The Securities and Exchange Commission of Pakistan (SECP) will introduce the concept of voting in separate categories for the election of independent directors and female directors on the Board of a listed company.
The SECP Wednesday issued a document to seek feedback on proposed regulatory reforms to address the problems being faced by the listed companies in the election of independent directors and female directors. This will also strengthen the corporate governance framework and protect minority interests.
This requires amendments in the Listed Companies (Code of Corporate Governance) Regulations, 2019, and Companies (Postal Ballot) Regulations, 2018. Under the proposed model, separate voting sessions shall be held for each category i.e. Female Directors (1st Category), Independent Directors (2nd category), and Other Directors (3rd Category).
The Listed Companies (Code of Corporate Governance) Regulations, 2019 (the “CCG Regulations”) require listed companies to appoint at least two or one-third of members of the Board, whichever is higher, as independent directors while Section 166 of the Act requires selection of independent director from a data bank, maintained by SECP notified institute (PICG).
Further, in terms of Section 159 of the Act, the election of an independent director is to be held in the same manner as other directors.
Furthermore, ‘justification’ for the selection of a candidate for appointment as an independent director is to be provided in the statement of material fact attached with the notice of meeting wherein the election of directors is to be held.
As per the Companies (Manner and Selection of Independent Directors) Regulations, 2018 the directors should exercise their own due diligence before selecting an individual from the data bank and require such individual to submit an undertaking on a non-judicial stamp paper that he/she meets the eligibility criteria along with relevant information supporting the same.
Additionally, for female directors, Section 154 of the Act and the CCG Regulations require the Board of a listed company to have at least one female director.
It has been highlighted by companies that there exist practical difficulties with respect to the election of female directors and independent directors in case they do not get a sufficient number of votes to be elected on the Board, SECP added.
The election of directors is held through e-voting and balloting. Hence, the shareholders need to know in advance regarding the number of directors contesting in each category (female, independent, and other directors).
There may be overlapping between the different categories of directors. E.g. a female director can also be a contestant for the independent director seat. Hence, a scenario may emerge where a director may get elected on two seats. This may create legal complications and render the election of a director incomplete.
In order to avoid this, it is envisaged that the intention of directors for contesting in a particular category may be obtained in advance for a transparent voting process and be intimated to the shareholders in advance to enable e-voting and voting through ballot papers.
The director will have the option to contest/give consent for any category and can only contest for one seat. This does not restrict the right of a female director to be appointed to the dedicated Female Director seat while being an independent director.
In order to ensure this, depending on the status of the subject director, the number of seats in other categories will be reduced. i.e. if a female director is also an independent director, the number of seats in the Independent Director category will be reduced by one if she opts to contest for the special seat of Female Director, SECP added.
