Corporate Governance Report (1)

Corporate Governance 2013

Pak Brunei Investment Company


LETTER OF TRANSMITTAL

April 19, 2013

Mr. Humayun Zafar Choudhry

Assistant Professor

Institute of Business Management

Karachi.

Dear Mr. Choudhry,

Attached please find our term report titled “Corporate Governance in Pak

Brunei Investment Company Limited”.

This report revolves around various aspects of the Code of Corporate

Governance practiced at Pak Brunei Investment Company Limited. Also

discussed are the role and responsibilities of the BOD, Various Committees,

Company Secretary, and other such related matters.

We hope you find this report satisfactory.

Sincerely yours,

Iqbal Lalani Std Id: 11041

Saad Mateen Std Id: 10998

Talha Hassan Std Id: 11520

Valencia Pinto Std Id: 11075

Zoya Hafeez Ahmed Std Id: 13863



Table of Contents

Definition of Corporate Governance...........................................................................................................4

Corporate Governance in Pakistan..............................................................................................................4

Introduction of the Company......................................................................................................................4

Responsibility of the Board:.........................................................................................................................5

Performance Measurement Review............................................................................................................6

Composition of the Board...........................................................................................................................7

Board and Senior Management Remuneration...........................................................................................9

Compensation of Directors and Executives for the year ended 2011..............................................9

Meetings....................................................................................................................................................10

Board meetings:.............................................................................................................................10

Audit Committee:..........................................................................................................................10

Human Resource Committee:........................................................................................................11

Management Committees.............................................................................................................11

Role of Company Secretary.......................................................................................................................12

Information...............................................................................................................................................12

Register of Interest....................................................................................................................................13

Voting at Share Holders Meetings.............................................................................................................13

Financial Statements.................................................................................................................................13

Board Appointments.................................................................................................................................14

Audit..........................................................................................................................................................14

Environmental Concerns...........................................................................................................................14

Succession Planning...................................................................................................................................15

Conclusion.................................................................................................................................................16

References.................................................................................................................................................17



Definition of Corporate Governance

"Corporate governance is the system by which companies are directed and

controlled. The boards of directors are responsible for the governance of their

companies. The shareholder’s role in governance is to appoint the directors and

the auditors to satisfy themselves that an appropriate governance structure is in

place. The responsibilities of the board include setting the company’s strategic

aims, providing the leadership to put them into effect, supervising the

management of the business and reporting to shareholders on their stewardship.

The board’s actions are subject to laws, regulations and the shareholders in

general meeting."

Cadbury Report Definition of Corporate Governance

Corporate Governance in Pakistan

The Securities and Exchange Commission of Pakistan (SECP) endeavored to

raise the corporate governance standards in the country. The first major

effort was made in March 2002, when the Code of Corporate Governance

(Code) was issued by SECP under the chairmanship of Khalid Mirza. It was

subsequently made part of the listing regulations of the three stock

exchanges and became applicable to all public listed companies. The Code

is a first step in the systematic implementation of principles of good

corporate governance in Pakistan.

Furthermore, in order to keep pace with the constantly evolving corporate

sector and financial markets and the resultant governance benchmarks, the

process of revising the Code was initiated which resulted in the revised

Code of Corporate Governance, 2012 which the Federal Minister for

Finance Dr. Abdul Hafeez Shaikh launched at a formal ceremony organized

by the Securities and Exchange Commission of Pakistan (SECP), on April

10, 2012.



Introduction of the Company

Pak Brunei Investment Company is an Investment Finance Company

established as a joint venture between Government of Pakistan and Brunei

Investment Agency (BIA). The Company commenced operations in August

2007 after its notification as a Development Finance Institution.

Pak Brunei defines itself as a full service Merchant Bank which includes all

Investment Banking activities such as Project Finance, Corporate Finance &

Advisory Services, Treasury/ Trading and Distribution as well as Capital

Market operations. Since commencement, the Company has successfully

closed a number of Advisory mandates including arrangement of financing

through syndications of almost PKR 35 billion for a diverse client pool. Deal

credentials include financing Greenfield and BMR projects, Rehabilitation

mandates, Mergers, Acquisitions and Strategic Advisory transactions.

It is relevant to mention here that the Code was made applicable to the

Company through regulation G-1 of the Prudential Regulations for

Corporate / Commercial Banking issued by the State Bank of Pakistan.

Though PBICL is not a listed company, it follows the Code of Corporate

Governance as a GOOD GOVERNANCE practice, to the maximum of its

abilities.

Organogram



Responsibility of the Board:

The Board assumes its role independent of the influence of the

management. It knows its responsibilities and powers in clear terms. The

Board is accountable for overall supervision of the risk management

process. They also meet every quarter to consider the following:

Approval of quarterly results

Approval of Budget, Business plans

Approval of the Annual Report and Accounts

Approval of overall policies, supervising and ensuring their proper

implementation

Approval and monitoring of corporate strategy and objectives to

achieve Company mission under the overall vision provided to

management

Ensuring that systems and controls are in place in the Company so

that transactions that take place are within company policy and

regulatory requirements

Defines the authorities and responsibilities of the senior management

Regular, periodic and independent contact with Internal audit

As mentioned in the responsibilities above, the board of directors focuses on

approval of policies, general direction, oversight and supervision of the


Board of Directors

Company Secretary / Chief Financial Officer Managing Director

Group Head Operations

Chief Information Officer

Senior Manager, Capital Markets Head of Compliance Head of Credit Risk

Group Head, Corporate and SME

Banking Group

Group Head – Advisory & Strategic Investment Group

Head Administration & HR

---------------------------- Head of Internal Audit

Board Audit Committee


affairs and business and does not play any role in the day to day operations,

as that is the role of the management.

The Board is the ultimate governance body of the Company. The Board

attends to all matters which are not reserved to the General Meeting or

another governance body of the Company by law, the Articles of Association

or these Regulations.

Performance Measurement Review

Meetings are held at regular intervals in which the Company reviews the

terms of reference of Board and subcommittees when needed. Reports are

produced on a yearly basis detailing the board’s objectives for that year and

progress against these objectives. However, no third party evaluation of the

Board, such as by an external auditor takes place at Pak Brunei.

PBICL has an audit committee as mentioned below, with its meetings being

conducted quarterly. At each of these meetings, Internal Auditor presents

all outstanding Audit findings to the Board Audit Committee, ranking these

in terms of critical impact on the Company. The Quarterly results are

reviewed by the internal auditors, while the half yearly and annual results

are reviewed by both the internal and external auditors.

The Board’s Audit Committee recommends decisions to be taken by the

Board of Directors. The Audit Committee does not include the CEO. There is

an independent internal audit function within the company who reports to

the Audit Committee.



The external auditors are rotated after 05(five) years as per requirements of

the Code of Corporate Governance and it is mandatory to produce an

internal audit plan which is reviewed annually.

Composition of the Board

Member of the Board of Directors of the Company are appointed by the

Government of Islamic Republic of Pakistan (GoP), represented by Ministry

of Finance, and the Brunei Investment Agency (BIA). The GoP and the BIA

both appoint two directors on their behalf who are nominated directors.

There are therefore 4 (four) directors serving on the board of PBICL.

At present three (03) directors are Non – Executive directors and one (01)

director is an executive director. Out of which the Pakistani nominated

directors are Certified Directors through Pakistan Institute of Corporate

Governance. One of the weaknesses of the Corporate Structure of the

Company is that there are only four directors on the Board and the

Managing Director is always the nominee of one shareholder. This means

that the full Board has no real authority in appointment of the Managing

Director.

The Board members are nominated for a three year term that can be

renewed by the nominating shareholder. In this Company, the positive

aspect is that directors are all highly qualified and experienced. Directors

from Brunei are on the Boards of companies around the world and bring an

international perspective to the Board.

In the past also, Board members have included CFAs and Chartered

Accountants. A negative however is that the Board size is too small and

there are no independent members.



Present Board includes:

Hjh Hartini binti Haji Abdullah – Chairperson (Non Executive)

Appointed in 2010 as Chairperson of Pak Brunei Investment Company,

Hjh Hartini is currently the Managing Director of Brunei Investment

Agency. Prior to holding this position, she was Assistant Managing

Director responsible for the Agency's global exposures in publicly

listed equity and fixed income markets. Hjh Hartini obtained her BSc

and MBA from the UK.

Ms. Sumaira K. Aslam – (Non Executive Director)

Ms. Aslam brings over twenty five years of experience in Public

Finance, Commerce and Trade issues relating to Government,

Multinationals and International agencies. She has worked in the

Ministry of Finance, Pakistan in various positions and has previously

also held the position of Commercial Counselor and Alternate

Permanent Representative to UNESCAP for Pakistan in Bangkok.

Ms. Aslam holds finance degrees from LSE and Georgetown

University. She has also attended numerous training programs of the

World Bank and IMF. She has been on teaching faculty of UMASS,

Amherst; Williams College, USA.

Mr.Junaidi bin Haji Masri – (Non Executive Director)

Mr. Masri joined the Brunei Investment Agency in 1991. As Assistant

Managing Director, he heads Venture Capital and Strategic

Investments, managing the Agency's investments across several

countries. He has a deep understanding of international markets and

asset classes.



Mr. Masri holds a B.Sc Degree in Computer and Management

Sciences from Keele University, United Kingdom.

Ms. Ayesha Aziz - Managing Director (Executive)

Ms. Aziz was responsible for setting up Pak Brunei Investment

Company and succeeded in positioning it at the forefront amongst its

larger and more established peers, in terms of size and profitability.

Ms. Aziz has rich and diverse experience in investment banking, asset

management, treasury, and portfolio management. Subsequently, Ms.

Aziz was involved in establishing and managing business operations

and subsidiaries of Pak Oman Investment Company, including a

Microfinance bank and an Asset Management company, where she

acted as a member on the board and CEO, respectively. She was also

responsible for developing a regional investor base comprising private

and public sector institutions, successfully raising equity for telecom,

energy and financial sector transactions in Pakistan.

Ms. Aziz is an MBA from the Institute of Business Administration and

a CFA Charterholder.

Board and Senior Management Remuneration

PBICL has a Human Resource Committee of the Board as mentioned below.

There is also a written remuneration policy of Company, but they do not

disclose the policy in the annual report. However, the company does

disclose the remuneration given to the board members and the senior

management of PBICL in their annual reports.



Compensation

Compensation of Directors and Executives for the year ended 2011

(Rupees in ‘000)

*Chief

Executive

Directors **Executiv

es

Fees - - -

Managerial Remuneration 21,200 - 67,406

Contribution to defined

contribution plan

1,055 - 3,430

Utilities 303 - 14,460

Medical 341 - 2,153

Travelling Allowances 228 3,234 302

23,127 3,234 87,751

*The Chief Executive is also provided with a Company maintained car.

**Executives mean employees other than the Managing Director and

Directors, whose basic salary exceeds five hundred thousand rupees in a

financial year.

Meetings

Board meetings:

The Board meetings are conducted quarterly.

Composition

Names Directorship

Hjh Hartini binti Haji

AbdullahChairperson Non Executive

Mr. Junaidi bin Haji Masri Director Non Executive

Ms. Sumaira Aslam Director Non Executive



Ms. Ayesha AzizManaging

DirectorExecutive

Since the Board is quite small, the quorum of the board meeting is

that all directors of the board committee should attend the meeting.

The minimum time required to circulate the minutes to other directors

/ board members is 02 (two) weeks.

Audit Committee:

The Audit Committee meetings are also conducted quarterly.

Composition

Names Directorship

Hjh Hartini binti Haji

AbdullahChairperson Non Executive

Mr. Junaidi bin Haji Masri Member Non Executive

Ms. Sumaira Aslam Member Non Executive

The quorum required is full attendance. The minimum time required

to circulate the minutes to other directors / board members is 02

(two) weeks.

Human Resource Committee:

The Human Resource Committee meetings are also conducted

quarterly.

Composition



Names Directorship

Mr. Junaidi bin Haji

Masri Chairman Non Executive

Ms. Sumaira Aslam Member Non Executive

Ms. Ayesha Aziz Member Executive

The quorum requirement of the meeting is that all members should

attend the meeting. The minimum time required to circulate the

minutes to other directors / board members is 02 (two) weeks.

Management Committees

Different Committees have been set up to review different kinds of

risks. The meetings of these committees are conducted monthly and

the minutes of the Risk Management Committee is reviewed quarterly

by the BOD. They are as follows:

Risk Management Committee

Assets and Liabilities Committee

Credit Committee

IT Steering Committee

Purchase Committee

Equity Investment Committee

Strategic Investment Committee

Role of Company Secretary



The minimum criteria for the appointment of company secretary within the

Company is that he / she should have a Masters Degree from a recognized

university having at least 5 (five) years experience of handling corporate

affairs of a company, along with being conversant with all the regulatory

framework and should meet the fit and proper criteria of its regulator, the

State Bank of Pakistan.

The tenure of the company secretary is determined by the board.

Responsibilities of the company secretary include calling board meetings,

recording minutes of meetings, keeping statutory record books, proper

payment of dividend, interest payments (if any).

The company secretary reports to the Board of Directors, and is also a

certified director from PICG. In this Company, the Co Secretary is also the

CFO, for which a special relaxation has been taken from the State Bank of

Pakistan. For all Company secretarial functions, his reporting line is to the

Board.

Information

The information disclosed in the Annual Report is as per the Guidelines

given by the State Bank of Pakistan and the Accounting Standards. All the

information required for the meeting, such as the agenda items etc.

Approval of annual financial statement, appointment of external auditors,

declaration of Dividend (if any), and nomination of director is revealed to

the shareholders in advance of the Annual General Meeting. The minutes of

the previous meeting are read and approved in the following meeting, in

which the responsibility of action (if any) is also clearly defined. After which



the organization undertakes a review to ensure that actions decided have

been taken.

All related party transactions are reviewed and approved by the board on

quarterly basis and are disclosed in the annual report of the company.

Register of Interest

All Directors are required to disclose their personal interest in the Company

such as Ownership of shares of the Company and Subsidiary Companies.

The company however, does not maintain a register of interest. This is

because the Company is not a listed entity and 100% shareholding rests

with two shareholders.

Voting at Share Holders Meetings

The shareholders send their nominees to shareholder meetings. Since there

are only two shareholders, there are two nominees. The Company Secretary

is present in shareholder meetings as is the CEO. Hence there is no need

for proxy voting guidelines in this case.

PBICL follows the guidelines of the Companies Ordinance in this regard.

The resolutions are circulated in the working papers of the meeting, which

are separate for separate matters (appointment of external auditor,

dividend declaration, change in articles/memorandum of the company etc)

Financial Statements

IFRS and IAS are followed in preparation of financial statements which are

reviewed and duly signed by the Board of Directors.



SQL based financial system for accounting records

Daily backups are kept in hard room. A separate server is maintained

at data recovery centre where a back up is maintained at all times

through satellite link. Also, backups are taken physically and

maintained in a secure location by Group Head Operations

BCP Site for the retrieval and access of Financial Information is

located in a safe location in Clifton. Drills are conducted regularly to

check effectiveness.

Board Appointments

The Shareholders themselves recommend candidates for the appointment of

board of directors. The Company Secretary plays a vital role in spelling out

the board’s responsibilities respectively and also informs them of any

trainings that might be suitable and effective for the company and for the

directors

Audit

Audit being the backbone of CG in a financial services company is treated

accordingly in the company’s Corporate Governance framework.

A report on the Internal Audit function is produced by the Audit

Committee

Appointment of external auditor of repute.

Internal Audit plan is also mandatory.

Internal Audit plan is reviewed periodically.

Independent internal audit function.



Environmental Concerns

While the Company is still very new, it has done some work on the CSR

side. However, there is no clear policy or guidelines in this area.

The Company so far, has gone about it in a relatively disorganized manner.

Recommendations are made to the Board by the MD and every year the

Company makes donation based on these recommendations. The minimum

requirement is that five years audited statements of the don née should be

in place. Contributions so far include Citizens Foundation and IBA (Center

for Entrepreneurship)etc.

The company ensures that all projects that are funded by it have a NoC on

environmental safeties that apply. Also, the Company has advised clients on

carbon credits (such as those available in bio gas projects).

There is a steering committee comprising of the senior most female

employee (other than MD) who is the chairperson of the committee , the

CFO as well as Head of HR that monitors and takes action for any type of

harassment reported to it through a proper complaint process. This process

ensures complete confidentiality. This committee looks into complains such

as verbal or physical harassment including sexual harassment and all

decisions made are reported for final approval by MD. There is also a

disciplinary process outlined in the policy.

The Company does follow the equal employment opportunities policy. In

fact there is a strong culture of not tolerating any type of prejudice and

cases of sectarianism are also dealt with quite harshly under special



direction of the board. Also women make up almost 35% of the total

workforce and these are equally distributed at all levels of the Company.

There is a Chief Compliance Officer (CCO) whose role is defined by the

regulatory body, in this case State Bank of Pakistan (SBP). He ensures all

transactions fall within legal/regulatory parameters as well as internal

policy and any exception is reported by him to senior management and also

separately to the board in a compliance report. Any complaint made that

goes unaddressed by management, whether from a client, a regulator, or an

employee is also communicated to the Board.

The Company has two reputable law firms on its panel. These firms both

qualify on the SBP panel of lawyers as well.

No advisors except external auditors who point out any exception to the

code in their report.

Succession Planning

PBICL has a succession planning policy. The departing CEO recommends

the succession plan to the Board and in fact this plan comes into action

even when the CEO is on leave/absent for more than three days.

The role of the Board is quite active as succession plan is reviewed on a

biannual basis and justification for each position has to be given. As the

CEO position is filled by a nominee of any one shareholder (alternating

every three years), therefore the succession plan for CEO position is always

a senior resource from within the Company as this is a temporary vacancy.

All other senior management positions’ succession is mostly through

internal resources. These internal resources are identified in advance and



are selected through rigorous performance evaluations. Only in rare cases

are external resources taken on board to fill vacancies.

This is a critical exercise because in financial markets, there is quite a lot of

turnover. Many people move to bigger banks for better salaries etc. A

financial institution cannot afford to have critical positions lying vacant or

filled in by inexperienced resources for too long.

The Company has a policy of focusing strongly on external and internal

training programs for its employees at each level to have a strong low and

middle management resources who are upwardly mobile.

Conclusion

Despite being a new institution which is only five years old, Pak Brunei is

recognized as a market leader amongst its peers in terms of profitability,

size, external credit ratings (AA+), quality of human resources and product

range. Management attributes this to its culture of merit and integrity and

therefore the code is an integral part of the systems followed in the

Company.

However, there is always room for improvement and we have made some

recommendations here. Some of the issues relate to the way the Company is

structured, as a joint venture between two countries where the

requirements of the code are overlooked. To change this would need a basic

amendment in the original agreement which may at some point be

necessary.



Recommendations:

Increase in the size of the board

Nomination of independent directors on the board

Appointment of CEO through transparent head hunting process

instead of appointment by the board of the nominee of one

shareholder

Separation of the office of CFO and Co Secretary

Listing on the stock exchange to widen shareholder base, further

enhance transparency and inculcate accountability to the market

System to evaluate performance of the board of directors by third

party

References

1. http://www.corpgov.deloitte.com/site/CzEng/corporate-governance/

2. http://www.dailytimes.com.pk/default.asp?

page=2012%5C04%5C11%5Cstory_11-4-2012_pg5_7

3. http://en.wikipedia.org/wiki/Development_finance_institution

4. http://www.pakbrunei.com.pk/

5. Interview with Company Secretary/ CFO, Internal Auditor and CEO


http://www.pakbrunei.com.pk/

http://en.wikipedia.org/wiki/Development_finance_institution

http://www.dailytimes.com.pk/default.asp?page=2012%5C04%5C11%5Cstory_11-4-2012_pg5_7

http://www.dailytimes.com.pk/default.asp?page=2012%5C04%5C11%5Cstory_11-4-2012_pg5_7

http://www.corpgov.deloitte.com/site/CzEng/corporate-governance/

Corporate Governance Report (1)

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