Introduction

Corporate governance broadly refers to the mechanisms, processes and relations by which organizations are controlled and governed. Corporate governance includes the processes through which organizations’ objectives are set and pursued in the context of the social, regulatory and market environment. The framework of corporate governance assists the Board of Directors to ensure accountability, fairness and transparency in an organization’s relationship with all its stakeholders.

The ideal corporate governance framework consists of:

  • explicit and implicit contracts between the company and the stakeholders for distribution of responsibilities, rights and rewards,
  • procedures for reconciling the sometimes conflicting interests of stakeholders in accordance with their duties, privileges, and roles, and
  • procedures for proper supervision, control, and information-flows to serve as a system of checks-and-balances.

A good Corporate Governance policy ensures transparency, provides protection for investors, other stakeholders' interests and enhances companies' value.

The purpose of formulating Corporate Governance policy is to establish best practice corporate governance principles in the functioning of Securities & Investment Co. BSC (c) (“the Bank” or “SICO”) and its subsidiaries.

This Corporate Governance policy provides frameworks for setting the principles of effective Corporate Governance in Securities & Investment Co. BSC © and its subsidiaries taking into the consideration of following:

  • Corporate governance principles issued by the Ministry of Industry and Commerce as "The Corporate Governance Code";
  • International best practice corporate governance standards set by bodies such as the Basel Committee for Banking Supervision; and
  • Principles incorporated in High Level Controls Module of the Central Bank of Bahrain

Commitment

SICO is committed to upholding the highest standards of corporate governance. This entails complying with regulatory requirements, protecting the rights and interests of all stakeholders, enhancing shareholder value, and achieving organizational efficiency. The Bank has Board-approved policies for risk management, compliance and internal controls, in accordance with the latest rules and guidelines from the Central Bank of Bahrain (CBB).

The adoption and implementation of corporate governance is the direct responsibility of the Board of Directors. The Board is committed to excellence in corporate governance, and adheres to rules of the High Level Controls Module (HC Module) of the Central Bank of Bahrain, and the principles of the Corporate Governance Code of the Kingdom of Bahrain issued by the Ministry of Industry and Commerce and best practices as per international standards.

Governance Framework

SICO’s corporate governance framework comprises the Board and the Board Committees, the Management reporting structure and the Management Committees, the Control functions such as Risk Management, Compliance, AML and Internal Audit, the Corporate Governance policy; Board and Committee Charters; Directors’ Handbook; Code of Business Conduct; operational policies and procedures; internal controls and risk management systems; compliance procedures; internal and external audit; effective communications and transparent disclosure; and measurement and accountability.

The corporate governance policy should be read in conjunction with other Board-approved polices & procedures.

Corporate Governance Principles

The Bank will follow the corporate governance principles as issued by the Ministry of Industry and Commerce in the Corporate Governance Code and the CBB as per the High Level Controls (HC) Module of the Rulebook. The principles are as follows: 

  1. The Bank shall be headed by an effective, collegial and informed Board. 
  2. The approved persons (as defined in CBB High Level Control module) must have full loyalty to the Bank. 
  3. The Board must have rigorous controls for financial audit and reporting, internal control, and compliance with law. 
  4. The Bank must have rigorous and transparent procedures for appointment, training and evaluation of the Board. 
  5. The Bank must remunerate approved persons fairly and responsibly. 
  6. The Board must establish a clear and efficient management structure. 
  7. The Bank must communicate with shareholders, encourage their participation, and respect their rights.
  8. The Bank must disclose its corporate governance.

Responsibilities Of The Board Of Directors

The Board is accountable to the shareholders for the creation and delivery of strong sustainable financial performance and long-term shareholder value.

The Board works together as a team to provide strategic leadership to staff, ensure the organization’s fitness for purpose, set the values and standards for the organization, and ensures that sufficient financial and human resources are available. Each director must consider himself as representing all shareholders and must act accordingly.

The Board’s role and responsibilities are outlined in the Board Charter of the Bank. The Board reserves a formal schedule of matters for its decision to ensure that the direction and control of the Bank rests with the Board.

This includes strategic issues and planning; review of management structure and responsibilities; monitoring management performance; acquisition and disposal of assets; investment policies; capital expenditure; authority levels; treasury policies; risk management policies; the appointment of auditors and review of the financial statements; financing and borrowing activities; reviewing and approving the annual operating plan and budget; ensuring regulatory compliance; and reviewing the adequacy and integrity of internal systems and controls framework.

The Internal Audit function reports directly to the Board through the Audit Committee. The Board receives reports and recommendations from Board Committees and Management, from time to time, on matters it considers significant to the Bank.

The Chairman is responsible for leading the Board, ensuring its effectiveness, monitoring the performance of the Executive Management, and maintaining a dialogue with the Bank’s shareholders. The Chairman also ensures that new Directors receive a formal and tailored induction to facilitate their contribution to the Board.

The Board Charter serves as a reference point for Board activities and like best practice, develops as the organization grows with market and regulatory requirements. In addition to the roles and responsibilities, the Board Charter and Board Sub Committee Charters, define the ethical standard for business practices that are to be followed by each Board member.

Board Committees

The Board has delegated certain responsibilities to Board Committees, without abdicating its overall responsibility. This is to ensure sound decision-making, and facilitate the conduct of business without unnecessary impediment, as the speed of decision-making in the Bank is crucial. Where a Committee is formed, a specific Charter of the Committee has been established to cover matters such as the purpose, composition and function of the Committee.

The Board has three Committees to assist it in carrying out its responsibilities: the Investment Committee, the Audit Committee, and the Nominations, Remuneration and Corporate Governance Committee.

The primary objective of the Investment Committee is to assist the Board in discharging their responsibilities in areas relating to Investments through the means of reviewing Investment policies, reviewing procedures to monitor the application of, and compliance with, the investment policies, approval and recommendation (where appropriate) to the Board of relevant Investment decisions (as defined in the Investment Policy Guidelines and Restrictions) and approve transactions that are above Management’s authority, but within the investment committee limits.

The Committee also reviews strategic and budget business plans prior to submission to the Board, reviews and approve the bank’s monthly financials, oversees the financial and investment affairs of the Bank and reviews major organisational changes.

The Audit Committee is tasked with oversight responsibilities on financial reporting, internal control and risk management, internal audit, external audit, compliance, and other matters as enumerated in its charter.

The Nominations, Remuneration and Corporate Governance Committee performs functions related to the nomination of new directors, assessment of the Board, its committees and directors as well as the remuneration of directors and senior management and oversight of the Bank’s Governance framework.

The detailed objective and scope of the committees are mentioned in the respective charters.

Board and Committee Evaluation

The Board performs a self-evaluation on an annual basis. The Board annually reviews its Charter and its own effectiveness; and initiates suitable steps for any amendments. The Board also reviews self-evaluations of the individual Board members, Chairman and the Board Committees and consider appropriately any recommendations arising out of such evaluation.

Board Composition and Election

The Board’s composition is guided by the Bank’s Memorandum of Association. The appointment of Directors is subject to prior approval by the CBB. The classification of ‘Executive’ Directors, ‘Non-executive’ Directors and ‘Independent and Non-executive’ Directors is per the definitions stipulated by the CBB.

The Board Nomination Committee identifies and screens suitable and qualified candidates as members of the board of directors and as and when such positions become vacant submit its recommendations to the whole board of directors who in turn propose to the next annual shareholder meeting for their approval.

The Board Nomination Committee makes considered recommendations to the Board of Directors with the objective to ensure appropriate Board composition; ensure appropriate nomination of Directors to the Board and its committees; improve the efficiency of the Board by enabling delegation of appropriate tasks to the Committee where such tasks should be discussed in sufficient depth; and consider whether succession plans are in place to maintain an appropriate mix of skills, experience, expertise and diversity on the Board. Directors are elected by the shareholders at the AGM, subject to the approval of the CBB, for a period of three years, after which they shall be eligible for re-election for a further three-year period.

Independence Of Directors

In line with the requirements of the CBB’s HC Module, the Bank has put in place Board-approved criteria to determine ‘Test of Independence’ using formal requirements as specified in the CBB rule book and other relevant requirements as assessed by the Board of SICO. The purpose of the Test is to determine whether the Director is: ‘Independent of management, and any business or other relationships, which could materially interfere with the Director’s ability to exercise objective, unfettered or independent judgement, or the Director’s ability to act in the best interests of SICO'.

The Board strives to ensure that an adequate number of Independent Directors is present on the Board in line with CBB rulebook requirements subject to the Board resources and capabilities. The Board ensures that individual directors have access to independent legal or other professional advice at the Bank's expense whenever they judge this necessary to discharge their responsibilities as directors.

Board Meetings and Attendance

According to the Bahrain Commercial Companies Law and the CBB rules, Board meetings will be conducted at least four times a year (on a quarterly basis). All Board members must attend at least 75 per cent of all Board meetings within a calendar year. At least five Directors must attend each Board meeting, including the Chairman or the Vice-Chairman.

The Board Secretary (appointed by the Board) shall draw the minutes of each Board & Board Committee meetings mentioning the subjects discussed, decisions reached, names of members present & vote casted by each member against any decision taken during the meeting.

Remuneration Policy

The Bank’s total compensation approach, which includes the variable remuneration policy, sets out the Bank’s policy on remuneration for Directors and senior management, and the key factors that are taken into account in setting the policy.

The Bank has adopted regulations concerning Sound Remuneration Practices issued by the Central Bank of Bahrain and ensures that its variable remuneration framework is in line with CBB requirement. It is the Bank’s basic compensation philosophy to provide a competitive level of total compensation to attract and retain qualified and competent employees. The Bank’s variable remuneration policy will be driven primarily by a performance-based culture that aligns employee interests with those of the shareholders of the Bank.

The Board of Directors remuneration is governed by provisions of Commercial Companies Law 2001 and the CBB. The Director’s remuneration is approved by the shareholders at the annual general meeting. In addition, the members are paid sitting fees for the various sub committees of the Board. The Board remunerations is reviewed by Nomination, Remuneration & Corporate Governance committee as per the remuneration policy. Directors remuneration is accounted as an expense as per international accounting standards and CBB regulations.

Annual General Meeting

The matters reserved for the shareholders through Annual General Meeting include the following:

  • Electing and dismissing Members of the Board of Directors.
  • Approving Board Member's remuneration
  • Appointing/reappointing the Bank’s External Auditors and determination of their fees or authorizing the board to do the same..
  • Approving the statement of profit and loss, balance sheet, the Board of Directors’ Report on the Bank’s activities, and the statement relating to the utilisation of the net profits and distribution of profits.
  • Considering recommendations relating to the issuance of bonds, borrowing, mortgaging and guaranteeing.
  • Mergers, acquisitions and takeovers, disposal of strategic investments
  • Amending the Bank’s Memorandum of Association and Articles of Association.
  • Disposing of all or substantial proportion of the Bank’s assets.
  • Liquidating, winding-up or merger of the Bank.
  • Increasing or decreasing of the Bank’s capital.

All Directors are expected to attend the Annual General Meeting and to make themselves available during and after the meeting to answer questions from shareholders.

Management

The Board delegates the authority for the day-to-day management of the business to the Chief Executive Officer, who is supported by a qualified senior management team. The Bank’s management is responsible for the implementation of appropriate procedures and processes in place to ensure adherence to the Board-approved policies, laws, regulations and other guidelines to ensure appropriate Corporate Governance standards throughout the Bank.

Management shall be appointed under employment contract specifying the terms of the appointment. Management shall be accountable to the Board and the committees of the Board. The Board Nominations, Remuneration and Corporate Governance Committee is also involved in annual performance evaluation of Senior Management of the Bank.

The Bank’s management monitors the performance of the bank on an on going basis and advises the Board. The monitoring of performance is carried out through a regular assessment of performance trends against budget and prior periods and collectively through three management committees: Management Committee; Asset Management Committee and Assets, Liabilities and Investments Committee.

The Management Committee reviews the overall performance of the Bank; reviews the implementation and implications of new initiatives and products and contributes to developing an ongoing strategy for the Bank.

The Asset Management Committee reviews the investment strategy of the Bank’s funds and portfolios; reviews and approves asset allocations; and reviews subscription and redemptions, and compliance.

The Assets, Liabilities and Investments Committee acts as the principal policy-making body responsible for overseeing the Bank’s capital and financial resources. It is also responsible for managing the balance sheet and all proprietary investment activities, including investment strategy; and asset, country and industry/sector allocations. The committee is specifically responsible for managing the balance sheet risk; capital and dividend planning; forecasting; and monitoring interest rate risk positions, liquidity and funds management. The committee is also responsible for formulating and reviewing the Bank’s investment policies (subject to approval by the Board), strategies, and performance measurement and assessment.

Specific responsibilities have been delegated to each Management Committee and each Committee has its own terms of reference which includes detailed terms, role and responsibilities. The Bank has also well-established Control functions such as the Financial Control department, the Risk Management, Anti-Money Laundering and Compliance Function, the Internal Audit Function and the Internal Control Unit.

Directors' Communication With Management

The Board encourages participation by management regarding matters the Board is considering, and also by management members who by reason of responsibilities or succession, the CEO believes should have exposure to the directors.

Code Of Business Conduct

SICO conducts itself in accordance with the highest standards of ethical behaviour. A Code of Conduct for SICO Staff has been developed to govern the personal and professional conduct of all employees. The Code of Conduct outlines areas of conflict of interest; confidentiality; fair and equitable treatment; ethics and acting responsibly, honestly, fairly and ethically; and managing customer complaints.

A Whistleblowing Policy and Procedures is included within the Code of Conduct for SICO Staff.

Whistleblowing Policy

The Board adopts the whistleblowing policy & enables the employee at all level to raise concerns against any malpractices or irregularities observed in the organization. SICO is committed to the highest standards of good governance, openness, transparency, integrity and accountability. Consequently if any Staff Member have any well-founded "concerns", they have a duty to SICO and to the other colleagues to speak up and to report the situation immediately to their Department Head in "good faith" so that the matter can be investigated promptly.

Conflict Of Interest

Each approved person should make every practicable effort to arrange his personal and business affairs to avoid a conflict of interest situation with the Bank and shall inform the bank of any conflicts of interest as they arise and abstain from voting on any related subject matter. Each approved person is personally accountable to the Bank and the shareholders if he violates his legal duties to the Bank.

No approved person should put himself in a position where his personal interest conflicts or potentially conflict with those of the Bank. All approved persons are required to disclose their interests in other entities or activities to NRCG committee on an annual basis (Appendix A). The Bank must disclose to its shareholders in the Annual Report any abstention from voting motivated by a conflict of interest and must disclose to its shareholders any authorization of a conflict of interest contract or transaction in accordance with the Company Law.

An approved person is considered to have a “personal interest” in a transaction with a bank if: a) He; or b) A member of his family (i.e. spouse, father, mother, sons, daughters, brothers or sisters); or c) Another company of which he is a director or controller, is a party to the transaction, or has a material financial interest in the transaction.

Succession Planning

The Boards of Directors are responsible for key succession planning and ensures that succession planning is in place for all other key executive roles both in emergencies & normal course of business.

This includes identifying potential succession candidates and development plans for the CEO; and fostering management depth by rigorously assessing candidates for other senior positions.

The Board shall annually review and evaluate the succession plans and management development programs for all members of executive management, including the Chief Executive Officer.

Disclosure and Communications Policy

The Board must oversee the process of disclosure and communications with internal and external stakeholders. The Board must ensure that disclosures made by the bank 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.

The Bank has a responsibility to communicate effectively with the shareholders. Accordingly, the Bank’s annual report should disclose true and fair accounting information prepared in accordance with applicable standards; consider substance over form in the presentation of accounts; disclose and discuss all material risks; explain the rationale for all material estimates; show manner of compliance, or explain deviations, if any, with applicable corporate governance codes; discuss goals, plans, and progress. The annual reports of the Bank shall present report on corporate governance in a separate section with details and descriptive on how the Bank has applied the principles of corporate governance.

The Bank has to conduct all communications with its stakeholders in a professional, honest, transparent, understandable, accurate and timely manner. Main communications channels include an annual report, corporate website, and regular announcements in the appropriate local media. To ensure disclosure of relevant information to all shareholders on a timely basis, the Bank publishes its annual report and the past ten years’ financial statements on the corporate website - www.sicobank.com.

Appendix A

Disclosure of Interest in entities other than SICO BSC

The CBB’s High Level Controls (HC) module HC 2.4.1 requires all approved persons to declare in writing on an annual basis, all of their interests in other entities or activities (whether as a Director, or shareholder of 5% & above in the voting capital, or holding a managerial position, or other control whether direct or indirect).
This declaration is made pursuant to the above requirement and should be submitted to NRCG every year by 31 January.

I hereby declare that the above information is true and correct and made in compliance with the relevant provisions of the CBB Rulebook and the Commercial Companies Law.

If any of the above information changes either by way of additional disclosure requirements, or amendments to the existing disclosure due to a change in my status of relationship, I undertake to notify the Board immediately with revised/updated declaration form.