The Role of the Board From the perspective of The Regulator

1
The Role of the Board From the perspective
ofThe Regulator

• Dr. Hazem Yassin
• Board Member, Egypt CMA

2
Improving Transparency Disclosure

• OECD Standards.
• What Information Should be Disclosed?
• Financial Non Financial
• When to be Disclosed? (Timing of Disclosure)
• Who is Responsible for Disclosure Transparency?
• How the Regulator can help?

3
OECD International Standards for Corporate
Governance

• OECD issued 48 International Standards on
  Corporate Governance covering 5 Areas
• No
• -Rights of shareholders 16
• -Equitable Treatment of Shareholders 5
• -Role of Stockholders in corporate governance 4
• -Disclosure Transparency 10
• -Responsibilities of the Board 13
• Total 48

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OECD Disclosure Transparency

• 1.Financial and Operation Results
• 2.Company Objectives
• 3.Major Share Ownership and voting Rights
• 4.Board Members, Key Executives and their
  Remuneration
• 5.Material Foreseeable Risk Factors
• 6.Material Issues Regarding Employees and Other
  Stakeholders

5
OECD Disclosure Transparency (Continued)

• 7.Governance Structures and policies.
• 8.Preparation of information, Audit, and
  Disclosure according to high standards of
  accounting, Disclosure and Audit.
• 9.Annual Audit by Independent Auditor.
• 10.Channels for Disseminating information Allow
  for Fair, Timely, and Cost Efficient Access to
  Information by Users.

6
OECD Responsibilities of the Board

• 1.Act on an informed basis, in good faith, with
  Due Diligence and care, in the best interest of
  the company and shareholders
• 2.Fair treatment of each class of shareholders
• 3.Compliance with Law and taking into account
  stakeholders interest
• 4.Corporate Strategy, Risk policy, Budgets,
  Plans, Performance Objectives, Implementation and
  Performance Surveillance, Major Capital
  Expenditures, Acquisitions,Divestitures
• 5.Selection, Monitoring, Replacement of Key
  Management

7
OECD Responsibilities of the Board(Continued)

• 6.Key executive and Board remuneration, Board
  nomination
• 7.Monitoring of conflict of interest of
  management, Board Members, and shareholders,
  including misuse of Corporate assets and abuse in
  related Party transactions
• 8.Ensuring Integrity of accounting and financial
  reporting systems, including independent Audit
  systems of control
• 9.Compliance with Law

8
OECD Responsibilities of the Board(Continued)

• 10.Monitoring Governance practices and making
  changes
• 11.Overseeing Disclosure and communication
• 12.Assignment of non Executive Board Members to
  tasks of potential conflict of interest.
• Devote sufficient time to their responsibilities
  
• 13.Access to accurate, relevant and timely
  information

9
What Information

• Financial Reports
• Periodic Annual
• Non-Financial Information
• Regular
• Irregular Material Events

10
Financial Reports

• Annual Financial Statements (Including notes)
• Auditors Report
• The Annual Board of directors Report
• -Submitted to the Regulator and the Stock
  Exchange immediately after approval by the Board
  ( i.e Before the Trading Session and no later
  than a day following its preparation.
• -Submitted again within 5 days of their approval
  by the general Assembly that should take place
  within 3 months after the end of the year.

11
Financial Reports ( Continued)

• Quarterly Financial Statements
• Auditors Review Report
• -Submitted to the Regulator and the Stock
  Exchange within 45 days from the end of the
  quarter.
• All financial statements should be prepared
  according to Approved Accounting Standards and
  Audited according to Approved Auditing Standards.
• Annual Semi-Annual Financial Statements with
  auditors reports are to be published within one
  week from the date of approval in 2 daily
  widespread newspapers.

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Purpose of Financial Statements

• Financial Statement Components
• Accounting Policies
• Structure and Contents of Financial Statements

13
The Annual Board of directors Report

• Principles
• -Comprehensibility -Truth
• -Sincerity -Legitimacy
• Components
• -The Corporate Review
• -Operation Review
• -Financial Review

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First The Corporate Review

• The chairpersons Statement
• The review of Corporate Strategy and Results
• External and unusual Events Information
• Acquisitions and Disposals Information
• Human Resource Information
• Value Added Information
• Social responsibility Information
• Research and Development Information Investment
  Program Information
• Future Prospects Information

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Second Operation Review

• A Review of Business Segment
• A Review of International Operations and
  Geographic Segments

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Third Financial Review

• An analysis of the Results
• An analysis of the Liquidity and Capital
  Recourses
• An analysis of the Assets Valuation and Inflation

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Non Financial Information

• The company shall instantly notify the Stock
  Exchange of any modifications in the data
  attached to the listing application or included
  in the board of directors annual report or any
  procedures followed by the administrative
  entities against the company if it affect the
  companys conditions or its financial position,
  particularly if these data are related to the
  following
• any modifications in the by-laws
• Change in the companys auditors.
• Any change in the Chairman of The Board of
  Directors or members of the board term or the
  Senior Managers.

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Non Financial Information(Continued)

• Any change in the companys registered address
  or telephone numbers
• Capital Structure indicating the percentage of
  contributions that exceed 5 of the capital.
  This applies to affiliate companies if the
  shares of the holding company are listed at the
  Stock Exchange.
• The company shall also notify the Stock Exchange
  with the proposed data and press release that may
  have an effect on trading companys securities
  according to the procedures established by the
  Stock Exchange.
• The Stock Exchange may request any data it views
  necessary.

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Non Financial Information(Continued)

• The company shall notify the Stock Exchange of
  its internal policies regarding the trading of
  company shares by board members, directors or
  employees in the period of two weeks before or 3
  days after the release of material or information
  that may have a substantial effect on the Stock
  price. The company shall also notify the Stock
  Exchange of its intentions to buy treasury stock
  the Stock Exchange will then publish the
  transaction data on the trading board at the
  purchase date.

20
Non Financial Information(Continued)

• Each company facing irregular material changes
  that affect its activity or financial position,
  and affect the trading of its chares at the Stock
  Exchange shall disclose these changes immediately
  to the Stock Exchange within a time frame that
  allows the Stock Exchange to immediately publish
  such events on the trading screens or before the
  first trading sessions following these events
  and at the first issue of the Stock Exchange
  periodical. If these material changes occurred
  during official holidays the company shall
  announce them in two daily widespread newspapers.

21
Non Financial Information(Continued)

• Material changes denote any events that has a
  tangible effect on the companys activity or in
  its financial position that may affect trading
  the companys shares at the Stock exchange
  especially the following
• Any change in the ownership structure that
  exceeds that entails increase or decrease of
  more than 5 of the capital in the share of any
  Board members.
• Any newly proposed issue for bonds and any
  related guarantees or pledges.
• Any resolution that entails calling or cancelling
  previously issued listed securities (
  accelerating the payment of bonds or purchase of
  treasury shares).
• Any change in the companys funding structure or
  its financial position in a way that entails the
  increase in the companys liabilities over its
  equity rights in addition to any other constrains
  imposed on the borrowing volume available to the
  company.

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Non Financial Information (Continued)

• Any material change in the investment policies
  such as opening new branches or activities or
  liquidating existing branches or activities or
  shifting into leasing policy instead of owing
  some of the production tools or vice versa.
• Reaching an agreement to purchase or sell
  investment or a share in the company from and to
  any of the board members or the auditor or one of
  the companys directors (or any of his relatives
  up to the second degree).
• New strategic investors purchasing 22 part of the
  companys shares.
• There is a law suit lodged against the company
  related to its activity or the any of its board
  members or any of its directors and any related
  court orders.
• Any administrative resolutions issued that affect
  the companys activities or any modification or
  withdrawal or cancellation of such resolutions.

23
Non Financial Information (Continued)

• With regards to matters under negotiations, the
  company may indicate that in writing and specify
  the persons having information related to these
  negotiations. If the company views that such
  information has spread , it shall immediately
  notify the stock exchange. Those having access to
  confidential information shall not trade on the
  companys securities during that period until
  such information becomes available to the public.
  The company shall notify the Stock Exchange with
  any data it requires especially those related to
  names of persons having access to the information
  referred to.

24
Non Financial Information (Continued)

• Material events shall be published in
  coordination between the company and the Stock
  Exchange and publishing shall not be made during
  trading hours unless the information requires
  immediate release. In this case, trading shall be
  suspended on the shares for no longer than one
  hour as determined by the Stock Exchange chairman.

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Non Financial Information (Continued)

• The companys board members or officers or
  persons who have access to information that is
  not available to the public and that affects the
  price of the companys securities are prohibited
  from selling or purchasing the securities related
  to this information without prejudice to any
  other related controls or other laws or rules.

26
Non Financial Information (Continued)

• The internal control procedures shall ensure that
  all information regarding the sale or purchase of
  the companys securities by Board Members or by
  those internals is disclosed to the CMA not later
  than 24 hours before concluding these
  transactions.

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Non Financial Information (Continued)

• For the purpose of determining acquisition cost
  of long term investment in shares of affiliate or
  sister companies and other shares acquired for
  the purpose of retention, the companies listed at
  any of the Stock Exchange shall adhere to the
  following rules
• a. In case of acquiring shares of a company
  listed at the Stock Exchange and are actively
  traded at the Stock Exchange. The market price
  that is used as a basis for purchase shall
  govern and the CMA in consultation with the Stock
  Exchange shall specify the indicator or the
  parameters of the change in share prices that are
  used as a basis of determining active shares.
• b. In the case that a listed company is not
  actively traded or is not listed , its share
  price shall be determined by the book value per
  share. If the paid price exceeds that, the
  acquired company shall submit a study explaining
  a measurable objective justifications that
  justify the value paid in excess. The auditors
  report that examines the financial future
  information included into this study should be
  attached.

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The Audit Committee

• Each company having securities listed at the
  Stock Exchange shall have an audit committee to
  be selected by the companys board of directors
  with at least three experienced members of the
  non- executive board members and one of them is
  to be the chairman. If the company does not have
  a sufficient number of them, the committee can
  include qualified non-board persons and the
  committee shall perform its work separately from
  the company. The Committee shall directly submit
  to the companys board of directors a monthly
  report of its work that include its proposals and
  recommendations.

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The Audit Committee(Continued)

• The Committee shall be mainly in charge with the
  following
• Examine and review the companys internal
  control procedures.
• Examine and review the accounting policies
  applied in the company and the changes resulting
  from applying new accounting criteria.
• Examine and review the internal audit function,
  its procedures, plans and results.
• Examine and review the periodic administrative
  information submitted to the different
  administrative levels, how this information is
  developed, and the times they are presented.

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The Audit Committee (Continued)

• Review the procedures followed in developing and
  reviewing the following
• Regular and annual financial reports.
• Prospectus of public and private offering.
• Budgets including projected cash flows and
  projected incomes statements.
• Ensure that correct procedures are applied for
  maintaining the companys assets. Assess
  administrative procedures regularly to ensure
  compliance with the rules and submitting related
  reports to the board of directors.
• Recommend the appointment of the external auditor
  and his renewal and propose his fees.
• Approve the non-audit services that the auditor
  may perform providing that they would not affect
  his independence and integrity.

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The Audit Committee (Continued)

• The committee shall make sure that the companys
  management respond to the recommendations of the
  auditor and the CMA.
• The committee shall directly submit monthly
  reports to the companys board of directors.
• The companys Board of Directors shall assign the
  committee to undertake any tasks required for the
  companys benefit.
• The companys Board of Directors and officers
  shall respond to the committees recommendations
  within fifteen days from the date of being
  notified with them.
• The committees chairman shall notify the stock
  exchange in case that the company does not
  respond to the committees recommendations.

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Conclusions

• Proper disclosure has become quite fundamental in
  todays turbulent environment. Managers and
  auditors must pay extensive attention in carrying
  out their responsibilities. They must work
  together to produce high quality reporting that
  is vital to the global capital markets.

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Conclusions ( Continued)

• Despite the accompanied costs, the managers must
  ensure the proper disclosure of information in
  the annual reports and must set a tone which
  reflects the true image of the firm.
• The auditors must also understand the
  managements internal control over financial
  reporting.

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Conclusions ( Continued)

• The auditors independence and integrity must be
  maintained.
• The non-audit services consultations to audit
  clients should be restricted and reviewed by the
  audit committee.
• A public company accounting oversight Board
  should review and evaluate the work of auditors
  to help in enhancing the quality of audit
  services and hence to enhance the quality of
  financial reports.

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Conclusions ( Continued)

• Finally , regulators must realize the importance
  of non-financial information to predict future
  performance of firms and should try to complement
  the existing financial reporting regulations
  which will help the investors make better
  decisions.

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Thank You For Your Attention