR initiatives and other
philanthropic activities, donations / contributions to charities and other social causes.
• Board to ensure qualitative aspects of internal audit team.
• Audit firms now need to be registered with the Audit Oversight Board of Pakistan to be able to perform
audits.
• Non compliance of the Code will now entail penalties in line with the subsection (2) of Section 512 of the
Act. Certain clauses of Statement of Compliance of 2012 Code have not been retained in 2017 Code.
They include declarations that:
• Independent directors meet the criteria of independence
• Status of resident directors as registered taxpayers and having not defaulted in repayment of
a loan, and not declared as a defaulter as a member of the stock exchange
• Directors report meeting all disclosure criteria
• Directors, CEO and executives not holding any shares not already disclosed in financial statements
• Compliance of all corporate and financial reporting requirements of the Code
• Closed period prior to announcement of financial results and business decisions being determined
and intimated to directors, employees and stock exchanges
• Dissemination of all material and price sensitive information through stock exchange to all market
participants.

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MAPPING OF PROVISIONS OF CCG 2012 WITH LISTED COMPANIES (CODE OF CORPORATE GOVERNANCE) REGULATIONS, 2017

PROVISION OF CCG 2012 PROVISION OF CCG 2017 OR COMPANIES ACT, 2017

1 Composition of the Board Laid down in Chapter II: Number of Directorships and Composition of the Board

2 Maximum number of directorships to be Section 3: Number of Directorships

held by a director

3 Filling up a casual vacancy Removed and laid down in Section 155(3) of The Companies Act, 2017

4 Responsibilities, powers and functions Laid down in Chapter III: Responsibilities of Board of Directors and its Members
of board of directors

5 Meetings of the board Laid down in Chapter IV: Meeting of Board

6 Significant issues to be placed for Laid down in Chapter V: Issues to be placed for Decision of Board of Directors
decision of Board of Directors

7 Related party transactions Laid down in Section 15: Related party transactions

8 Directors’ Training Program Laid down in Chapter VII: Directors Training Program

9 Chief Financial Officer (CFO), Company Laid down in Chapter VIII: Chief Financial Officer ,Company Secretary and Head of
Secretary and Head of Internal Audit – Internal Audit
Appointment and Removal
10 Qualifications of CFO and Head of Section 23 and 24
Internal Audit

11 Requirement to attend board meetings Section 13

12 Corporate and financial reporting Deleted and laid down in Section 227 of the Companies Act, 2017
framework

13 Directors’ remuneration Laid down in Chapter VI: Remuneration of Directors

14 Frequency of financial reporting Deleted and laid in Section 237 and Section of the Companies Act, 2017;
disclosure of material information now part of PSX Regulations

15 Responsibility for financial reporting Laid down in Chapter IX: Responsibility for financial reporting and corporate
and corporate compliance compliance

16 Disclosure of interest by a director Deleted and laid down in Section 205 of Companies Act, 2017 . Disclosure of
holding company’s shares interest by Directors and provisions regarding closed period now part of PSX
Regulations
17 Committees of the board Composition Laid down in Chapter X: Committees of Board

18 Internal Audit Laid down in Chapter XI: Internal Audit

19 External Auditors Laid down in Chapter XII: External Audit

20 COMPLIANCE WITH THE CODE OF Laid down in Section 40: Compliance Statement and Auditor Review
CORPORATE GOVERNANCE
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