The MALAWI CODE II€¦ · Corporate Governance Sector Guidelines for Incorporated MSMEs – 14th...

National Corporate Governance Review Committee (NCGRC)

The MALAWI CODE II

CODE OF BEST PRACTICE FOR

CORPORATE GOVERNANCE IN MALAWI

Corporate Governance Sector Guidelines

for incorporated MSMEs

Officially launched on 14th

June 2011

Enhancing the success and sustainability of

Micro, Small and Medium Enterprises (MSMEs)

through good corporate governance.

Corporate Governance Sector Guidelines for Incorporated MSMEs – 14th June 2011 Page 2 / 33

The implementation of the Corporate Governance Action Plan for

Malawi, in response to the Report on the Observance of Standards

and Codes (ROSC) carried out by the World Bank Group in 2007, is

funded by the Government of Flanders.

These Sector Guidelines are published by the Institute of Directors. Blantyre, June 2011

Copyleft The IOD of Malawi, as custodian of the Malawi Code II, allows and encourages the free reproduction, copying, and use of the text, concepts and ideas developed for and used in the Malawi Code II and in these Sector Guidelines. All such use is however subject to the condition that any derived use or adaptation remains freely available under the same conditions.


TABLE OF CONTENTS

INTRODUCTION ................................................................................................................................................... 4

ACKNOWLEDGEMENTS ....................................................................................................................................... 9

DEFINITIONS ..................................................................................................................................................... 10

1. COMPLIANCE WITH THE CODE ...................................................................................................................... 12

2. OWNERS ........................................................................................................................................................ 13

3. BOARD STRUCTURE ....................................................................................................................................... 15

4.THE ROLE OF THE BOARD ............................................................................................................................... 17

5. BOARD EVALUATION ..................................................................................................................................... 21

6. BOARD SUB-COMMITTEES............................................................................................................................. 21

7. THE CHAIRMAN ............................................................................................................................................. 22

8. MEMBERS OF THE BOARD ............................................................................................................................. 23

9. NON-EXECUTIVE MEMBERS OF THE BOARD .................................................................................................. 24

10. APPOINTMENT OF MEMBERS OF THE BOARD ............................................................................................. 25

11. REMUNERATION OF MEMBERS OF THE BOARD ........................................................................................... 26

12. TRAINING AND DEVELOPMENT OF MEMBERS OF THE BOARD .................................................................... 27

13. THE COMPANY SECRETARY .......................................................................................................................... 28

14. RELATED PARTY TRANSACTIONS ................................................................................................................. 29

15. RISK MANAGEMENT AND INTERNAL CONTROLS ......................................................................................... 30

16. ETHICS ......................................................................................................................................................... 31

17. GOOD CITIZENSHIP ...................................................................................................................................... 31

18. SUSTAINABILITY .......................................................................................................................................... 32

19. EXTERNAL COMMUNICATIONS .................................................................................................................... 32

20. INTEGRATED REPORTING AND AUDITING .................................................................................................... 33


INTRODUCTION

Corporate Governance for incorporated MSMEs (Micro, Small and Medium Enterprises) aims at

establishing a framework of business processes and attitudes that add value to the business,

help build its reputation and ensure its long-term continuity and success. Corporate Governance

is essential for helping incorporated MSMEs in graduating through different stages of business

development.

Therefore these sector guidelines provide a flexible and dynamic guidance on how to apply corporate

governance principles and good practices in incorporated MSMEs in Malawi.

Specific Corporate Governance benefits and challenges for MSMEs.

Continuity of business, access to funding, appropriate management of risks, capacity to make best use

of emerging business opportunities, distinction between the entrepreneur‟s assets and his business

assets, etc. are issues of crucial importance for MSMEs that might benefit greatly from appropriate

corporate governance.

Many MSMEs are owned and controlled by single individuals or coalitions of individuals (e.g. a family).

In many cases, owners continue to play a significant direct role in management. Good governance in

this context is mainly about establishing a framework of business processes and attitudes that add

value to the business, help build its reputation and ensure its long-term continuity and success.1

In addition, good corporate governance is particularly important to the minority owners of MSMEs in

exercising their minority rights, as they have limited ability to sell their ownership stakes, and are

therefore committed to staying with the company for the medium to long term.

In an environment of mounting societal scrutiny towards the business world, even MSMEs may benefit

from devoting attention to fulfilling their corporate responsibilities towards their stakeholders. This may

strengthen their capacity to benefit from emerging business opportunities and/or to qualify as service

providers and/or subcontractors for larger organisations.

An effective governance framework defines roles, responsibilities and an agreed distribution of power

amongst owners, the board, management and other stakeholders. Especially in smaller companies it is

important to recognise that the company is not an extension of the personal property of the owner.

Corporate governance guidelines for MSMEs within the framework of the Malawi Code II.

MSMEs and MSME development are of crucial importance for socio-economic development;

MSMEs make a major contribution to economic growth, employment and development. Nonetheless, for

many years, the corporate governance needs of MSMEs have been rather neglected by governance

experts as well as by policy-makers.

However the new Malawi Code II, launched on 1st June 2010 by the National Corporate Governance

Review Committee (NCGRC), was designed in such a way that its overarching provisions are also

relevant for incorporated MSMEs in Malawi.

When reviewing the first Malawi Code, published in 2001, the “National Corporate Governance Review

Committee” (NCGRC) decided that the Malawi Code II would comprise a set of Overarching Provisions

(OPs) that would apply to all organisations in Malawi, not just the large incorporated entities. The OPs

should be appealing and applicable to all types of organisations in Malawi; this, however, does not imply

1 Issues with respect to protecting the interests of absentee shareholders and/or the relationship between boards

and external shareholders, that are essential for corporate governance of listed companies, are generally less

important in corporate governance for MSMEs.


that these OPs should be vague or sketchy. On the contrary, they are as concrete and as detailed as

possible; while still remaining applicable to all types of organisations in Malawi.

These Corporate Governance Sector Guidelines for incorporated MSMEs provide interpretation, best

practices and additional guidance for implementation of the Malawi Code II by incorporated MSMEs in

Malawi. While drawing upon and being inspired by international best practices2 with respect to corporate

governance for MSMEs, these sector guidelines have been specifically designed and tailor-made in

order to meet the challenges and needs of incorporated MSMEs in Malawi.

Good Governance is also important and relevant for informal businesses and for registered but not

incorporated MSMEs (such as sole traders). The provisions of these guidelines would, however, be too

comprehensive and insufficiently adapted to the realities of informal businesses and registered but not

incorporated MSMEs in Malawi. While incorporated MSMEs are governed by common law, in addition

to the Companies Act, the premise of such implied law, on which many provisions of the Malawi Code II

are based, does not apply to the informal (unincorporated) sector. Trying to apply all the terms of the

Malawi Code II would require too lengthy explanations on different relationships, etc. The NCGRC and

the IOD have therefore decided to developed another set of guidelines providing simple basic

governance principles that fit the needs of registered but not incorporated MSMEs in Malawi.

Corporate Governance for MSMEs in a dynamic perspective.

With these guidelines, the principles of good governance are presented on the basis of a dynamic

phased approach, which takes into account the degree of openness, size, complexity and level of

maturity of individual MSMEs. A dynamic approach towards governance is essential, since governance

frameworks must evolve over the life cycle of a business.

Good corporate governance may start with simple basic principles applied by informal micro

businesses and small companies. Such principles are viewed as broadly universal in their

application, they add value to the business and do not necessarily require the creation of

bureaucratic or costly governance procedures.

As companies grow, the good governance practices may evolve into more elaborated governance

frameworks, adapted to the different stages of company development.

These sector guidelines attempt to avoid undue governance burdens that would not be in proportion

to the resources and governance needs of different / early stages of company development.

Corporate governance of MSMEs is ultimately concerned with the decision-making processes,

procedures and attitudes that assist the company in achieving its objectives. It is the framework

within which decisions are made and power exercised. An effective governance framework also

establishes stable, accepted and productive relationships between owners, the board, management,

and other stakeholders. Consequently, as the business is growing and as it seeks to improve the

professionalism and sustainability of its activities, it needs to give greater thought to issues of

governance.

2 Such as the “Corporate Governance Guidance and Principles for Unlisted Companies in Europe”, an initiative of

ecoDa – www.ecoda.org.


Corporate Governance for MSMEs evolving beyond dependence on their founding

entrepreneurs.

There are particular governance needs if an MSME wishes to shift away from dependence on the

unique contribution of the founding entrepreneur. Although the ability and dynamism of one individual

may have been instrumental in establishing the company, this is unlikely to be sustainable in the longer

term. As the company grows in size and maturity, or outlives the interest or working life of the founder,

governance processes must be established to ensure continuity and success beyond the efforts of one

person. Indeed, the development of effective governance processes may lift a significant burden from

the founder, facilitate a swift succession and allow access to a wider pool of expertise and know-how.

The result may be improved leadership, decision-making and strategic vision.

Corporate Governance and family business.

Most family businesses are MSMEs. However, international research shows that family businesses

have a short lifespan beyond the generation of the founding entrepreneur. Very few survive into the third

generation of ownership. Family businesses can improve their odds of survival by setting the right

governance structures in place and by starting the educational process of the subsequent generations

as soon as possible. Many founding-entrepreneurs or chairs of family companies find it difficult to

differentiate their decision making between family matters (continuity, valuation, liquidity, transmission,

dividends, etc) and corporate matters (operation-related decisions). When the company is still under the

control of the founding entrepreneur, few family governance issues may be apparent. However, over

time and several generations, the family is likely to increase in size and complexity. Family members

may develop different preferences for the business. For example, a decision to reinvest profits in the

company instead of distributing them as dividends may be supported by an owner-manager but

opposed by a retired family member who relies on dividends as a main source of income.

A further problem for larger families is that members who work in the business have greater access to

information than those who are not directly involved in the business. In such circumstances, it becomes

desirable to establish family governance structures that establish a level playing field for company

information, promote discipline among family members, prevent potential conflicts, and ensure the

continuity of the business.

Pragmatic and flexible corporate governance, well adapted to the governance requirements of

MSMEs, as they evolve during the business life cycle.

The governance principles provide a roadmap for family owners or founder-entrepreneurs as they plan

the development of their companies over the business life cycle. A key step in the development of good

corporate governance, as the business grows and matures, may also be the decision to invite external

directors onto the board. Its potential positive effect on boardroom behaviour and culture should not be

underestimated.

Improved governance may also make it easier to monitor and manage the various risks to which the

MSME is exposed, particularly as it grows in size and complexity. Governance will therefore also

become an increasingly important issue for MSMEs that need new sources of finance, beyond their

primary source of funds such as retained earnings or financing from internal networks, e.g. families or

associated corporate business. MSMEs will profit from clear corporate governance when they turn to

banks, venture capitalists and/or private equity investors in order to finance their expansion and growth.

In particular, the involvement of additional owners in the company – even if the founder retains a

controlling stake – will require governance mechanisms to resolve differences between owners with

potentially diverging agendas. A governance structure that sustains the confidence of internal and

external sources of finance – such as shareholders, banks and other creditors – will contribute to the

long-term success of the firm by securing the commitment of patient capital partners. The reward to the

company of such a governance structure will be more stable financing at lower cost than would

otherwise be available.


Good governance can play a crucial role in gaining the respect and trust of key external stakeholders –

such as actual and potential financiers, employees, customers, and local communities. It effectively

provides a “mandate to operate”, since it offers external stakeholders some assurance that the company

is being run in an appropriate and responsible manner, with due regard for the interests of “non-

insiders”. When the business behaviour does not fulfil the expectations of society, MSME may suffer

significant consequences. Even if the firm is not breaking any formal laws, it may be operationally

affected by the negative perception of (current and potential) employees, customers and/or financiers.

The implementation of a governance framework, well adapted to the type of MSME, is the main means

by which such significant reputational risks can be mitigated.

In contrast with listed companies, MSMEs have greater scope to define (or not define!) their own

governance strategy. This means that MSMEs must themselves reflect on the potential costs and

benefits of various governance approaches. Furthermore, most MSMEs have no access to in-house

support (e.g. legal advisers or company secretarial resources) to assist them in making important

decisions about governance. Determination of the governance framework will largely be a matter for the

owners and members of the Board. They may therefore need extra specialist governance expertise,

relevant reference frameworks as well as tools to assist them in realising the ambition of professional

governance for their companies. These sector guidelines for incorporated MSMEs in Malawi attempt to

address such needs.

Although the governance framework of MSMEs should take into account best practice

principles, it should also be implemented in a manner that is both proportionate and realistic.

Corporate governance is not an end in itself, but a means of adding value and providing

continuity. Given the diversity amongst MSMEs, corporate governance principles should be

applied in a pragmatic and flexible manner, with regard to the individual circumstances of each

company.

Therefore these sector guidelines use the “apply or explain” concept. This concept allows the MSME to

explain why a specific provision of the Malawi Code II or of these sector guidelines cannot be applied in

the current circumstances of its business, thus avoiding any bureaucratic rigidity in the application of the

provisions of these guidelines.

The implementation of a corporate governance framework should also take account of the MSME‟s

objectives concerning its own development. An MSME will generally develop new and more elaborate

governance structures and approaches in anticipation of its next major strategic move or phase in

development or financing structure (e.g.: before succession takes place in a family firm; before

attracting external capital; while preparing for partnerships or joint ventures; because of increasing

complexity in the business portfolio, business environment and/or risk profile; etc.). Such a change in

governance will indicate its readiness to take the next step in its evolution.

MSMEs should exercise prudence in their implementation of these sector guidelines, and ensure that

their response is both proportionate and tailored to the specific needs of their businesses.


Custodian of these Sector Guidelines for incorporated MSMEs.

The MSME sector subcommittee of the NCGRC has asked the IOD to act as the main custodian of

these MSME guidelines.

The IOD will undertake this role in close cooperation with those key organizations and individuals that

will commit themselves to significantly contribute to the promotion of these MSME governance

guidelines and to the monitoring of their application by MSMEs in Malawi. This will include cooperation

with the Government, the SME Division of the Department of Industry & Trade and Government‟s

MSME support institution(s), the Malawi Confederation of Chambers of Commerce and Industry

(MCCCI), representative organizations / associations of MSMEs and other key stakeholders in the

MSME sector.

Together, they will promote and facilitate the creation of incentives for incorporated MSMEs that commit

to apply these guidelines and that demonstrate this through their annual reporting.

A long term effort in communication, education and promotion is required. This will include sensitisation

of training institutions and other providers of business training to include these guidelines in their

training. For communication purposes, a shorter and easier to comprehend text / booklet, with the

essentials of these guidelines but without the technical distinction between the overarching provisions of

the Malawi Code II and the sector-specific provisions, might be developed. This would then also provide

a proper basis for translation and communication in national languages.

As part of its monitoring role, the custodian should produce an annual report on the implementation of

these guidelines. Therefore the custodian shall also promote mechanisms of reporting by key

stakeholders in order to allow an assessment of the extent to which incorporated MSME‟s in Malawi are

committing to and applying these guidelines.

Any concerns over non-compliance with the Malawi Code II and with these guidelines should be

reported to the IOD as a last resort once discussions with the organisation concerned have been

exhausted.


ACKNOWLEDGEMENTS

These “Corporate Governance Sector Guidelines for incorporated MSMEs” were commissioned by the

IOD and the NCGRC in order to provide the necessary interpretation, best practice and specific

requirement for applying the Malawi Code II in Micro, Small and Medium Enterprises in Malawi which

have been incorporated under the Companies Act (1984). These guidelines are the result of the hard

work of many people representing different organizations operating in Malawi.

The IOD would particularly like to thank the following:

The members of the NCGRC‟s Subcommittee for MSMEs :

Mr. Chancellor Kaferapanjira, MCCCI – CEO

Mrs. Grace Amri, MCCCI - Public-Private Dialogue Coordinator

Mr. Dixies Kambauwa, IOD – Executive Director

Mrs. Abigail Suka, Access Events – Managing Director

Mr. George Mwase, Assistant Director, SME Division, Department of Industry & Trade

Mrs. Christina Chithila, Central & East African Railways – Director of Finance and

Administration

Mr. Lackson Kapito, NABW - National Credit Coordinator

Mr. Dan Ghambi, DEMAT – Operations Manager

Mr. Richard Chiputula, MEJN - Director of Programmes

Mr Welford Sabola, Wamkulu Trust / Wamkulu Palace, Managing Director

Those individuals who attended the consultation events on 1st April in Lilongwe and on 5

th April in

Blantyre.

Those who provided written comments as part of the general written consultation between 20th

April and the 12th May 2011.

The members of the IFC Global Corporate Governance Forum‟s Private Sector Advisory Group

(PSAG), who provided feedback on the draft sector guidelines.

The International Finance Corporation (IFC) – Global Corporate Governance Forum (GCGF) for

providing technical advice to the project through the following Consultants:

Mr. Patrick Stoop,

Mrs. Alison Dillon Kibirige.

The members of the National Corporate Governance Review Committee

The IOD staff, particularly Mr. Anthony Kamtimaleka, for providing secretarial support.

Mr. Dixies Kambauwa Mr. John Robson Kamanga

Executive Director Chairman

Institute of Directors in Malawi Institute of Directors in Malawi

Corporate Governance Sector Guidelines for Incorporated MSMEs – 14th June 2011 Page 10 /

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Preliminary Remarks

These Sector Guidelines are presented in a table with two columns.

The left column comprises the general definitions and overarching provisions of the Malawi Code II,

applicable to all types of organisations and sectors in Malawi.

The right column comprises the corresponding sector-specific definitions and provisions for those Micro,

Small and Medium Enterprises (MSMEs) in Malawi which have been incorporated under the

Companies Act (1984). These sector-specific provisions are to be used together with the overarching

provisions of the Malawi Code II.

In addition to the sector-specific provisions, the right column also comprises sector-specific comments,

providing additional explanation and guidance for MSMEs who want to apply best practices in corporate

governance. Such comments are provided in a distinct letter type (italics).

Malawi Code II Sector guidelines

DEFINITIONS

Def. 1. Owners The owners of the organisation shall be understood as those who constitute the supreme authority of the organisation, for example, Government, Shareholders, Holding or Parent organisation, etc. There may be a sole owner of the organisation; the shareholders or the members might exercise their ownership role in the Annual General Meeting (or General Assembly); owners may entrust “trustees” to take on the “ownership role” on their behalf; or there may be another ownership arrangement appropriate to the type of organisation.

OP-Def.1_MSME.1 In the case of incorporated MSMEs,

the owners are the shareholders of the company.

Def. 2. Boards The board, often called board of directors, is a body of elected or appointed members who jointly oversee and direct the affairs of an organization. The body sometimes has a different name, such as board of trustees, board of governors, board of managers, governing board, governing council, board of commissioners, etc. It is often simply referred to as "the board." A board's activities are determined by the powers, duties, and responsibilities delegated to or conferred on it by the owners of the organisation and/or as specified by laws and regulations applicable to the type of organization. While the “Owners” constitute the supreme authority of the organisation, they confer the supreme governing role to the board. The board therefore is the main governing body situated between the Owners and the Executive Management of the organisation.


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Def. 3. Member of the Board A member of the board shall be understood as any individual elected to or appointed as member of the Board (see definition above) e.g. Directors, members of governing councils, etc.

Def. 4. Private, Public and Not for Profit Sectors

Private Sector is that part of the economy which is both run for private profit and is not controlled by the state. It includes family owned businesses, private companies, Micro, Small and Medium Enterprises, as well as the informal sector. Public Sector, sometimes referred to as the state sector, is a part of the state that deals with the production, delivery and allocation of goods and services by and for the government or its citizens, whether national, regional or local/municipal. It includes State Owned Enterprises, Parastatals and Public Authorities or Commissions. Not for Profit Sector is that part of the economy where organizations are not for profit and are not part of the government. This sector is also called the third sector, in reference to the private sector and the public sector, or the Civic sector emphasizing the sector's relationship to civil society. It includes Non-Governmental Organizations, Community Based Organizations and other related organisations.

Additional Definitions of the Sector Guidelines for MSME:

SG-Def_MSME.1 Micro Small and Medium Enterprises (MSMEs):

MSMEs can be distinguished by size.

According to the Malawi Government‟s MSME policy :

Micro Enterprises are defined as: employing 1 to 5 individuals.

Small Enterprises are defined as: employing 6 to 20 individuals.

Medium Enterprises are defined as: employing 21 to 100 individuals.


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1. COMPLIANCE WITH THE CODE

1.1 The Malawi Code II is concerned with the establishment of an environment conducive to enabling organisations to grow, thrive, survive and create sustainable development for Malawi, whilst acting as good corporate citizens.

1.1-MSME.1: MSMEs should enhance their business‟ value on a continuous basis; the underlying aims of corporate governance are to provide an environment for such enhancement.

1.1-MSME.2: MSMEs shall conduct their operations in a sustainable and responsible manner with awareness of their social responsibilities, with transparency and fairness in accordance with the standards applicable to their line of business, while accepting accountability to owners and creditors as well as to the entire community.

1.2 These Overarching Provisions (OPs) should thus be applied in all organisations be they large, medium or small; in the private, public or not for profit sector.

1.2-MSME.1: MSMEs in Malawi should apply the Overarching Provisions (OPs) of the Malawi Code II, as adapted to their type of business.

1.2-MSME.2 MSMEs should also apply other sector specific guidelines on Corporate Governance that may be applicable to their specific line of business (e.g. cooperatives) in Malawi.

1.3 Organisations in their annual or directors‟ reports should state whether the Code has been adhered to or, if not, explain with reasons in what respects it has not been adhered to.

1.3-MSME.1 MSMEs should include within their Directors‟ Reports a simple statement specifying to what extent they have applied the Malawi Code II and these sector guidelines. Such a statement should explain why specific provisions of the OPs/Sector Specific Guidelines, if any, have not been complied with.


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2. OWNERS

The owners of the organisation should:

2.1 Jointly and severally protect, preserve and actively exercise the supreme authority of their organisation.

2.1-MSME.1: In order to allow them to exercise their rights and responsibilities as owners, MSMEs shall respect the basic right of all owners. These basic rights comprise: a) the right to participate in key decision

making processes, including appointments and dismissals of Members of the Board;

b) the basic right to a fair share in any distributions made by the MSME to its owners.

2.2 Ensure that only competent and reliable persons with appropriate knowledge, skills and experience are elected or appointed to the board.

Comments: 2.2-MSME-C1 The origin of authority within an MSME is

with the owners. However, the company may soon reach a point in its development where the owner(s) is (are) no longer able or willing to simultaneously fulfil the roles of owner, director, and manager. At this point, it becomes necessary for the owner(s) to delegate this authority to the board and management.

2.2-MSME-C2 While the same individual may combine the roles of owner and those of the Board, there should still be a clear distinction between those roles. There should be a clear mandate from the owner(s) to those who they appoint as Members of the Board and thus whom they entrust with the strategic responsibilities of the Board.

2.2-MSME-C3 The Companies Act 1984 sets out the rights of the owner(s). These include: Appointment, and dismissal of the

Directors Approval of the final dividend, to be

paid to owners Approval of changes to the purpose of

the company, articles of association / bylaws and/or changes to capital structure.

2.3 Decide the term to be served by non-executive members of the board and ensure that the board is refreshed on a regular basis; bringing new and unbiased viewpoints into discussions and decision-making.


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Comments: 2.3-MSME-C1 Whenever the owner(s) of an MSME

decides to appoint Non-Executive Members of the Board, they should also decide the term to be served by such Non-Executive Members of the Board.

2.4 Foster constructive relationships with the board to facilitate the success and sustainability of the organisation.

2.5 Ensure that the board is constantly held accountable and responsible for the efficient and effective governance of the organisation.

2.5-MSME.1: Whenever entrusting other individuals to exercise the roles of the Board, the owner(s) should make clear that these individuals are accountable and responsible for the efficient and effective governance of the MSME and they should define how those individuals will report to all the owner(s).

2.6 Change the Chairman and/or the composition of a board that does not perform to expectations or in accordance with the mandate of the organisation

2.6-MSME.1: In case of unsatisfactory performance of Members of the Board, the owners shall, where appropriate, change the composition of the Board. They shall then appoint other persons, with the right capacity and trustworthiness, to act as Members of the Board

2.7 Ensure that their organization acts as a good corporate citizen, and in a sustainable manner, taking into consideration, as appropriate, the views of stakeholders.

2.8 Comply with all applicable pieces of legislation.

2.9 Respect the fiduciary duties of the members of the Board.

2.9-MSME.1: The owner(s) of an MSME shall fully respect the fiduciary duties of the members of the Board.

Comments: 2.9-MSME.1-C1 In case of underperformance of the

Board, the owner(s) can and shall take remedial measures – see also provision 2.6 .

2.10 Ensure that the level of remuneration for members of the board and top management is sufficient to attract and retain the quality and calibre of individuals needed to run the organisation successfully.

2.10-MSME.1: Taking into account the characteristics, resources and profitability of the MSME, the owner(s) should make sure that the Members of the Board and/or management receive a fair and motivating remuneration.


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2.11 The majority of Owners and the Members of the Board should appropriately respect the rights of minority Owners. The organisation‟s affairs may not be conducted in a manner which is unfairly prejudicial to the interests of minority Owners and/or to the purpose of the organisation.

2.11-MSME.1: In case MSMEs have minority owners, their

basic rights should be respected by majority owners and management.

3. BOARD STRUCTURE

3.1 The unitary (or one tier) board structure, comprising executive and nonexecutive directors, rather than the dual (or two tier) board structure adopted in some countries, is considered appropriate for Malawi as it provides greater interaction among all board members when dealing with matters such as strategic planning, performance, standards of conduct, resource allocation and communication with stakeholders.

Comments: 3.1-MSME-C1 Under the Companies Act 1984, boards

consist of Directors who have the same duties and liabilities under that Act and related legislation and case law. However, those Directors that are employed i.e. have a contract of employment with the MSME are usually referred to as Executive Directors and those which do not are referred to as Non-Executive Directors.

3.1-MSME-C2 The board structure should, first of all, meet the needs of that particular MSME.


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3.1-MSME-C3 Owner-managers of MSMEs may be uncomfortable about inviting outsiders onto the Board. They may not yet be ready to share sensitive company information and decision making powers with external persons. However, this may result in the Board lacking expertise in a number of key strategic areas, e.g. relating to strategy analysis, marketing, finance, human resources management, or international trade. As a result, it may make sense to appoint advisors to fill the expertise gaps in these areas. Where these advisors meet as a committee, care needs to be taken to ensure that the decision making power remains firmly in the hands of the Board, so as to avoid advisors taking on responsibilities a shadow directors.

To avoid becoming „shadow directors‟ under the Companies Act, advisors to the Board, whether as individuals or as part of an advisory committee, should ensure that their advisory role and responsibilities are stipulated in a contractual relation with the MSME. Unclear situations with de facto responsibilities as “shadow director”, should be avoided.

3.1-MSME-C4 Providers of external finance may insist on non-executive Directors joining the Board.

3.2 While the size of the Board shall be determined by the organisation, and shall vary from organisation to organisation, the size should be such that it ensures that the organisation operates effectively.

Comments: 3.2-MSME-C1 The Board may be dominated by a sole

individual. This may typically be the case for companies directed and managed by a sole or major owner-founder. However, as companies grow, such single person dynamics may entail important governance risks and shortcomings. Aside from the practical difficulties involved in a single person making all the decisions, a lack of appropriate checks and balance exposes the company to human weakness. Even the most capable of individuals can sometimes make mistakes or lose their ability to analyse issues in an objective manner.


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3.2-MSME-C2 Appropriately integrating governance principles such as “delegation of authority”, “checks and balances”, “accountability” and “transparency” may be a particular challenge for owner-managed companies, which are normally established on the basis of the autocratic control of a single individual (or small group of individuals). Building the right checks and balances is therefore a delicate exercise for any developing company and will probably necessitate a “phased” or step-wise approach to align governance needs with the founder/owner‟s willingness to accept external input and/or control.

4.THE ROLE OF THE BOARD

The Board should:

4.1 Ensure that the organisation complies with all relevant laws, regulations and codes, including the Malawi Code II, and, if appropriate, ask executive management to report periodically on such compliance.

4.2 Exercise leadership, enterprise, integrity and sound judgement in directing the organisation; so as to achieve sustainable success for the organisation.

4.3 Determine the organisation‟s mission, values and objectives; ensure that a strategy is in place to achieve these and hold management accountable for its implementation.

4.3-MSME.1: The Board should, in conjunction with

management, provide appropriate strategic guidance to staff.

4.3-MSME.2: MSMEs are encouraged to clearly define

their mission, vision, values and objectives.

4.3-MSME.3: When dealing with matters such as strategic planning, performance, standards of conduct, resource allocation and communication with stakeholders, the Board should involve the management of the MSME.

4.4 Ensure that appropriate procedures and practices, to protect the organisation‟s assets, resources and reputation, are in place and are effective.


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4.4-MSME.1: The Board should ensure that the assets used within the organisation are distinguished between those owned by the organisation and those owned by individuals connected with the organisation, such as owners, members of the Board, etc. To assist with this, the Board should consider keeping an asset register for the organisation, listing the asset owned by the organisation.

4.5 Develop a board charter, based on the organisation‟s Constitution, Articles of Association, and the laws and regulations that apply to the organisation, in which roles and responsibilities are clearly defined.

4.5-MSME.1: The Members of the Board should have a clear understanding of what is expected from them.

4.6 Retain full and effective control over the organisation.

4.7 Ensure that decisions on material matters are in the hands of the Board. The Board should have a definition of materiality on matters such as the acquisition and disposal of assets, investments, capital projects and authority levels. The level or definition of materiality is a matter for each organisation to decide.

4.7-MSME.1: The Board should ensure that material matters, such as the acquisition and disposal of assets, investments, capital projects and authority levels, are in their / his hands. If the managing director has sole responsibility for such matters this role should be clearly delegated to him.

4.8 Define the responsibilities of and requirements for reporting by executive management and monitor their performance.

Comments: 4.8-MSME-C1 The Board should define the

responsibilities of and requirements for reporting by executive management and should monitor their performance.

4.9 Ensure that plans are in place for orderly succession of Members of the Board and of the Chief Executive Officer.

4.9-MSME.1: The board should consider continuity of its MSME.

4.10 Ensure that every member of the board is able to play a full and constructive role in the affairs of the organisation.

4.11 Develop policies and processes to avoid or minimise conflicts of interest.

4.11-MSME.1: The Board shall avoid or minimise conflicts of interest in the running of the MSME.


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4.12 As part of its decision making process, take into consideration wider societal interests and other circumstances affecting how the organisation fulfils its „license to operate‟.

4.13 Ensure that a dialogue, based on mutual understanding of the objectives of the organisation, exists between the Board itself and the owners of the organisation.

Comments: 4.13-MSME-C1 MSMEs may find it useful to structure a

dialogue with those owners, if any, that are not involved in strategically directing and managing the business. An annual meeting may provide a well established mechanism in which to review the activities and performance of the past year, and to discuss the future prospects of the MSME. The relationship and dialogue between the owners and the Board should however be viewed as a continuous process.

4.13-MSME-C2 The Board should communicate the company‟s strategy and risk profile in a way that is both understandable and meaningful for all owners.

4.14 Ensure that it acts in the best interests of the organisation and that in doing so it meets the organisation‟s purpose.

4.15 Meet regularly. Each Board should decide how regularly it needs to meet to discharge its duties, having regard to the organisation‟s own circumstances.

Comments: 4.15-MSME-C1 Whenever several individuals are

entrusted with the roles of the Board, they should decide how they need to meet to discharge their duties.

4.15-MSME-C2 Given the specific leadership role of the Board, it is important to clearly distinguish board meetings from management meetings, even in owner-managed companies.

4.15-MSME-C3 MSMEs should consider having at least four Board meetings per annum, at one of which there should be a discussion on the long term strategy of the business. However, the exact number of meetings required by the Board to fulfil its responsibilities will depend on the specific needs of the organization.

4.15-MSME-C4 Board meeting dates should be fixed in such a way that they facilitate optimum attendance of and contribution by all Members of the Board.


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4.15-MSME-C5 A typical structure for board meetings is as follows: An agenda should be prepared by

the Chairman. The agenda and supporting papers

(if any) should be circulated in advance of the meeting, allowing Members of the Board sufficient time to prepare.

Written minutes of board meetings should be taken. All decisions should be recorded, along with assigned tasks and timescales. The minutes should also give an overview of the main topics discussed at the meeting.

Board meetings should monitor progress against approved plans and budgets, and ensure full coverage of matters reserved for the Board.

As well as promoting better decision-making, a track record of properly documented board meetings is an important indicator of professionalism. Furthermore it is an important legal safeguard for those entrusted with the roles of the Board, and may assist smaller companies in obtaining external financing at a later stage.

4.16 On the appointment and throughout the duration of tenure of its members, ensure that the members are able to devote sufficient time to their responsibilities as members of the Board.

4.17 Ensure that its members have among them the right mix of expertise, experience, skills and knowledge appropriate to the organisation.

4.18 Ensure that it is adequately informed and where necessary invite executive management to clarify and/or provide additional information.

4.19 Ensure that its members are of sufficient calibre to bring independent judgement to bear on issues of strategy, performance, resources, standards of conduct, and evaluation of performance.

4.20 Ensure that the integrated reporting by the organisation is accurate and truthful, at the time of disclosure.

4.20-MSME.1: MSMEs are encouraged to adopt good

practices in reporting and disclosure, appropriate to their type of business.

4.20-MSME.2: It is the duty of the Members of the Board to fully understand the MSME‟s reporting and disclosure obligations and to make sure that these are met.


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4.21 Consider using alternative dispute resolution as a method of resolving disputes arising both within the organisation and between the organisation and other parties. Alternative dispute resolution comprises among others: open communication, win-win arrangements, negotiations, mediation and arbitration.

5. BOARD EVALUATION

5.1 It is good practice for Boards to evaluate annually the mix of skills and experience of their members as well as the board‟s performance and processes. The level of evaluation would depend on the type of organisation. Large organisations may also consider evaluating the Chairman, other Members of the Board, Board Sub-committees and the Chief Executive Officer.

5.1-MSME.1: The Board should annually reflect on and

self-assess its performance and skills in view of past and new developments.

5.2 Organisations should agree in advance the type of evaluation suitable for their organisation and how to measure and report it in the organisation‟s Directors‟ or Annual Report.

5.2-MSME.1: The Board should define how it will conduct

its annual self-assessment.

5.1-MSME.3: If sufficient resources are available to do so, the Board may consider inviting an outsider to facilitate and enrich the self-assessment of its own performance.

6. BOARD SUB-COMMITTEES

6.1 Boards may find it useful to establish board sub-committees to deal with matters that can best be dealt with in a small forum. The number and nature of sub-committees will depend on the type of organisation. All sub-committees when established should be given, in writing, clear Terms of Reference.

6.2 Decisions of each sub-committee should be communicated to the Board as recommendations for its further consideration.


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6.3 When constituting sub-committees, the Board should ensure that the subcommittees‟ members have the appropriate balance of skills, experience, independence and knowledge of the organisation and the sub-committees‟ Terms of Reference to discharge their duties and responsibilities effectively.

Comments: 6.3-MSME-C1 If the Board decides to establish an

Audit Committee, its members shall be financially literate.

6.4 Sub-committees should also be provided with sufficient and appropriate resources to undertake their duties.

7. THE CHAIRMAN

7.1 The Chairman should preferably be non-executive

7.1-MSME.1: When appointing the Members of the board, the owners of a MSME should also consider the advantages of entrusting a “non executive” with the role of “Chairman of the Board”.

7.2 The roles of the Chairman and the Chief Executive Officer should preferably be separate, but where they are combined, it is important that the Chairman encourages proper deliberation of all matters requiring the Board‟s attention and obtains optimum input from all Members of the Board.

7.2-MSME.1: For MSMEs it may be appropriate and beneficial to have a single individual combining the roles of the Chairman of the Board and the Chief Executive. However, in such a case, this person should allow all other Members of the Board to fully contribute in the decision making process. In addition that single person should actively invite and take into account external feedback on the performance of the MSME.

Comments: 7.2-MSME.1-C1 In an owner-managed MSME, it is likely

that a single person will initially fulfil the roles of both chairman and chief executive (or managing director). A separate independent chairman may not be commercially justifiable or be appropriate at that stage of development of the company. However, the person holding both roles should remember that the responsibilities of chairman of the board and of chief executive are distinct, and should be viewed separately.


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7.2-MSME.1-C2 The owner-manager who combines the roles of chairman of the board and chief executive should be well aware of the risks of such combination and actively invite external views and feedback from non-executive members of the board (if any) and/or from external professionals.

7.3 The Chairman should ensure that all Board Members are as fully informed as possible on any issue on which a decision is to be made and afford each Board Member a reasonable opportunity to contribute to the Board‟s deliberations.

Comments: 7.3-MSME-C1 Fully informed means sufficiently

informed within the context of the decision to be taken.

7.4 It is the responsibility of the Chairman, following a Board Evaluation, to recommend to the Owners the removal of Board Members who do not contribute effectively to the Board.

7.5 Where the Chairman is appointed by the Board, the members of the Board should ensure that only a person that can add value is appointed to the position. The organisation should determine the length of service of the Chairman.

7.6 Where the Chairman is required to exercise a casting vote, he should use it objectively.

8. MEMBERS OF THE BOARD

In carrying out their functions, Members of the Board should:

8.1 Exercise reasonable care, skill and diligence. This means the care, skill and diligence that would be exercised by a reasonably diligent person with: a) the general knowledge, skill and

experience that may reasonably be expected of a person carrying out the functions of a Member of the Board of the organisation, and

b) the general knowledge, skill and experience that the Member has.

8.2 Both during and after their tenure of office, avoid using privileged information for their own personal benefit or that of other people associated with them.

8.3 Ensure that they devote sufficient time to their responsibilities.


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8.4 Be diligent in discharging their duties to the organisation, endeavour to attend meetings regularly and be prepared and able where necessary, to express disagreement with colleagues on the Board including the Chairman and the Chief Executive Officer.

8.5 Be truthful and disclose all the information at their disposal to enable the Board to make an informed decision.

8.6 At the expense of the organisation, be entitled to seek independent professional advice about the affairs of the organisation. Before seeking independent professional advice, however, the member concerned should discuss and clear the matter with the Chairman or the Company Secretary. If to approach either of them is inappropriate in the circumstances of the matter, the board member must act within the best interests of the organisation.

8.6-MSME.1: Any member of the Board shall be entitled to raise his or her concerns, if any, about the affairs of the business. If needed to act in the best interests of the business, the MSME should ensure that independent professional advice is available on such matters for those members of the Board who require it.

9. NON-EXECUTIVE MEMBERS OF THE BOARD

Non-Executive Members of the Board should:

Comments: 9.0-MSME-C1 In case all Members of the Board of an

incorporated MSME are “executive”, this is when they also have responsibilities as executive management, then the Board should regularly seek independent feedback on all matters set forth in overarching provisions 9.5 to 9.6.

9.1 Be independent in character and judgement, even where there are relationships or circumstances which are likely to affect, or could appear to affect the judgement of the members of the board.

9.2 Not take part in the day-to-day management of the organisation.

9.3 Not have any benefits from the organisation other than their fees and other approved expenses. All sitting allowances are deemed to be part of fees.


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9.4 Not undertake any advisory work for the organisation unless that work has been approved in advance by the Board and is limited in scope and time in order not to compromise the “non-executive” status of that member and to avoid any conflict of interest.

9.5 Be of sufficient calibre to bring independent judgement to bear on issues of strategy, performance, resources, standards of conduct, and evaluation of performance.

9.6 Constructively challenge and contribute to the development of strategy.

9.7 Scrutinise the performance of management in meeting agreed goals and objectives, and monitor the reporting of performance.

9.8 Satisfy themselves that financial information is accurate and that financial controls and systems of risk management are robust and sound.

9.9 Be responsible for ensuring that plans are in place to ensure the long term sustainability of the organisation. In this regard they may have a role in appointing and, where necessary, removing senior management and determining their levels of remuneration.

10. APPOINTMENT OF MEMBERS OF THE BOARD

10.1 The appointment of the Board should be appropriate for the organisation taking into account good governance and the requirements for the organisation to meet its goals and to ensure its long-term sustainability.

10.2 Appointments to the Board should be planned with strategic considerations and objectives of the organisation in mind.

10.3 The selection process must be managed by considering a balanced mix of experience and skills needed to add value to the strategic role of the Board. Depending on the type of organisation, the selection process may also consider appropriate diversity of gender and / or social and economic background.

10.4 An organisation should make appointments to the Board on merit.


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10.5 The term served by both executive and non-executive Members of the Board should be decided by the organisation; taking into account the period that could reasonably be perceived to materially interfere with the Member‟s ability to act in the best interest of the organisation‟s goals and long-term sustainability.

10.6 Where appointments to the Board are done in an AGM or General Assembly, Owners should be provided with a list of candidates from whom to elect Members of the Board.

11. REMUNERATION OF MEMBERS OF THE BOARD

11.1 Remuneration of Members of the Board should be appropriate to the organisation and should take into account the long term sustainability of the organisation.

11.2 There should be a formal and transparent process for determining remuneration of Members of the Board and of top management.

11.3 Non-Executive Members of the Board should receive fees at levels that reflect time invested, commitment, performance and responsibilities. Organisations, may however choose for an arrangement where Members of the Board are fully committed to the mission of the organisation and therefore agree to work pro bono.

11.4 An organisation should disclose, at least on an aggregate basis, in its Directors‟ or Annual Report the remuneration, bonuses and other benefits received by Members of the Board. What is to be disclosed should represent the total cost to the organization.

11.4-MSME.1: To the extent required to do so by the Companies Act or by other legislation, MSMEs should disclose the total cost of their Directors‟ remuneration.

11.5 When considering appointing Executive Members of the Board, the Board should seek proper legal advice in relation to termination clauses to avoid the risk of paying excessive amounts on termination of service.


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12. TRAINING AND DEVELOPMENT OF MEMBERS OF THE BOARD

12.0-MSME.1: To the extent possible, MSMEs are encouraged to facilitate the professional development of the Members of their Board.

12.1 Members of the Board need proper knowledge of the organisations for which they are responsible. They should acquire a broad knowledge of: 12.1.1 the business of the organisation

so that they can provide meaningful direction to it;

12.1.2 the statutory and regulatory requirements affecting the direction of the organisation and the environment in which the organisation operates;

12.1.3 their role, duties, responsibilities, and obligations as well as board practices and procedures.

12.2 The Board in developing training needs, should take into account any training needs identified during a Board Evaluation.

12.3 The Board should ensure that new Members undergo a tailored induction programme, particularly if the new Members have no previous board experience.

12.4 Every Member of the Board should keep abreast of both practical and theoretical developments affecting the environment in which the organisation operates as well as to ensure that their expertise and experience remain relevant to the Board and to the organisation. Members of the Board should be regularly exposed to matters relevant to legal reforms, Corporate Governance, changing corporate environment, risks, opportunities and other matters that may be of interest in the execution of their duties.

12.5 Executive members of the board should be encouraged by their organisation to take non-executive appointments in other organisations. However, the number of non-executive appointments should not be such that the members‟ executive responsibilities to their own organisation are adversely affected.


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13. THE COMPANY SECRETARY

13.1 All organisations, where required by law, should ensure that they have access to a competent Company Secretary to render company secretarial services to the organisation. The appointment and removal of the Company Secretary should be a matter for the Board as a whole.

13.1-MSME-C1 Within an MSME the function of Company Secretary can be performed by a competent person chosen to do so by the Board. This could be an outsourced function.

13.2 The Company Secretary should among other duties, be responsible for advising the Chairman and the Board on the implementation of the Code.

13.3 All members of the board should have access to the advice and services of the Company Secretary.

13.4 The Company Secretary should be responsible for ensuring effective information flows between the Board and top management and between the Board and its Sub-Committees.

13.5 Wherever possible the role of the Chief Executive Officer and that of the Company Secretary should be separated.


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14. RELATED PARTY TRANSACTIONS

14.1 Organisations should identify, manage and document “related party transactions”.

14.1-MSME-C1 MSMEs should identify and

appropriately manage their “related party transactions”.

14.1-MSME-C2 Procedures should be in place for Members of the Board to declare and document their use of the organisation‟s assets and services to enable the MSME to comply with its disclosure / reporting requirements on related party transactions.

14.2 The following are “Related parties”: (a) a member of the Board or of the key

management personnel of the organisation;

(b) any other person that significantly controls or influences the organisation;

(c) any close member of the family (such as the individual's domestic partner and children, children of the individual's domestic partner and other dependants of the individual or of the individual's domestic partner) of any individual referred to in (a) or (b);

(d) any entity controlled or significantly influenced by the organisation or by any individual referred to in (a) or (b);

(e) any entity under joint control with the organisation;

(f) any entity that significantly controls or influences the organisation.

14.3 A related party transaction shall be understood as a transfer of resources, services or obligations between related parties and the organisation, regardless of whether or not a price is charged. This includes, among others, purchases or sales of goods, property and other assets; rendering or receiving of services, leases, transfers of research and development, transfers under licence agreements, financial arrangements (including loans and equity contributions in cash or in kind), provision of guarantees or collateral, commitments to do something if a particular event occurs or does not occur in the future, including executory contracts; etc.


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14.4 Owners should be informed of any “related party transaction” that may significantly affect the current and or future financial position, the performance, the capacity, the opportunities and/or the risks of the organisation. Such disclosure should explain what the nature of the transactions is and how the potential conflicts of interest or other risks for the organisation are being avoided and/or mitigated.

15. RISK MANAGEMENT AND INTERNAL CONTROLS

15.1 The Board should be responsible for the governance of risk.

15.2 The Board should regularly review the organisation‟s risks, risk appetite and tolerance, and ensure that it has endeavoured to put in place measures to minimise or avert any identified risks. The Board should also regularly review the appropriateness of these measures.

15.2-MSME.1: The Board should ensure that it is aware of

any significant risks for its MSME and should appropriately manage such risks.

Comments: 15.2-MSME.1-C1 Risk is an inherent part of being in

business. The elimination of risk is neither a realistic nor a desirable aim. However, risk needs to be managed. The MSME should not expose itself

to risks that it does not understand or which are not relevant to the success of its business.

In an owner-managed business, risk issues are likely to be addressed by the owner in a relatively informal manner. However, even for the smallest incorporated MSME it is helpful to consciously reflect on and document risks.

MSMEs could use a straightforward SWOT (strengths, weaknesses, opportunities, threats) framework or simplified risk mapping methodology, as this will help to focus decision-making and demonstrate that the Board has approached risk management with the necessary care and diligence.

Not only financial risks have to be taken into account but also operational and strategic risks.


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15.3 The Board of an organisation that relies heavily on IT (computer) Systems should ensure that appropriate back-up measures are adopted and that measures are put in place to safeguard all information stored by the organisation.

16. ETHICS

Organisations should:

16.1 Ensure that they act ethically.

16.2 Consider developing a Code of Ethics aimed at fostering an ethical culture within their organisation. Where adopted, a Code of Ethics should: 16.2.1 Commit the organisation to the

highest standards of behaviour; 16.2.2 Be developed with the full

participation of all parties expected to abide by it;

16.2.3 Receive total commitment from the Board and the Chief Executive Officer of the organisation;

16.2.4 Be sufficiently detailed as to give a clear guide to the expected standards of behaviour of all employees.

16.3 Allow African “umunthu” values to thrive within the ethical framework of the organisation. Relationships within the organisation and with its stakeholders should therefore also be guided by the following concepts: thoroughly valuing others and in doing so valuing ourselves, cooperation, kinship and belonging within the community.

17. GOOD CITIZENSHIP

17.1 An organisation as well as being an economic entity is also a citizen of Malawi and as such has a moral and social standing within Malawian society, with all the responsibilities attached to that status. As such, when making decisions, an organisation should consider the impact of its decisions on its stakeholders (both internal and external), the environment and society as a whole.

17.1-MSME.1 MSMEs, in conducting their business, should review how they can develop long term competitive advantage and/or increased sustainability and continuity in their business by considering their corporate social responsibility.


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17.1-MSME.2 MSMEs should regularly (at least annually) reflect on how they impact the lives of staff, clients, suppliers and stakeholders. Within their scope of control, they should avoid/or mitigate any unfair social, economic and/or environmental impact and endeavour to make a positive contribution to the Malawian society; while at the same time pursuing their own long term interests.

Comments: 17.1-MSME.2-C1 MSMEs may find that their efforts to

operate as a “good citizen” will provide them interesting long term opportunities and comparative strengths.

18. SUSTAINABILITY

18.1 Organisations should conduct their operations in a manner that meets existing needs without compromising the ability of future generations to meet their needs. It means having regard to the impact that the organisations‟ operations have on the environment, economic and social life of the community in which it operates. This should include its supply chain i.e. access to the resources and raw materials it needs to carry out its operations.

18.2 Organisations should report on how they have both positively and negatively impacted on the environment and on the economic and social life of the community in which they operate and how they believe they can improve the positive and eradicate or lessen the negative aspects in the coming year.

18.2-MSME.1 Such reporting allows MSMEs to track

progress in these matters and to build trust among stakeholders.

19. EXTERNAL COMMUNICATIONS

19.1 Society now demands greater transparency, accountability and responsibility from organisations. Organisations should consider making regular, timely, balanced and understandable statements about their activities, performance and future prospects.

19.1-MSME.1 MSMEs should consider making regular, timely, balanced and understandable statements about their financial and non-financial activities, governance structure, strategies, activities, performance and future prospects.


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19.2 Organisations should, where it is in their best interests, disclose publicly their reasons for making decisions which may appear compromised due to a perceived conflict of interest of the members making the decision.

20. INTEGRATED REPORTING AND AUDITING

20.1 Organisations should produce financial statements appropriate to them. To the extent possible the financial statements should be prepared in accordance with nationally recognised standards.

20.2 Where there is a requirement for auditing the financial statements, the audit should be done by an independent external auditor, who is provided with the opportunity to raise matters directly with the Board.

20.3 Sustainability reporting and disclosure should be integrated with the organisation‟s financial reporting.

20.4 The financial statements of the organisation should also comply with any obligation to disclose „related party transactions”, as is, for their type of organisation, specified in laws, regulations, directives or guidelines.

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The MALAWI CODE II€¦ · Corporate Governance Sector Guidelines for Incorporated MSMEs – 14th...

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