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29 March 2024

No managerial posts for chairmen of listed firms

The new corporate governance code comes into effect from tomorrow. (EB FILE)

Published
By Eman Al Baik

The chairman of a listed public shareholding company cannot hold a managerial or/and a managing director post in the company, as per a new corporate governance code coming into effect from tomorrow.

The code also stipulates that one-third of a listed company's administrative board should have independent members. An ex-employee of a company cannot become a board member until two years have lapsed since the resignation.

One of the most important basics of corporate governance is to separate the ownership of a company and its executive administration, said Rami Al Nosoor, financial consultant, Emirates Securities and Commodities Authority (Esca), explaining the terms of the code.

Defining independent members, Al Nosoor said they are people who themselves or their immediate family – wife/husband, son and daughter, father and mother, step father and mother and stepson and daughter – have been not executives in the same company during the past two years. Also, an independent member or their immediate family should not have financial transactions exceeding five per cent of the company's paid up capital or Dh5 million or its equivalent in other currencies, whichever is less, with the company, sister companies or business partners during the past two years, he explained.

A member also cannot be considered independent should he be an employee at a company that has dealings with the concerned listed company or its sister companies. Dealing include direct involvement in offering consultation services, having personal contracts with the company or its executive administration, and having direct relation with an NOGs that the company supports, he said.

The ownership share of an independent member or of his minor children should not exceed 10 per cent of the company's capital, said Al Nosoor.

The majority of the remaining two-thirds of the administrative board should be non-executive members (those who do not have an executive post in the company), he said.

Should any member of the administrative board have a welfare conflict while discussing a matter related to the company, the board must discuss it and a committee may be formed to look into it. The concerned member loses the right of voting on any decision related to that matter, said the Esca consultant.

As per the resolution, submitting a corporate governance report annually to Esca is mandatory, he said.

The listed shareholding companies should have an internal control division entrusted with approving a code of conduct, along with other internal policies in conformity with the company's objectives and adhering to laws and regulations, said Dr Mazhar Farghali, legal consultant, Esca. These companies must have an external auditor who must not be given another job by the company such as internal auditing, consultancy and restructuring.

 

Mixed reactions to Veto Right

 

Companies have mixed views on the right given to shareholders to veto board members' bonus, as per the new corporate governance code coming into effect from tomorrow.

Hailing the decision, Engineer Saif Eddin Atassi, Managing Director of the Sharjah-based Energis International, who attended an Esca session in Ras Al Khaimah the day before, said: "Board members should not enjoy bonuses when the company results are negative. Prior to this code, administrative board members were enjoying bonuses even if the results were negative and even if they decided not to distribute dividend."

The new right, he said, puts the smaller shareholders on a level playing field with the stronger, bigger shareholders.

Another attendee, the company manager of a public shareholding company who spoke on condition of anonymity, welcomed the code but was not happy with the veto right given to shareholders.

The code would ensure the welfare of shareholders and the country's economy in general, but "who would compensate the board members for the time and effort they put in throughout the year, if the generally assembly votes against the bonus payment?" he asked.

The executive felt the board members should be given at least a nominal amount even if the company could not pay dividends.

Most members, he said, are businessmen and their time is valuable. "The corporate governance code stipulates six meetings a year, and the board members should be rewarded for that," he added.

Under the new code, not only can shareholders veto a bonus for board members, but can also sue the firm – within a period of one year – should they believe that their interests were compromised by the company.