Corporate Governance In

Al Ahli Bank of Kuwait (ABK)

Corporate Governance in Al Ahli Bank of Kuwait

Effective Corporate Governance underlines a set of relationships between the Bank’s

management, its Board, and its stakeholders. It also provides the structure through which the

objectives of the Bank are set, the means of attaining those objectives and monitoring the

performance. A well established Corporate Governance framework facilitates the Bank in better

understanding, planning and executing activities in response to the challenges and risks arising

from the rapidly changing regulatory, market, financial, and business pressures.

In this context, the Ahli Bank of Kuwait (“ABK”) adopts the definition of Corporate Governance

set out by the Central Bank of Kuwait (CBK), as outlined below:

“A set of systems, organizational structure and operations that attain institutional control as per

global standards and principles through determining the responsibilities and duties of the Board

of Directors and the senior management of a company taking into account protection of

shareholders and relevant stakeholders right.”

Corporate Governance standards articulated in this document encompass the governance and

oversight of the Bank by the Board of Directors within the powers stipulated in the articles of

association and other applicable laws, and the management of the Bank by senior management

within the delegated powers to them.

It establishes the guidelines for the overall Corporate Governance framework to be followed in

the Bank on a consolidated basis including its overseas operations and subsidiaries in line with

the governance practices articulated in the Memorandum of Association of the Bank, Articles of

Association of the Bank and the regulations provided by the Central Bank of Kuwait (“CBK”),

Capital Market Authority (“CMA”) as well as other leading industry practices.

Corporate Governance Framework

Corporate Governance should embrace the structure through which the institution can define

its objectives, the means of achieving these objectives, the supervision of performance, and the

appropriate stimulation of the Board of Directors and senior management to pursue the

targeted objectives to the benefit of the company, its shareholders & stakeholders, all within the

context of appropriate structure, policies & procedures, control environment and transparency,

that facilitate efficient supervision and encourage institutions to more effectively use their

resources.

The bank’s corporate governance framework has been depicted below:

In this regards, the Bank has established its Corporate Governance Office which is an

independent and centralized function with direct reporting line to the Board Secretary. CGO is

responsible for the administration and implementation of the Corporate Governance Standards

and for the quality and timeliness of disclosure of information with external parties (CBK, CMA,

KSE, etc.) with close coordination with the Disclosure Unit, Compliance Unit and other divisions

of the bank.

Shareholders

Board of Directors

Executive Management

Elect

Guide and oversee

Represent and report

Report

Rep

ort

Tra

nsp

are

ntl

y

Pro

vid

e

Cap

ital

Regulators

Cu

sto

mers

External Auditors

Th

e P

ub

lic

Social

Responsibility

Service &

Protection

Compliance

Financial Reporting

Board Matters

The key to good Corporate Governance is an effectively functioning and a well informed Board

of Directors. The Board should have a diverse mix of Non-Executive Directors (NEDS) who

understand their dual role of appreciating the issues put forward by the management and of

honestly discharging their fiduciary responsibilities towards ABK’s shareholders as well as

other stakeholders.

In order to help shareholders understand the roles and responsibilities of the Board of

Directors and ABK’s governance practices, the following is a description of the Bank’s Corporate

Governance principles and practices. The Board shall review these principles and practices at

regular intervals and shall be supported by the Board Corporate Governance Committee

(‘BCGC’) in this endeavour.

Roles and responsibilities of the Board

The Board has overall responsibility for the Bank, including approving and overseeing the

implementation of the Bank’s strategic objectives, risk strategy, corporate governance and

corporate values. The Board is also responsible for providing oversight of Senior Management.

Generally, the Board carries the following responsibilities:

The Board is responsible towards shareholders for creating and delivering sustainable

shareholder value through the management of the Bank’s businesses. It will therefore

determine the strategic objectives and policies of the Bank to deliver such long-term value,

providing overall strategic direction within a framework of rewards, incentives and

controls. The Board will also ensure that management of the Bank (‘senior management’)

strikes an appropriate balance between promoting long-term growth and delivering on

short-term objectives vis-à-vis the risk appetite and risk profile of the bank.

The Board of Director has the overall responsibility of ensuring sound standards of

Corporate Governance in terms of Board practices, senior management functioning, risk

management & internal controls, compensation, organization structure and disclosures &

transparency.

The Board, in order to be effective, will demonstrate ethical leadership and promote the

Bank’s collective vision of the Bank’s purpose, values, culture and behaviors. Directors must

act in a way they consider, in good faith, and that would promote the success of the Bank for

the benefit of the shareholders and at the same time protecting the rights of other

stakeholders.

Board Structure

The constitution of the Board will be governed by ABK’s Memorandum & Article of Association

of the Bank and their nomination including the Non-Executive Directors would be selected and

approved by the Shareholders of the Bank.

Board Composition

The Board must ensure that collectively it has sufficient expertise to understand and decide on

the important issues relating to the operations, risks and controls of the Bank. Therefore, the

Chairman, in coordination with BNRC must periodically assess its composition and size and,

where appropriate, reconstitute itself and its Committees by selecting new members.

Chairman of the Board

The Chairman of the Board (“Chairman”) is pivotal in creating the conditions for overall Board

and individual Director’s effectiveness, both inside and outside the boardroom. It is the policy of

ABK that the roles of the Chairman and CEO should be separated and in any event the Chairman

should not be the same as the CEO.

Board Committees

The Board Committee (the “Committee”) is a committee of the Board of the Bank and is

responsible for overseeing the management and business affairs of the Bank and making

recommendations to the BOD on all major policy decisions of the Bank as mandated by its

Charter.

The Board shall initially have the following Board-level Committees:

Board Risk Committee (BRC);

Board Audit Committee (BAC);

Board Credit & Investment Committee (BC&IC);

Board Nomination and Remuneration Committee (BNRC); and

Board Corporate Governance Committee (BCGC).

The details of constitution and memberships, attendance and frequency, roles and

responsibilities and the reporting procedures have been individually discussed for each of these

committees in their respective charters.

Qualifications of Board Members

Collectively, the Board should have adequate knowledge and experience relevant to key

financial activities including financing, accounting, lending and banking operations, strategic

planning, governance, risk management, internal controls, and bank’s bylaws. The Board should

also have a reasonable understanding of local, regional and global economic updates, as well as

the regulatory and supervisory environment.

The Bank will provide its Board with necessary training programs to enable them to enhance

their skills and awareness.

Board Effectiveness Review

The Board, in coordination with BNRC, will conduct an annual effectiveness review in order to

evaluate the performance of the Board, Board Committees and individual Directors. The Board

shall report to the shareholders, at each annual shareholder meeting, that the evaluations of the

Board and Committees have been performed

Corporate Values, Conflict of Interest & Group Structure

Code of Ethics and Business Conduct

The Board will take the lead in establishing the “tone at the top” and in setting professional

standards and corporate values that promote integrity for itself, senior management and

other employees.

The Board will make sure that the Bank maintains high integrity in practicing its business,

will articulate acceptable and unacceptable behaviors and disallows behavior that could

result in the Bank engaging in any improper or illegal activity, such as financial

misreporting, money laundering, fraud, insider trading, breach of confidentiality, bribery or

corruption.

The Board will manage and monitor the potential conflict, including related party

transactions, between the interests of the institution, the Board members and the

shareholders, including the abuse of the institution’s resources and any misuse of powers in

the transactions between the institution and the Board members.

The Board has articulated the same through the following code/policies of the bank:

Code of Conduct for Board of Directors;

Work Ethics & Code of Conduct for Employees;

Conflict of Interest Policy;

Related Party Transaction Policy; and

Confidentiality Policy.

Group structure

The Board at the group level will exercise adequate oversight over the subsidiaries and

ensure they meet the governance requirements. In this regard, the Board should ensure that

enough resources are available for each subsidiary to meet the requirements of the

Corporate Governance standards issued by the Bank and the local regulatory authorities.

The Board has established a governance structure which contributes to the effective

oversight of subsidiaries and takes into account the nature, scale and complexity of the

different risks to which the Bank and its subsidiaries are exposed to.

Organisation Structure

In its revised organization structure, the Board has ensured that the Bank’s organizational

structure facilitates effective decision making and good governance. This includes ensuring that

lines of responsibility and accountability, which define clearly the key responsibilities and

authorities of the Board itself, as well as of Senior Management and those responsible for the

control functions, are set and enforced throughout the organization.

Accordingly, the Bank has developed its Delegation of Authority (DOA) document, along with

each policy, to strengthen its governance process. This document defines the roles,

responsibilities and accountabilities at all levels. Any changes or amendments to the policy &

DOA should be reviewed and approved the Board.

Management Level Committees

The Bank has established management committees that meet on a regular basis to provide a

forum for key decision making

Each management level committee has been assigned with specific responsibilities. The

various management committee has been outlined below:

Risk Committee;

Executive Committee;

Credit Committee;

Investment Committee;

Strategic Plan Steering Committee;

STAR Plan Supervisory Committee;

Fund Supervisory Committee; and

Asset & Liability Committee.

Risk Management & Internal Controls

The Board will periodically ensure the adequacy and efficiency of the internal control system

required to protect the institution’s properties and assets, the correctness of its financial data

and the efficiency of its operations in terms of administrative, financial and accounting aspects,

while ensuring compliance with such internal controls and ascertaining that such controls

provide the necessary protection for the institution against any illegitimate interference from

within or outside the Bank.

The Board has articulated the same through the following policies/framework of the Bank:

Board Audit Committee Charter;

Board Risk Committee Charter;

Risk Frameworks of the bank;

IAD Manual & Procedures;

Whistle Blowing Policy;

Role of CRO & CIA.

In addition to this, the Bank has established an effective and independent internal audit and risk

management function. In this regards, the Board shall ensure that the scope, procedures and

frequency of audits are consistent with the risk profile to which the Bank’s different activities

are exposed to. Also, the BRC will review and approve scenarios that are used in the Bank’s risk

analysis and be made aware of assumptions and potential shortcomings embedded in the

Bank’s risk models.

Risk Management Division (RMD)

The ultimate responsibility for the oversight of the RMD lies with the Board and BRC.

The Risk Management Function is headed by the CRO/Head of Risk Management and is

supported by Risk Officers. The Risk Management Function is responsible for identifying,

measuring, monitoring, controlling, mitigating risks and reporting on risk exposures. This

should take into account the extent to which risks overlap (e.g. lines between market and credit

risk and between credit and operational risk are increasingly blurred).

CRO Role and Responsibilities

The role of the CRO will be distinct from business line, without any financial responsibilities, so

that his/her judgment stays independent while reporting the Bank’s overall risk profile to the

Board and BRC. There should be regular interaction between the CRO and the BRC or the Board.

The CRO should meet BRC members in the absence of Senior Management.

The CRO will have the overall responsibility of the risk management function and the risk

management framework across the entire organization. The Board shall entrust CRO with the

authority to influence decisions that affect the Bank’s exposure to risks. In this regard, CRO can

conduct discussion with senior management to obtain their view on these decisions.

The CRO will report to the Chairman of the BRC and have direct access to the Board and all the

members of BRC.

Internal Audit Department (IAD)

The Internal Audit Department is primarily responsible for evaluating the adequacy and

effectiveness of the Bank’s internal controls and ensuring compliance with policies, procedures

and regulatory requirements. The Bank’s internal auditors should not be assigned with any

executive responsibilities to maintain their independence.

Whistle blowing Policy

In line with CBK’s requirements, the Bank has developed a Whistle Blowing Policy document

which sets out the guidelines and procedures to enable the Bank’s employees to contact the

Chairman to communicate their concerns regarding any potential violations and to allow

independent investigation and monitoring of these concerns.

The main objective of the policy is to encourage and enable employees to raise serious concerns

within the Bank by offering a reporting and investigation mechanism that is objective,

confidential and independent, and to provide adequate protection of such employees in order to

give them enough assurance that they will not be subject to any threats or penalties in case

these concerns are not proved correct.

The policy shall be reviewed periodically by the BRC and any amendments shall be approved by

the Board. The IAD is responsible for monitoring the implementation of these procedures.

External Auditors

The Bank shall comply with the CBK, CMA regulations related to External Auditors including:

Independence & Objectivity of External Auditors including allowable services;

Setting Standards for Dual Audit Basis; and

Rotation of External Auditors.

The Board has articulated the same in the Board Audit Committee charter and Corporate

Governance policy of the bank.

Moreover, in line with the good governance standards, the BAC shall meet with the external

auditors, at least once a year, without the presence of the Senior Management.

Remunerations Systems and Policy

The Board will be ultimately responsible for promoting effective governance and sound

practices of the financial remuneration system. The Board will actively oversee the

remuneration system’s design and operation, and will monitor and review the compensation

system to ensure prudent risk taking and to achieve the Bank’s strategic and business

objectives. In this regards, the bank has formed Board Nomination & Remuneration Committee

and appropriate Management Committees to address compensation matters.

In its remuneration policy, the bank has articulated the standards issued by CBK on

remuneration including aligning an employee’s compensation with prudent risk taking and

adjusting their compensation for all types of risk to ensure compensation outcomes will be

symmetric with risk outcomes and that the payout schedules will be sensitive to the time

horizon of risks by having a mix of cash and deferred rewards, including claw back/malus

provisions and prevention of distribution during non-profit years.

Moreover, the Bank will disclose the remuneration requirements as stipulated in the CBK

guidelines. The same has been articulated in the Bank’s Disclosure and Transparency policy.

Disclosure and Transparency

The Bank is committed to providing timely, consistent and accurate information to its

stakeholders that are fair, transparent, comprehensive and timely and reflect the character of

the Bank and the nature, complexity and risks inherent in the Bank's business activities and are

consistent with CBK, CMA and any other legal & regulatory requirements.

In line with the same, the Bank has developed the disclosure and transparency policy to cover

all relevant and critical information required to be disclosed, at the proper time and manner

provided for by law, legislations as well as CBK, CMA or any other relevant instructions. The

policy contains the details of the Bank’s disclosures including financial and non-financial

disclosures, disclosure requirements and the Bank’s adopted disclosure framework. In addition,

the document covers policies for internal communication and the corporate social

responsibilities.

Moreover, the Bank has also has established a centralized disclosure unit, for organizing the

disclosure process, with direct reporting to the Board Secretary. This unit shall be responsible

for providing timely, consistent and accurate information to its stakeholders including CBK,

CMA and ensuring that the Bank is compliant with the regulatory disclosure requirements.

Complex Corporate Structure

In line with the CBK regulations, the Bank will promote effective governance of its group and

will avoid unnecessary complex structures. Towards this, the Board has centralized procedures,

in place, for approving and monitoring the incorporation of new legal entities under specific

criteria including ability to supervise and fulfill the requirement necessary for the continuity of

each unit.

The Board will ensure that the products and their relevant risks are assessed by each entity in

the group, so as to manage the risks of the group as a whole and control the same effectively.

Moreover, to enhance the group’s sound governance, the Board will ensure that the internal

audit of the group’s individual entities are supported by means of, at least, semiannual

assessment of the risks associated with the group’s structure.

The Board has articulated the CBK regulations on Complex Corporate Structure in its Corporate

Governance Policy.

Protection of Shareholders & Stakeholders rights

The Corporate Governance framework should recognize the rights of shareholders and

stakeholders established by law or through mutual agreements and encourage active co-

operation between corporations and stakeholders in creating wealth, jobs, and the

sustainability of financially sound enterprises. (Reference: OECD Principles of Corporate

Governance, 2004)

In this regards, the Bank will protect and abide by the rights of stakeholders established under

relevant laws, regulations and instructions. Moreover, the Board will be responsible for setting

the tone and culture of the Bank and overseeing the compliance with the code including the

management of stakeholder requirements, while the CEO and other executive officers are

responsible for establishing effective communication with the Bank's stakeholders, including

shareholders, customers, communities, employees, suppliers, creditors, governments and

corporate partners.

The Bank is always keen to address customers’ concerns and complaints. Towards this, the

bank has set up a dedicated Complaints Unit, with a direct reporting to the CEO of the Bank, for

addressing the customer’s complaints promptly and satisfactorily.

The Bank has articulated the regulations issued by CBK on Protection of Shareholders &

Stakeholders rights in the following policy of the bank:

Corporate Governance Policy;

Customer Confidentiality Policy and;

Stakeholder Protection Policy.

The policy discusses about the Bank’s initiatives to protect customer confidentiality, minimize

mis-selling to the customers, appraising them about key risks associated with a product and

disclosing substantial information to investors for taking informed decisions etc.