11

Rights & Powers ofRights & Powers ofShareholders & DirectorsShareholders & Directors

22

Powers of DirectorsPowers of Directors

Sources of PowerSources of Power By and large, absolute powers vest in the By and large, absolute powers vest in the

directorsdirectors The issue of collective and individual powersThe issue of collective and individual powers

Executive DirectorsExecutive Directors Non-executive DirectorsNon-executive Directors Members of Board CommitteesMembers of Board Committees

33

Sources of PowerSources of Power

Companies ActCompanies Act Table ATable A

Articles of Association of the Co.Articles of Association of the Co. Special Resolution of AGMSpecial Resolution of AGM Practice in the business worldPractice in the business world

44

Borrowing PowersBorrowing Powers

How much can a Board borrow?How much can a Board borrow? Is it only a lenders’ problem, or should the Is it only a lenders’ problem, or should the

other stakeholders also have a say?other stakeholders also have a say? Regulatory constraints on lenders (e.g. Regulatory constraints on lenders (e.g.

Prudential Regulations of SBP)Prudential Regulations of SBP) What if the company borrows from non-formal What if the company borrows from non-formal

sector?sector? Tax implicationsTax implications

55

Duties of DirectorsDuties of Directors

To act in the best interest of the companyTo act in the best interest of the company Accountability to ownersAccountability to owners Statutory duties Statutory duties Care and Skill DutyCare and Skill Duty

66

Statutory DutiesStatutory Duties

Keep minutes of their meetingsKeep minutes of their meetings Deliver a copy of Annual report and accounts Deliver a copy of Annual report and accounts

to SECPto SECP Maintain proper booksMaintain proper books File all periodic returnsFile all periodic returns

Fiduciary duties (Trustee)Fiduciary duties (Trustee) To take due care and diligenceTo take due care and diligence Other duties under Stock Exchange RulesOther duties under Stock Exchange Rules

77

Test of Fiduciary DutyTest of Fiduciary Duty

Transactions should be reasonably incidental Transactions should be reasonably incidental to the business of the company.to the business of the company.

Transactions should be bona-fide (good faith)Transactions should be bona-fide (good faith) Transactions should be for the benefit of the Transactions should be for the benefit of the

company.company. No conflict of interestNo conflict of interest

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Skill & Care DutySkill & Care Duty

Do not agree to be a director if you are not fit Do not agree to be a director if you are not fit to be a director.to be a director.

Must have necessary knowledge, skill and Must have necessary knowledge, skill and background / experience that is reasonably background / experience that is reasonably expected of a director of a particular company.expected of a director of a particular company.

Should exercise the degree of care, caution Should exercise the degree of care, caution and skill that can reasonably be expected from and skill that can reasonably be expected from them as directors.them as directors.

99

Delegation of DutiesDelegation of Duties

Law permits delegationLaw permits delegation But does the responsibility remain with But does the responsibility remain with

directors? (Governance Issue)directors? (Governance Issue) Issues in Delegation:Issues in Delegation:

Was it properly delegated.Was it properly delegated. Was it properly supervised.Was it properly supervised. The system of oversight and accountability over The system of oversight and accountability over

delegates.delegates.

1010

Care & Skill by NEDsCare & Skill by NEDs

Pak law does not differentiate between EDs Pak law does not differentiate between EDs and NEDs – as yet.and NEDs – as yet.

If NEDs are paid (as in West), a letter of If NEDs are paid (as in West), a letter of appointment should define extent and nature appointment should define extent and nature of duties and responsibilities.of duties and responsibilities.

NEDs should have access to all they need to NEDs should have access to all they need to perform their tasksperform their tasks

1111

Directors’ LiabilityDirectors’ Liability

Only if they are proved to be negligent, or a Only if they are proved to be negligent, or a willful party to fraud.willful party to fraud.

If not negligent or willful party to a fraud, If not negligent or willful party to a fraud, directors are generally covered by the directors are generally covered by the company.company.

Companies may obtain insurance:Companies may obtain insurance: For liability of directorsFor liability of directors For losses arising from directorsFor losses arising from directors

1212

Dealings with DirectorsDealings with Directors

All deals must be fairAll deals must be fair No loans to directors or connected personsNo loans to directors or connected persons Disclosure of conflict of interestDisclosure of conflict of interest Prevention of misuse of informationPrevention of misuse of information As a rule, all substantial transactions should be As a rule, all substantial transactions should be

presented to shareholders.presented to shareholders. Related party transaction disclosureRelated party transaction disclosure

1313

Directors duties to Stakeholders Directors duties to Stakeholders other than shareholdersother than shareholders

EmployeesEmployees Except for explicit reasons, directors have no Except for explicit reasons, directors have no

duty to outsiders.duty to outsiders. Irregular contracts may be binding on the Irregular contracts may be binding on the

company if outsider acts in good faith.company if outsider acts in good faith.

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Other Issues re directorsOther Issues re directors

Notification to company of interestsNotification to company of interests Register of directors’ interests Register of directors’ interests Dealing in company’s shares?Dealing in company’s shares? Market AbuseMarket Abuse Insider TradingInsider Trading Moral CodeMoral Code Disqualification Disqualification

1515

Types of DirectorsTypes of Directors

Executive / Non-executiveExecutive / Non-executive De facto directorDe facto director Shadow directorShadow director Alternate directorAlternate director

1616

Shareholders’ PowersShareholders’ Powers

Voting powerVoting power Cumulative voting rightsCumulative voting rights Matters covered by voting:Matters covered by voting:

Election /removal of directorsElection /removal of directors Proxy: use of proxy votesProxy: use of proxy votes Rights issue of sharesRights issue of shares