or the required minimum period of notice (a rolling contract).

There may be other provisions connected

with departure including termination without notice, payment in lieu of notice, whether the director can be
placed on gardening leave and restrictions on subsequent employment (for example joining competitors).
Legal provisions in many regimes have tended to focus on requirements for companies to keep contracts
and make them available for shareholder inspection. In many countries, it has been corporate
governance codes that have dealt with the most controversial issues, including remuneration, the term of
the contract and payments on termination of contract.
Some governance guidance states that the notice period on the contracts should be one year or less. If the
director has to be given a longer period at first in order to secure agreement to join, the initial period
should subsequently be reduced.

2 Board membership and roles

FAST FORWARD Division of responsibilities at the head of an organisation is most simply achieved by separating the roles
of chairman and chief executive.
Independent non-executive directors have a key role in governance. Their number and status should
mean that their views carry significant weight.

2.1 Board membership

Key issues for consideration are:
 Size – with greater size can come greater opportunities for representation of varied views. However
this can be at the expense of ease of operation and coherence of decision-making.
 Inside/outside mix – what proportion should be executive decision-makers whose main
employment is by the company and what proportion should be outsiders?
 Diversity – the issues here include male/female mix, representation from ethnic minorities,
representatives from professions other than business (for example academia).

2.2 Chairman and CEO

Ultimate leadership of the organisation consists of a number of strands, most importantly
 Leading the board of directors – the chairman
 Leading the management team at and below board level – the Chief Executive Officer or CEO

2.2.1 Role of chairman 12/07, 6/09, 12/09

The UK Higgs report provides a thorough analysis of the role of the chairman. Higgs comments that the
chairman is 'pivotal in creating the conditions for overall board and individual director effectiveness, both
inside and outside the boardroom'. The chairman is responsible for:
(a) Running the board and setting its agenda
The chairman should ensure the board focuses on strategic matters and takes account of the key
issues and the concerns of all board members. He should ensure the contributions of executives
and non-executives are co-ordinated and good relationships are maintained.
(b) Ensuring the board receives accurate and timely information
We shall discuss this further later in the Text, but good information will enable the board to take
sound decisions and monitor the company effectively.
(c) Ensuring effective communication with shareholders
The chairman should take the lead in ensuring that the board develops an understanding of the
views of major investors. The chairman is often the public face of the company as far as investors
are concerned.

Part A Governance and responsibility  3: Corporate governance practice and reporting 95

 (d) Ensuring that sufficient time is allowed for discussion of controversial issues
All members should have enough time to consider critical issues and not be faced with unrealistic
deadlines or decision-making.
(e) Taking the lead in board development
The chairman is responsible for addressing the development needs of the board as a whole and
enhancing the effectiveness of the whole team, also meeting the development needs of individual
directors. The chairman should ensure that the induction programme for new directors is
comprehensive, formal and tailored.
(f) Facilitating board appraisal
The chairman should ensure the performance of the whole board, board committees and
individuals is evaluated at least once a year.
(g) Encouraging active engagement by all the members of the board
The chairman should promote a culture of openness and debate, by, in particular, ensuring that
non-executive directors make an effective contribution to discussions.
(h) Reporting in and signing off accounts
Financial statements in many jurisdictions include a chairman's statement that must be compatible
with other information in the financial statements. The statement provides an opportunity for the
chairman to demonstrate that he or she is acting in the shareholders' best interests, and to provide
an independent view of the company's affairs. The statement can also explain how the chairman is
exercising his or her role and highlight other aspects of corporate governance that might be of
concern to the shareholders.
The chairman may also be responsible for signing off the financial statements.
Higgs goes on to provide a description of an effective chairman, who:
 Upholds the highest standards of integrity and probity
 Leads board discussions to promote effective decision-making and constructive debate
 Promotes effective relationships and open communication between executive and non-executive
directors
 Builds an effective and complementary board, initiating change and planning succession
 Promotes the highest standards of corporate governance
 Ensures a clear structure for, and the effective running of, board committees
 Establishes a close relationship of trust with the CEO, providing support and advice whilst
respecting executive responsibility
 Provides coherent leadership of the company

Exam focus As you can see above, the examiner emphasised the importance of the role of the chairman by examining
point it in both the 2009 papers.

2.2.2 Role of CEO 6/09, 6/11

The CEO is responsible for running the organisation's business and for proposing and developing the
group's strategy and overall commercial objectives in consultation with the directors and the board. The
CEO is also responsible for implementing the decisions of the board and its committees, developing the
main policy statements and reviewing the business's organisational structure and operational performance.
The CEO is the senior executive in charge of the management team and is answerable to the board for its
performance. He will have to formalise the roles and responsibilities of the management team, including
determining the degree of delegation.

96 3: Corporate governance practice and reporting  Part A Governance and responsibility

 A guidance note that used to supplement the UK Combined Code suggests that the major responsibilities
of the CEO will be as follows:
(a) Business strategy and management
The CEO will take the lead in developing objectives and strategy having regard to the
organisation's stakeholders, and will be responsible to the board for ensuring that the organisation
achieves its objectives, optimising the use of resources.
(b) Investment and financing
The CEO will examine major investments, capital expenditure, acquisitions and disposals and be
responsible for identifying new initiatives.
(c) Risk management
The CEO will be responsible for managing the risk profile in line with the risk appetite accepted by
the board. He will also be responsible for ensuring that appropriate planning, operational, and
control systems and internal controls are in place and operate effectively. The CEO has ultimate
ownership of the control systems and should take the lead in establishing the control environment
and culture.
(d) Establishing the company's management
The CEO will provide the nomination committee with his view on the future roles and capabilities
required of directors, and make recommendations about the recruitment of individual directors. He
will also be responsible for recruiting and overseeing the management team below board level.
(e) Board committees
The CEO will make recommendations to be discussed by the board committees on remuneration
policy, executive remuneration and terms of employment.

(f) Liaison with stakeholders

Like the chairman, part of the CEO's role will be to deal with those interested in the company. The
chairman's focus though will often be on dealing with shareholder concerns, whereas the CEO will
also be concerned with other major stakeholders who impact upon the company's operations, for
example its most important customers.
Exam focus
point Question 1 in June 2009 required discussion of how a chief executive had failed to oversee internal
controls effectively.

2.3 Division of responsibilities 12/07, 12/11

All governance reports acknowledge the importance of having a division of responsibilities at the head of
an organisation to avoid the situation where one individual has unfettered control of the decision-making
process.
The simplest way to do this is to require the roles of chairman and CEO to be held by two different people,
for the following reasons.
(a) Demands of roles
It reflects the reality that both jobs are demanding roles and ultimately the idea that no one person
would be able to do both jobs well. The CEO can then run the company. The chairman can run the
board and take the lead in liaising with shareholders.
(b) Authority
There is an important difference between the authority of the chairman and the authority of the
chief executive, which having the roles taken by different people will clarify. The chairman carries
the authority of the board whereas the chief executive has the authority that is delegated by the
board. Separating the roles emphasises that the chairman is acting on behalf of the board, whereas

Part A Governance and responsibility  3: Corporate governance practice and reporting 97

 2.6 Role of non-executive directors 12/07
The UK's Higgs report provides a useful summary of the role of non-executive directors.
(a) Strategy
Non-executive directors should contribute to, and challenge the direction of, strategy. They should
use their own business experience to reinforce their contribution. The Walker review on corporate
governance in UK banks and other financial institutions highlighted the challenge stage as an
essential part of board discussions: 'The most critical need is for an environment in which effective
challenge of the executive is expected and achieved in the boardroom before decisions are taken on
major risk and strategic issues.'
(b) Scrutiny
Non-executive directors should scrutinise the performance of executive management in meeting
goals and objectives and monitor the reporting of performance. They should represent the
shareholders' interests to ensure agency issues don't arise to reduce shareholder value.
(c) Risk
Non-executive directors should satisfy themselves that financial information is accurate and that
financial controls and systems of risk management are robust. (These may include industry-
specific systems such as in the chemical industry.)
(d) People
Non-executive directors are responsible for determining appropriate levels of remuneration for
executives, and are key figures in the appointment and removal of senior managers and in
succession planning.
The UK Higgs report suggests that non-executive directors have 'an important and inescapable
relationship with shareholders'. Higgs recommends that one or more non-executive directors
should take direct responsibility for shareholder concerns, and should attend regular meetings with
shareholders. One method of enhancing the contribution of non-executive directors is to appoint
one of the independent non-executive directors as senior independent director to provide a
sounding board for the chairman and to serve as an intermediary for the other directors and
shareholders if they have concerns they cannot resolve through other channels.

Exam focus The examiner sees the contribution of non-executive directors as centred on these four elements. Question
point 1 in December 2007 not only required discussion of these four roles, but discussion of the tensions
between them.

For the public sector, the Good Governance Standard for Public Services defines the role of non-executive
directors as:
 Contributing to strategy by bringing a range of perspectives to strategic development and decision-
making
 Making sure that effective management arrangements and an effective team are in place at the top
level of the organisation
 Delegating decisions not reserved for the governing body
 Holding executives to account through purposeful challenge and scrutiny
 Being extremely careful about getting involved in operational detail for which responsibility is
delegated to the executive

Part A Governance and responsibility  3: Corporate governance practice and reporting 101
 2.6.1 Advantages of non-executive directors
Non-executive directors can bring a number of advantages to a board of directors.
(a) Experience and knowledge
They may have external experience and knowledge which executive directors do not possess.
The experience they bring can be in many different fields. They may be executive directors of other
companies, and have experience of different ways of approaching corporate governance, internal
controls or performance assessment. They can also bring knowledge of markets within which the
company operates.
(b) Perspective
Non-executive directors can provide a wider perspective than executive directors who may be
more involved in detailed operations.
(c) Reassurance
Good non-executive directors are often a comfort factor for third parties such as investors or
creditors.
(d) Contribution
The English businessman Sir John Harvey-Jones pointed out that there are certain roles non-
executive directors are well-suited to play. These include 'father-confessor' (being a confidant for
the chairman and other directors), 'oil-can' (intervening to make the board run more effectively)
and acting as 'high sheriff' (if necessary taking steps to remove the chairman or chief executive).
(e) Dual roles
The most important advantage perhaps lies in the dual nature of the non-executive director's role.
Non-executive directors are full board members who are expected to have the level of knowledge
that full board membership implies.
At the same time they are meant to provide the so-called strong, independent element on the
board. This should imply that they have the knowledge and detachment to be able to monitor the
company's strategy and affairs effectively. In particular they should be able to assess fairly the
remuneration of executive directors when serving on the remuneration committee, be able to
discuss knowledgeably with auditors the affairs of the company on the audit committee and be able
to scrutinise strategies for excessive risks.

In addition, of course, appointing non-executive directors ensures compliance with corporate governance
regulations or codes.

2.6.2 Problems with non-executive directors

Nevertheless there are a number of difficulties connected with the role of non-executive director.
(a) Lack of independence
In many organisations, non-executive directors may lack independence. There are in practice a
number of ways in which non-executive directors can be linked to a company, as suppliers or
customers for example. Even if there is no direct connection, potential non-executive directors are
more likely to agree to serve if they admire the company's chairman or its way of operating.
(b) Prejudice
There may be a prejudice in certain companies against widening the recruitment of non-executive
directors to include people proposed other than by the board or to include stakeholder
representatives.
(c) Preferences of best directors
High-calibre non-executive directors may gravitate towards the best-run companies, rather than
companies which are more in need of input from good non-executives.

102 3: Corporate governance practice and reporting  Part A Governance and responsibility
(d) Enforcing views
Non-executive directors may have difficulty imposing their views upon the board. It may be easy
to dismiss the views of non-executive directors as irrelevant to the company's needs. This may
imply that non-executive directors need good persuasive skills to influence other directors.
Moreover, if executive directors are determined to push through a controversial policy, it may
prove difficult for the more disparate group of non-executive directors to oppose them effectively.
(e) Prevention of problems
Sir John Harvey-Jones has suggested that not enough emphasis is given to the role of non-
executive directors in preventing trouble, in warning early on of potential problems. Conversely,
when trouble does arise, non-executive directors may be expected to play a major role in rescuing
the situation, which they may not be able to do.
(f) Time available
Perhaps the biggest problem which non-executive directors face is the limited time they can
devote to the role. If they have valuable experience, they are also likely to have time-consuming
other commitments. In the time they have available to act as non-executive directors, they must
contribute as knowledgeable members of the full board and fulfil their legal responsibilities as
directors. They must also serve on board committees. Their responsibilities mean that their time
must be managed effectively, and they must be able to focus on areas where the value they add is
greatest. However expectations of non-executive directors are increasing. The 2009 Walker review
of UK financial institutions recommended that a minimum expected annual time commitment of 30
to 36 days to a major board should be clearly indicated in letters of appointment.
(g) Weakening board unity
Some commentators have suggested that non-executive directors can damage company
performance by weakening board unity and stifling entrepreneurship. Agrawal and Knoeber
suggested that boards are often expanded for political reasons, to include stakeholder
representatives with concerns other than maximisation of financial performance.

2.7 Number of non–executive directors

Most corporate governance reports acknowledge the importance of having a significant presence of non-
executive directors on the board. The question has been whether organisations should follow the broad
principles expressed in the Cadbury report:
'The board should include non-executive directors of sufficient character and number for their
views to carry significant weight.'
or whether they should follow prescriptive guidelines. New York Stock Exchange rules now require listed
companies to have a majority of non-executive directors (ie more than half the board). Other codes, such
as the Singapore code, suggest at least a third of the board should be independent (non-executive)
directors.

2.8 Independence of non-executive directors 12/10

Although non-executive directors can fulfil the roles described above even if they are not independent, the
presumption in governance reports is that non-executive directors' contribution is enhanced if they are
independent. Various safeguards can be put in place to ensure that non-executive directors remain
independent. Those suggested by the corporate governance reports include:
(a) Connections
Non-executive directors should have no business, financial or other connection with the company.
Recent reports have widened the scope of business connections to include anyone who has been
an employee or auditor, or had a material business relationship (such as being a supplier or
significant customer) over the last few years, or served on the board for more than nine years.

Part A Governance and responsibility  3: Corporate governance practice and reporting 103
 (b) Cross-directorships
This is where an executive director of Company A is a non-executive director of Company B, and an
executive director of Company B is a non-executive director of Company A. These are a particular
threat to independence, often increased by cross-shareholdings. The problem is that non-executive
directors will sit in judgement on executive directors when for example they consider their
remuneration. Having one director sit in judgement on another who in turn is sitting in judgement
on him is an obvious conflict of interest, with directors being concerned with their own interests
rather than shareholders'.
(c) Share options
They should not take part in share option schemes and their service should not be pensionable, to
maintain their independent status. This is intended to help ensure non-executive directors'
detachment from executive directors, and mean that they can offer advice and scrutiny that is not
influenced by an interest in the company's share price in the short-term.
(d) Appointment terms
Appointments should be for a specified term (often three years) and reappointment should not be
automatic. The board as a whole should decide on their nomination and selection.
(e) Advice
Procedures should exist whereby non-executive directors may take independent advice, at the
company's expense if necessary. This helps the non-executive directors gain outside, objective,
advice on areas of concern.

However the requirements do vary jurisdiction by jurisdiction, reflecting different approaches to the
drafting of codes of governance. In some jurisdictions factors that impair independence are stressed,
others emphasise positive qualities that promote independence. Ultimately, as the ICGN guidelines point
out, all definitions come down to non-executive directors being independent-minded, which means
exercising objective judgement in the best interests of the corporation whatever the consequences for the
director personally.

2.8.1 Maintaining independence of non-executive directors

One way of increasing independence of the non-executive directors as a whole is to recruit non-executive
directors from outside the industry in which the company operates. Networks threatening independence
can build up within industries as staff move between companies and collaborate on industry bodies. Non-
executive directors from within the industry may also be influenced by the assumptions and prejudices of
the industry.
However the disadvantage of recruiting non-executive directors from outside the industry is that they may
lack strategic awareness of industry issues, technical knowledge and a network of contacts. In practice the
effectiveness of many boards is probably maximised by including a mixture of non-executives from within
the industry with technical expertise, and industry outsiders with wider regulatory, political or social
insights.

Exam focus Whenever a question scenario features non-executive directors, watch out for threats to, or questions
point over, their independence. These could include personal or business relationships. The examiner
highlighted the independence of non-executive directors in an article about independence published in
August 2011, so it is very likely to be examined in future.

2.9 Characteristics of non-executive directors

The UK Higgs report summed up the characteristics of the effective non–executive director:
 Upholds the highest ethical standards of integrity and probity
 Supports executives in their leadership of the business while monitoring their conduct

104 3: Corporate governance practice and reporting  Part A Governance and responsibility
6874 evsjv‡`k †M‡RU, AwZwi³, Ryb 10, 2018
(c) The independent director(s) shall be appointed by the Board
and approved by the shareholders in the Annual General
Meeting (AGM);
(d) The post of independent director(s) cannot remain vacant for
more than 90 (ninety) days; and
(e) The tenure of office of an independent director shall be for a
period of 3 (three) years, which may be extended for 1 (one)
tenure only:
Provided that a former independent director may be
considered for reappointment for another tenure after a time
gap of one tenure, i.e., three years from his or her completion
of consecutive two tenures [i.e. six years]:
Provided further that the independent director shall not be
subject to retirement by rotation as per the
 i, 2 5
(2 5  29 i)(Companies Act, 1994).
Explanation: For the purpose of counting tenure or term of
independent director, any partial term of tenure shall be
deemed to be a full tenure.
(3) Qualification of Independent Director.

(a) Independent director shall be a knowledgeable individual with
integrity who is able to ensure compliance with financial laws,
regulatory requirements and corporate laws and can make
meaningful contribution to the business;
(b) Independent director shall have following qualifications:
(i) Business Leader who is or was a promoter or director of an
unlisted company having minimum paid-up capital of Tk.
100.00 million or any listed company or a member of any
national or international chamber of commerce or business
association; or
(ii) Corporate Leader who is or was a top level executive not
lower than Chief Executive Officer or Managing Director
or Deputy Managing Director or Chief Financial Officer or
Head of Finance or Accounts or Company Secretary or
Head of Internal Audit and Compliance or Head of Legal
Service or a candidate with equivalent position of an
unlisted company having minimum paid-up capital of Tk.
100.00 million or of a listed company; or
 evsjv‡`k †M‡RU, AwZwi³, Ryb 10, 2018 6875
Explanation: Top level executive includes Managing
Director (MD) or Chief Executive Officer (CEO),
Additional or Deputy Managing Director (AMD or DMD),
Chief Operating Officer (COO), Chief Financial Officer
(CFO), Company Secretary (CS), Head of Internal Audit
and Compliance (HIAC), Head of Administration and
Human Resources or equivalent positions and same level or
ranked or salaried officials of the company.
(iii) Former official of government or statutory or autonomous
or regulatory body in the position not below 5th Grade of
the national pay scale, who has at least educational
background of bachelor degree in economics or commerce
or business or Law; or
(iv) University Teacher who has educational background in
Economics or Commerce or Business Studies or Law; or
(v) Professional who is or was an advocate practicing at least
in the High Court Division of Bangladesh Supreme Court
or a Chartered Accountant or Cost and Management
Accountant or Chartered Financial Analyst or Chartered
Certified Accountant or Certified Public Accountant or
Chartered Management Accountant or Chartered Secretary
or equivalent qualification;
(c) The independent director shall have at least 10 (ten) years of
experiences in any field mentioned in clause (b);
(d) In special cases, the above qualifications or experiences may be
relaxed subject to prior approval of the Commission.
(4) Duality of Chairperson of the Board of Directors and Managing
Director or Chief Executive Officer.

(a) The positions of the Chairperson of the Board and the
Managing Director (MD) and/or Chief Executive Officer
(CEO) of the company shall be filled by different
individuals;
(b) The Managing Director (MD) and/or Chief Executive
Officer (CEO) of a listed company shall not hold the same
position in another listed company;
(c) The Chairperson of the Board shall be elected from among
the non-executive directors of the company;
6882 evsjv‡`k †M‡RU, AwZwi³, Ryb 10, 2018

(3) Duties of Managing Director (MD) or Chief Executive Officer

(CEO) and Chief Financial Officer (CFO)
(a) The MD or CEO and CFO shall certify to the Board that they
have reviewed financial statements for the year and that to the
best of their knowledge and belief:
(i) these statements do not contain any materially untrue
statement or omit any material fact or contain statements
that might be misleading; and
(ii) these statements together present a true and fair view of the
company’s affairs and are in compliance with existing
accounting standards and applicable laws;
(b) The MD or CEO and CFO shall also certify that there are, to
the best of knowledge and belief, no transactions entered into
by the company during the year which are fraudulent, illegal or
in violation of the code of conduct for the company’s Board or
its members;
(c) The certification of the MD or CEO and CFO shall be
disclosed in the Annual Report.
4. Board of Directors’ Committee.

For ensuring good governance in the company, the Board shall have at
least following sub-committees:
(i) Audit Committee; and
(ii) Nomination and Remuneration Committee.
5. Audit Committee.

(1) Responsibility to the Board of Directors.
(a) The company shall have an Audit Committee as a sub-
committee of the Board;
(b) The Audit Committee shall assist the Board in ensuring that the
financial statements reflect true and fair view of the state of
affairs of the company and in ensuring a good monitoring
system within the business;
(c) The Audit Committee shall be responsible to the Board; the
duties of the Audit Committee shall be clearly set forth in
writing.
 evsjv‡`k †M‡RU, AwZwi³, Ryb 10, 2018 6883
(2) Constitution of the Audit Committee
(a) The Audit Committee shall be composed of at least 3 (three)
members;
(b) The Board shall appoint members of the Audit Committee
who shall be non-executive directors of the company
excepting Chairperson of the Board and shall include at least
1 (one) independent director;
(c) All members of the audit committee should be “financially
literate” and at least 1 (one) member shall have accounting or
related financial management background and 10 (ten) years
of such experience;
Explanation: The term “financially literate” means the
ability to read and understand the financial statements like
statement of financial position, statement of comprehensive
income, statement of changes in equity and cash flows
statement and a person will be considered to have accounting
or related financial management expertise if he or she
possesses professional qualification or Accounting or
Finance graduate with at least 10 (ten) years of corporate
management or professional experiences.
(d) When the term of service of any Committee member expires
or there is any circumstance causing any Committee member
to be unable to hold office before expiration of the term of
service, thus making the number of the Committee members
to be lower than the prescribed number of 3 (three) persons,
the Board shall appoint the new Committee member to fill up
the vacancy immediately or not later than 1 (one) month from
the date of vacancy in the Committee to ensure continuity of
the performance of work of the Audit Committee;
(e) The company secretary shall act as the secretary of the
Committee;
(f) The quorum of the Audit Committee meeting shall not
constitute without at least 1 (one) independent director.
6884 evsjv‡`k †M‡RU, AwZwi³, Ryb 10, 2018

(3) Chairperson of the Audit Committee

(a) The Board shall select 1 (one) member of the Audit Committee to
be Chairperson of the Audit Committee, who shall be an
independent director;
(b) In the absence of the Chairperson of the Audit Committee, the
remaining members may elect one of themselves as Chairperson
for that particular meeting, in that case there shall be no problem
of constituting a quorum as required under condition No. 5(4)(b)
and the reason of absence of the regular Chairperson shall be duly
recorded in the minutes.

(c) Chairperson of the Audit Committee shall remain present in the

Annual General Meeting (AGM):

Provided that in absence of Chairperson of the Audit Committee,

any other member from the Audit Committee shall be selected to
be present in the annual general meeting (AGM) and reason for
absence of the Chairperson of the Audit Committee shall be
recorded in the minutes of the AGM.

(4) Meeting of the Audit Committee

(a) The Audit Committee shall conduct at least its four meetings in
a financial year:

Provided that any emergency meeting in addition to regular

meeting may be convened at the request of any one of the
members of the Committee;

(b) The quorum of the meeting of the Audit Committee shall be

constituted in presence of either two members or two-third of
the members of the Audit Committee, whichever is higher,
where presence of an independent director is a must.
 evsjv‡`k †M‡RU, AwZwi³, Ryb 10, 2018 6885

(5) Role of Audit Committee

The Audit Committee shall:

(a) Oversee the financial reporting process;

(b) monitor choice of accounting policies and principles;

(c) monitor Internal Audit and Compliance process to ensure

that it is adequately resourced, including approval of the
Internal Audit and Compliance Plan and review of the
Internal Audit and Compliance Report;

(d) oversee hiring and performance of external auditors;

(e) hold meeting with the external or statutory auditors for
review of the annual financial statements before submission
to the Board for approval or adoption;

(f) review along with the management, the annual financial

statements before submission to the Board for approval;

(g) review along with the management, the quarterly and half
yearly financial statements before submission to the Board
for approval;

(h) review the adequacy of internal audit function;

(i) review the Management’s Discussion and Analysis before

disclosing in the Annual Report;

(j) review statement of all related party transactions submitted

by the management;

(k) review Management Letters or Letter of Internal Control

weakness issued by statutory auditors;

(l) oversee the determination of audit fees based on scope and

magnitude, level of expertise deployed and time required
for effective audit and evaluate the performance of external
auditors; and
6886 evsjv‡`k †M‡RU, AwZwi³, Ryb 10, 2018

(m) oversee whether the proceeds raised through Initial Public

Offering (IPO) or Repeat Public Offering (RPO) or Rights
Share Offer have been utilized as per the purposes stated in
relevant offer document or prospectus approved by the
Commission:
Provided that the management shall disclose to the Audit
Committee about the uses or applications of the proceeds
by major category (capital expenditure, sales and marketing
expenses, working capital, etc.), on a quarterly basis, as a
part of their quarterly declaration of financial results:
Provided further that on an annual basis, the company shall
prepare a statement of the proceeds utilized for the
purposes other than those stated in the offer document or
prospectus for publication in the Annual Report along with
the comments of the Audit Committee.
(6) Reporting of the Audit Committee
(a) Reporting to the Board of Directors
(i) The Audit Committee shall report on its activities to the
Board.
(ii) The Audit Committee shall immediately report to the
Board on the following findings, if any:
(a) report on conflicts of interests;
(b) suspected or presumed fraud or irregularity or
material defect identified in the internal audit and
compliance process or in the financial statements;
(c) suspected infringement of laws, regulatory
compliances including securities related laws, rules
and regulations; and
(d) any other matter which the Audit Committee
deems necessary shall be disclosed to the Board
immediately;
 evsjv‡`k †M‡RU, AwZwi³, Ryb 10, 2018 6887

(b) Reporting to the Authorities

If the Audit Committee has reported to the Board about

anything which has material impact on the financial condition
and results of operation and has discussed with the Board and
the management that any rectification is necessary and if the
Audit Committee finds that such rectification has been
unreasonably ignored, the Audit Committee shall report such
finding to the Commission, upon reporting of such matters to
the Board for three times or completion of a period of 6 (six)
months from the date of first reporting to the Board, whichever
is earlier.

(7) Reporting to the Shareholders and General Investors

Report on activities carried out by the Audit Committee, including

any report made to the Board under condition No. 5(6)(a)(ii) above
during the year, shall be signed by the Chairperson of the Audit
Committee and disclosed in the annual report of the issuer
company.

6. Nomination and Remuneration Committee (NRC).


(1) Responsibility to the Board of Directors
(a) The company shall have a Nomination and Remuneration
Committee (NRC) as a sub-committee of the Board;

(b) The NRC shall assist the Board in formulation of the nomination
criteria or policy for determining qualifications, positive
attributes, experiences and independence of directors and top
level executive as well as a policy for formal process of
considering remuneration of directors, top level executive;

(c) The Terms of Reference (ToR) of the NRC shall be clearly set
forth in writing covering the areas stated at the condition No.
6(5)(b).
6888 evsjv‡`k †M‡RU, AwZwi³, Ryb 10, 2018

(2) Constitution of the NRC

(a) The Committee shall comprise of at least three members

including an independent director;

(b) All members of the Committee shall be non-executive

directors;

(c) Members of the Committee shall be nominated and appointed

by the Board;

(d) The Board shall have authority to remove and appoint any
member of the Committee;

(e) In case of death, resignation, disqualification, or removal of

any member of the Committee or in any other cases of
vacancies, the board shall fill the vacancy within 180 (one
hundred eighty) days of occurring such vacancy in the
Committee;

(f) The Chairperson of the Committee may appoint or co-opt any

external expert and/or member(s) of staff to the Committee as
advisor who shall be non-voting member, if the Chairperson
feels that advice or suggestion from such external expert
and/or member(s) of staff shall be required or valuable for the
Committee;

(g) The company secretary shall act as the secretary of the

Committee;

(h) The quorum of the NRC meeting shall not constitute without
attendance of at least an independent director;

(i) No member of the NRC shall receive, either directly or

indirectly, any remuneration for any advisory or consultancy
role or otherwise, other than Director’s fees or honorarium
from the company.
6890 evsjv‡`k †M‡RU, AwZwi³, Ryb 10, 2018

(5) Role of the NRC

(a) NRC shall be independent and responsible or accountable to the
Board and to the shareholders;
(b) NRC shall oversee, among others, the following matters and
make report with recommendation to the Board:

(i) formulating the criteria for determining qualifications,

positive attributes and independence of a director and
recommend a policy to the Board, relating to the
remuneration of the directors, top level executive,
considering the following:

(a) the level and composition of remuneration is

reasonable and sufficient to attract, retain and
motivate suitable directors to run the company
successfully;

(b) the relationship of remuneration to performance is

clear and meets appropriate performance
benchmarks; and

(c) remuneration to directors, top level executive

involves a balance between fixed and incentive
pay reflecting short and long-term performance
objectives appropriate to the working of the
company and its goals;

(ii) devising a policy on Board’s diversity taking into

consideration age, gender, experience, ethnicity,
educational background and nationality;

(iii) identifying persons who are qualified to become

directors and who may be appointed in top level
executive position in accordance with the criteria laid
down, and recommend their appointment and removal
to the Board;