The Securities and Exchange Commission of Pakistan (SECP) issues directives to companies, emphasizing due diligence in selecting independent directors. This aligns with SECP’s commitment to transparent and responsible corporate governance.
Companies must now select independent directors from a databank maintained by the Pakistan Institute of Corporate Governance, as per SECP’s latest document. S.R.O. 73(I)/2018, dated January 25, 2018, aims to enhance the quality and credibility of independent directors.
SECP introduces the Companies (Manner and Selection of Independent Directors) Regulations, 2018 (ID Regulations) through SRO 556(I)/2018, dated April 26, 2018. These regulations outline additional compliance requirements for selecting independent directors.
To ensure transparency, companies must perform due diligence before nominating individuals for the independent director position. Additionally, companies must provide justification for their selection in the statement of material facts, as per Section 166(3) of the Act.
SECP introduces category-wise voting for director elections through amendments in the Corporate Governance Regulations via SRO 906(I)/2023. This three-tier voting structure includes categories for female, independent, and other directors.
To avoid legal complications, a maximum of one seat is allocated for the female category, while for independent directors, the limit is set at two or one-third of the Board, whichever is higher. Importantly, there is no restriction on the total number of female or independent directors.
Members have the discretion to cast their votes for candidates in each category, ensuring a fair and democratic election process. The division of votes is based on a category-wise basis, proportionate to the number of director seats.
In conclusion, SECP’s recent amendments provide a comprehensive framework for companies to adhere to while electing independent directors. By prioritizing due diligence and embracing category-wise voting, companies can contribute to fostering transparent and accountable corporate governance.
