1. 1 Rights & Powers of Shareholders & Directors

2. 2 Powers of Directors Sources of Power Sources of Power By and large, absolute powers vest in the directors By and large, absolute powers vest in the directors The issue of collective and individual powers The issue of collective and individual powers Executive Directors Executive Directors Non-executive Directors Non-executive Directors Members of Board Committees Members of Board Committees

3. 3 Sources of Power Companies Act Companies Act Table A Table A Articles of Association of the Co. Articles of Association of the Co. Special Resolution of AGM Special Resolution of AGM Practice in the business world Practice in the business world

4. 4 Borrowing Powers How much can a Board borrow? How much can a Board borrow? Is it only a lenders’ problem, or should the other stakeholders also have a say? Is it only a lenders’ problem, or should the other stakeholders also have a say? Regulatory constraints on lenders (e.g. Prudential Regulations of SBP) Regulatory constraints on lenders (e.g. Prudential Regulations of SBP) What if the company borrows from non-formal sector? What if the company borrows from non-formal sector? Tax implications Tax implications

5. 5 Duties of Directors To act in the best interest of the company To act in the best interest of the company Accountability to owners Accountability to owners Statutory duties Statutory duties Care and Skill Duty Care and Skill Duty

6. 6 Statutory Duties Keep minutes of their meetings Keep minutes of their meetings Deliver a copy of Annual report and accounts to SECP Deliver a copy of Annual report and accounts to SECP Maintain proper books Maintain proper books File all periodic returns File all periodic returns Fiduciary duties (Trustee) Fiduciary duties (Trustee) To take due care and diligence To take due care and diligence Other duties under Stock Exchange Rules Other duties under Stock Exchange Rules

7. 7 Test of Fiduciary Duty Transactions should be reasonably incidental to the business of the company. Transactions should be reasonably incidental to the business of the company. Transactions should be bona-fide (good faith) Transactions should be bona-fide (good faith) Transactions should be for the benefit of the company. Transactions should be for the benefit of the company. No conflict of interest No conflict of interest

8. 8 Skill & Care Duty Do not agree to be a director if you are not fit to be a director. Do not agree to be a director if you are not fit to be a director. Must have necessary knowledge, skill and background / experience that is reasonably expected of a director of a particular company. Must have necessary knowledge, skill and background / experience that is reasonably expected of a director of a particular company. Should exercise the degree of care, caution and skill that can reasonably be expected from them as directors. Should exercise the degree of care, caution and skill that can reasonably be expected from them as directors.

9. 9 Delegation of Duties Law permits delegation Law permits delegation But does the responsibility remain with directors? (Governance Issue) But does the responsibility remain with directors? (Governance Issue) Issues in Delegation: Issues in Delegation: Was it properly delegated. Was it properly delegated. Was it properly supervised. Was it properly supervised. The system of oversight and accountability over delegates. The system of oversight and accountability over delegates.

10. 10 Care & Skill by NEDs Pak law does not differentiate between EDs and NEDs – as yet. Pak law does not differentiate between EDs and NEDs – as yet. If NEDs are paid (as in West), a letter of appointment should define extent and nature of duties and responsibilities. If NEDs are paid (as in West), a letter of appointment should define extent and nature of duties and responsibilities. NEDs should have access to all they need to perform their tasks NEDs should have access to all they need to perform their tasks

11. 11 Directors’ Liability Only if they are proved to be negligent, or a willful party to fraud. Only if they are proved to be negligent, or a willful party to fraud. If not negligent or willful party to a fraud, directors are generally covered by the company. If not negligent or willful party to a fraud, directors are generally covered by the company. Companies may obtain insurance: Companies may obtain insurance: For liability of directors For liability of directors For losses arising from directors For losses arising from directors

12. 12 Dealings with Directors All deals must be fair All deals must be fair No loans to directors or connected persons No loans to directors or connected persons Disclosure of conflict of interest Disclosure of conflict of interest Prevention of misuse of information Prevention of misuse of information As a rule, all substantial transactions should be presented to shareholders. As a rule, all substantial transactions should be presented to shareholders. Related party transaction disclosure Related party transaction disclosure

13. 13 Directors duties to Stakeholders other than shareholders Employees Employees Except for explicit reasons, directors have no duty to outsiders. Except for explicit reasons, directors have no duty to outsiders. Irregular contracts may be binding on the company if outsider acts in good faith. Irregular contracts may be binding on the company if outsider acts in good faith.

14. 14 Other Issues re directors Notification to company of interests Notification to company of interests Register of directors’ interests Register of directors’ interests Dealing in company’s shares? Dealing in company’s shares? Market Abuse Market Abuse Insider Trading Insider Trading Moral Code Moral Code Disqualification Disqualification

15. 15 Types of Directors Executive / Non-executive Executive / Non-executive De facto director De facto director Shadow director Shadow director Alternate director Alternate director

16. 16 Shareholders’ Powers Voting power Voting power Cumulative voting rights Cumulative voting rights Matters covered by voting: Matters covered by voting: Election /removal of directors Election /removal of directors Proxy: use of proxy votes Proxy: use of proxy votes Rights issue of shares Rights issue of shares