Independent Director

Question 1

Independent director

Answer 1

A non-executive director (NED) plays a crucial role on a company’s board by providing independent oversight and constructive challenge to the executive directors. Here are the key points about non-executive directors, along with some examples to illustrate their role:

1. Not Part of Executive Management: NEDs are not involved in the day-to-day management of the company. They do not hold executive positions within the company.
2. Outside Viewpoint: They bring an external perspective to the board, which can help in making balanced and unbiased decisions.
3. Limited Time Commitment: NEDs do not devote their entire working time to the company. They typically attend board meetings and provide their expertise as needed.
4. No Beneficial Ownership: They are not beneficial owners of the company or its associated companies, ensuring their independence.
5. Remuneration: NEDs usually receive a meeting fee for their participation, rather than a salary or other forms of remuneration.

Imagine a company, XYZ Ltd., which is planning to launch a new product. The board includes several executive directors who are deeply involved in the company’s operations. To ensure a balanced decision-making process, XYZ Ltd. has appointed two non-executive directors:

1. Independent Oversight: The NEDs review the proposed product launch plan. They ask critical questions about the market research, financial projections, and potential risks. Their independent viewpoint helps identify any overlooked issues.
2. Strategic Guidance: One of the NEDs has extensive experience in the industry. They provide valuable insights and strategic advice, helping the company refine its approach to the product launch.
3. Monitoring Performance: After the product launch, the NEDs continue to monitor its performance. They ensure that the executive team remains accountable and that the company’s resources are used effectively.

By bringing an independent and external perspective, non-executive directors help ensure that the company’s decisions are well-rounded and in the best interest of all stakeholders¹².

If you have any more questions or need further details, feel free to ask!

Source: Conversation with Copilot, 12/29/2024
(1) What is the role of the non-executive director? | Factsheets | IoD. https://www.iod.com/resources/company-structure/what-is-the-role-of-the-non-executive-director/.
(2) Non-Executive Director Role and Responsibilities Defined - Investopedia. https://www.investopedia.com/terms/n/non-executive-director.asp.
(3) Non-Executive Director: Definition, Duties and Benefits. https://www.indeed.com/career-advice/finding-a-job/what-is-non-executive-director.

An independent director plays a vital role in ensuring the integrity and transparency of a company’s governance. Let’s break down the definition and criteria for an independent director, along with some examples to illustrate their role.

An independent director is a board member who:
- Lacks Connections: Has no significant relationship, financial or otherwise, with the company, its subsidiaries, holding company, or directors.
- Independent Judgment: Can make decisions without any conflicts of interest, ensuring unbiased business judgment.
- Not an Executive: Cannot be an executive director, meaning they are not involved in the daily operations of the company.

A director is not considered independent if any of the following conditions apply:

1. Recent Employment: Has been an employee of the company or its subsidiaries within the last three years (two years for public sector companies).
2. CEO Role: Has been the CEO of the company, its subsidiaries, or associated companies within the last three years (two years for public sector companies).
3. Material Business Relationship: Has had a significant business relationship with the company in the last three years, either directly or indirectly.
4. Additional Remuneration: Has received remuneration from the company, apart from director’s fees, in the last three years.
5. Close Relatives: Is a close relative of the company’s promoters, directors, or major shareholders.
6. Cross-Directorships: Holds cross-directorships or has significant links with other directors through involvement in other companies.
7. Long Tenure: Has served on the board for more than three consecutive terms (two terms for public sector companies).
8. Nominated by External Parties: Is nominated as a director by creditors, the government, or a corporate body.
9. Public Sector Employment: In the case of public sector companies, is in the service of Pakistan or any government-controlled body.

Consider a company, ABC Ltd., which is looking to strengthen its board with independent oversight. They appoint Jane Doe as an independent director. Jane has no prior employment or business relationship with ABC Ltd. and is not related to any of its directors or major shareholders. She brings a wealth of experience from her previous roles in other industries, providing valuable insights and unbiased judgment.

Role in Governance:
- Oversight: Jane monitors the company’s management and strategic direction, ensuring decisions are made in the best interest of all stakeholders.
- Advisory: She offers independent advice on various business matters, leveraging her expertise to guide the company.
- Compliance: Jane ensures that the company adheres to regulatory requirements and maintains high standards of corporate governance.

By fulfilling these roles, Jane helps ABC Ltd. maintain transparency, accountability, and ethical conduct, ultimately contributing to the company’s long-term success¹².

If you have any more questions or need further details, feel free to ask!

Source: Conversation with Copilot, 12/29/2024
(1) Independent Director: Roles, Qualification, and Corporate Governance. https://www.peakframeworks.com/post/independent-director.
(2) Role of independent directors in corporate governance - iPleaders Blog. https://blog.ipleaders.in/roles-independent-directors-corporate-governance/.
(3) The Role of Independent Directors in Corporate Governance: Balancing …. https://www.directors-institute.com/post/the-role-of-independent-directors-in-corporate-governance-balancing-oversight-and-collaboration-wit.

Selection from Data Bank: Independent directors must be chosen from a data bank that includes names, addresses, and qualifications of eligible and willing individuals. This data bank is maintained by an institute, body, or association notified by the Commission, which has expertise in creating and maintaining such a database¹.

Due Diligence: The responsibility for exercising due diligence before selecting an independent director from the data bank lies with the company or the government making the appointment. This ensures that the selected individual meets all necessary criteria and qualifications.

Election Process and Consent:
- Election: Independent directors of listed companies are elected in the same manner as other directors. The notice for the general meeting where the election takes place must include a statement of material facts, justifying the choice of the appointee.
- Consent: No individual can be included in the data bank without their written consent.

Relaxation in Requirements: The Commission may relax the above requirements if a company provides sufficient justification or demonstrates practical difficulty in complying with them.

Power of Commission: The Commission specifies the manner and procedure for selecting independent directors from the data bank through regulations. The Companies (Manner and Selection of Independent Directors) Regulations, 2018, outline these procedures¹.

Imagine a company, DEF Ltd., needs to appoint a new independent director. They follow these steps:

1. Access Data Bank: DEF Ltd. accesses the data bank maintained by a notified institute to find eligible candidates.
2. Due Diligence: The company conducts thorough due diligence to ensure the selected candidate meets all criteria and has no conflicts of interest.
3. Election: The candidate is elected at the general meeting, with the notice including a detailed justification for their selection.
4. Consent: The candidate’s written consent is obtained before their name is included in the data bank.

By following these steps, DEF Ltd. ensures compliance with the regulations and selects a qualified independent director who can provide unbiased oversight and guidance.

If you have any more questions or need further details, feel free to ask!

¹: SECP - Companies (Manner and Selection of Independent Directors) Regulations, 2018

Source: Conversation with Copilot, 12/29/2024
(1) The Companies (Manner & Selection of Independent Directors) Regulations …. https://www.secp.gov.pk/document/the-companies-manner-selection-of-independent-directors-regulations-2018/.
(2) Regulations - SECP. https://www.secp.gov.pk/laws/regulations/.
(3) Regulations for selection of Independent directors in SECP. https://kkconsultant.net/regulations-for-selection-of-independent-directors-in-secp/.
(4) Home Page : ID Platform. https://www.independentdirectorsdatabank.in/.
(5) Welcome To IICA. https://iica.nic.in/cid_databank.aspx.
(6) Welcome To IICA. https://iica.nic.in/cid_about.aspx.
(7) undefined. https://www.independentdirectorsdatabank.in/news_update/leadership-lessons-by-dr-anil-khandelwal.
(8) undefined. https://www.independentdirectorsdatabank.in/news_update/sa-600-audit-quality.
(9) undefined. https://www.youtube.com/embed/KRxx6se1ZuE.
(10) undefined. https://www.independentdirectorsdatabank.in/news_update/opportunities-challenges-in-transforming-healthcare-strategic-pathways-for-boards.
(11) undefined. https://www.independentdirectorsdatabank.in/news_update/ai-leadership-for-boards-the-future-of-corporate-governance.
(12) undefined. https://www.youtube.com/embed/An1VEPo_GCo.
(13) undefined. https://www.independentdirectorsdatabank.in/news_update/futurereadiness-design-the-future-of-your-business.
(14) undefined. https://www.youtube.com/embed/KEUYffnAxYo.
(15) undefined. https://www.independentdirectorsdatabank.in/news_update/the-dirty-dozen-indias-twelve-biggest-corporate-defaulters.
(16) undefined. https://www.youtube.com/embed/ez7-KuMCq_k.

To be included in the data bank of independent directors, an individual must meet specific educational and experience criteria, as well as demonstrate a willingness to fulfill the responsibilities of the role.

1. Educational Qualification:
   
   • Graduate Degree: The individual must hold at least a graduate degree from a university recognized by the Higher Education Commission of Pakistan.
   • Professional Body Membership: Alternatively, the individual can be a member of a professional body.
2. Relevant Experience:
   
   • Five Years of Experience: The individual must have at least five years of relevant experience in fields such as finance, law, management, sales, marketing, administration, research, corporate governance, technical operations, or other relevant disciplines.
   • Fifteen Years of Experience: Alternatively, the individual can have at least fifteen years of relevant work experience in the aforementioned fields.
3. Willingness to Act:
   
   • The individual must be willing to act as an independent director and confirm that they will devote reasonable time to the company’s affairs to discharge their responsibilities effectively.

A professional body is defined as:
- Established in Pakistan: Governed under a special enactment of the Federal Government, managed by a representative National Council, and having a prescribed minimum criterion of examination and membership.
- Established Outside Pakistan: Governed under a special enactment in its country of origin and a member of the relevant international body.

Every independent director, after being appointed or elected to the board, must complete a Directors’ Training Program. This program ensures that directors are well-versed in corporate governance principles and can effectively fulfill their roles.

Consider an individual, Ali, who wishes to be included in the data bank of independent directors:

1. Educational Qualification: Ali holds a graduate degree in Business Administration from a recognized university.
2. Relevant Experience: He has over ten years of experience in corporate governance and finance.
3. Willingness to Act: Ali is willing to act as an independent director and commits to dedicating sufficient time to the company’s affairs.

Ali meets the criteria and submits his application to the data bank. Upon appointment, he completes the Directors’ Training Program to ensure he is fully prepared for his role.

If you have any more questions or need further details, feel free to ask!

Source: Conversation with Copilot, 12/29/2024
(1) About Director Training Program - PICG. https://picg.org.pk/director-training-program-dtp/.
(2) CHAPTER VII Directors’ Training Program - Pakistan Stock Exchange Limited. https://www.psx.com.pk/psx/themes/psx/uploads/CHAPTER-VII-of-Listed-Companies-%28Code-of-Corporate-Governance%29-Regulations-2017.pdf.
(3) Directors’ Training Program. https://cee.iba.edu.pk/dtp-may2025.php.
(4) undefined. http://www.picg.org.pk.
(5) undefined. https://www.icap.net.pk/dtp/certified-directors.php.
(6) undefined. http://redc.lums.edu.pk.
(7) undefined. https://www.secp.gov.pk/document/list-of-approved-director-training-programs/.

Information on Registration: The institute responsible for maintaining the data bank must provide clear information on the registration process, eligibility criteria, fees, required documents, and other relevant details on its website. This information should be easily accessible and downloadable by applicants.

Inclusion and Retention: The institute can determine the necessary measures, conditions, and procedures for including and retaining individuals in the data bank. This ensures that only qualified and willing individuals are listed.

Fees: With prior approval from the Commission, the institute may set a fee for individuals to be included and retained in the data bank.

Accuracy of Information: Individuals included in the data bank are responsible for the accuracy, adequacy, and completeness of the information they provide. They must update their details in case of any changes.

Due Diligence: Companies must exercise due diligence before selecting an individual from the data bank for appointment as an independent director. This includes requiring the individual to submit an undertaking on a non-judicial stamp paper, confirming they meet the regulatory requirements, along with supporting information.

Institute’s Disclaimer: The institute must display disclaimers on its website, stating:
- The responsibility of due diligence lies with the appointing company.
- Inclusion in the data bank does not guarantee selection as an independent director.
- The institute does not guarantee the accuracy or reliability of the information in the data bank.
- The institute is not responsible for any legal contraventions by companies or directors due to the selection of an independent director from the data bank.

Independent and non-executive directors are only held liable for acts of omission or commission by a listed company or public sector company if these acts occurred with their knowledge, through board processes, and with their consent or connivance, or if they failed to act diligently.

Imagine a company, GHI Ltd., needs to appoint an independent director. They follow these steps:

1. Access Data Bank: GHI Ltd. accesses the data bank maintained by the institute to find eligible candidates.
2. Due Diligence: The company conducts thorough due diligence, ensuring the selected candidate meets all criteria and has no conflicts of interest. The candidate provides an undertaking confirming their eligibility.
3. Election: The candidate is elected at the general meeting, with the notice including a detailed justification for their selection.
4. Disclaimer: GHI Ltd. acknowledges the institute’s disclaimer that inclusion in the data bank does not guarantee selection and that the institute is not responsible for any legal issues arising from the appointment.

By following these steps, GHI Ltd. ensures compliance with regulations and selects a qualified independent director who can provide unbiased oversight and guidance¹².

If you have any more questions or need further details, feel free to ask!

¹: SECP - Independent Directors’ Data Bank
²: SECP - Companies (Manner and Selection of Independent Directors) Regulations, 2018

Source: Conversation with Copilot, 12/29/2024
(1) Independent directors’ databank gets operational - SECP. https://www.secp.gov.pk/media-center/press-releases/independent-directors-databank-gets-operational/.
(2) Securities and Exchange Commission of Pakistan - secp.gov.pk. https://www.secp.gov.pk/wp-content/uploads/2018/07/Press-Release-July-16-Independent-directors’-databank-gets-operational.pdf.
(3) SECP notifies regulations on selection of independent directors. https://www.secp.gov.pk/wp-content/uploads/2018/03/Press-Release-March-16-SECP-notifies-regulations-on-selection-of-independent-directors.pdf.
(4) Section 150. Manner of selection of independent directors and …. https://ca2013.com/150-manner-of-selection-of-independent-directors-and-maintenance-of-databank-of-independent-directors/.
(5) Databank of Independent Directors - Tax Guru. https://taxguru.in/company-law/databank-indpendent-directors.html.
(6) Manner of selection of independent directors and maintenance of …. https://incometaxindia.gov.in/Acts/Companies%20Act,%202013/102120000000029695.htm.
(7) undefined. http://picg.org.pk/databank3.
(8) undefined. https://www.secp.gov.pk/wp-content/uploads/2018/07/Press-Release-July-16-Independent-directors.

Question 2

Independent director

Answer 2

A non-executive director (NED) plays a crucial role on a company’s board by providing independent oversight and constructive challenge to the executive directors. Here are the key points about non-executive directors, along with some examples to illustrate their role:

1. Not Part of Executive Management: NEDs are not involved in the day-to-day management of the company. They do not hold executive positions within the company.
2. Outside Viewpoint: They bring an external perspective to the board, which can help in making balanced and unbiased decisions.
3. Limited Time Commitment: NEDs do not devote their entire working time to the company. They typically attend board meetings and provide their expertise as needed.
4. No Beneficial Ownership: They are not beneficial owners of the company or its associated companies, ensuring their independence.
5. Remuneration: NEDs usually receive a meeting fee for their participation, rather than a salary or other forms of remuneration.

Imagine a company, XYZ Ltd., which is planning to launch a new product. The board includes several executive directors who are deeply involved in the company’s operations. To ensure a balanced decision-making process, XYZ Ltd. has appointed two non-executive directors:

1. Independent Oversight: The NEDs review the proposed product launch plan. They ask critical questions about the market research, financial projections, and potential risks. Their independent viewpoint helps identify any overlooked issues.
2. Strategic Guidance: One of the NEDs has extensive experience in the industry. They provide valuable insights and strategic advice, helping the company refine its approach to the product launch.
3. Monitoring Performance: After the product launch, the NEDs continue to monitor its performance. They ensure that the executive team remains accountable and that the company’s resources are used effectively.

By bringing an independent and external perspective, non-executive directors help ensure that the company’s decisions are well-rounded and in the best interest of all stakeholders¹².

If you have any more questions or need further details, feel free to ask!

Source: Conversation with Copilot, 12/29/2024
(1) What is the role of the non-executive director? | Factsheets | IoD. https://www.iod.com/resources/company-structure/what-is-the-role-of-the-non-executive-director/.
(2) Non-Executive Director Role and Responsibilities Defined - Investopedia. https://www.investopedia.com/terms/n/non-executive-director.asp.
(3) Non-Executive Director: Definition, Duties and Benefits. https://www.indeed.com/career-advice/finding-a-job/what-is-non-executive-director.

An independent director plays a vital role in ensuring the integrity and transparency of a company’s governance. Let’s break down the definition and criteria for an independent director, along with some examples to illustrate their role.

An independent director is a board member who:
- Lacks Connections: Has no significant relationship, financial or otherwise, with the company, its subsidiaries, holding company, or directors.
- Independent Judgment: Can make decisions without any conflicts of interest, ensuring unbiased business judgment.
- Not an Executive: Cannot be an executive director, meaning they are not involved in the daily operations of the company.

A director is not considered independent if any of the following conditions apply:

1. Recent Employment: Has been an employee of the company or its subsidiaries within the last three years (two years for public sector companies).
2. CEO Role: Has been the CEO of the company, its subsidiaries, or associated companies within the last three years (two years for public sector companies).
3. Material Business Relationship: Has had a significant business relationship with the company in the last three years, either directly or indirectly.
4. Additional Remuneration: Has received remuneration from the company, apart from director’s fees, in the last three years.
5. Close Relatives: Is a close relative of the company’s promoters, directors, or major shareholders.
6. Cross-Directorships: Holds cross-directorships or has significant links with other directors through involvement in other companies.
7. Long Tenure: Has served on the board for more than three consecutive terms (two terms for public sector companies).
8. Nominated by External Parties: Is nominated as a director by creditors, the government, or a corporate body.
9. Public Sector Employment: In the case of public sector companies, is in the service of Pakistan or any government-controlled body.

Consider a company, ABC Ltd., which is looking to strengthen its board with independent oversight. They appoint Jane Doe as an independent director. Jane has no prior employment or business relationship with ABC Ltd. and is not related to any of its directors or major shareholders. She brings a wealth of experience from her previous roles in other industries, providing valuable insights and unbiased judgment.

Role in Governance:
- Oversight: Jane monitors the company’s management and strategic direction, ensuring decisions are made in the best interest of all stakeholders.
- Advisory: She offers independent advice on various business matters, leveraging her expertise to guide the company.
- Compliance: Jane ensures that the company adheres to regulatory requirements and maintains high standards of corporate governance.

By fulfilling these roles, Jane helps ABC Ltd. maintain transparency, accountability, and ethical conduct, ultimately contributing to the company’s long-term success¹².

If you have any more questions or need further details, feel free to ask!

Source: Conversation with Copilot, 12/29/2024
(1) Independent Director: Roles, Qualification, and Corporate Governance. https://www.peakframeworks.com/post/independent-director.
(2) Role of independent directors in corporate governance - iPleaders Blog. https://blog.ipleaders.in/roles-independent-directors-corporate-governance/.
(3) The Role of Independent Directors in Corporate Governance: Balancing …. https://www.directors-institute.com/post/the-role-of-independent-directors-in-corporate-governance-balancing-oversight-and-collaboration-wit.

Selection from Data Bank: Independent directors must be chosen from a data bank that includes names, addresses, and qualifications of eligible and willing individuals. This data bank is maintained by an institute, body, or association notified by the Commission, which has expertise in creating and maintaining such a database¹.

Due Diligence: The responsibility for exercising due diligence before selecting an independent director from the data bank lies with the company or the government making the appointment. This ensures that the selected individual meets all necessary criteria and qualifications.

Election Process and Consent:
- Election: Independent directors of listed companies are elected in the same manner as other directors. The notice for the general meeting where the election takes place must include a statement of material facts, justifying the choice of the appointee.
- Consent: No individual can be included in the data bank without their written consent.

Relaxation in Requirements: The Commission may relax the above requirements if a company provides sufficient justification or demonstrates practical difficulty in complying with them.

Power of Commission: The Commission specifies the manner and procedure for selecting independent directors from the data bank through regulations. The Companies (Manner and Selection of Independent Directors) Regulations, 2018, outline these procedures¹.

Imagine a company, DEF Ltd., needs to appoint a new independent director. They follow these steps:

1. Access Data Bank: DEF Ltd. accesses the data bank maintained by a notified institute to find eligible candidates.
2. Due Diligence: The company conducts thorough due diligence to ensure the selected candidate meets all criteria and has no conflicts of interest.
3. Election: The candidate is elected at the general meeting, with the notice including a detailed justification for their selection.
4. Consent: The candidate’s written consent is obtained before their name is included in the data bank.

By following these steps, DEF Ltd. ensures compliance with the regulations and selects a qualified independent director who can provide unbiased oversight and guidance.

If you have any more questions or need further details, feel free to ask!

¹: SECP - Companies (Manner and Selection of Independent Directors) Regulations, 2018

Source: Conversation with Copilot, 12/29/2024
(1) The Companies (Manner & Selection of Independent Directors) Regulations …. https://www.secp.gov.pk/document/the-companies-manner-selection-of-independent-directors-regulations-2018/.
(2) Regulations - SECP. https://www.secp.gov.pk/laws/regulations/.
(3) Regulations for selection of Independent directors in SECP. https://kkconsultant.net/regulations-for-selection-of-independent-directors-in-secp/.
(4) Home Page : ID Platform. https://www.independentdirectorsdatabank.in/.
(5) Welcome To IICA. https://iica.nic.in/cid_databank.aspx.
(6) Welcome To IICA. https://iica.nic.in/cid_about.aspx.
(7) undefined. https://www.independentdirectorsdatabank.in/news_update/leadership-lessons-by-dr-anil-khandelwal.
(8) undefined. https://www.independentdirectorsdatabank.in/news_update/sa-600-audit-quality.
(9) undefined. https://www.youtube.com/embed/KRxx6se1ZuE.
(10) undefined. https://www.independentdirectorsdatabank.in/news_update/opportunities-challenges-in-transforming-healthcare-strategic-pathways-for-boards.
(11) undefined. https://www.independentdirectorsdatabank.in/news_update/ai-leadership-for-boards-the-future-of-corporate-governance.
(12) undefined. https://www.youtube.com/embed/An1VEPo_GCo.
(13) undefined. https://www.independentdirectorsdatabank.in/news_update/futurereadiness-design-the-future-of-your-business.
(14) undefined. https://www.youtube.com/embed/KEUYffnAxYo.
(15) undefined. https://www.independentdirectorsdatabank.in/news_update/the-dirty-dozen-indias-twelve-biggest-corporate-defaulters.
(16) undefined. https://www.youtube.com/embed/ez7-KuMCq_k.

To be included in the data bank of independent directors, an individual must meet specific educational and experience criteria, as well as demonstrate a willingness to fulfill the responsibilities of the role.

1. Educational Qualification:
   
   • Graduate Degree: The individual must hold at least a graduate degree from a university recognized by the Higher Education Commission of Pakistan.
   • Professional Body Membership: Alternatively, the individual can be a member of a professional body.
2. Relevant Experience:
   
   • Five Years of Experience: The individual must have at least five years of relevant experience in fields such as finance, law, management, sales, marketing, administration, research, corporate governance, technical operations, or other relevant disciplines.
   • Fifteen Years of Experience: Alternatively, the individual can have at least fifteen years of relevant work experience in the aforementioned fields.
3. Willingness to Act:
   
   • The individual must be willing to act as an independent director and confirm that they will devote reasonable time to the company’s affairs to discharge their responsibilities effectively.

A professional body is defined as:
- Established in Pakistan: Governed under a special enactment of the Federal Government, managed by a representative National Council, and having a prescribed minimum criterion of examination and membership.
- Established Outside Pakistan: Governed under a special enactment in its country of origin and a member of the relevant international body.

Every independent director, after being appointed or elected to the board, must complete a Directors’ Training Program. This program ensures that directors are well-versed in corporate governance principles and can effectively fulfill their roles.

Consider an individual, Ali, who wishes to be included in the data bank of independent directors:

1. Educational Qualification: Ali holds a graduate degree in Business Administration from a recognized university.
2. Relevant Experience: He has over ten years of experience in corporate governance and finance.
3. Willingness to Act: Ali is willing to act as an independent director and commits to dedicating sufficient time to the company’s affairs.

Ali meets the criteria and submits his application to the data bank. Upon appointment, he completes the Directors’ Training Program to ensure he is fully prepared for his role.

If you have any more questions or need further details, feel free to ask!

Source: Conversation with Copilot, 12/29/2024
(1) About Director Training Program - PICG. https://picg.org.pk/director-training-program-dtp/.
(2) CHAPTER VII Directors’ Training Program - Pakistan Stock Exchange Limited. https://www.psx.com.pk/psx/themes/psx/uploads/CHAPTER-VII-of-Listed-Companies-%28Code-of-Corporate-Governance%29-Regulations-2017.pdf.
(3) Directors’ Training Program. https://cee.iba.edu.pk/dtp-may2025.php.
(4) undefined. http://www.picg.org.pk.
(5) undefined. https://www.icap.net.pk/dtp/certified-directors.php.
(6) undefined. http://redc.lums.edu.pk.
(7) undefined. https://www.secp.gov.pk/document/list-of-approved-director-training-programs/.

Information on Registration: The institute responsible for maintaining the data bank must provide clear information on the registration process, eligibility criteria, fees, required documents, and other relevant details on its website. This information should be easily accessible and downloadable by applicants.

Inclusion and Retention: The institute can determine the necessary measures, conditions, and procedures for including and retaining individuals in the data bank. This ensures that only qualified and willing individuals are listed.

Fees: With prior approval from the Commission, the institute may set a fee for individuals to be included and retained in the data bank.

Accuracy of Information: Individuals included in the data bank are responsible for the accuracy, adequacy, and completeness of the information they provide. They must update their details in case of any changes.

Due Diligence: Companies must exercise due diligence before selecting an individual from the data bank for appointment as an independent director. This includes requiring the individual to submit an undertaking on a non-judicial stamp paper, confirming they meet the regulatory requirements, along with supporting information.

Institute’s Disclaimer: The institute must display disclaimers on its website, stating:
- The responsibility of due diligence lies with the appointing company.
- Inclusion in the data bank does not guarantee selection as an independent director.
- The institute does not guarantee the accuracy or reliability of the information in the data bank.
- The institute is not responsible for any legal contraventions by companies or directors due to the selection of an independent director from the data bank.

Independent and non-executive directors are only held liable for acts of omission or commission by a listed company or public sector company if these acts occurred with their knowledge, through board processes, and with their consent or connivance, or if they failed to act diligently.

Imagine a company, GHI Ltd., needs to appoint an independent director. They follow these steps:

1. Access Data Bank: GHI Ltd. accesses the data bank maintained by the institute to find eligible candidates.
2. Due Diligence: The company conducts thorough due diligence, ensuring the selected candidate meets all criteria and has no conflicts of interest. The candidate provides an undertaking confirming their eligibility.
3. Election: The candidate is elected at the general meeting, with the notice including a detailed justification for their selection.
4. Disclaimer: GHI Ltd. acknowledges the institute’s disclaimer that inclusion in the data bank does not guarantee selection and that the institute is not responsible for any legal issues arising from the appointment.

By following these steps, GHI Ltd. ensures compliance with regulations and selects a qualified independent director who can provide unbiased oversight and guidance¹².

If you have any more questions or need further details, feel free to ask!

¹: SECP - Independent Directors’ Data Bank
²: SECP - Companies (Manner and Selection of Independent Directors) Regulations, 2018

Source: Conversation with Copilot, 12/29/2024
(1) Independent directors’ databank gets operational - SECP. https://www.secp.gov.pk/media-center/press-releases/independent-directors-databank-gets-operational/.
(2) Securities and Exchange Commission of Pakistan - secp.gov.pk. https://www.secp.gov.pk/wp-content/uploads/2018/07/Press-Release-July-16-Independent-directors’-databank-gets-operational.pdf.
(3) SECP notifies regulations on selection of independent directors. https://www.secp.gov.pk/wp-content/uploads/2018/03/Press-Release-March-16-SECP-notifies-regulations-on-selection-of-independent-directors.pdf.
(4) Section 150. Manner of selection of independent directors and …. https://ca2013.com/150-manner-of-selection-of-independent-directors-and-maintenance-of-databank-of-independent-directors/.
(5) Databank of Independent Directors - Tax Guru. https://taxguru.in/company-law/databank-indpendent-directors.html.
(6) Manner of selection of independent directors and maintenance of …. https://incometaxindia.gov.in/Acts/Companies%20Act,%202013/102120000000029695.htm.
(7) undefined. http://picg.org.pk/databank3.
(8) undefined. https://www.secp.gov.pk/wp-content/uploads/2018/07/Press-Release-July-16-Independent-directors.

Question 3

Independent director

Answer 3

A non-executive director (NED) plays a crucial role on a company’s board by providing independent oversight and constructive challenge to the executive directors. Here are the key points about non-executive directors, along with some examples to illustrate their role:

1. Not Part of Executive Management: NEDs are not involved in the day-to-day management of the company. They do not hold executive positions within the company.
2. Outside Viewpoint: They bring an external perspective to the board, which can help in making balanced and unbiased decisions.
3. Limited Time Commitment: NEDs do not devote their entire working time to the company. They typically attend board meetings and provide their expertise as needed.
4. No Beneficial Ownership: They are not beneficial owners of the company or its associated companies, ensuring their independence.
5. Remuneration: NEDs usually receive a meeting fee for their participation, rather than a salary or other forms of remuneration.

Imagine a company, XYZ Ltd., which is planning to launch a new product. The board includes several executive directors who are deeply involved in the company’s operations. To ensure a balanced decision-making process, XYZ Ltd. has appointed two non-executive directors:

1. Independent Oversight: The NEDs review the proposed product launch plan. They ask critical questions about the market research, financial projections, and potential risks. Their independent viewpoint helps identify any overlooked issues.
2. Strategic Guidance: One of the NEDs has extensive experience in the industry. They provide valuable insights and strategic advice, helping the company refine its approach to the product launch.
3. Monitoring Performance: After the product launch, the NEDs continue to monitor its performance. They ensure that the executive team remains accountable and that the company’s resources are used effectively.

By bringing an independent and external perspective, non-executive directors help ensure that the company’s decisions are well-rounded and in the best interest of all stakeholders¹².

If you have any more questions or need further details, feel free to ask!

Source: Conversation with Copilot, 12/29/2024
(1) What is the role of the non-executive director? | Factsheets | IoD. https://www.iod.com/resources/company-structure/what-is-the-role-of-the-non-executive-director/.
(2) Non-Executive Director Role and Responsibilities Defined - Investopedia. https://www.investopedia.com/terms/n/non-executive-director.asp.
(3) Non-Executive Director: Definition, Duties and Benefits. https://www.indeed.com/career-advice/finding-a-job/what-is-non-executive-director.

An independent director plays a vital role in ensuring the integrity and transparency of a company’s governance. Let’s break down the definition and criteria for an independent director, along with some examples to illustrate their role.

An independent director is a board member who:
- Lacks Connections: Has no significant relationship, financial or otherwise, with the company, its subsidiaries, holding company, or directors.
- Independent Judgment: Can make decisions without any conflicts of interest, ensuring unbiased business judgment.
- Not an Executive: Cannot be an executive director, meaning they are not involved in the daily operations of the company.

A director is not considered independent if any of the following conditions apply:

1. Recent Employment: Has been an employee of the company or its subsidiaries within the last three years (two years for public sector companies).
2. CEO Role: Has been the CEO of the company, its subsidiaries, or associated companies within the last three years (two years for public sector companies).
3. Material Business Relationship: Has had a significant business relationship with the company in the last three years, either directly or indirectly.
4. Additional Remuneration: Has received remuneration from the company, apart from director’s fees, in the last three years.
5. Close Relatives: Is a close relative of the company’s promoters, directors, or major shareholders.
6. Cross-Directorships: Holds cross-directorships or has significant links with other directors through involvement in other companies.
7. Long Tenure: Has served on the board for more than three consecutive terms (two terms for public sector companies).
8. Nominated by External Parties: Is nominated as a director by creditors, the government, or a corporate body.
9. Public Sector Employment: In the case of public sector companies, is in the service of Pakistan or any government-controlled body.

Consider a company, ABC Ltd., which is looking to strengthen its board with independent oversight. They appoint Jane Doe as an independent director. Jane has no prior employment or business relationship with ABC Ltd. and is not related to any of its directors or major shareholders. She brings a wealth of experience from her previous roles in other industries, providing valuable insights and unbiased judgment.

Role in Governance:
- Oversight: Jane monitors the company’s management and strategic direction, ensuring decisions are made in the best interest of all stakeholders.
- Advisory: She offers independent advice on various business matters, leveraging her expertise to guide the company.
- Compliance: Jane ensures that the company adheres to regulatory requirements and maintains high standards of corporate governance.

By fulfilling these roles, Jane helps ABC Ltd. maintain transparency, accountability, and ethical conduct, ultimately contributing to the company’s long-term success¹².

If you have any more questions or need further details, feel free to ask!

Source: Conversation with Copilot, 12/29/2024
(1) Independent Director: Roles, Qualification, and Corporate Governance. https://www.peakframeworks.com/post/independent-director.
(2) Role of independent directors in corporate governance - iPleaders Blog. https://blog.ipleaders.in/roles-independent-directors-corporate-governance/.
(3) The Role of Independent Directors in Corporate Governance: Balancing …. https://www.directors-institute.com/post/the-role-of-independent-directors-in-corporate-governance-balancing-oversight-and-collaboration-wit.

Selection from Data Bank: Independent directors must be chosen from a data bank that includes names, addresses, and qualifications of eligible and willing individuals. This data bank is maintained by an institute, body, or association notified by the Commission, which has expertise in creating and maintaining such a database¹.

Due Diligence: The responsibility for exercising due diligence before selecting an independent director from the data bank lies with the company or the government making the appointment. This ensures that the selected individual meets all necessary criteria and qualifications.

Election Process and Consent:
- Election: Independent directors of listed companies are elected in the same manner as other directors. The notice for the general meeting where the election takes place must include a statement of material facts, justifying the choice of the appointee.
- Consent: No individual can be included in the data bank without their written consent.

Relaxation in Requirements: The Commission may relax the above requirements if a company provides sufficient justification or demonstrates practical difficulty in complying with them.

Power of Commission: The Commission specifies the manner and procedure for selecting independent directors from the data bank through regulations. The Companies (Manner and Selection of Independent Directors) Regulations, 2018, outline these procedures¹.

Imagine a company, DEF Ltd., needs to appoint a new independent director. They follow these steps:

1. Access Data Bank: DEF Ltd. accesses the data bank maintained by a notified institute to find eligible candidates.
2. Due Diligence: The company conducts thorough due diligence to ensure the selected candidate meets all criteria and has no conflicts of interest.
3. Election: The candidate is elected at the general meeting, with the notice including a detailed justification for their selection.
4. Consent: The candidate’s written consent is obtained before their name is included in the data bank.

By following these steps, DEF Ltd. ensures compliance with the regulations and selects a qualified independent director who can provide unbiased oversight and guidance.

If you have any more questions or need further details, feel free to ask!

¹: SECP - Companies (Manner and Selection of Independent Directors) Regulations, 2018

Source: Conversation with Copilot, 12/29/2024
(1) The Companies (Manner & Selection of Independent Directors) Regulations …. https://www.secp.gov.pk/document/the-companies-manner-selection-of-independent-directors-regulations-2018/.
(2) Regulations - SECP. https://www.secp.gov.pk/laws/regulations/.
(3) Regulations for selection of Independent directors in SECP. https://kkconsultant.net/regulations-for-selection-of-independent-directors-in-secp/.
(4) Home Page : ID Platform. https://www.independentdirectorsdatabank.in/.
(5) Welcome To IICA. https://iica.nic.in/cid_databank.aspx.
(6) Welcome To IICA. https://iica.nic.in/cid_about.aspx.
(7) undefined. https://www.independentdirectorsdatabank.in/news_update/leadership-lessons-by-dr-anil-khandelwal.
(8) undefined. https://www.independentdirectorsdatabank.in/news_update/sa-600-audit-quality.
(9) undefined. https://www.youtube.com/embed/KRxx6se1ZuE.
(10) undefined. https://www.independentdirectorsdatabank.in/news_update/opportunities-challenges-in-transforming-healthcare-strategic-pathways-for-boards.
(11) undefined. https://www.independentdirectorsdatabank.in/news_update/ai-leadership-for-boards-the-future-of-corporate-governance.
(12) undefined. https://www.youtube.com/embed/An1VEPo_GCo.
(13) undefined. https://www.independentdirectorsdatabank.in/news_update/futurereadiness-design-the-future-of-your-business.
(14) undefined. https://www.youtube.com/embed/KEUYffnAxYo.
(15) undefined. https://www.independentdirectorsdatabank.in/news_update/the-dirty-dozen-indias-twelve-biggest-corporate-defaulters.
(16) undefined. https://www.youtube.com/embed/ez7-KuMCq_k.

To be included in the data bank of independent directors, an individual must meet specific educational and experience criteria, as well as demonstrate a willingness to fulfill the responsibilities of the role.

1. Educational Qualification:
   
   • Graduate Degree: The individual must hold at least a graduate degree from a university recognized by the Higher Education Commission of Pakistan.
   • Professional Body Membership: Alternatively, the individual can be a member of a professional body.
2. Relevant Experience:
   
   • Five Years of Experience: The individual must have at least five years of relevant experience in fields such as finance, law, management, sales, marketing, administration, research, corporate governance, technical operations, or other relevant disciplines.
   • Fifteen Years of Experience: Alternatively, the individual can have at least fifteen years of relevant work experience in the aforementioned fields.
3. Willingness to Act:
   
   • The individual must be willing to act as an independent director and confirm that they will devote reasonable time to the company’s affairs to discharge their responsibilities effectively.

A professional body is defined as:
- Established in Pakistan: Governed under a special enactment of the Federal Government, managed by a representative National Council, and having a prescribed minimum criterion of examination and membership.
- Established Outside Pakistan: Governed under a special enactment in its country of origin and a member of the relevant international body.

Every independent director, after being appointed or elected to the board, must complete a Directors’ Training Program. This program ensures that directors are well-versed in corporate governance principles and can effectively fulfill their roles.

Consider an individual, Ali, who wishes to be included in the data bank of independent directors:

1. Educational Qualification: Ali holds a graduate degree in Business Administration from a recognized university.
2. Relevant Experience: He has over ten years of experience in corporate governance and finance.
3. Willingness to Act: Ali is willing to act as an independent director and commits to dedicating sufficient time to the company’s affairs.

Ali meets the criteria and submits his application to the data bank. Upon appointment, he completes the Directors’ Training Program to ensure he is fully prepared for his role.

If you have any more questions or need further details, feel free to ask!

Source: Conversation with Copilot, 12/29/2024
(1) About Director Training Program - PICG. https://picg.org.pk/director-training-program-dtp/.
(2) CHAPTER VII Directors’ Training Program - Pakistan Stock Exchange Limited. https://www.psx.com.pk/psx/themes/psx/uploads/CHAPTER-VII-of-Listed-Companies-%28Code-of-Corporate-Governance%29-Regulations-2017.pdf.
(3) Directors’ Training Program. https://cee.iba.edu.pk/dtp-may2025.php.
(4) undefined. http://www.picg.org.pk.
(5) undefined. https://www.icap.net.pk/dtp/certified-directors.php.
(6) undefined. http://redc.lums.edu.pk.
(7) undefined. https://www.secp.gov.pk/document/list-of-approved-director-training-programs/.

Information on Registration: The institute responsible for maintaining the data bank must provide clear information on the registration process, eligibility criteria, fees, required documents, and other relevant details on its website. This information should be easily accessible and downloadable by applicants.

Inclusion and Retention: The institute can determine the necessary measures, conditions, and procedures for including and retaining individuals in the data bank. This ensures that only qualified and willing individuals are listed.

Fees: With prior approval from the Commission, the institute may set a fee for individuals to be included and retained in the data bank.

Accuracy of Information: Individuals included in the data bank are responsible for the accuracy, adequacy, and completeness of the information they provide. They must update their details in case of any changes.

Due Diligence: Companies must exercise due diligence before selecting an individual from the data bank for appointment as an independent director. This includes requiring the individual to submit an undertaking on a non-judicial stamp paper, confirming they meet the regulatory requirements, along with supporting information.

Institute’s Disclaimer: The institute must display disclaimers on its website, stating:
- The responsibility of due diligence lies with the appointing company.
- Inclusion in the data bank does not guarantee selection as an independent director.
- The institute does not guarantee the accuracy or reliability of the information in the data bank.
- The institute is not responsible for any legal contraventions by companies or directors due to the selection of an independent director from the data bank.

Independent and non-executive directors are only held liable for acts of omission or commission by a listed company or public sector company if these acts occurred with their knowledge, through board processes, and with their consent or connivance, or if they failed to act diligently.

Imagine a company, GHI Ltd., needs to appoint an independent director. They follow these steps:

1. Access Data Bank: GHI Ltd. accesses the data bank maintained by the institute to find eligible candidates.
2. Due Diligence: The company conducts thorough due diligence, ensuring the selected candidate meets all criteria and has no conflicts of interest. The candidate provides an undertaking confirming their eligibility.
3. Election: The candidate is elected at the general meeting, with the notice including a detailed justification for their selection.
4. Disclaimer: GHI Ltd. acknowledges the institute’s disclaimer that inclusion in the data bank does not guarantee selection and that the institute is not responsible for any legal issues arising from the appointment.

By following these steps, GHI Ltd. ensures compliance with regulations and selects a qualified independent director who can provide unbiased oversight and guidance¹².

If you have any more questions or need further details, feel free to ask!

¹: SECP - Independent Directors’ Data Bank
²: SECP - Companies (Manner and Selection of Independent Directors) Regulations, 2018

Source: Conversation with Copilot, 12/29/2024
(1) Independent directors’ databank gets operational - SECP. https://www.secp.gov.pk/media-center/press-releases/independent-directors-databank-gets-operational/.
(2) Securities and Exchange Commission of Pakistan - secp.gov.pk. https://www.secp.gov.pk/wp-content/uploads/2018/07/Press-Release-July-16-Independent-directors’-databank-gets-operational.pdf.
(3) SECP notifies regulations on selection of independent directors. https://www.secp.gov.pk/wp-content/uploads/2018/03/Press-Release-March-16-SECP-notifies-regulations-on-selection-of-independent-directors.pdf.
(4) Section 150. Manner of selection of independent directors and …. https://ca2013.com/150-manner-of-selection-of-independent-directors-and-maintenance-of-databank-of-independent-directors/.
(5) Databank of Independent Directors - Tax Guru. https://taxguru.in/company-law/databank-indpendent-directors.html.
(6) Manner of selection of independent directors and maintenance of …. https://incometaxindia.gov.in/Acts/Companies%20Act,%202013/102120000000029695.htm.
(7) undefined. http://picg.org.pk/databank3.
(8) undefined. https://www.secp.gov.pk/wp-content/uploads/2018/07/Press-Release-July-16-Independent-directors.