IMPLEMENTING CORPORATE GOVERNANCE PRACTICES A Resource Guide for Microfinance Institutions in Myanmar IN PARTNERSHIP WITH Disclaimer © 2019 International Finance Corporation. All rights reserved. 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 Internet: www.ifc.org The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. IFC encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly, and when the reproduction is for educational and non-commercial purposes, without a fee, subject to such attributions and notices as we may reasonably require. 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Microfinance institutions operating under the Cooperative Society Act, the Law relating to Formation of Associations, or any other law may be subject to different requirements which are either additional to or variations of those discussed in this publication. The laws of the Republic of the Union of Myanmar are frequently amended, such that legal rules referenced in this edition may be superseded by new legislation following the publication of this Resource Guide. All other queries on rights and licenses, including subsidiary rights, should be addressed to IFC’s Corporate Relations Department, 2121 Pennsylvania Avenue, N.W., Washington, D.C. 20433. International Finance Corporation is an international organization established by Articles of Agreement among its member countries, and a member of the World Bank Group. All names, logos and trademarks are the property of IFC and you may not use any of such materials for any purpose without the express written consent of IFC. Additionally, “International Finance Corporation” and “IFC” are registered trademarks of IFC and are protected under international law. Implementing Corporate Governance Practices IMPLEMENTING CORPORATE GOVERNANCE PRACTICES A Resource Guide for Microfinance Institutions in Myanmar i PREFACE This Resource Guide for Microfinance Institutions in Myanmar is part of IFC’s efforts to support the development of a sustainable microfinance sector in Myanmar. This initiative is aligned with IFC’s Financial Institutions Group’s Global Microfinance and Digital Financial Services’ efforts to improve corporate governance for financial inclusion in the region and globally with Myanmar as a pilot country, and IFC’s Corporate Governance program in Myanmar which promotes the adoption of better governance practices in the private sector. The experience and knowledge gained through this initiative will serve to support improvements in corporate governance among microfinance institutions (MFIs) in a variety of contexts. IFC Microfinance and Corporate Governance Programs in Myanmar In 2013, IFC launched the Myanmar Microfinance Program, which aims to increase access to microfinance services for the country’s urban and rural poor by supporting the development of a sustainable and responsible commercial microfinance sector in Myanmar. It does so by focusing on the following two areas: • Sector-level: Supporting overall microfinance sector development through stronger advocacy efforts to build partnerships and industry networks, and to facilitate knowledge transfer of global best practices through industry workshops/trainings and dissemination of relevant publications; and • Institution-level: Developing promising MFIs with potential market demonstration effects, including capacity building support for three existing MFIs and one greenfield MFI to deliver microfinance services more effectively, efficiently, and responsibly. Established in February 2016, IFC’s Myanmar Corporate Governance Program aims to provide targeted corporate governance support to both clients and stakeholders by: • raising market awareness of good corporate governance through conferences, workshops, and publications; • working with regulators and the government to improve corporate governance laws, regulations, and codes; • building the capacity of local partners on corporate governance services, training, and reporting; • assessing and advising individual companies on their corporate governance practices; and • providing specialized advisory services on board effectiveness, the control environment, and family business governance. IFC began the Corporate Governance Program in 2016 by signing a cooperation agreement with the Republic of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) and co-organizing a large-scale corporate governance conference. Since then, IFC has delivered a series of corporate governance action planning workshops for UMFCCI members. ii Implementing Corporate Governance Practices In March 2018, the Myanmar Institute of Directors (MIoD)1 was set up with support from the governments of Australia and the United Kingdom. In the months that followed, IFC organized several training events such as an Audit Committee Master Program, Internal Audit Master Program, Corporate Governance Action Planning, Women on Board and in Business Leadership workshop and a family governance seminar for a wide range of officials, regulators, and company Chief Executive Officers (CEOs) and board directors. Going forward, IFC will continue to provide support to further build the capacity of MIoD. On the regulatory front, the Corporate Governance Program provides trainings to the Securities and Exchange Commission of Myanmar, the Directorate of Investment and Company Administration (DICA), and the Yangon Stock Exchange to strengthen their respective capacities. IFC is also working with the regulators on the ASEAN Corporate Governance Scorecard initiative; the plan is to conduct annual assessments of corporate governance practices within Myanmar companies to establish benchmarks and recommend improvements. The Corporate Governance Program also provides in-depth corporate governance advisory support to a number of Myanmar banks and companies. Microfinance in Myanmar Although microfinance services have been offered in Myanmar for decades, the 2011 Microfinance Business Law (MBL) provided a legal framework which opened the gates to a rapidly developing sector. In the first year alone, some 120 MFIs received licenses under the MBL. By October 2019, the Financial Regulatory Department (FRD) listed 189 licensed MFIs including 112 local, 53 foreign, 15 NGOs and 9 others. According to the Myanmar Microfinance Association (MMFA), the 18 largest MFIs control 80 percent of the market. As of June 2019, the MMFA reports total outstanding loans of over 1,544 billion kyats to 5.5 million borrowers. However, with an adult population of 38 million and only 26 percent banked,2 there remains a large, untapped market for microfinance services. Since the introduction of the MBL in 2011, numerous rules and regulations have been issued affecting the business practices of MFIs. Among the significant changes and additions are: (i) a 2014 regulation laying out the criteria for deposit-taking MFIs, (ii) regulations relating to borrowing from domestic and foreign sources, (iii) new capital requirements in 2016 and removal of the portfolio requirement that 50 percent should be in rural areas, (iv) an increase in the loan limit from 5 million kyats to 10 million kyats in 2017, and (v) a decrease in microfinance loans interest rate to 28 percent per year in the 2019 Directive. Under the 2014 regulations, MFIs can apply to offer mobile finance services and following the August 2016 notifications, MFIs can apply to offer remittances. A revised draft of the 2011 MBL was in circulation for comments and it is pending approval. The MMFA has identified several key issues requiring greater clarity including the introduction of collateral, the mobilization of deposits from the general public, and the use of mobile systems and digital financial services. Key positive trends for the microfinance sector include very low non-performing loans, increasing availability of digital financial services that may lower costs, and the removal of regulatory restrictions allowing for higher loan amounts, deposit-taking, and potentially collateralized loans to businesses as noted above. There also remain key sector challenges and risks, such as access to funding, increasing concern about multiple borrowing and over indebtedness, institutional and human resources capacity, technology related risks (e.g. cybersecurity, data privacy). 1 The Myanmar Institute of Directors (MIoD) is a newly established, independent organization promoting corporate governance standards and best practices in Myanmar. http://myanmariod.com/ 2 2017 Global Findex database. iii Such risks pose multiple challenges to MFI boards as they work to guide the organization’s major strategic directions, maintain the organization’s health and sustainability, and mitigate risks. These challenges and risks further emphasize the need for boards to ensure their respective MFIs have appropriate governance structures and processes in place to direct and control the MFI effectively, in other words, to ensure that the MFI develops and adheres to strong corporate governance practices. Corporate Governance in Myanmar Many companies in Myanmar start out as small private companies owned by a single controlling shareholder or a small group of shareholders, often the founding family. In such cases, the shareholder appoints the board which often comprises close family members and friends. The CEO, senior managers, and other employees may also be family members. While there are many global examples of successful family businesses, a 2012 Harvard Business School study found that some 70 percent of family-owned businesses fail or are sold before the second generation gets a chance to take over.3 Distinct challenges posed by such governance structures include how best to: (i) manage family conflicts, (ii) decide on succession, (iii) define ownership policies, (iv) strengthen strategic planning and other management functions, and (v) broaden membership of the board to include non-family, independent directors. While the insights and advice provided in this Resource Guide apply to a range of business types, family businesses require specific corporate governance structures and practices that can mitigate these challenges and ensure the long-term viability of the business.4 The Myanmar Companies Law 2017 (MCL) provides a framework for how companies are run and governed replacing an act that was more than 100 years old. The MCL was passed by the Parliament on December 6, 2017 and subsequently approved by the President. After a scheduled delay for implementation, the MCL came into force on August 1, 2018. All existing companies and body corporates registered with DICA5 prior to August 1, 2018 are required to re-register within six months. The MCL covers many governance issues including (i) the company constitution (Section 5) replacing what was previously the memorandum of association and articles of association, (ii) shares and other securities (Section 11), (iii) meetings and proceedings (Section 17), (iv) directors and their powers and duties (Section 18), (v) members rights and remedies (Section 19), and (vi) financial reports and audits (Section 24). DICA also released a Company Directors Guide which provides general information to companies and their directors on the MCL. MFIs that register as a company limited by shares (private or public) are subject to requirements of the MCL in addition to all other laws and regulations which govern microfinance. The implementation of the MCL is an important step for Myanmar. Numerous studies emphasize the importance of law and legal enforcement for the governance of firms, development of markets, and economic growth. Academic studies document how the quality of a country’s legal system not only influences its financial development but also has a separate, additional effect on economic growth. In a cross-country study at a sectoral level, it was reported that in weaker legal environments, firms not only obtain less financing but also invest less than optimal in assets.6 3 George Salk, Jr. and Henry Foley, “Avoid the Traps That Can Destroy Family Businesses,” Harvard Business Review, (January-February 2012). 4 See also IFC Family Business Governance Handbook (Washington, D.C.: International Finance Corporation, 2018). 5 DICA is the Registrar of Companies in Myanmar and is the government agency responsible for registering companies and for ensuring that companies comply with the MCL. 6 Stijn Claessens and B. Burcin Yurtoglu. “Corporate governance in emerging markets: A survey,” Emerging Markets Review 15 (2013), 1–33. iv Implementing Corporate Governance Practices Good corporate governance helps companies operate more efficiently, improve access to capital, mitigate risk, and safeguard against mismanagement. The same study referenced above, shows that good governance: (i) increased access to external financing by firms leading to greater investment, higher growth, and greater employment creation; (ii) lowered the cost of capital and associated higher firm valuation making firms more attractive to investors, leading to growth and more employment; (iii) improved operational performance through better allocation of resources and better management creating more wealth; (iv) lowered likelihood of financial crisis; and (v) resulted in better relationships with stakeholders helping improve social and labor relationships as well as environmental protection and reduce poverty and inequality.7 With practical guidance for implementing corporate governance reforms, we hope this Resource Guide inspires MFIs to improve their corporate governance practices and, in turn, fulfill their mission and vision, better serve their clients, and navigate effectively through a rapidly evolving world for microfinance and digital financial services. 7 Ibid. v ACKNOWLEDGEMENT Implementing Corporate Governance Practices: A Resource Guide for Microfinance Institutions in Myanmar was produced as part of IFC’s Myanmar Microfinance Program, IFC’s East and Asia Pacific Corporate Governance Program, and IFC’s Global Microfinance and Responsible Finance programs. The Myanmar Microfinance Program has been in operation since 2013, managed by IFC’s Financial Institutions Group Advisory Services unit, with support from the Livelihoods and Food Security Fund (LIFT). The East and Asia Pacific Corporate Governance Program has been in operation since 2016 with support from the Governments of Australia and the United Kingdom. IFC also gratefully acknowledges the Government of Japan for its partnership and support for this Resource Guide. This Resource Guide was prepared based on corporate governance manuals published by IFC’s Corporate Governance Program and adapted for microfinance institutions working in Myanmar. The preparation and publication of this Resource Guide would not have been possible without the efforts of a number of highly dedicated people. The Resource Guide’s text was adapted and developed by Matthew Brown, IFC Consultant, with substantial contributions from James Christopher Razook, Leyal Savas, Mohsin Ali Chaudhry, and Ricardo Martin Garcia Tafur, and additional reviews by Anar Aliyev, Caroline Bright and Khin Thida Maw. The team also benefited from suggestions and comments from Kim Chawsu and Tea Chansotheary, who provided an external review from a practitioner’s perspective. Appreciations are also extended to Loty Salazar and Shobhna Decloitre who managed communications and creative design, as well as to Htoi Seng Ra, Vanessa Vizcarra, and Vicky Tsang for their operational support which was critical to producing this report. The team is also grateful to DAWN Microfinance, Fullerton Finance, Maha Agriculture Microfinance, Alliance for Microfinance, Myanmar Microfinance Association, Proximity Finance, UN Capital Development Fund, VisionFund Myanmar, and Yoma Bank who participated in discussions on microfinance and corporate governance in the Myanmar context in the preparation of this Resource Guide. vi Implementing Corporate Governance Practices HOW TO USE THIS RESOURCE GUIDE Implementing Corporate Governance Practices: A Resource Guide for Microfinance Institutions in Myanmar is structured to help MFIs take concrete steps towards improving their corporate governance practices. It follows a progression from basic to more advanced corporate governance topics and practices. In so doing, it provides MFIs with a sample pathway towards becoming a corporate governance leader that meets international standards of best practices. MFIs are encouraged to use this Resource Guide to self-assess their current practices and establish and implement corporate governance improvement programs that are tailored to their specific needs and stage of development. The Resource Guide is divided into the following chapters: Chapter I. Overview of Corporate Governance This section provides a broad overview of corporate governance including definitions, governance structure, benefits of implementing good corporate governance, and corporate governance issues common to MFIs. It has been contextualized to take into account current Myanmar laws and regulations as well as international best practices. Chapter II. Embarking on Corporate Governance Reforms This section provides practical steps MFIs can take to meet the requirements of national legislation and basic corporate governance practices. At a minimum, all MFIs should meet these standards. Chapter III. Raising the Corporate Governance Bar This section provides additional steps MFIs can take to improve their corporate governance practices. MFIs implementing the corporate governance elements in Sections II and III provide a major contribution toward improving corporate governance nationally and comply with good international standards. Chapter IV. Becoming a Corporate Governance Leader This section covers more advanced corporate governance topics and provides practical guidance to MFIs aspiring to meet international best practices – companies that are publicly recognized as among national leaders on corporate governance; trailblazers. Sample documents related to elements of an MFI’s corporate governance practices are provided in various annexes. When using these samples, special care must be taken to adapt them to the MFI’s individual needs. This Resource Guide encourages MFIs to think beyond mere compliance by adopting leading corporate governance practices that can help maximize performance, and send a strong signal to the market, resulting in a competitive advantage. As there is no exact formula to good corporate governance, corporate governance improvements should be tailored to a specific institution, at a specific point in time in a specific market context and should necessarily change and evolve over time. The most critical first steps are understanding where you want to go and realizing that sound corporate governance practices are what will take you there! vii ABBREVIATIONS AGM Annual General Meeting CEO Chief Executive Officer COSO Committee of Sponsoring Organizations of the Treadway Commission CRO Chief Risk Officer CSO Civil Society Organizations DICA Directorate of Investment and Company Administration FRD Financial Regulatory Department GMS General Meeting of Shareholders HR Human Resources ICT Information, Communications and Technology IFC International Finance Corporation MBL Microfinance Business Law 2011 MCL Myanmar Companies Law 2017 MFI Microfinance Institution MIoD Myanmar Institute of Directors MMFA Myanmar Microfinance Association MMSC Myanmar Microfinance Supervisory Committee NBFI Non-Bank Financial Institution NGO Non-Governmental Organization OECD Organization for Economic Co-operation and Development RAS Risk Appetite Statement RPT Related Party Transaction SE Stakeholder Engagement SGM Special General Meeting UMFCCI Union of Myanmar Federation of Chambers of Commerce and Industry viii Implementing Corporate Governance Practices TABLE OF CONTENTS Preface ii Acknowledgement vi How to Use This Resource Guide vii Abbreviations viii Chapter I. Overview of Corporate Governance for MFIs 1 1. Definition and Key Elements of Corporate Governance 3 2. Core Values of Governance 4 3. Distinguishing Corporate Governance 4 4. Governance Structure 5 4.1. Shareholders 6 4.1.1. Shareholders’ Right to Vote 7 4.1.2. General Meeting of Shareholders 7 4.1.3. Other Shareholder Rights 8 4.1.4. Minority Shareholder Rights 8 4.2. Board of Directors 9 4.2.1. Board Size and Composition 9 4.2.2. Duties and Liabilities 10 4.2.3. Qualifications 13 4.2.4. Categories of Board Members 15 4.2.5. Nomination, Election and Dismissal 17 4.2.6. Remuneration 17 5. Benefits of Implementing Good Corporate Governance 18 5.1. Optimize Operational and Financial Performance 19 5.2. Improve Access to Capital 20 5.3. Build/Improve Reputation and Trust 20 6. Corporate Governance Issues Common to MFIs 21 6.1. Double Bottom Line 21 6.2. Dealing with Crises 22 6.3. Responsible Finance 23 6.4. Institutional Transformation 24 Chapter II. Embarking on Corporate Governance Reforms 29 1. Commitment to Corporate Governance 31 1.1. Board Charter 31 1.2. Code of Ethics for Board Directors 32 1.3. Conflict of Interest Policy 33 ix 2. Board Effectiveness 34 2.1. Role of the Board Chair 34 2.2. Board Working Procedures 35 2.3. Board Committees 37 3. Control Environment: Internal Audit 40 4. Transparency and Disclosure 41 4.1. Disclosure to Board Members 42 4.2. Corporate Disclosure 43 Chapter III. Raising the Corporate Governance Bar 93 1. Commitment to Corporate Governance 95 1.1. Governance Policies 95 1.2. Related Party Transactions 96 2. Board – CEO Relations 97 2.1. Delegation of Authority 97 2.2. CEO Job Description 98 2.3. CEO’s Relationship to the Board 99 2.4. CEO’s Performance Evaluation 99 3. Enhancing the Functioning of the Board 100 3.1. Corporate Secretary 100 3.2. Board Development 102 4. Control Environment: Compliance and Risk Appetite 103 4.1. Compliance Function 103 4.2. Risk Appetite Statement 104 Chapter IV. Becoming a Corporate Governance Leader 135 1. Commitment to Corporate Governance 137 1.1. Annual Corporate Governance Calendar 137 1.2. Strategic Planning Process 138 2. Structure and Functioning of the Board 140 2.1. Corporate Governance Committee 140 2.2. Board Nomination and Remuneration Committee 140 3. Board Effectiveness 141 3.1. Board Evaluation 141 3.2. Succession Planning 141 4. Control Environment: Risk Management 142 4.1. Board Risk Committee 144 4.2. Chief Risk Officer 145 5. Disclosure, Transparency, Stakeholder Relations: Stakeholder Engagement 146 References 165 x Implementing Corporate Governance Practices List of Figures Figure 1. Key Elements of Good Corporate Governance 3 Figure 2. Corporate Governance Versus Other Concepts 5 Figure 3. Recommended Characteristics and Competencies for Board Members 14 Figure 4. Benefits of Good Corporate Governance 19 Figure 5. Key Steps for Boards Facing a Crisis 23 Figure 6. Stages of Corporate Governance Development in Microfinance 25 Figure 7. The Three Lines of Defense 149 List of Annexes Chapter II Annexes II. A. Sample Board Charter 45 II. B. Sample Code of Ethics 54 II. C. Sample Conflicts of Interest Policy 59 II. D. Sample Board Chair TOR 61 II. E. Sample Form for Annual Declaration of Interest 62 II. F. Sample Letter for Immediate Declaration of Interest 63 II. G. Sample Audit Committee Charter 64 II. H. Sample Board Meetings Agenda 71 II. I. Sample Meeting Minutes 72 II. J. Sample Internal Audit Charter 74 II. K. Sample Management Disclosure Policy 78 II. L. Sample Information Disclosure Policy 81 Chapter III Annexes III. A. List of Sample Board Policies 106 III. B. Sample Related Party Transaction Policy 109 III. C. Sample Delegation of Authority to CEO Policy 111 III. D. Sample Authority Matrix 113 III. E. Sample CEO Job Description 115 III. F. Sample CEO’s Role in Governance Policy 119 III. G. Sample CEO Performance Evaluation Tool 120 III. H. Sample Corporate Secretary Terms of Reference 126 III. I. Sample Board Training Program 129 III. J. Sample Head of Compliance Job Description 130 III. K. Sample MFI Risk Appetite Statement 132 Chapter IV Annexes IV. A. Sample Corporate Governance Committee Charter 149 IV. B. Sample Nomination and Remuneration Committee Charter 151 IV. C. Sample Board Director Evaluation Tool 154 IV. D. Sample Board as A Whole Evaluation Tool 155 IV. E. Sample Emergency Succession Plan Policy 157 IV. F. Sample Succession Plan Process Policy 158 IV. G. Sample Risk Committee Charter 159 IV. H. Sample CRO Job Description 163 xi xii Implementing Corporate Governance Practices I OVERVIEW OF CORPORATE GOVERNANCE FOR MFIs 1 OVERVIEW OF CORPORATE GOVERNANCE FOR MFIs The Microfinance/Financial Inclusion Banana Skins surveys consistently find corporate governance to be among the top risks facing MFIs.8 Failure to enact good corporate governance practices may result in failing to achieve the mission and purpose of the MFI, underperformance, or in extreme cases closure of the MFI. In this sense, a basic reason to focus on improving corporate governance is to ensure the MFI has appropriate structures and processes in place to direct and control the MFI effectively and ensure its long-term viability. There is also growing evidence that organizations with good corporate governance practices perform better than those with inadequate ones – a reality supported by IFC’s global experience.9 Despite this, MFIs do not always give corporate governance the priority it deserves and may introduce corporate governance reforms only at a superficial level, such as to meet legal or regulatory requirements. In doing so, they not only expose themselves to risk but also miss out on valuable opportunities to introduce internal structures and processes that enable MFIs to: • build confidence with investors and funders enabling access to capital; • improve sustainability with greater ability to manage long-term goals; • increase operational efficiency through formalization of roles and responsibilities and establishment of a framework to manage risks; • improve their reputation with stakeholders; and • reduce vulnerability to crises through quicker and more effective responses. Well-defined governance structures and processes help promote good governance but do not guarantee it. Good governance is ultimately measured by the quality of the individuals involved, their ability to take collective action and achieve a desired result (despite often different and conflicting interests) in a way that is appropriate to the regulatory and market environment and the culture norms and values of the institution. Furthermore, good governance is not static. The environment in which MFI’s and their directors operate is dynamic requiring the governance structures and processes, as well as the members of the Board themselves to change as the circumstances of the MFI evolves over time. The following sections provide an overview of corporate governance for MFIs providing a definition of corporate governance, distinguishing corporate governance from other governance concepts, reviewing the role of shareholders and the board in corporate governance, emphasizing the benefits of sound corporate governance practices, and highlighting common corporate governance issues for MFIs. 8 Since 2008, the Microfinance/Financial Inclusion Banana Skins surveys has listed Governance risk among the top risks facing MFIs. Governance risk is the seventh highest risk in the 2018 survey up from ninth in 2016. 9 Good examples including results of successful projects undertaken at financial institutions to improve their Corporate Governance can be found in: “Corporate Governance Success Stories: IFC Advisory Services in the Middle East and North Africa,” (IFC, 2010); “Corporate Governance Case Studies: Cambodia”, (IFC, 2018); and “Corporate Governance Case Studies: Vietnam”, (IFC, 2018). 2 Implementing Corporate Governance Practices 1. Definition and Key Elements of Corporate Governance There is no single definition of corporate governance that applies to all situations and jurisdictions. Variations arise depending on the institution, national context, and legal tradition. IFC defines corporate governance as “the structures and processes by which companies are directed and controlled.” The Organization for Economic Co-operation and Development (OECD), which published its Principles of Corporate Governance in 1999 and reviewed the Principles in 2004 and 2015, offers a more detailed definition:10 “Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.” Aligned with the OECD Principles, IFC uses a framework comprising six key elements of good corporate governance as shown in Figure 1 below. These include: (i) strong commitment to corporate governance reforms, (ii) good board practices, (iii) appropriate control environment and processes, (iv) strong regime of disclosure and transparency, (v) protection of (minority) shareholder rights, and (vi) adequate governance of stakeholders. This framework provides an approach for analyzing corporate governance practices of a company as well as designing targeted interventions to improve them. Figure 1 Key Elements of Good Corporate Governance Six Key Element of Good Corporate Governance Rights of Minority Shareholders What: Structure & Functioning of Transparency & Disclosure General Governance of Stakeholder The Board of Directors Role Risk Financial assembly Control Enviroment management Oversight of Duties Non-financial Minority shareholder stakeholder Internal Engagement Structure Where: protection engagement controls Composition Annual report Against RPT Stakeholder Compliance engagement & insider Procedures Website dealing policy Internal audit Remuneration When: Tag-along Grievance External audit mechanisms rights Evaluation Audit and Risk Qtly, annually Committees Dividend Training By whom: policy Board v. mgmt Commitment to Environmental, Social, and Governance - Formalization of policies and procedures - Appointing ESG champions By focusing on these six key elements and strengthening each over time, an MFI will put itself on a path towards implementing advanced and even best corporate governance practices.11 10 G20/OECD Principles of Corporate Governance (Paris: OECD Publishing, 2015), 9. 11 To learn more about the IFC Corporate Governance Methodology visit https://www.ifc.org/wps/wcm/connect/topics_ext_content/ ifc_external_corporate_site/ifc+cg/investment+services/corporate+governance+methodology. 3 2. Core Values of Governance While many existing codes of corporate governance principles focus on the role of the board of directors in a company (which is indeed critical), the OECD Principles on Corporate Governance address both policymakers and businesses and focuses on the entire governance framework (shareholder rights, stakeholders, disclosure, and board practices). The OECD Principles have thus gained worldwide recognition as a reference point for good corporate governance and many national corporate governance codes have been developed based on the OECD Principles. The OECD corporate governance framework is built on four core values: • Fairness. The corporate governance framework should protect shareholder rights and ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violations of their rights. • Responsibility. The corporate governance framework should recognize the rights of stakeholders as established by law and encourage active cooperation between companies and stakeholders in creating wealth and jobs and ensuring sustainability. • Transparency. The corporate governance framework should ensure that timely and accurate disclosure is made of all material matters regarding the company, including financial status, governance structure, performance, and ownership. • Accountability. The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and shareholders. In 2017, the OECD issued the OECD Corporate Governance Factbook, which tracks individual countries’ implementation of the OECD Principles. The Factbook also offers a comprehensive set of recommendations to regulators for the development of sound corporate governance policies. Myanmar is likely to take a gradual approach in developing a corporate governance code and related regulations. The OECD Principles provide an excellent reference point to offset these limitations and are highly recommended for those interested in understanding some of the principles that underline national corporate governance standards. 3. Distinguishing Corporate Governance Corporate governance focuses on a company’s structure and processes to ensure fair, responsible, transparent, and accountable corporate behavior. It must be distinguished from public governance, which deals with governance structures and systems within the public sector. Corporate governance is also distinct from corporate management, which focuses on the tools required to operate a business. One area of overlap between management and governance is corporate strategy, which is dealt with at the corporate management level and incorporates key corporate governance considerations. Figure 2 illustrates the difference between corporate governance and corporate management. Corporate governance also differs from concepts such as good corporate citizenship and business ethics. Good corporate governance may certainly reinforce ethical and responsible business practices by promoting healthy management systems. However, corporate governance exists as a distinct set of principles whose primary purpose is to ensure that the company is managed in the best interests of the company. 4 Implementing Corporate Governance Practices Figure 2 Corporate Governance Versus Other Concepts Accountability and Supervision Corporate Governance Strategic Management Corporate Management Executive Management Decision and Control Operational Management Source: Robert l. Tricker, Corporate Governance, 1984 4. Governance Structure The MBL allows for institutions interested in carrying out microfinance to be formed under the MCL, the Cooperative Society Act, the Law relating to Formation of Associations, and any other Law. As a result, MFIs in Myanmar have a variety of legal forms and the requirements in terms of governance structure varies based on the constituent form. This section and the following sections focus primarily on MFIs with privately held ownership – the most common form of non-cooperative MFIs in Myanmar and globally. Under the MCL, three types of companies can be incorporated and registered: (i) a company limited by shares (private or public); (ii) a company limited by guarantee; and (iii) an unlimited company. Newly formed MFIs or MFIs that are required to re-register under the MCL12 are likely to do so as private companies limited by shares. Per the MCL, companies limited by shares must maintain the following basic governance structure: • Shareholder(s): A private company must have at least one shareholder and no more than 50 shareholders (not including persons who are in the employment of the company); a public company must have at least one shareholder and there is no limit on the number of shareholders in a public company.13 • Director(s): A private company must have at least one director and a public company must have at least three directors (one of whom must be a Myanmar citizen); at least one director of every company must be ordinarily resident in Myanmar.14 The MCL leaves the following to the discretion of the company: • Corporate secretary;15 and • Committee(s) of the board of directors.16 12 Notification No. 66/2018 required all companies to re-register with the Registrar (DICA) within six months from the date of commencement of the MCL. 13 MCL, Part II, Section 2, Paragraphs 2(a) and 4(a). 14 MCL, Part II, Section 2, Paragraph 4(a). 15 MCL, Part II, Section 2, Paragraph 4(b). 16 MCL, Part IV, Section 18, Paragraph 160(d)(i). 5 The MBL provides for the Myanmar Microfinance Supervisory Committee (MMSC) to have an Audit Committee comprising three members in a MFI.17 The MBL further requires an external auditor to be appointed to each MFI by approval of the MMSC.18 The MCL also requires companies to have their financial statements audited annually.19 Small companies20 are exempted from this requirement unless otherwise required by the company’s shareholders or the company constitution.21 At a minimum, MFIs in Myanmar should meet these basic governance structure requirements including having an audit committee and an external auditor who annually audits the financial statements. In line with corporate governance best practice, MFIs should expand their governance structures (and processes) over time based on the changing needs of the business. Further guidance is provided throughout this Resource Guide. 4.1. Shareholders A shareholder is an owner of shares in a company. This can be a person, company or institution that owns at least one share of the company’s stock. Collectively, the shareholders of a company own the company and have the right to vote on how the company is controlled. In the MCL, shareholders are referred to as members. The rights and responsibilities of shareholders are as set out in the MCL and the company’s constitution. The constitution sets out the rules for how the company is governed, including the rights, powers, duties and obligations of shareholders. Under the MCL, the constitution serves as a legal contract between each the company and its shareholders and is legally binding on all shareholders. This is applicable to MFIs registered as companies limited by shares. The constitution may distinguish shareholder rights according to whether they confer decision- making power or simply the right to share in the company’s profits through dividends and assets in liquidation. This is the general distinction between shareholders who own ordinary shares and typically have voting privileges and shareholders who own preference shares who may not. In a limited company, shareholders are not personally liable for the company’s debts and liabilities. The main legal responsibility of shareholders is to make full payment for their subscribed shares. Laws and regulations that protect shareholder rights play an important role in maintaining healthy capital markets by building investor confidence and attracting shareholders to participate in the buying, selling or exchanging of shares. In contrast, where legal protections for shareholders are ineffective or poorly enforced, companies may struggle to attract investors, resulting in underdeveloped, thinly traded financial markets. The following sections provide an overview of Myanmar’s legal framework with respect to shareholders which is applicable to MFIs registered as companies limited by shares. 17 MBL, Chapter X, Paragraph 41. 18 MBL, Chapter X, Paragraph 36. 19 MCL, Part IV, Section 24, Paragraph 260(b). 20 The MCL defines a small company as a company, other than a public company or subsidiary of a public company, that together with its subsidiaries has no more than 30 employees and had annual revenue in the prior financial year of less than 50,000,000 Kyats in aggregate. 21 MCL, Part IV, Section 24, Paragraph 257(c). 6 Implementing Corporate Governance Practices 4.1.1. Shareholders’ Right to Vote Shareholders participate in the company’s decision-making process by voting in the general meeting of shareholders (GMS). Important matters that fall within the GMS’ authority include: • Change the name of the company; • Alter the constitution of the company; • Appoint or remove directors of the company; • Alter the company’s share capital; and • Wind up the company and appoint a liquidator. Shareholders take decisions by voting on shareholder resolutions. Different classes of shares may have different rights to vote on resolutions at a GMS. There are two types of resolutions under the MCL: • Special resolution. A resolution which has been passed by a majority of not less than three- fourths of the votes of members entitled to vote as are present in person or by proxy (where allowed) at a GMS of which notice specifying the intention to propose the resolution as a special resolution has been duly given. • Ordinary resolution. A resolution which has been passed by a simple majority of the votes of members entitled to vote as are present in person or by proxy (where allowed) at a GMS of which notice specifying the intention to propose the resolution as an ordinary resolution has been duly given. The MCL establishes which shareholder decisions are to be approved by an ordinary resolution versus special resolution. For example, alteration of the constitution must be made by special resolution whereas the appointment of directors can be done by ordinary resolution. A private company may pass a resolution without holding a GMS if all shareholders sign a copy of the resolution. 4.1.2. General Meeting of Shareholders It is through the GMS that shareholders express their opinions concerning important decisions, such as amendment of the constitution, approval of annual reports and financial statements, election and dismissal of directors, payment of dividends and distribution of company profits, major corporate transactions, and other matters as determined under the MCL and the company’s constitution. The GMS also provides shareholders with an opportunity to discuss issues, meet in person with the company’s directors, ask questions, and make decisions concerning the company’s future direction. As such, shareholders exercise their right to participate in the decision-making of the company through the GMS. There are two types of GMS under the MCL for private companies limited by shares: • Annual General Meeting (AGM). An AGM must be held 18 months from the date of the incorporation and once every calendar year and not more than 15 months after the holding of the last preceding AGM. At the AGM, the usual proceedings include election of directors and if the company is required to prepare annual financial statements, directors’ report and auditor’s report, they must be presented to the shareholders at the AGM. 7 • Special General Meeting (SGM). A SGM is any other meeting of the shareholders of the company other than an AGM. The preparation and conduct of a company’s GMS is subject to detailed procedural requirements under the MCL, as well as any internal corporate policies and procedures. A company that has a single shareholder does not need to hold a GMS and may pass a shareholder resolution by recording it in writing and signing it. 4.1.3. Other Shareholder Rights The MCL provides for the following additional shareholder rights: • Inspection of the register of members. Shareholders may inspect the register of shareholders (members) of the company free of charge and obtain copies of them. • Inspection of other registers. Shareholders may inspect other registers that the company is required to maintain by law such as the register of directors and secretary, and the register of mortgages and charges on the property of the company. • Inspection of shareholder resolutions and meeting minutes. Shareholders have the right to inspect the minutes of a company and shareholder resolutions and may also request copies of the minutes and resolutions. • Company constitution. Shareholders may request a copy of the company constitution and the company must send it to the shareholder within 14 days of the request. • Financial statements. Companies required to prepare audited financial statements must send them to all of their shareholders and a copy of the financial statements must also be open for inspection at the registered office of the company at least 21 days before the AGM. • Dividends. In the case of companies that pay dividends, shareholders have a right to receive those dividends based on the terms of issue of their shares. In addition, each shareholder is entitled to file suit against the company in a court if the conduct of a company’s affairs, an actual or proposed act or omission by or on behalf of a company, or a resolution, or a proposed resolution, of shareholders or a class of shareholders of a company is either: (a) contrary to the interests of the shareholders as a whole; or (b) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a shareholder or shareholders whether in that capacity or in any other capacity.22 4.1.4. Minority Shareholder Rights The protection of shareholder rights is central to corporate governance and is particularly important for companies operating in emerging markets or transitional economies. Protections for shareholders may exist under laws and regulations, as well as additional internal regulations that companies may choose to adopt. The protection of minority shareholder rights remains a key concern for many international investors considering investing in companies in Myanmar. Powerful company owners and majority 22 MCL, Part IV, Section 19, Paragraph 192. 8 Implementing Corporate Governance Practices shareholders often pay little or no heed to minority shareholders. On the other hand, minority shareholders are often passive and rarely participate in shareholder meetings. This makes the role of regulatory and supervisory bodies even more important to ensure that proper attention is paid to the protection of shareholder rights. 4.2. Board of Directors Shareholders are the main contributors of a company’s equity capital. At the same time, shareholders may lack the necessary skills to run a company and do not always wish to participate in day-to-day management. For this reason, shareholders entrust executive management with running day-to- day business of the company with the board of directors overseeing the management. This does not mean that shareholders completely give up their rights with respect to the governance of the company. Rather, shareholders most commonly exercise these rights through the GMS. Shareholders are generally free to act in their own interests whereas a director must act in the best interest of the company and its shareholders even if this may conflict with her or his own personal interests. A number of laws (including the MBL and the MCL, the Cooperative Society Act, the Law relating to the Formation of Associations depending on the legal form of MFI) and an MFI’s constitution may regulate matters relevant to the board. Also relevant to boards of MFIs are rules and regulations prescribed by the MMSC. An effective, professional and independent board of directors is essential for good corporate governance. It guides the strategy of the company, protects shareholder rights, and oversees the executive bodies and financial operations of the company. While the board cannot substitute for talented professional managers or change the economic environment in which a company operates, it can influence the performance of the company through its strategic oversight and control over management. Many leading companies in Myanmar including MFIs recognize that corporate governance is not just a compliance matter but an important investment that will drive sustainability amid organizational transformation and regulatory and economic uncertainty. The legal regime of the board is characterized by mandatory requirements but is also accompanied by a degree of flexibility enabling companies to tailor their internal organization to their own needs and circumstances. The following sections address key issues relating to boards drawing upon best practice and IFC experience with references to requirements under the MCL. 4.2.1. Board Size and Composition The number of directors should be guided by legal requirements, the specific needs of the company, required skills and its shareholders. Companies should choose a board of director’s size that will enable it to: • Hold productive and constructive discussion; • Make prompt and rational decisions; and • Efficiently organize the work of its committees, if they are established. Having either too few or too many directors can be a problem for effective decision-making. A small board of directors may not allow the company to benefit from an appropriate mix-of-skills 9 and breadth of experience. A larger board of directors is typically more difficult to manage and can make consensus building a time-consuming and difficult task. The challenge in selecting the correct board of directors size is striking an appropriate balance. To be effective, a board requires a diversity of skills, backgrounds, and views to make smart decisions with lasting impact. Gender diversity is one important aspect of board composition. A growing body of research shows a range of business benefits associated with gender diversity on corporate boards. Among these benefits: improved financial performance and shareholder value, increased customer and employee satisfaction, rising investor confidence, and greater market knowledge and reputation. To bring about gender diversity, companies first need the willingness to do so, and then must (i) be intentional with their goals including establishing policies, (ii) cast a wide net beyond traditional candidates in their search for directors, and (iii) take concrete actions to broaden and deepen the board’s existing skillsets with qualified women candidates. 4.2.2. Duties and Liabilities Sections 165 to 172 (inclusive) of the MCL impose many legal duties on directors to ensure that they act properly and in the best interests of the company. These include the following: • Duty to act with care and diligence • Duty to act in good faith in the company’s best interest • Duty regarding use of position • Duty regarding use of information • Duty to comply with the MCL and the company’s constitution • Duty to avoid reckless trading • Duty in relation to obligations • Duty to disclose certain interests In general terms, directors are obligated by the MCL to act with honesty and care; act in the best interests of the company and its shareholders even if it conflicts with his or her own interests; not use their position or information for personal gain or to the detriment of the company; know and understand what is required of them under the MCL and the company’s constitution and act accordingly; avoid actions that bring substantial risk to the company and ensure the company meets its obligations; and disclose potential conflicts of interest. When applied to MFIs, to fulfill their duties MFI board members should also: • Embrace the mission, vision, and values of the MFI; • Devote time and effort to understand the MFI and its business including products and services; • Review and understand the MFI’s financial statements, the key variables driving value and sustainability, and the key performance indicators used to measure performance; • Prepare for, attend, and actively participate in board meetings; • Represent the interests of the MFI as a whole, not those of any individual shareholder; and 10 Implementing Corporate Governance Practices • Maintain confidentiality. Drawing on international standards for corporate governance, the duties and liabilities of board directors are elaborated further in the following subsections. Duty of Care Under their duty of care, board members are responsible for exercising their rights and discharging their duties in good faith, with due diligence and care, and in a professional manner. A board member should: • Act honestly, on a fully informed basis, and in good faith; • Use care and prudence to the maximum extent that may be expected of a good board member in a similar situation under similar circumstances; • Not cause the company to act unlawfully; • Regularly attend and actively participate in board meetings; • Place matters on the agenda of board meetings and demand such meetings when necessary; • Ensure that an effective and efficient system of internal control is in place; and • Ensure that management provides adequate information to the board, so that its members are properly informed on corporate matters. Duty of Loyalty The duty of loyalty plays a central role in corporate governance. Loyalty underpins the effective implementation of key corporate governance principles, for example the need to monitor related party transactions and to establish appropriate remuneration policies for board members. Duty of loyalty requires board members to exercise their powers in the interests of the company as a whole. Simply put, board members should not allow personal interests to prevail over those of the company. The duty of loyalty usually prohibits board members from: • Participating in a competing company; • Entering into any transaction with the company without first disclosing the transaction and obtaining approval from shareholders; • Using corporate property and facilities for personal needs; • Disclosing non-public, confidential information; and • Using company information or business opportunities for private advantage, i.e., personal profit or gain. The duty of loyalty requires board members to act in the best interest of the company regardless of: • Who nominated and elected the member; and • Pressure from other board members, shareholders, or other individuals to take actions or make decisions that are not in the best interest of the company. 11 The board should not act as an assembly of individuals who represent various constituencies. Rather, as a company organ, the board must operate as a cohesive unit.23 While specific board members may be nominated or elected by certain shareholders (and sometimes contested by others), it is an important feature of the board’s work that members carry out their duties in an even-handed manner with respect to all shareholders. It is particularly important to establish this principle in a company whose ownership structure includes controlling shareholders that are able to select the majority of or in some cases all board members. Further, board members and affiliated persons (for example, family, friends, and business partners) should not accept gifts from persons with a vested interest in decisions of the board or accept any other direct or indirect benefits. An exception can be made for symbolic gifts that are given as a common courtesy or souvenirs that are given during official events. These exceptions should be described in internal regulations or other internal documents of the company. Confidentiality Directors should not disclose confidential information or use their access to corporate information for their personal interests or the interests of third parties. The personal use of confidential information ultimately damages shareholders. It is recommended that: • Board members should take steps to protect confidential information; • Board members should not disclose information or use it for their own interests; • Companies should set standards with respect to treatment of confidential information and set these out in internal regulations; and • Contracts between the company and board members stipulate the obligation of board members to not disclose confidential information for a period of ten years after they leave the company. To create an effective mechanism to prevent the unauthorized use of confidential information, the company should require directors to: • Notify the board in writing of their intention to enter into transactions that involve securities of the company or its subsidiaries; • Disclose information about previous transactions involving securities of the company in accordance with the procedures for disclosing material facts as specified by securities legislation; and • Upon their appointment, sign an agreement to comply with all legal requirements regarding the treatment of confidential information and non-disclosure of confidential information. Liability Under the MCL, a director who breaches their duties or fails to ensure the Company complies with its legal obligations shall be held liable. The MCL imposes specific penalties on directors if a company fails to comply with the MCL. If there is a breach of directors’ duties under the MCL, every 23 G20/OECD Principles of Corporate Governance, 52. 12 Implementing Corporate Governance Practices director and any other person who is a party to the default shall be liable to a fine of 10 million kyats.24 Every director and any other person who is knowingly and willfully a party to the default may also be: (i) subject to such additional penalty if the default has involved dishonesty; and (ii) disqualified from acting as a director or other officer of a company for a period of time.25 Managing the affairs of a company is a complex process with the risk that decisions made by the board, acting reasonably and in good faith, will ultimately prove wrong and entail adverse consequences for the company. Directors cannot generally be held liable, however, for decisions made in good faith. To effectively enforce provisions that regulate the liability of directors, it is recommended that the company keep detailed minutes (and possibly verbatim reports) of meetings. It is important for the board to keep detailed minutes of board meetings to determine who voted for a certain decision and who can be held liable (to the extent the court considers such factors). Most companies should allow their directors to protect themselves from, or at least limit the liability for, losses incurred while they fulfilled their duties. Such mechanisms are: • Officer and director liability insurance; and • Provision in the charter and internal regulations that indemnify directors against claims, litigation expenses and liabilities in certain circumstances. Companies may reimburse a director for expenses incurred in defending a claim related to his/her role as a board member, if he or she acted: • Honestly • In good faith • In the best interests of the company • In compliance with law, the charter and internal regulations. A company may wish to obtain liability insurance for directors to cover the risk that their actions might result in losses to the company or third parties. Liability insurance for directors should allow the company to use civil law remedies more productively. It is also often needed to attract competent directors. 4.2.3. Qualifications Directors should possess the necessary skills and experience to contribute to the work of the Board of Directors. Figure 3 illustrates the personal characteristics and competencies required for this task. 24 MCL, Part IV, Section 18, Paragraph 190 (a). 25 MCL, Part IV, Section 18, Paragraph 190 (b). 13 Figure 3 Recommended Characteristics and Competencies for Board Members Personal Characteristics Competencies Leadership Industry Experience Integrity Business Judgement Accountability Special Skills, for example: Maturity Finance and Accounting Work Ethic Risk Management and Internal Control Strategic Management HR Legal IT The company constitution should set forth the qualification criteria for directors. Directors should have the following qualifications: • The trust of shareholders (reflected in their supporting votes for such directors), other directors, managers and employees of the company; • The ability to relate to the interests of all stakeholders and make well-reasoned decisions; • International business experience, knowledge of national issues and trends, knowledge of the market, products, and competitors; and • The ability to translate knowledge and experience into solutions. It may, however, be difficult for the company to determine whether a potential director possesses these qualifications. Moreover, a brief description of such qualifications in the company’s constitution may lead to ambiguity and thus be of little use. Instead, companies may wish to include the above criteria in their internal regulations or other internal documents. The MCL sets out the following minimum qualifications for directors of companies:26 • A natural person who is at least 18 years old; • A person of sound mind; • Not be a person who has been disqualified from acting as a director under the MCL or any other applicable law; and • A person who is an undischarged bankrupt. The MCL further provides that a company may set out additional qualifications in its constitution including the requirement to hold shares in the company. 26 MCL, Part IV, Section 18, Paragraph 175. 14 Implementing Corporate Governance Practices 4.2.4. Categories of Board Members International practices distinguish between different categories of directors according to the degree to which such directors are involved (or related to) in the affairs of the company, and divides them into three categories of executive, non-executive and independent directors. Different jurisdictions will typically adopt either a one-tier or two-tier board structure. Myanmar implements a one-tier board structure. The one-tier or unitary board system is characterized by a single board (the board of directors) that governs the company and includes both executive and non-executive members. Executive Directors The term “executive directors” is often interpreted to comprise of directors who also hold an executive position in the company, namely that of: • Chief Executive Officer (or equivalent) • Chief Financial Officer (or equivalent) • Other executive manager In other words, members of the board who also have management responsibilities are considered executive directors. Further, it is recommended that the CEO should not serve as the chair of the board of directors at the same time (in international practices, so-called “CEO-duality”). Executive directors are, by definition, not independent. Non-Executive and Independent Directors The term “non-executive directors” of a company is usually understood to mean board members who do not hold an executive position in the company. Non-executive directors are valued for their subject matter expertise and industry experience in effectively overseeing the management. Effective non-executive directors should have the following personal attributes: • integrity and high ethical standards; • sound judgment; • the ability and willingness to challenge and probe; and • strong interpersonal skills. Most international and national codes of corporate governance recommend that Boards of Directors be composed of a majority of non-executive directors who contribute: (i) an outside perspective and greater impartiality in their judgement, (ii) additional external experience and knowledge, and (iii) useful contacts. The term “independent directors” of a company is understood to mean board members who have no direct or indirect connection to the company other than their board membership. He or she should: • have never been an employee of the company, or a shareholder owning more than 10 percent of the company’s shares; and • have not paid or received from the company a substantial amount or been a major shareholder of a company that has paid or received from the company a substantial amount (the threshold of such amount should be determined by the shareholders and set out in the articles of association of the company). Independent board members can make a substantial contribution to important company decisions, especially in evaluating executive performance, setting appropriate remuneration for executives 15 and board members, reviewing financial statements, and resolving corporate conflicts. Independent board members provide investors with additional assurance that the board’s deliberations will be free of obvious bias. Companies are advised to disclose information about independent board members in their annual report. Box 1. Definition of Independence According to the IFC’s definition of independence, an independent board member is a board member who has no direct or indirect material relationship to the company other than his/her membership on the board, and who: 1. Is not, and has not been in the past five years, employed by the company or its affiliates 2. Does not have, and has not had in the past five years, a business relationship with the company or its affiliates (either directly or as a partner or shareholder, and is not a director, officer or senior employee of a person that has or had such a relationship) 3. Is not affiliated with any non-profit organization that receives significant funding from the company or its affiliates 4. Does not receive and has not received in the past five years, any additional remuneration from the company or its affiliates other than his or her board member’s fee and such fee does not constitute a significant portion of his or her annual income 5. Does not participate in any share option or pension scheme/plan of the company or any of its affiliates 6. Is not employed as an executive officer of another company where any of the company’s executives serve on that company’s board 7. Is not, nor has been at any time during the past five years, affiliated with or employed by a present or former auditor of the company or any of its affiliates 8. Does not hold a material interest (2 percent or above) in the company or its affiliates (either directly or as a partner, shareholder, director, officer, or senior employee of a person that holds such an interest) 9. Is not a member of the immediate family (and is not the executor, administrator, or personal representative of any such person who is deceased or legally incompetent) of any individual who would not meet any of the tests set out in (1) to (8) (were he or she a board member of the company) Is identified in the annual report of the company distributed to the shareholders of 10. the company as an independent board member 11. Has not served on the board for more than ten years. In this definition, the considerable number of requirements may give rise to confusion. However, understanding and defining independence is not complex. The Council of Institutional Investors, a grouping of some of the world’s largest institutional investors, defines independence as follows: “Stated most simply, an independent director is a person whose directorship constitutes his or her only connection to the corporation.” For those interested in learning how to apply this simple definition in practice, the Council of Institutional Investors also lists specific circumstances that compromise independence. 16 Implementing Corporate Governance Practices 4.2.5. Nomination, Election and Dismissal A company’s articles of association, or in Myanmar the company’s constitution, determines procedures for the nomination, appointment, replacement, and dismissal of board members. If the MFI has a nominations and remuneration committee, they will propose to the board any candidate who might qualify as a member of the board, to be submitted to the shareholders for approval. Shareholders should receive sufficient information to assess the capacity of board nominees to fulfill their duties and, if applicable, to ascertain their independence. The appointment of an independent board member should consider the opinions of minority shareholders. Board members should be appointed for a limited period and may be reappointed. The MCL requires directors to be appointed by shareholders by ordinary resolution in a GMS.27 Companies should ensure board independence by setting a limit on its members' length of service. Board members are no longer perceived as independent if they remain on the board for too long. A company may wish to impose term limits, either for the entire board or a certain percentage, to ensure its independence. Either way, reappointment should not be automatic, but rather a conscious decision made by the shareholders and the board member concerned. Under the MCL, a director will be removed from the position of director under the following circumstances:28 • failure to hold the minimum number of shares that directors are required to hold under the company constitution (if any); • if found to be of unsound mind by a court or adjudged bankrupt or an insolvent; • failure to pay any money for the shares held by the director within six months from the date of the call; • if absent from three consecutive meetings of the directors, or from all meetings of directors in a three-month period, without approval from the board of directors or without appointing an alternate; or • the director ceases to hold or meet any of the qualifications required for the position of director set out in the MCL or the company constitution. In alignment with international standards, the MCL further allow companies to set additional grounds for dismissing board members in their constitutions. Such grounds may include providing false information to the company during the candidate nomination process, willful neglect of board responsibilities, or being convicted of a crime. Under the MCL, removal of a director is done by written resolution or ordinary resolution passed at a GMS.29 4.2.6. Remuneration The remuneration of non-executive directors is one of the more contentious issues in the field of corporate governance, and companies are advised to choose a cautious and circumspect approach to the question. Non-executive directors’ remuneration is key to compensate for their time and expertise in being on the board of directors. Excessive remuneration is perceived to be an unjustified 27 MCL, Part IV, Section 18, Paragraph 173. 28 MCL, Part IV, Section 18, Paragraph 178. 29 MCL, Part IV, Section 18, Paragraph 174. 17 privilege of power. Therefore, it is of the utmost importance that board member compensation be competitive yet stay within reasonable limits. Ideally, all non-executive directors should receive the same base remuneration. Additional compensation should be commensurate with their committee responsibilities (if any). Moreover, the fees that a company pays should be sufficiently competitive to attract competent individuals. Fees should be neither significantly below nor significantly higher than the remuneration paid to board members by peer companies. Setting a reasonable level of remuneration for non-executive directors is particularly important to prevent jeopardizing the special status of independent board members. Independent or not, a director’s judgment may be clouded if he/she receives a significant percentage of his/her total income in the form of a director’s fee. A director who relies on board compensation for his/her livelihood will soon become beholden to the company and may not be relied upon to fulfill his/her responsibilities in an unbiased manner. The company should disclose its remuneration plan and the remuneration of each non-executive directors, either on an individual basis or in the aggregate, in its annual report. The former is easiest to implement when non-executive directors receive the same fees. In such cases the annual report may include a simple statement such as: “All non-executive directors receive fees of____ per year.” 5. Benefits of Implementing Good Corporate Governance Implementing good governance practices entails costs. Some of the costs include hiring dedicated staff, such as corporate secretaries, experienced and independent board directors, internal auditors, or other governance specialists. It will likely require the payment of fees to external counsel, auditors, and consultants. Furthermore, it requires a considerable time commitment from the board of directors, especially in the early stages of a company’s development. These costs tend to make implementation considerably easier for larger companies that may have more resources to spare than smaller companies whose resources may be stretched thin. Nevertheless, a commitment to corporate governance evidenced by concrete actions to improve the company’s corporate governance is a fundamental responsibility of the board. Notwithstanding the above, strong corporate governance practices benefit all companies, irrespective of size, legal form, number of shareholders, ownership structure, or other characteristics. Of course, a one-size-fits-all approach should be avoided, and companies should apply corporate governance standards with care. For example, smaller companies may not require a full set of board committees or a full-time corporate secretary. On the other hand, even a small company may benefit from an advisory body whose skills augment those of the board and who may serve as a feeder group for future directors. Experience has shown that the benefits to investing in corporate governance far outweigh the costs by ensuring an MFI’s overall sustainability and competitiveness which are critical in the current, rapidly- evolving landscape for microfinance. Generally, well-governed companies are better contributors to the national economy and society. They tend to deliver greater value to shareholders, workers, communities, and countries in contrast with poorly governed companies. Some of the building blocks, or levels, and specific benefits of good governance are depicted in Figure 4 and discussed in further detail below. A company will not always see instant improvements to its performance due to better corporate governance practices. However, returns, while sometimes difficult to quantify, generally exceed the costs over the long-term. Furthermore, corporate governance development is not a one-time exercise, but rather an ongoing process. Markets tend to value long-term commitment to good 18 Implementing Corporate Governance Practices governance practices rather than a single action or “box-ticking” exercises. No matter how many corporate governance structures and processes a company has in place, these must be regularly updated and reviewed. Figure 4 Benefits of Good Corporate Governance The Four Levels of Corporate Governance 1 2 3 4 Compliance Initial steps to Advanced Corporate with Legal improve corporate governance and corporate governance leadership Regulatory governance systems Requirements are made Increased Access to performance Improved capital and operational reputation markets performance Benefits The sections below provide arguments for why it is good for MFIs to invest in this area. They can be categorized in three areas: increased performance and operational efficiency, access to capital markets, and build/improve the MFI’s reputation. 5.1. Optimize Operational and Financial Performance Operational inefficiencies can often lead to unnecessarily high costs. Much of this can be avoided by the implementation of a corporate governance framework particularly with elements that focus on appropriate governance structures, strategic direction, internal controls and risk management, and human resources. • Governance structures. MFIs often have difficulties setting up a professional organization and governance and administrative structures to support their business adequately. Appropriate corporate governance structures both at the board and management assist with decision- making at all levels of the MFI which in turn helps the MFI conduct and grow its business in a well-balanced and risk-controlled way. • Strategic direction. One of the most critical roles of the board is to establish clear strategic direction for the institution and improved leadership processes and better information flows – which are all supported by a well-established corporate governance practices. These elements will lead to better management decisions, a better allocation of resources and better work policies and processes. 19 • Internal controls and risk management. Inefficiencies arise through a lack of appropriate internal controls and risk management systems. They will help reduce issues of non-compliance or business errors and they will help deal with them effectively and efficiently. Without these, management’s time can be absorbed by solving problems and firefighting rather than focused on business development. • Human resources. Due to the often high-touch nature of microfinance, human resources tend to be one of the most critical elements of the success of an MFI. Strong corporate governance can translate into higher commitment and improved performance from managers and employees, particularly when corporate governance places an emphasis on the relationship with and well-being of employees. There are many documented case studies confirming the relationship between operational and financial performance and improved corporate governance. One study found that corporate governance improves the company’s return on capital employed, with firms in the top corporate governance quartile averaging 33 percent and those in bottom quartile averaging 15 percent.30 5.2. Improve Access to Capital The ability of an MFI to present a well-developed corporate governance framework is often a pre- condition for getting access to capital. If the MFI can demonstrate they maintain a good corporate governance framework, trust and investor confidence are increased significantly. Alternatively, a missing or inadequate corporate governance framework can break reputations by destroying confidence and losing goodwill and investor trust. Furthermore, investors value the risk-reducing effects of good corporate governance and are thus able to offer capital or loans. There are several examples which confirm that improvements in corporate governance support the acquisition of capital and financing sources.31 The reason why MFIs should care about such access to external financing is the increased opportunities for expanding their business and for establishing valuable contacts to possible sources of financing, which may be needed in times of distress (like, for example, during a financial crisis). Drawing upon IFC experience, nearly all companies rated the corporate governance impact on their ability to access finance as strong or substantial. They cited the impact that governance changes had on instilling market confidence and providing added assurance to investors, creditors or other debtors.32 5.3. Build/Improve Reputation and Trust In today’s business environment, reputation has become a key element of a company’s goodwill. A company’s reputation and image effectively constitute an integral, if intangible, part of its assets. Good corporate governance practices contribute to and improve a company’s reputation. Companies that respect the rights of shareholders and ensure financial transparency and accountability will be highly regarded as ardent advocates of investors’ interests. As a result, such companies will enjoy more public confidence and goodwill. This public confidence and goodwill can lead to greater trust in the company and its products, which in turn may lead to higher sales and, ultimately, profits. A company’s improved reputation can also positively affect its valuation. 30 Corporate Governance Success Stories - IFC Advisory Services in the Middle East and North Africa, (Cairo: International Finance Corporation, 2010); Credit Lyonnais Securities Asia governance survey, (2001). 31 Ibid. 32 Corporate Governance Success Stories - IFC Advisory Services in the Middle East and North Africa, (Cairo: International Finance Corporation, 2010). 20 Implementing Corporate Governance Practices Corporate governance can make or break reputations by creating confidence, establishing goodwill and building/restoring stakeholder trust. This is particularly true for existing stakeholders, but it may be equally important for attracting new stakeholders to the institution including new investors, new business partners, and new employees among others. As corporate governance also generates public trust, an MFI with a good reputation (which is created and maintained by its corporate governance practices) will be more successful in attracting deposits, which usually are a cheaper source of funding (provided the MFI’s license covers this activity). Deposit rates may even be reduced in comparison to peer institutions with less developed corporate governance. 6. Corporate Governance Issues Common to MFIs MFIs around the world make for a very diverse sector. Some are small, some are informal, some are large and growing dynamically, some are quite formalized and regulated, many are commercial while others are not. By the nature of their work, however, MFIs share many attributes which gives rise to common governance issues for the sector as a whole. The following sections address some common and emerging corporate governance issues for MFIs. 6.1. Double Bottom Line Historically, MFIs have strong social missions. Some are purely socially oriented relying on donors and governments to subsidize their work. Others, seeing the benefits of commercialization (for example, increased sustainability and access to capital markets), orient themselves as double bottom line institutions with both social and commercial missions. In some jurisdictions, governments place restrictions on MFI activities with interest rate caps and/or targeted lending requirements. Shareholder-owned and regulated institutions are expected to meet capital requirements and generate profits. These competing forces challenge double-bottom line MFIs to balance their financial and social goals. Without proper governance oversight, this burden often falls on management and can result in confusion and disputes. Ultimately, it is the board’s responsibility to define and preserve the mission, vision, values and purpose of the MFI and develop concrete steps to do so. To strengthen governance of the double-bottom line, MFIs can: • Clearly document the MFIs social and commercial mission and specify social and financial goals; • Require commitment by board members to the social mission; • Form a board committee for social performance management and appoint social performance champions at the management level; • Develop qualitative and quantitative targets and indicators to measure and monitor both social and financial goals; • Incorporate social goals into the annual plans and budgets approved by the board; • Include the social mission and goals in the MFIs risk management framework; and • Discuss the MFIs social mission, goals and performance at board meetings. As a first step, the board must develop a common understanding of the MFIs social goals. Boards are wise to incorporate these practices over time and as part of the overall institutional corporate governance development workplan. 21 6.2. Dealing with Crises Over the past decade, numerous MFIs across the globe have experienced some form of crisis. In many cases, this resulted in substantial financial losses and in extreme cases the MFIs did not survive. All MFIs will encounter a crisis at one time or another. It is ultimately the responsibility of the board to ensure the MFI is adequately safeguarded against potential crisis and take decisive action to protect the institution when they occur through sound corporate governance and risk management practices. Some common internal factors that can lead to a crisis for an MFI: (i) poor management; (ii) overambitious expansion without the structures in place to manage the increased risks to the business; (iii) a spike in non-performing portfolio which may in fact arise from external factors; (iv) massive fraud; or (v) material liquidity or funding problems. Some common external events that can lead to a crisis for an MFI: (i) political interference; (ii) natural or man-made disaster (for example, civil strife, war); (iii) macro-economic instability, especially high inflation or currency devaluation; or (iv) financial market turmoil (financial crisis). Board members will need to engage critically with management regarding any type of crisis — and especially when management identifies external causes as the primary reason for institutional problems. Figure 5 highlights key steps for boards facing a crisis.33 If the board loses confidence in management itself, the board should assume control of the institution. It will often form an executive committee and appoint a board or management member as interim CEO to help guide the MFI through the crisis and report regularly back to the full board. In general terms, boards need to be proactive about crisis management. Boards that are solely reactive to crisis situations, for example, leaving it to management to resolve the issues, are not properly exercising their governance function. To reduce the institution’s exposure to crisis situations, it is advisable that boards work to embed the following practices into their corporate governance and risk management systems over time: • Set a clear strategy and ensue that it is communicated to all levels of the MFI; • Work with senior management to establish and periodically review the MFI’s risk appetite for all key risk areas (credit, liquidity, market, operational, etc.), considering the competitive and regulatory landscape and the MFI’s mission and goals, existing risk exposure and institutional capacity; • Oversee the implementation and execution of risk management systems and periodically review them to ensure they remain appropriate given changes to the MFI’s size, complexity, geographical footprint, business strategy, markets and regulatory requirements; 33 “Navigating through Crises: A Handbook for Boards,” (Washington, D.C.: IFC, OeEB. 2010). 22 Implementing Corporate Governance Practices • Ensure effective accountability for risk Figure 5 management by establishing appropriate risk structures, including a risk management function headed by a senior manager (for instance, a Chief Risk Officer in larger MFIs); Key Steps for Boards • Have a CEO succession plan in place in case of Facing a Crisis sudden departure; • Oversee the establishment of fraud prevention Accept the reality: programs, including formal systems for the we are in a crisis! detection of fraud; • Approve disaster recovery and business continuity plans, and test them regularly; Act fast to contain the crisis • Utilize stress tests and scenario analyses to better understand potential risk exposures under a variety of adverse circumstances; • Establish strong responsible finance and social Modify the board and processes to adapt to responsibility practices; the new realities • Ensure the appropriateness and effectiveness of the MFI’s policies and procedures for whistleblowing; Assign clear responsibilities • Embed early warning systems to constantly monitor relevant risks, and to alert management and the board whenever the risk turns into a real crisis; Communicate your actions and solutions • Issue risk reports and communications in a timely, accurate, and understandable manner, covering both internal and external risks; and • Establish open and transparent relationships with stakeholders, including regulators when policies are ambiguous or when messages in the market are unclear. It is vitally important that boards understand the risks their institutions face, and their level of exposure to those risks through both quantitative and qualitative measures. It is equally important that boards understand the crises they might face to effectively prevent and manage them. 6.3. Responsible Finance Responsible finance refers to the delivery of financial services in an accountable, transparent and ethical manner. Responsible finance remains an important issue for the microfinance industry due to crises the sector continues to face as well as the emergence of digital financial services which is altering the delivery of financial services in fundamental ways. Chief among the concerns are (i) practices that lead to a focus on profits and growth over customer service and product innovation, (ii) client protection issues including predatory lending and coercive collection practices that lead to over-indebtedness, poor repayment and client dropout, (iii) lack of product diversity and corresponding customer choice, and (iv) data use, privacy, and security issues. 23 As a result, some countries, have developed customer protection regulation around principles of transparency; responsible pricing; fair and respectful treatment of clients; privacy of client data; mechanisms for complaint resolution; and financial education and awareness programs. With or without such regulation in place, MFIs have an obligation to self-regulate by embedding responsible finance into their corporate governance practices. In assessing their current responsible finance practices, boards may consider the following questions: • Governance and management strategy. Does the MFI’s strategy address consumer risks and include responsible finance practices? Do the code of conduct, policies, procedures and systems incorporate consumer protection practices and principles? • Pricing, transparency and disclosure. Are products priced to mitigate credit risks, such as customer over-indebtedness? How are prices and fees communicated to customers, for example in contracts or key fact statements? Are multiple communication channels used to disclose pricing, terms and conditions, and obligations and responsibilities? • Customer service. Do the board and management produce and analyze reports about customer feedback and complaints? Are customer service reports used to improve products and services, or are they used to mitigate potential reputation risks? How are complaints escalated and addressed or resolved, particularly in cases of system authentication, authorization and accounting or related transaction errors? • Data privacy and security. Does the company implement data privacy and security standards? If so, how and which standards? How are customers informed about the way in which their personal data is collected, used, shared, retained, and secured? How is customer consent implemented to promote improved disclosures? While embedding responsible finance practice into the MFI requires time and resources, industry evidence suggests that a focus on customer-centric products and services serves as an opportunity for MFI boards to improve their relationship with their clients and strategically enhance their competitiveness. 6.4. Institutional Transformation34 One of the most profound evolutions in the microfinance industry over the past two decades has been its commercialization. Specifically, this involves the shift from institutional structures where virtually all MFIs were NGOs to the point where, at present, the majority of assets are held by “commercialized MFIs” such as non-bank financial institutions (NBFIs) or microfinance banks. Commercial MFIs meet the following criteria:35 • They are structured as shareholder-owned institutions, joint stock, or limited-liability companies; • They increasingly expand their services to include products such as insurance, money transfers, housing-improvement loans, education loans, and small business loans, as well as a variety of savings products; • They operate as regulated non-bank financial institutions or commercial banks, often able to mobilize deposits; 34 First published in Corporate Governance for Financial Inclusion, Insights for Boards of Microfinance Institutions: Managing Current Issues, Crisis and Change, (Washington, D.C.: International Finance Corporation, 2018). 35 Pasquale Di Benedetta, Ira W. Lieberman, and Laura Ard, “Corporate Governance in Microfinance Institutions,” (Washington, D.C.: International Bank for Reconstruction and Development / The World Bank), 12. 24 Implementing Corporate Governance Practices • They raise their funds in commercial markets through various means; • They seek to operate sustainably, covering all costs, including financing costs, and, in time, operate profitably, providing an adequate return on assets and equity; and • They strive to serve the double bottom line: to serve the poor while also operating in a responsible and sustainable manner. Although there are numerous examples of NGO MFIs that have yet to make the transition to commercial MFIs, the increasing industry trend is for commercial MFIs to begin adopting new technologies most recently and importantly digital finance. To remain relevant and viable in their markets, many MFIs feel growing pressure to transform themselves or form strategic partnerships more deliberately and with greater immediacy than before with the pace of technological change and competition challenging the sector.36 As MFIs have scaled up and transformed, their governance structures have also evolved. Boards have had to become more sophisticated with more skills to assist management and to maintain oversight of the MFI. As Boards have evolved, they have started to increase the scope of their governance structure. Broadly, there are three stages of development in governance as shown in Figure 6. Figure 6 Stages of Corporate Governance in Microfinance EVOLUTION OF CORPORATE GOVERNANCE IN MICROFINANCE Founding Board Governing Board Institutional Board Often selected As the MFI grows, Transformation by the founder financing needs to a shareholding increase MFI with external Likely small investors that with members Members brought is licensed / from the local in with wider regulated community and experience in committed to the law, finance, Greater founder’s vision accounting, and dependence regulations on the board Likely to be to raise funds chaired and Likely will have or to approve directed by less personal fundraising the founder identification as a managing with the founder Board director committees Board meetings may become will become more more formal to formal and less provide adequate likely to rubber expertise and stamp CEO’s focus for the moves board’s oversight and monitoring function 36 Ibid, 6. 25 Stage 1: The Founding Board At inception, a founding board is normally selected by the social entrepreneur in charge of establishing the MFI. Such a board is likely to be small, reflecting a deep commitment to the founder’s vision. It is likely to be local (from the community or region in which the MFI initially operates), and homogenous in terms of a similar background with the founder. In addition, it likely to operate informally. The MFI is likely to be an NGO and operate in a single city or region with a few branches. Stage 2: The Governing Board As the MFI (still an NGO) grows and perhaps expands rapidly into new regions and adds a significant new client base, financing needs increase substantially. The board is likely to change and evolve for some, if not all, of the following reasons: • Board members are overwhelmed by the demands placed on them by rapid expansion; and • Financial pressure requires the board to commit to substantial fundraising which absorbs a great deal of time. New board members are recruited who may have wider experience, diverse skills, and less personal identification with the founder and his/her mission. Given the changing business and risk profile, the founding board is likely to become more formal — and to assume a more responsible role in the direction and oversight of the institution. Stage 3: The Institutional Board Further evolution is prompted by transformation to a shareholding MFI with external investors, and a decision to become a licensed/ regulated, formal institution. There is now greater dependence on the board to raise funds and/or to approve fundraising. Board size may expand, and board committees may become more formal to provide the necessary expertise and to focus on the board’s oversight and monitoring function. With changes at the board level, there is a corresponding need to change management governance structures, including expanded risk management structures such as an independent risk management function headed by a senior manager, or a Chief Risk Officer. It is advisable that MFIs seeking to expand and attract new capital investments periodically conduct a review of their governance practices. Investors are looking to finance institutions with strong corporate governance structures, as this is a leading indicator of financial sustainability and longevity. Such reviews tend to focus on: (i) key board functions, (ii) board processes, (iii) board effectiveness (cohesiveness) and decision-making, and (iv) governance roles and responsibilities. Although boards can commission a review by an external party, it is advisable that boards undertake an annual self-assessment. Boards that have successfully transitioned from the founding stage, as well as those that have dedicated time and resources to strengthening risk governance note many common themes. Among the key themes of such evolving governance structures are the following: • Expanded Board size. MFIs typically increase the number of Board members adding new skillsets as well as independent directors to their ranks. • New committees. All MFIs expand their committee structures and formalize their terms of reference, appointment process, and procedures. • Strengthened management oversight. Boards clarify the role and responsibility of the CEO and jointly set annual performance objectives for the CEO. 26 Implementing Corporate Governance Practices • Improved decision-making. Boards that formalized their processes and established annual workplans report being more efficient and effective in taking strategic decisions. • Board renewal. Many MFIs formalize their annual Board evaluations and ensured board composition is continually refreshed taking into consideration the strategic needs of the company. The following chapters provide guidance on improving an MFI’s corporate governance following a staged approach. The focus is on supporting MFIs to make changes and improvements over time taking into consideration the various stages of development and transformation of the MFI’s journey in establishing corporate governance best practices. Each section contains practical insights and templates which emphasize best practice but should be tailored to the specific context of the MFI. To help set the stage, each chapter begins with a description of the corporate governance journey of a fictional family-owned MFI called Clients First MFI. Although Clients First MFI is fictional, the scenarios and experiences described are based on real-life examples of MFIs that journeyed from unregulated NGO to microfinance bank and the concrete steps they took to improve their corporate governance practices along the way. 27 28 Implementing Corporate Governance Practices II EMBARKING ON CORPORATE GOVERNANCE REFORMS 29 (The following is based on a fictional MFI.) With the passage of Myanmar’s 2011 Microfinance Business Law, the Win family decided to apply for an MFI license. They had previously provided microfinance services on an informal basis but decided to take advantage of the new regulations to become a licensed MFI. Their overarching goal was to significantly grow the business and ensure its long-term sustainability especially considering the market for microfinance services was becoming more crowded. In 2012, they received their license and decided to call the MFI, Clients First MFI as they wanted to build a brand and reputation for providing quality financial services to their clients. With this focus, they believed they would be able to distinguish themselves from the large number of newly licensed MFIs including many foreign MFIs that entered the market with significant microfinance experience and expertise. To achieve their goals, the Win family knew that they needed to make significant changes to the organization that would allow them to improve and expand their operations. Previously, they had a board of directors that operated largely informally comprised of the family members and friends that had contributed to their initial capital. The main family investor was serving as the MFI’s executive manager (CEO) and many family members were employees. Their operations were concentrated in Yangon with only three branches and a few thousand clients. They set an initial goal of expanding to 50,000 clients and tripling the number of branches over the next three years. To make this happen, they would need access to capital. Following a visit to a local bank and discussions with foreign lenders, they realized that gaining access to capital would require stronger corporate governance practices and a greater focus on sustainability. To start, Clients First MFI decided to take steps to establish basic corporate governance practices. The table below lists the initial actions they undertook keeping in mind the key elements of good corporate governance in IFC’s corporate governance framework. Corporate Governance Actions Corporate Governance Objective 1. Commitment to Corporate Governance 1.1. Board Charter Develop policy document that defines the respective governance roles, responsibilities, and authorities of the board and management 1.2. Develop Code of Ethics Put down in writing the values of the MFI and how directors, management and staff are expected to conduct themselves 1.3 Approve Conflict of Interest Policy Establish a policy that seeks to avoid conflicts or potential conflicts of interest that may result in damage to or erode trust in the MFI 2. Board Effectiveness 2.1. Clarify Role of Board Chair Articulate and document in writing the role of the Board Chair 2.2. Board Working Procedures Formalize the Board’s approach to its internal operations 2.3 Board Committees: Audit Committee Establish and draft terms of reference for Board Audit Committee 3. Control Environment Strengthen the Internal Audit function Develop a more systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and corporate governance processes 4. Disclosure, Transparency, Shareholder Relations, and Governance of Stakeholder Engagement 4.1. Disclosure to Board Members Improve the quality of information that management provides to the board 4.2. Corporate Disclosure Policy Improve the quality of information that the MFI provides to stakeholders The following sections elaborate further on each of these practical steps taken by the Win family to put into place basic corporate governance practices in their MFI. 30 Implementing Corporate Governance Practices 1. Commitment to Corporate Governance Formal documentation is a critical part of governance. In addition to a constitution required by all companies under the 2017 MCL, MFIs in Myanmar should adopt other internal, voluntary regulations that serve a range of purposes. Such internal regulations should be consistent with the MFI’s constitution and not conflict with local laws. Three basic internal corporate governance regulations that all MFI should adopt are a board charter, a code of ethics, and a conflict of interest policy. 1.1. Board Charter A board charter is one such set of voluntary regulations and a standard tool of boards. A board charter is a policy document that clearly defines the respective roles, responsibilities and authorities of the board of directors (both individually and collectively) and management in setting the direction, the management, and the control of the MFI. The benefits of articulating the role and responsibilities of the board in a board charter include: • Easier to amend making it easier for MFIs to adjust to changing circumstances; • No need to register the document with the authorities, thereby saving resources; • Assists the MFI’s leadership in fulfilling their governance duties and obligations; • Serves as a reminder for the board of the principles within which it operates; • Assists in establishing effective functioning for the board; • Provides an induction tool for new directors and senior managers; • Protects stakeholders including shareholders, by creating a shared understanding of the board’s role and functioning; and • Serves as a point of reference in the event of disputes. By law, directors have many responsibilities. These include but are not limited to developing and implementing policies, making decisions with respect to the business of the company, preparing and filing documents with government agencies, calling meetings including the GMS, and keeping records as required by law. In addition to its legal obligations, the board’s primary role is to ensure the company’s long-term sustainability and enhance shareholder value. For MFIs, this includes: • Defining and preserving the mission, vision, values and purpose of the MFI; • Providing strategic oversight and control over management; • Ensuring appropriate and effective risk management and internal control systems; and • Managing the effective functioning of the board and its processes. As such, the board has the following related responsibilities: • Guide and set the MFI’s strategy and business priorities, including the annual financial and business plan with management, and monitor results; • Ensure adequate resources (human and financial) to implement the strategy; • Select, compensate, oversee and evaluate the CEO and prepare succession plans; 31 • Ensure that the MFI manages risks effectively; • Oversee changes to the MFI whether regulatory transformation or shifts in the business model to adapt to a changing business environment; • Take appropriate action and be prepared to assume temporary control of the MFI in times of crisis; and • Evaluate the board’s performance and work to improve the MFI’s corporate governance practices. A sample, comprehensive board charter is attached as Annex II. A. The MFI should adapt the charter based on their own characteristics and circumstances. The board charter should be viewed as a living document and reviewed and updated regularly as the status or circumstances of the MFI warrants. Best Practice: A board charter is developed through a consultative process in which board directors can propose ideas, discuss and come to agreement for final approval by the board. The board or a committee of the board should review the charter annually. 1.2. Code of Ethics for Board Directors A code of ethics (also referred to as a code of conduct) is a basic guide of conduct that imposes duties that board directors and employees owe towards its stakeholders, which may include business partners, suppliers, government, as well as the MFI’s clients and employees, and society at large. Key reasons for adopting a code of ethics include: • Enhance reputation/image. An MFI’s reputation and image constitute an integral, if intangible, part of its assets. Establishing a code of ethics is an effective way to communicate the value an MFI places on good business practices. • Improve risk and crisis management. A code of ethics can bring potential problems to the attention of management and directors before a full-blown crisis occurs, as it encourages employees to react to ethical dilemmas responsibly. • Develop a corporate culture and brings corporate values to the fore. The distribution of a code of ethics to the MFI’s directors and employees can assist in the development of a cohesive corporate culture, based on a shared set of values, which effectively guides employees in their daily work. • Advance stakeholder communications. A code of ethics carries a strong signal to an MFI’s stakeholders during times of crisis, communicating the MFI’s commitment to ethical behavior and underlining that possible transgressions are exceptions rather than the rule. • Avoid litigation. A code of ethics that is implemented effectively can help minimize litigation risks resulting from fraud, conflicts of interest, and corruption and bribery. A code of ethics should be user-friendly by providing practical (rather than aspirational) guidance on how to handle ethical dilemmas that may arise in the day-to-day course of business. In support of a code of ethics, the MFI may wish to establish an ethics training program, appoint an ethics officer or establish an ethics committee to advise and educate officers and employees, and provide guarantees for confidential counseling. The MFI should review and update the code of ethics on a regular basis. 32 Implementing Corporate Governance Practices A code of ethics should reflect MFI’s individual characteristics including their size and objectives, their business culture, values, shareholder composition, as well as other factors. A sample code of ethics is attached as Annex II. B. Best Practice: Developing a code of ethics is a process as much as an outcome. To begin, a company should examine its internal ethics climate, such as the amount and quality of ethical guidance its employees and officers receive in order to identify weaknesses and make recommendations for improvement. When moving to develop its specific code of ethics, a company should conduct a broad consultative process that includes input by all employees, from workers to senior executives. This will assist the development of a comprehensive instrument that guides the company’s specific practices. By the time the code of ethics is submitted for approval by the board, every employee should ideally be familiar with it and have played a role in its drafting, a process that will likely improve internal compliance. The company must also recognize that the “tone at the top” matters, which means that directors, and senior management must set an example of their commitment to the principles in the company’s code of ethics. 1.3. Conflict of Interest Policy As part of the MFI’s ethical standards, board directors should refrain from situations that may potentially arise leading to conflicts of interest where what is in a director's best interest (and relatives, friends, and business partners of a director) is not in the best interest of the MFI. Conflicts can result in financial or reputational damage and erode trust within the MFI. When a matter arises in which a board director has a personal interest, they are advised to refrain from voting on that matter. A board member should not be discharged from his/her duties if there is a conflict of interest between him/her and the company and its shareholders in a single instance or transaction. However, if a board member has a general conflict of interest with the company and its shareholders, he/she ought to be discharged from his/her position as board member. Examples of how a conflict of interest may arise include when a board member or his/her related person: • Enters into a contractual relationship with a company; and • Holds commercial/financial interests in a way that can be reasonably expected to influence the board member’s behavior contrary to the interests of the company. Board members should refrain from actions that may potentially result in a conflict between their own interests and the interests of the company. They are also advised to refrain from voting in situations in which they have a personal interest in the matter in question. Board members should immediately inform and disclose to the board about any potential conflicts of interest. Such information must be disclosed at the first board meeting after the board member is aware of the conflict. When joining the board, new directors should immediately inform and disclose to the board about any potential conflicts and affiliations that may overlap with the business of the MFI. Such information should be updated at the first board meeting after the board director becomes aware of any new potential conflict. Directors with an acknowledged conflict of interest on a given issue should excuse themselves from voting on that issue. 33 The table below highlights key MFI board conflicts and guidelines for resolution.37 Conflict Definition Guidelines for Resolution Related-party Engaging in activities Some institutions prohibit any business transactions between transactions to the detriment of an an institution and its directors (including relatives and related organization on whose businesses). However, business transactions that are carried board one serves in out on an arms-length basis, with competition and at market order to benefit another prices, can be acceptable within limits or special approval related organization or requirements. In certain cases, it can be useful to allow board individual. directors to provide consulting services to the institution because they have in-depth knowledge about the institution. Insider or Providing loans to board Prohibit related lending or apply strict limits for maximum related lending directors, their relatives, loan amounts and transparent documentation and approval and/ or businesses in procedures. (Exception: lending to executives under a broadly which they have a stake. applicable and formal staff loan program such as a car loan program.) Nepotism Hiring family members A best practice is to prohibit the hiring of family members. to fulfil a function within If family members are considered for employment, they should the institution. be hired only if the candidate passes objective hiring criteria determined by non-family members. Set policies, such as “no reporting to a family member,” to provide checks and balances on such relationships. Springboard Using a board position The board director should resign before pursuing such goals to advance political or be asked to leave the board. aspirations or run for political office. Competition Institutions that have The overlapping board director(s) must resign from one of the common board directors boards. begin to compete. Multiple International Involve different individuals on the technical assistance relationship shareholders are also team(s) and the board. providers of technical Set policies for dealing with possible conflicts of interest and assistance or financial include these in the shareholder agreement. services. It is helpful to document the board’s policy on the issue. A sample Conflict of Interest Policy is attached as Annex II. C. 2. Board Effectiveness Board officer roles (such as chair, vice chair, secretary) and board committees should be defined in the company’s constitution or board charter. Any officers of a board should have a clear position description or terms of reference. Likewise, each board committee should have clear terms of reference. To work effectively, the board should also have clear working procedures. The following sections provide guidance on these topics. 2.1. Role of the Board Chair The board chair is expected to play a more active role than other board members. The duty of the chair is to coordinate the activities of the board. The ability of the chair to properly discharge his/ 37 “The Practice of Corporate Governance in Microfinance Institutions.” Consensus Statement of the Council of Microfinance Equity Funds, (2012), 19. 34 Implementing Corporate Governance Practices her duties depends on his/her being vested with sufficient and appropriate powers, and on his/ her personal and professional qualifications. The chair should have an outstanding professional reputation and should be of the highest integrity, be committed to the interests of the company, and enjoy the trust of shareholders and the other directors. There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the company’s day-to-day operations — both on paper, as required by law, and in actual practice. Companies should define the authority of the chair, as well as that of the CEO, in as much detail as possible in the internal regulations. In addition, the MFI may draft a description of the position or terms of reference. For example, the board chair may undertake the following key governance roles and responsibilities: • Establish, implement, and review the policies and procedures that govern the board’s work and ensure the board carries out its mandate; • Coordinate the board’s calendar and schedule board meetings; • Organize and present meeting agendas and ensure that all directors receive appropriate information on a timely basis; • Chair board and shareholder meetings, ruling on procedural matters during meetings, ensuring that meetings are conducted according to applicable legislation, the constitution and the board’s governance policies; • Periodically interact with the CEO to champion the mission of the MFI and discuss key issues confronting the MFI; • Ensure accurate, timely, and clear information passes to and from the other directors; • Ensure effective communication with the board and shareholders; • Arrange regular evaluations of the board’s performance, as well as evaluations of its committees and individual directors; • Facilitate the effective contribution of independent directors and encourage open discussion in a friendly and constructive atmosphere; • Facilitate efficient decision-making; • Appoint committee chairs and serve ex-officio as member of committees and attend their meetings whenever possible; • Represent the organization externally; and • Carry out other duties as requested by the shareholders and the board, depending on needs and circumstances. A sample Terms of Reference for the Board Chair is attached as Annex II. D. 2.2. Board Working Procedures The Board should operate according to procedures defined by the MCL, the MFI’s constitution, or internal company regulations. The board must follow legal requirements in order to pass valid decisions, or risk having those overruled in court. The constitution should determine, for example: (i) frequency of board meetings, (ii) procedures for organizing and conducting board meetings, and (iii) decision-making procedures. 35 Subject to the MFI’s constitution, the MCL requires the following with respect to board meetings: • board meetings may be called by a director giving reasonable notice to every other director; • the meeting may be called or held using any technology consented to by all directors or as provided in the MFI’s constitution; • the quorum for a directors’ meeting is two directors or such other number as specified in the MFI’s constitution and a quorum must be present at all times during the meeting; and • a resolution must be passed by a majority of the votes cast by the directors entitled to vote on the resolution. Although the MCL gives all directors a voice in calling board meetings, it is generally the board chair who convenes meetings of the board. Boards that meet too frequently may be a sign that the board is getting too involved in management. Conversely, boards that meet infrequently may not be able to fulfill their oversight responsibilities and come to serve more as a rubber stamp for management. It is good practice for MFI boards to meet at least quarterly although some may meet more frequently initially or during a time of crisis or significant change at an MFI. As an MFI board evolves and develops committees, the MFI may find that certain committees meet more frequently, for example, monthly, while the full board meets on a quarterly basis. A quorum is the minimum number of directors that must participate in a meeting for its decisions to be valid. The MFI’s constitution or a specific resolution by the board should specify the quorum required for board meetings. Typically, the quorum should not be less than one-half of the total number of directors. A simple majority of board members who participate in the meeting should be sufficient to approve decisions of the board unless the constitution or a specific resolution of the board requires a supermajority vote. Each board member should have one vote. The constitution may specify that the chair can cast a deciding vote in the event of a tie. A board meeting that lacks a quorum cannot make valid decisions. Guidance on conducting productive and efficient board meetings include the following: • Develop an annual calendar of meetings. This will allow directors to schedule the meetings in their agendas. Note that this calendar should serve as a guide, i.e., the board should hold additional meetings when warranted and, vice versa, cancel meetings when there are no issues to be resolved. • Set an agenda for each meeting well in advance. This will allow directors to properly prepare for and focus on the task at hand. The chair may wish to send a draft agenda in advance, allowing for comments and suggestions. • Reserve important agenda items for the beginning of the meeting. It will be useful to address the most pressing agenda items early especially as some directors may not be able to attend the entire length of the meeting. When participating in board meetings, each director should: • Actively listen and ask questions. This is particularly important for presentations or reports given by management, especially when these materials are presented in a complex or ambiguous manner. • Request supporting materials. When presented with an issue that does not correspond to the director’s area of expertise, additional information in the form of studies, independent appraisals or opinions, and other documentation on the subject should be requested prior to the meeting. 36 Implementing Corporate Governance Practices The MCL requires the board to keep copies of minutes from all meetings, which provide details of all proceedings and resolutions, and store copies of the details in company records.38 Per the MCL, the relevant minutes or resolutions must be recorded in the books within 21 days of the holding of the meeting or passing of the written resolution and must be signed by the chairman or other authorized director. Ideally, the chair or meeting chairperson should designate a board secretary to take notes and help prepare the minutes. Typically, the corporate secretary also serves as the board secretary. The minutes of board meetings should include the following information: • Location and time of the meeting; • Names of meeting attendees; • Meeting agenda; • Issues on the agenda as well as the voting record of individual directors; • Decisions made by the board; and • The rationale for these decisions. In order to practice good corporate governance and improve transparency, the minutes of board meetings should be made available upon the request of: • The audit committee; • The external auditor; and • A shareholder (or group of shareholders) possessing voting shares. A sample Board Meetings Agenda and sample Meeting Minutes are attached as Annex II. H and I, respectively. 2.3. Board Committees The board is a collective body. This means that (i) all members have equal rights and responsibilities; (ii) all members bear joint and several liabilities; and (iii) members act together as a body according to specific decision-making procedures. The demands and responsibilities of the board and its members, however, will continue to grow as a company’s business operations become more complex. Board committees are widely considered a key tool for the board to overcome and effectively deal with such challenges. Although board members act collectively, the committee system allows the board to delegate specific functions or issues to facilitate more efficient decision-making. More specifically, committees: • permit the board to handle a greater number of complex issues in a more efficient manner, by allowing specialist to focus on specific issues and provide detailed analysis and recommendations back to the board; • allow the board to develop subject-specific expertise on the company’s operations, most notably on financial reporting, risk and internal control; and 38 MCL, Part IV, Section 17, Paragraph 157. 37 • enhance the objectivity and independence of the board’s judgement, insulating it from potential undue influence of managers and controlling shareholders. A board committee may make decisions by passing a resolution on matters that fall within the scope of its delegated responsibility. It is of crucial importance that committees are understood to be part of the Board of Directors. Ultimate decision-making responsibility rests with the entire board of directors. The board will determine the appropriate number of members to serve on a committee. One member shall serve as the committee chair. Other parties, most notably managers who are not members of the committee, may be invited to participate and provide input; however, they will only have observer status and are precluded from conferring or deciding on particular issues. The chair of a committee is responsible for its effectiveness, regardless of his/her other duties. The chair of a committee plays an important role in organizing its work. Ideally, committees should be chaired by independent and non-executive directors. This holds particularly true for the Audit and Remuneration Committees which, according to best corporate governance practices, are to be chaired by independent directors. A committee chair should: • At least once in three months inform the board about all the issues important for the committee’s work; • Without undue delay submit all data requested by the board; • Take necessary administrative measures to ensure the committee performs its tasks; and • Annually assess the performance of the committee. The chair of the committee should keep the chair of the board informed about its work. In addition, the committee chair should be present at the GMS to respond to shareholders’ questions. MFIs may choose to establish several types of committees. An important additional consideration is that, although committees are useful for creating structures to address specific and complex issues, over-reliance on a committee system may cause the board to fragment. To strike an appropriate balance, it is advisable that MFIs form committees to address specific needs, which may require the committees to be either permanent or ad-hoc, or a combination of both. Common board committees are shown in the table below. Audit Committee Function The audit committee should assist the board to ensure that: • Financial reports are presented appropriately in accordance with generally accepted accounting principles; • The internal control structure is adequate and effective; • Internal and external audits are conducted in accordance with applicable audit standards; and • Management follows up on audit findings. In addition, the audit committee will assist the board with the appointment, re-appointment, and removal of the external auditors, including approving the remuneration and terms of engagement of the external auditors, as well as assessing the quality of their work. 38 Implementing Corporate Governance Practices Corporate Governance Committee Function The corporate governance committee typically has the following primary responsibilities: • Assist the board in developing the company’s corporate governance policies; and • Monitoring and reviewing the effectiveness of the company’s corporate governance practices, including those related to environmental and social aspects. Nomination and Remuneration Committee Function The nomination and remuneration committee is responsible for the following: • Make recommendations to the board on the composition of the board, including required policies and criteria for board nomination and performance evaluation; • Make recommendations to the board on training programs to develop the capacities of the board; • Propose to the board any candidate who might qualify as a member of the board, to be submitted to the GMS; and • Make recommendations to the board on remuneration structure, remuneration policy, and amount of remuneration. Risk Committee Function The risk committee should assist the board in: • Setting the risk governance structure, determining levels of risk tolerance, and monitoring key risk indicators and results regularly; and • Reviewing the adequacy and effectiveness of risk management and internal control systems. Other committees common to MFIs include an Information, Communications, and Technology (ICT) Committee and a Social Performance Management Committee. MFIs may have ad hoc committees for a limited period of time to oversee specific issues such as overseeing the transformation of an NGO to a regulated financial institution. The committees noted above may take different forms depending on the company's needs. For example, the Corporate Governance Committee may be combined with the Nomination and Remuneration Committee or the the Risk Committee may be combined with the Audit Committee. All MFI boards should have an audit committee. Audit committees play a critical role in assisting the board to discharge its oversight responsibility for adequate and effective risk management, financial reporting, control, and governance. MFIs are typically required by law to establish an audit committee and develop and disclose an audit committee charter which includes the following: • Authority, duties, and responsibilities of the audit committee; • Composition, structure, and membership requirements; 39 • Working procedures; • Meeting policy; • Reporting system to disclose the committee’s activities; • Policy on handling complaints/reports regarding financial reporting irregularities; and • Tenure for audit committee members. The audit committee’s duties and responsibilities are as follows: • Review and approve the internal audit policies, annual risk assessments, annual audit plans, activities, staffing and organizational structure of company’s internal audit function • Review financial-related information published by the MFI for public or official use, including financial statements, projections, and other related statements; • Monitor the MFI’s compliance with relevant laws and regulations that govern the activities of the MFI; • Provide an independent opinion when there are disagreements between management and the external auditor; • Provide recommendations to the board on the appointment, reappointment, and removal of the external auditor, including the remuneration, terms/scope of engagement, and independence of the external auditor; • Review the implementation of the audit by internal auditors and monitor the board’s response to internal audit findings; • Evaluate the implementation of a risk management system by the board if there is no separate risk function under the board; • Evaluate complaints concerning the MFI’s accounting and financial reporting processes. • Evaluate and providing recommendations to the board on handling potential conflicts of interest; and • Guard the confidentiality of the MFI’s documents, data, and information. A sample Audit Committee Charter is attached as Annex II. G. The Corporate Governance Committee and Board Nomination and Remuneration Committee are addressed further in Section IV, Chapter 2. Best Practice: The audit committee should be independent and contain a majority of independent directors. At least once a year, the audit committee should meet with the external auditors, without any management representative present, to discuss concerns of the auditors with respect to the system of internal controls or other matters the auditors may care to raise. 3. Control Environment: Internal Audit Internal audit is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations.39 The internal audit function is led by an Internal Auditor (referred to as Chief Audit Executive (CAE) / Chief Internal Auditor (CIA)). The board has the authority to appoint and dismiss the CAE while the CAE has the authority to appoint and dismiss his/her deputies and other positions within the team. CAE should have a direct (functional) reporting line to the board / audit committee. 39 The Institute of Internal Auditors definition of internal audit. 40 Implementing Corporate Governance Practices Internal audit evaluates the control environment, assesses risks and components of risk management, communicates these findings to the board (through the audit committee), and makes suggestions for improvement. An internal audit does not only cover the MFI’s finances, but also its operations, systems, and procedures. Thus, internal audit helps MFIs accomplish their objectives by introducing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and corporate governance processes. Internal audits provide assurance to the board / audit committee regarding: • The efficiency and effectiveness of operations for the overall entity, divisions, subsidiaries, operating units, and business functions; • The risk management framework (including risk identification, risk assessment, response, and monitoring); • The internal control environment, including safeguarding of assets and soundness and integrity of reporting processes; and • Compliance with regulations, policies, and procedures. The internal audit’s duties and responsibilities are as follows: • Conduct organization-wide risk assessments; • Prepare and implement the risk-based annual audit plan; • Review and evaluate the implementation of internal control and risk management in accordance with the MFI’s policies; • Perform audits and assess efficiency and effectiveness in the areas of finance, accounting, operation, human resources, marketing, information technology, and all other applicable activities; • Provide objective information and advice to all levels of management based on audit findings to improve company activities; • Report and deliver audit results to the audit committee; • Monitor, analyze, and report on the progress of recommended actions; • Develop quality assurance improvement programs to evaluate the adequacy and effectiveness of the internal audit function; and • Perform special audits, as necessary. To effectively discharge its duties, an internal audit unit needs to be adequately resourced and competently staffed, thoroughly independent, and have appropriate standing within the organization. A sample Internal Audit Charter is attached as Annex II. J. 4. Transparency and Disclosure Transparency and disclosure for MFIs can be considered from an internal and an external perspective. From an internal perspective, for a board to properly dispense its duties timely, accurate and relevant information is required. It is therefore incumbent on boards to clearly define their information requirements and for management to provide the information requested. From an external perspective, MFIs have an obligation to inform the markets in which they operate of 41 all matters relevant to their financial status and business outlook. Furthermore, a commitment to transparency for MFIs as evidenced by adequate and appropriate disclosure is key to building trust with all stakeholders. The following sections provide guidance on establishing policies for internal management disclosure as well as external company disclosure. 4.1. Disclosure to Board Members Every board member has a right to request the chair, CEO and other managers in the company to provide information regarding the company’s business performance, budgets, forecasts, monthly internal financial statements (including explanation of any material variance between the projections and actual results), and any other documents that may be relevant in order for the board to properly discharge its duties, including full and accurate responses to his/her inquiries from management. The company should create a mechanism to ensure board members receive all information relevant to the company’s financial and business activities, as well as other developments that may impact shareholder interests. The company’s internal regulations or other internal documents should stipulate that the chair and heads of major divisions have the duty to promptly submit full and reliable information to the board. Consequently, the effectiveness of the board in conducting its governance responsibilities is linked to the adequacy, timeliness, and accuracy of the information it receives from management. It is incumbent upon MFI management, therefore, to put in place systems and processes to ensure adequate disclosure to the board. In turn, the board and management should agree to a standard set of reports and information so that there is consistency in the content of the information that is periodically received and reviewed. Standard disclosure to an MFI board includes: • Monthly reports on financial and operational performance; • A comprehensive board pack for each board meeting including: o Meeting agenda; o Minutes of previous meeting; o Minutes or reports of board committees; o Management report; o Standard financial and operating reports including key performance indicators as well as ratio, trend, and variance analysis; and o Additional information relevant to decisions to be taken or items for discussion. • Periodic benchmarking reports; and • Independently audited annual financial statements and the auditor’s management letter. In addition to regular reporting on performance, there may be certain events and categories of decisions made by management within the ordinary course of business of which the Board should be informed for the purposes of fulfilling their governance responsibilities. Caution needs to be exercised by both the Board and management in determining which operational decisions give rise to a need to inform the Board in order to respect the division of authority between Board and management and avoid Board capture. In particular, events such as fraud, litigation, or an 42 Implementing Corporate Governance Practices unforeseen financial incident, or certain management decisions that may give rise to additional significant risk to the MFI require disclosure to the board. Further, the board should be advised of politically sensitive decisions taken by management to avoid potential embarrassment to individual directors or to assist directors in preparing a response or communications strategy. A sample Management Disclosure Policy is attached as Annex II. K. 4.2. Corporate Disclosure40 In the corporate governance context, information disclosure refers to the processes through which an MFI ensures all interested parties may access relevant corporate information through efficient and transparent procedures. Access to material information helps to protect shareholder rights by allowing shareholders to assess the MFI’s position and respond to changes that are relevant to their concerns. Disclosure also benefits MFIs by allowing them to demonstrate corporate responsibility toward shareholders, act transparently towards the markets, and maintain public confidence and trust. Finally, transparency and disclosure fill information gaps for investors, creditors, suppliers, customers, and employees and, as a result, can have a positive impact on a MFI’s revenues or its access to human and financial capital. The OECD Principles of Corporate Governance recommend that companies make timely and accurate disclosure of all material matters in the following areas:41 • Financial and operating results; • Company objectives and non-financial information; • Major share ownership, including beneficial ownership and voting rights; • Information about board directors, including their qualifications, the selection process, positions on the boards of other companies, and whether or not they are regarded as independent; • Remuneration of board directors and key executives; • Foreseeable risk factors; • Governance structure and policies, including the content and implementation of any corporate governance codes/ policies; • Issues regarding employees and other stakeholders; and • Related party transactions. MFIs can put these principles into practice by developing and implementing a disclosure policy. A sample Information Disclosure Policy for MFIs is attached as Annex II. L. 40 IFC’s Disclosure and Transparency Toolkit is the latest addition to its suite of innovative tools designed to unlock private sector investment and improve transparency. Its purpose is to meet the need of investors for better information. The Toolkit is based on IFC’s comprehensive new integrated approach to assessing environmental, social, and governance practices in the context of its own investments in emerging markets. To learn more about the IFC Toolkit for Disclosure and Transparency: https://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ifc+cg/resources/toolkits+and+manuals/ beyond+the+balance+sheet+-+ifc+toolkit+for+disclosure+and+transparency 41 G20/OECD Principles of Corporate Governance, 41-46. 43 List of Chapter II Annexes II. A. Sample Board Charter II. B. Sample Code of Ethics II. C. Sample Conflicts of Interest Policy II. D. Sample Board Chair TOR II. E. Sample Form for Annual Declaration of Interest II. F. Sample Letter for Immediate Declaration of Interest II. G. Sample Audit Committee Charter II. H. Sample Board Meetings Agenda II. I. Sample Meeting Minutes II. J. Sample Internal Audit Charter II. K. Sample Management Disclosure Policy II. L. Sample Information Disclosure Policy 44 Implementing Corporate Governance Practices CHAPTER II ANNEXES ANNEX II. A ANNEX II. A: SAMPLE BOARD CHARTER ANNEX  A:  SAMPLE  BOARD  CHARTER   [NAME  OF  MFI]   BOARD  OF  DIRECTORS  CHARTER   Effective  Date:  __________   Revised  Date:  __________   Last  Board  Review  Date:  __________   1. Scope   This   Charter   sets   out   the   authority,   responsibilities,   and   membership   of   the   board   of   directors   of   [INSERT  NAME  OF  COMPANY]  (the  “company”).    It  is  further  supported  by  the  governance  policies  of  the   board  of  directors.   2. Authority   The  board  derives  its  authority  to  act  from  governing  laws  and  the  company’s  constitution.     3. Role  of  the  board   The  role  of  the  board  is  to  to  act  in  the  best  interests  of  the  company  and  add  value  to  the  company  on   behalf  of  the  shareholders  and  all  other  stakeholders.  The  board  ensures  resources  and  capacities  are   deployed  in  the  most  effective  manner  which  is  does  through  policy  formulation,  strategic  guidance  and   performance  monitoring,  and  effective  oversight  of  management.   4. Board  composition   The   board   shall   consist   of   between   __   and   __   persons   at   all   times   in   accordance   with   the   company’s   constitutional   documents   to   ensure   efficient   decision   making.   Each   director   shall:     (a) Have  adequate  relevant  technical  skills  and  experience  to  perform  his/her  duties;     (b) Be  a  person  of  good  standing  and  reputation;     (c) Not  have  committed  any  crime  or  sanctionable  practice  (or  representing  a  company/person  that   has)  (i.e.,  practices  that  involve  corruption,  fraud,  coercion,  collusion,  or  obstruction).       No  person  shall  be  nominated  for  a  director  position  (or  appointed  to  a  senior  executive  position)  unless   he/she   meets   these   qualifications.     Further,   if   a   director   (or   senior   executive)   ceases   to   meet   such   qualifications,  he/she  shall  resign  or  be  dismissed.     It   is   the   current   policy   of   the   board   that   it   will   only   appoint   one   executive   director   to   the   board,   that   being   the   chief   executive   officer.   This   policy   will   be   kept   under   review   by   the   board,   considering   the   requirements  of  the  board  for  further  executive  participation  in  board  discussions.     45 ANNEX II. A At   least   [one-­‐-­‐-­‐third]   of   the   board   will   comprise   of   independent   (as   defined   by   the   company),   non-­‐-­‐-­‐   executive  directors.     The   board   will   comprise   directors   with   a   broad   range   of   skills   and   experience,   particularly   in   a   field   which   is   complementary   to   the   company’s   activities   or   strategy,   or   with   appropriate   professional   qualifications,  and  who  are  able  to  bring  useful  expertise  to  the  board’s  discussions  and  decisions.     Board   members   must   have   a   proven   ability   and   capacity   to   make   meaningful   contributions   to   board   strategy   and   policy   and   be   able,   through   questioning   and   analysis   of   reports,   to   participate   in   the   overseeing   of   the   proper   functioning   of   management.   At   least   one   member   of   the   Board   of   Directors   should  be  a  financial  expert,  meaning  he/she  has  expertise  in  financial  administration  and  accounting  for   companies  similar  to  the  Company  in  size  and  sophistication.   5. Chair   The  chair  of  the  board  will  be  elected  annually  by  the  board  [and  must  be  an  independent  non-­‐executive   director.]  The  chair  must  not  be  a  former  executive  officer  of  the  company.   6. Board  committees   The   board   will   establish   committees   as   it   considers   appropriate   to   assist   it   in   carrying   out   its   responsibilities.   The  board  shall,  as  a  minimum,  establish  the  following  standing  committees  and  shall  adopt  charters  or   terms   of   reference   setting   out   matters   relevant   to   the   authority,   responsibilities,   membership   and   operation  of  those  committees:   o an  audit  committee;   o [a  corporate  governance  committee;]   o [a  nomination  and  remuneration  committee;  and]   o [risk  management  committee.]     The   board   may   also   appoint   other   standing   committees   or   ad   hoc   committees   from   time   to   time   to   consider   such   matters   as   large   projects,   capital   strategies,   major   investments   and   commitments,   and   capital  expenditure.   7. Delegation  to  management   The   board   delegates   to   the   chief   executive   officer   the   authority   and   power   to   manage   the   day   to   day   business   affairs   of   the   company   subject   to   such   specific   delegations   and   limits   that   the   board   makes   from  time  to  time.  The  CEO  has  authority  to  sub-­‐delegate  such  authority  and  power  to  such  members  of   the  management  team  as  he/she  shall  determine  from  time  to  time.   8. Responsibility  of  the  board     Following  are  the  primary  roles  and  responsibilities  of  the  Board::     46 Implementing Corporate Governance Practices ANNEX II. A a. Review,  approve,  and  monitor  the  Company’s  long-­‐term  strategic  objectives  and  management   business   plans,   including   any   performance   indicators   and   targets   to   be   used   in   relation   to   the   Company’s  strategy;     b. Oversee  and  approve  the  risk  management  framework  and  associated  policies  and  procedures   used  by  management  to  effectively  manage  risk;     c. Monitor  the  overall  performance  of  the  Company’s  progress  towards  its  strategic  objectives  and   any  variance  from  its  defined  risk  appetite;     d. Oversee   the   integrity   of   the   financial   statements   and   compliance   with   legal   and   regulatory   requirements;     e. Oversee  the  internal  control  framework  used  by  management  and  ensure  that  it  is  efficient  and   effective;     f. Oversee  and  approve  the  human  resource  framework  and  policies  of  the  Company;     g. Make  decisions  on  major  business  matters  as  defined  by  the  Board;     h. Appoint  and,  as  necessary,  dismiss  senior  executives  of  the  Company;     i. Determine   the   remuneration   and   incentive   schemes,   including   key   performance   indicators,   of   senior  executives;     j. Evaluate  the  overall  performance  of  key  senior  executives  and  take  corrective  action  as  needed;   k. Develop  succession  plans  and  developmental  objectives  for  senior  executive  positions;     l. Identify  and  recommend  potential  directors  for  election  by  shareholders;     m. Recommend  the  board  remuneration  policy  for  shareholder  approval;     n. Evaluate   the   overall   performance   and   effectiveness   of   the   Board   and   its   members   and   take   corrective  actions  as  needed;     o. Oversee   the   Company’s   corporate   governance   framework   and   ensure   compliance   with   approved  policies;     p. Set  the  Company’s  values  and  standards  and  ensure  that  obligations  to  shareholders  and  other   stakeholders  are  understood  and  met;     q. Ensure  that  stakeholder  interests  are  considered  and  that  the  Company  conducts  its  business  in   a  socially  responsible  manner  to  the  extent  practical;  and       r. Ensure   that   the   Company   complies   with   the   requirements   of   the   law   and   rules,   regulations,   directives,  and  guidelines  issued  thereunder.   47 ANNEX II. A 9. Board  meetings     The   Board   shall   strive   to   meet   according   to   a   pre-­‐scheduled   annual   plan   which   enables   it   to   properly   discharge   its   duties.   The   plan   should   highlight   the   proposed   schedule   of   meetings   and   highlight   key   topics   to   be   covered   over   the   course   of   the   year.       This   will   help   ensure   that   the   Board   does   not   only   focus   on   near-­‐term   issues,   but   also   considers   other   strategic   and   routine   matters   in   line   with   its   role.     Other  matters  will  be  added  to  the  agenda  of  specific  meetings  as  needed.     The  Board  of  Directors  shall  meet  as  often  as  necessary,  but  at  least  four  times  per  year.    Committees   shall  also  meet  as  frequently  as  needed,  but  at  least  quarterly.     Individual  board  agenda  should  align  with  the  annual  plan  as  practical.    The  chair  shall  consult  with  the   Company  CEO  on  the  content  of  the  agenda  prior  to  convening  the  meeting.  Each  director,  the  Company   CEO  or  the  lead  executive,  and  the  management  team  collectively,  has  the  right  to  request  that  an  item   be  placed  on  the  agenda  for  a  board  meeting.     The  agenda  for  a  meeting  shall  be  sent  to  all  directors  at  least  _____    (__)  days  prior  to  the  meeting.  For   each  item  on  the  agenda,  an  explanation  in  writing  shall  be  provided  along  with  related  documentation.   This  includes:  (i)  minutes  of  the  prior  board  meeting;  (ii)  issue  papers  to  discuss;  and  (iii)  other  reports   prepared   by   management.   Issue   papers   should   be   clear,   succinct,   insightful,   and   include   recommendations  for  action  based  on  proper  analysis.         Board  of  Directors  meetings  are  generally  held   at   the  offices   of   the   Company  but   may   also   take   place   elsewhere.   In   addition,   meetings   of   the   Board   of   Directors   may   be   held   by   conference   call,   video   conference,  or  by  any  other  means  of  communication,  provided  all  participants  can  communicate  with   each  other  simultaneously.     Quorum   for   a   Board   meeting   shall   be   by   a   majority   of   the   directors,   including   at   least   one   (1)   independent   director.   With   respect   to   the   proposal   to   be   discussed   in   which   some   directors   have   substantial  interest,  the  quorum  for  the  Board  meeting  shall  be  more  than  half  of  the  directors  without   substantial   interest.   No   resolutions   shall   be   deemed   to   be   effective   if   it   has   been   made   at   a   Board   meeting  where  the  quorum  requirement  is  not  observed.     The   admission   to   a   meeting   of   persons   other   than   directors,   the   Corporate   Secretary,   and   (if   invited)   members  of  the  management  team  shall  be  decided  by  the  chair  or  a  majority  of  the  directors’  present   at  the  meeting.     Board   meetings   are   presided   over   by   the   Board   chair.   In   his/her   absence,   one   of   the   other   directors,   designated   by   majority   vote   of   the   directors   present   at   the   meeting,   shall   preside.   Directors   should   likewise   have   regular   and   free   access   to   the   Board   chair,   and   in   discussion   with   him/her   may   then   be   directed  to  the  Company  CEO  and/or  Corporate  Secretary.     The   directors   shall   try   to   unanimously   adopt   resolutions   that   are   brought   before   the   Board   for   a   decision.    Should  a  matter  be  brought  to  a  vote  by  the  Board,  then  each  director  has  the  right  to  cast   one  vote.    Where  unanimity  cannot  be  reached,  all  resolutions  of  the  Board  are  adopted  by  a  majority  of   the  votes  cast.       48 Implementing Corporate Governance Practices ANNEX II. A In  general,  resolutions  of  the  Board  of  Directors  are  adopted  at  a  board  meeting.    Board  resolutions  may   also   be   adopted   in   writing,   provided   that:   1)   the   proposal   concerned   is   submitted   to   all   directors   together  with  the  documents/information  required  to  make  a  fully-­‐informed,  good  faith  decision;  2)  no   member  objects  to  this  form  of  adoption;  and  3)  this  resolution  is  unanimously  approved  in  writing  by  all   of  directors  entitled  to  vote  on  the  resolution.     As   needed,   separate   sessions   with   non-­‐executive   and/or   independent   directors   shall   be   held   immediately  before  or  after  the  meeting  to  offer  a  forum  to  voice  any  concerns  about  board  functioning   or  dynamics.   10. Directors'  remuneration   [The   nomination   and   remuneration   committee   will   review   and   make   annual   recommendations   to   the   board   on   the   level   of   directors'   remuneration.]     On   an   annual   basis,   the   board   will   approve   directors’   remuneration  taking  into  consideration,  in  respect  of  non-­‐executive  directors,  the  amount  of  time  they   give  to  the  company,  as  well  as  the  extent  and  complexity  of  their  responsibilities,  including  serving  on   board  committees.   Directors  will  be  reimbursed  all  reasonable  expenses  incurred  in  carrying  out  their  duties  as  a  director.   Any  such  expenses  should  be  submitted  to  the  board  [secretary]  for  payment.   If  a  director  wishes  to  undertake  an  activity  which  will  lead  to  the  incurring  of  an  unusual  expense,  the   director  should  consult  with  the  chair  prior  to  such  expense  being  incurred.   The   remuneration   and   expenses   paid   to   each   director   will   be   individually   disclosed   in   the   company’s   annual  report  to  shareholders.   11. Independence  of  directors   A   director   will   be   considered   to   be   independent   for   the   purposes   of   service   on   the   board   and   board   committees   of   the   company   if   the   director   satisfies   the   standards   adopted   by   the   board   from   time   to   time   to   assist   it   in   its   regular   ‘independence’   determinations.   These   standards   will   reflect   appropriate   independence   requirements   under   applicable   laws   and   regulations,   and   international   best   practice   recommendations.  [A  copy  of  the  current  standards  is  attached  to  this  Charter.]   An   independent   director   must   be   independent   of   management   and   free   of   any   business   or   other   relationship   that   could   materially   interfere   with   –   or   could   reasonably   be   perceived   to   materially   interfere  with  –  the  exercise  of  his  unfettered  and  independent  judgement.   Each  director  must  provide  the  board  with  all  relevant  information  to  assess  her/his  independence.   The  determination  of  independence  of  a  director  will  be  made  by  the  board  [on  the  recommendation  of   the  nomination  and  remuneration  committee].     12. Appointment  and  re-­‐election  of  directors   The   process   for   appointing   a   director   is   that,   when   a   vacancy   exists,   the   board,   [assisted   by   the   nomination   and   remuneration   committee,]   identifies   candidates   with   the   appropriate   expertise   and   49 ANNEX II. A experience,  using  external  consultants  as  appropriate.  The  most  suitable  candidate  is  appointed  by  the   board  but  must  stand  for  election  by  the  shareholders  at  the  next  annual  general  meeting.   The  company  will  provide  a  formal  letter  of  appointment  for  each  director  setting  out  the  key  terms  and   conditions   of   her/his   appointment.   The   process   for   re-­‐election   of   a   director   is   in   accordance   with   the   company’s  Constitution.   Prior   to   each   annual   general   meeting,   the   board   will   assess   the   performance   of   each   director   due   to   stand  for  re-­‐election  and  determine  if  the  board  will  recommend  to  the  members  that  they  vote  in  favor   of  the  re-­‐election,  or  otherwise,  of  each  such  director.   The   board   has   set   a   limit   of   [10]   years   for   which   an   individual   may   serve   as   a   director,   subject   to   an   annual   review   after   that   period.   The   board   regards   this   as   an   appropriate   period   of   service.   Directors   who   have   served   on   the   board   for   an   extended   period   of   time   have   gained   valuable   experiences,   insights  and  historical  perspectives  regarding  the  company  that  would  not  be  easily  replaced.   The  retirement  age  for  directors  is  [70]  years  of  age.   13. Induction  and  orientation   The   board   [nomination   and   remuneration   committee],   working   with   senior   management,   will   provide   an   orientation   program   for   new   directors   in   order   to   assist   them   in   fulfilling   their   duties   and   responsibilities.   The   program   will   include   discussions   with   the   chair,   the   chief   executive   officer,   executives   and   the   internal   and   external   auditors,   the   provision   of   reading   material,   tutorials   and   workshops.   These   will   include   details   on   directors’   rights,   duties   and   responsibilities,   the   company’s   strategic  plans,  its  significant  financial,  accounting  and  risk  management  issues,  its  compliance  program,   its  code  of  ethics,  and  its  management  structure.   At   the   request   of   the   board   [nomination   and   remuneration   committee],   senior   management   will   conduct   additional   presentations   for   directors   from   time   to   time   regarding   the   company,   the   factors   impacting,   or   likely   to   impact,   on   its   businesses,   and   to   assist   the   non-­‐executive   directors   in   gaining   a   broader   understanding   and   knowledge   of   the   company.   Directors   are   also   encouraged   to   keep   up   to   date  on  relevant  topical  issues.   14. Access  to  independent  professional  advice   The   board   has   the   authority   to   conduct   or   direct   any   investigation   required   to   fulfil   its   responsibilities   and   has   the   ability   to   retain,   at   the   company’s   expense,   such   legal,   accounting   or   other   advisers,   consultants  or  experts  as  it  considers  necessary  from  time  to  time  in  the  performance  of  its  duties.   Each   director   will   have   the   right   to   seek   independent   professional   advice   at   the   company’s   expense,   subject  to  the  prior  approval  of  the  chair.   15. Board  performance  and  director  evaluation   The  board  will  annually  review  and  evaluate  the  performance  of  the  board.    This  assessment  will  involve   consideration  of  all  of  the  board’s  key  areas  of  responsibility  and  will  specifically  review  areas  where  the   board  and/or  management  contribution  may  be  improved.   50 Implementing Corporate Governance Practices ANNEX II. A At   least   once   every   year,   the   chair   of   the   board,   [assisted   as   needed   by   the   nomination   and   remuneration  committee,]   will   conduct   a   review   of   the   performance   and   contribution   to   the   board   of   each   non-­‐executive   director.   The   board   as   a   whole,   [assisted   as   needed   by   the   nomination   and   remuneration  committee,]  will  review  the  performance  of  the  chief  executive  officer  at  least  once  every   year.   [The   chair   of   the   nomination   and   remuneration   committee   will   facilitate   an   evaluation   by   all   directors  of  the  performance  of  the  chair  of  the  board.]   The  board  will  also  annually  review  and  evaluate  the  performance  of  the  board  committees,  the  senior   management   of   the   company,   the   relationship   between   the   board   and   management,   and   matters   of   general  corporate  governance.   [The   nomination   and   remuneration   committee   will   recommend   to   the   board   the   performance   criteria   (both   measurable   and   qualitative)   to   be   considered   in   these   evaluation   processes.]   An   external   independent  consultant  may  from  time  to  time  be  brought  in  to  review  and  make  recommendations  on   any  aspect  of  the  board’s  activities  and  performance.   [The   company   will   include   in   the   corporate   governance   section   of   its   annual   report   a   statement   as   to   whether   a   performance   evaluation   for   the   board   and   its   members   has   taken   place   in   the   reporting   period  and  how  it  was  conducted.]   [A   description   of   the   process   for   performance   evaluation   of   the   board,   the   board   committees   and   individual   directors   will   be   made   publicly   available   and   updated   as   required,   by   posting   it   on   the   company's  website  in  a  clearly  marked  corporate  governance  section.]   16. Access  to  management   Board  members  will  have  complete  and  open  access  to  members  of  management  following  consultation   with  the  chair  and  the  chief  executive  officer.   As   an   intrinsic   part   of   the   board’s   responsibility   of   management   oversight,   board   committees,   specifically,   will   have   access   to   and   mandatory   meetings   with   individual   senior   management   in   accordance  with  their  respective  committee  terms  of  reference.   17. Board  secretary   All  directors  shall  have  direct  access  to  the  board  secretary.  The  appointment  and  removal  of  the  board   secretary  shall  be  a  decision  for  the  whole  board.   18. Director  Duties     The   board   directors   of   the   Company   owe   the   Company   and   its   shareholders   fiduciary   duties   of   care,   loyalty,   and   compliance   with   corporate   authority.   In   the   discharge   of   their   fiduciary   duties,   board   directors  must  at  all  times  act  in  good  faith  and  with  candor,  avoiding  all  potential  or  actual  conflicts  of   interest,   in   the   best   interests   of   the   Company,   in   compliance   with   the   Company   constitutions   and   all   applicable  laws.  Specifically,  each  director  shall  adhere  to  the  following  duties:         The  director  shall  exercise  his/her  duty  of  loyalty  to  the  Company  by  NOT:       (a) Conducting  transactions  in  which  he/she  has  a  personal  interest;     51 ANNEX II. A   (b) Disclosing  confidential  information;       (c) Entering  into  contractual  relations  with  a  competing  Company;       (d) Using  assets  and  facilities  of  the  Company  for  personal  benefit/gain;  or     (e) Using   information   and   business   opportunities   received   in   his/her   official   capacity   for   personal   gain.     The  director  shall  exercise  his/her  duty  of  care  to  the  Company  by:     (a) Directing  and  governing  the  affairs  of  the  Company  in  a  manner  oriented  towards  the  long-­‐term   interest  of  the  entire  Company;       (b) Displaying  maximum  care,  diligence,  and  prudence  in  carrying  out  his/her  duties;  and     (c) Ensuring  that  the  Company  acts  in  compliance  with  all  applicable  laws  and  regulations.     The  director  shall  fully  understand  the  Board’s  roles  and  responsibilities  as  identified  in  this  Charter  and   help  ensure  that  the  Board  is  discharging  those  roles  and  responsibilities  to  the  best  extent  possible.     The   director   shall   fully   understand   the   corporate   governance   and   ethics   policies   of   the   Company   and   help   ensure   that   the   Board   acts   in   accordance   with   those   policies   at   all   times   and   actively   promoting   them  throughout  the  organization.     The   director   shall   commit   adequate   time   to   the   position,   including   the   time   to   attend   board   and   committee   meetings,   time   to   prepare   for   meetings,   and   time   to   stay   adequately   informed   of   developments  in  the  Company.  At  a  minimum,  the  director  should  attend  75%  of  all  the  board  meetings   held  during  the  year.     The   director   shall   ensure   maximum   contribution   of   his/her   knowledge,   skills,   expertise,   abilities,   and   professional  resources  as  an  individual  to  ensure  that  the  Board  is  maximizing  its  capacity  and  attaining   full  utilization  of  its  members.           The  director  shall  fully  participate  in  board  discussions  by  ensuring  that  he/she  gives  full  consideration   and   depth   of   analysis   to   issues   discussed   at   meetings   and   that   he/she   always   feels   open   to   express   his/her  opinions  and  perspective  on  given  matters  whenever  appropriate.               The  director  shall  take  individual  responsibility  to  ensure  that  he/she  stays  educated  and  informed  on   any  subject,  topic,  or  matter  related  to  the  Company  or  industry  in  general.   19. Confidential  information   The   internal   control   systems   are   monitored,   and   employee   integrity   is   fostered   to   ensure   that   confidential  information  is  not  improperly  disclosed  outside  the  company  or  used  for  individual  personal   gain.  The  directors  regard  the  confidentiality  of  customer  information  as  highly  important.   52 Implementing Corporate Governance Practices ANNEX II. A When  the  directors  are  serving  on  the  boards  of  other  companies  and  undertaking  private  transactions,   they  are  to  have  regard  to  their  confidentiality  obligations  at  all  times.     20. Conflicts  of  interest   Conflicts  of  interest  are  governed  by  the  company’s  conflict  of  interest  policy.  Directors  are  expected  to   avoid   any   action,   position   or   interest   that   conflicts   with   an   interest   of   the   company   or   gives   the   appearance  of  a  conflict.     21. Communications   The   board   believes   that   the   chair   and   senior   management   speak   for   the   company.   Individual   board   members   are   expected   not   to   meet   or   otherwise   communicate   with   various   constituencies   who   are   involved  with  the  company  without  prior  consultation  with  the  chair  and  the  chief  executive  officer.       53 ANNEX II. B ANNEX II. B: SAMPLE CODE OF ETHICS ANNEX  B:  SAMPLE  CODE  OF  ETHICS   [NAME  OF  MFI]   CODE  OF  ETHICS   Effective  Date:  __________   Revised  Date:  __________   Last  Board  Review  Date:  __________     Preamble   The  purpose  of  this  code  of  ethics  is  to:   • Demonstrate  the  company’s  commitment  to  the  highest  standards  of  ethical  behavior;   • Encourage  proper  ethical  conduct  and  sanction  misconduct  within  the  company;  and   • Develop   an   ethical   culture   based   on   such   standards   and   conduct,   led   by   the   company’s   shareholders,  directors  and  management,  and  followed  by  all  employees.     By  adopting,  following  and  updating  this  code  of  ethics  on  a  regular  basis,  together  with  the  company’s   charters   and   governance   policies,   the   company   confirms   its   desire   to   demonstrably   lead   and   promote   good  ethical  behavior  and  corporate  governance.  In  order  to  foster  the  confidence  of  its  shareholders,   employees,   investors   and   the   general   public,   this   code   of   ethics   goes   beyond   the   legal   and   regulatory   framework   prevalent   in   Myanmar   today,   and   embraces   both   national   and   internationally   recognized   principles  and  practices.   The  company’s  governing  bodies  and  employees  understand  this  code  of  ethics  as  their  obligation  and   set  forth  to  ensure  that  its  spirit  and  provisions  are  respected  and  acted  upon  throughout  the  company   and  by  its  business  partners.   This  code  of  ethics  is  reviewed  and  updated  on  an  annual  basis  and  published  internally  [in  booklet  form   and  via  the  company’s  intranet  site,  as  well  as  on  the  company’s  internet  site.]   1. The  company’s  values   In   all   internal   and   external   relationships,   the   company   demonstrates   its   commitment   to   [insert   company’s  values]:1   • __________________;   • __________________;  and   • __________________.   1     Company  values  often  focus  on  delivering  quality  products  and  services;  leadership  (in  terms  of  innovation,  and  research  and  development);   promoting   shareholder   value;   protecting   the   environment;   satisfying   customer   satisfaction;   acting   with   honesty,   integrity   and   respect   for   people;  etc.     54 Implementing Corporate Governance Practices 2. The  company’s  ethical  principles   ANNEX II. B 2. The  company’s  ethical  principles   The  company  is  committed  to  act  ethically  in  all  aspects  of  its  business.    The  company’s  ethical  standards   are  based  on  the  following  principles:   The  company  is  committed  to  act  ethically  in  all  aspects  of  its  business.    The  company’s  ethical  standards   are  based  on  the  following  principles:   • Honesty;   • Integrity;   • Honesty;   • Fairness;  and   • Integrity;   • Transparency.   • Fairness;  and   • Transparency.   Similarly,  the  company  expects  the  same  in  its  relationships  with  all  those  with  whom  it  does  business.     Similarly,  the  company  expects  the  same  in  its  relationships  with  all  those  with  whom  it  does  business.     The  company’s  ethical  standards  focus  on  the  following  areas:  employees,  customers,  relations  with  its   business   partners,   government,   society   and   the   wider   community.2  These   ethical   standards   shall   also   The  company’s  ethical  standards  focus  on  the  following  areas:  employees,  customers,  relations  with  its   apply   to   all   business   areas   [for   all   subsidiaries   and   dependent   companies   both   within   and   outside   of   business   partners,   government,   society   and   the   wider   community.2  These   ethical   standards   shall   also   Myanmar].   apply   to   all   business   areas   [for   all   subsidiaries   and   dependent   companies   both   within   and   outside   of   Myanmar].   All  of  the  company’s  ethical  standards  are  based  on:     All  of  the  company’s  ethical  standards  are  based  on:     • Respecting   the   rule   of   law,   Myanmar   laws   and   regulations,   and   showing   respect   for   human   rights;   • Respecting   the   rule   of   law,   Myanmar   laws   and   regulations,   and   showing   respect   for   human   • Managing   the   company’s   financial   and   operational   performance   to   maximize   the   long-­‐term   rights;   value  for  its  shareholders;   • Managing   the   company’s   financial   and   operational   performance   to   maximize   the   long-­‐term   • Conducting  business  with  integrity  and  fairness,  renouncing  bribery  and  corruption  or  similar   value  for  its  shareholders;   unacceptable   business   practices,   and   not   giving   or   accepting   gifts   and   entertainment   unless   • Conducting  business  with  integrity  and  fairness,  renouncing  bribery  and  corruption  or  similar   they  fall  under  business  custom,  are  immaterial  and  infrequent;   unacceptable   business   practices,   and   not   giving   or   accepting   gifts   and   entertainment   unless   • Creating  mutual  advantage  in  all  the  company’s  relationships  to  build  and  foster  trust;  and   they  fall  under  business  custom,  are  immaterial  and  infrequent;   • Demonstrating  respect  for  the  community  the  company  operates  in,  as  well  as  for  the  natural   • Creating  mutual  advantage  in  all  the  company’s  relationships  to  build  and  foster  trust;  and   environment.   • Demonstrating  respect  for  the  community  the  company  operates  in,  as  well  as  for  the  natural   environment.   The  company’s  business  plan  will  include  specific,  measurable  targets  for  improving  ethical  behavior.     The  company’s  business  plan  will  include  specific,  measurable  targets  for  improving  ethical  behavior.     3. Ethical  standards  for  the  company’s  relationship  with  its  stakeholders   3. Ethical  standards  for  the  company’s  relationship  with  its  stakeholders   Employees  and  Officers   The   company   values   its   employees   as   the   keystone   to   success.   The   company   is   thus   committed   to   Employees  and  Officers   treating  all  employees  with  dignity,  trust  and  respect,  and  to  building  a  long-­‐term  relationship  based  on   The   company   values   its   employees   as   the   keystone   to   success.   The   company   is   thus   committed   to   Myanmar  labor  law  and  the  respect  of  human  rights.  The  company  will  not  employ  child  labor.     treating  all  employees  with  dignity,  trust  and  respect,  and  to  building  a  long-­‐term  relationship  based  on   Myanmar  labor  law  and  the  respect  of  human  rights.  The  company  will  not  employ  child  labor.     The   company   fosters   teamwork,   believing   that   diversity   in   talent,   perspectives   and   opinions   stimulate   new  and  creative  business  opportunities  and  innovation.  Similarly,  the  company  renounces  all  forms  of   The   company   fosters   teamwork,   believing   that   diversity   in   talent,   perspectives   and   opinions   stimulate   bureaucracy  and  excessive  hierarchical  structures  that  impede  operational  efficiency.     new  and  creative  business  opportunities  and  innovation.  Similarly,  the  company  renounces  all  forms  of   bureaucracy  and  excessive  hierarchical  structures  that  impede  operational  efficiency.     It  is  the  company’s  policy  to  provide  for  and  regularly  improve  upon  a  healthy,  safe  and  secure  working   environment  for  its  employees.     It  is  the  company’s  policy  to  provide  for  and  regularly  improve  upon  a  healthy,  safe  and  secure  working   environment  for  its  employees.     2     The  Company’s  areas  of  focus  will  depend  largely  on  the  industry  and  its  business  sector.  Thus,  a  company  in  the  microfinance  sector  may   wish   to   focus   on   issues   different   than   those   of   a   company   in   the   oil   sector   (for   example,   financial   control,   insider   trading   and/or   money   2     The  Company’s  areas  of  focus  will  depend  largely  on  the  industry  and  its  business  sector.  Thus,  a  company  in  the  microfinance  sector  may   laundering   vs.   environmental   protection).   Areas   of   focus   can   be   structured   around   topics   and/or   relationships.   Topics   include   health   and   wish   to   focus   on   issues   different   than   those   of   a   company   in   the   oil   sector   (for   example,   financial   control,   insider   trading   and/or   money   safety  and  environmental  concerns,  bribery  and  corruption,  legality,  conflicts  of  interest,  human  rights,  gifts  and  entertainment,  control  and   finance,  etc.  Relationships  can  include  relations  with  employees,  customers,  business  partners,  suppliers,  joint-­‐venture  partners,  etc. laundering   vs.   environmental   protection).   Areas   of   focus   can   be   structured   around   topics   and/or   relationships.   Topics   include   health     and   safety  and  environmental  concerns,  bribery  and  corruption,  legality,  conflicts  of  interest,  human  rights,  gifts  and  entertainment,  control  and   finance,  etc.  Relationships  can  include  relations  with  employees,  customers,  business  partners,  suppliers,  joint-­‐venture  partners,  etc.   55 ANNEX II. B Conflicts   of   interests   can,   or   appear   to,   compromise   the   judgment   or   objectivity   of   the   company’s   employees  and  officers.  An  appropriate  policy  and  disclosure  thereof  has  been  developed  to  this  extent.     The  company  is  an  equal  opportunity  employer.  Its  recruitment,  promotion  and  compensation  policy  is   based   on   merit   and   free   of   discrimination.   Clear   and   transparent   policies   to   this   extent   have   been   developed  and  put  into  practice.     Any  kind  of  discrimination  or  harassment  at  the  workplace  will  not  be  tolerated  and  contrary  behavior   properly  investigated  and  dealt  with  through  the  company’s  ethics  officer  [and/or  the  human  resources   manager].   Employees  are  recognized  and  rewarded  for  their  performance,  based  on  performance  objectives,  and   constructive  and  regular  feedback  through  face-­‐to-­‐face  meetings.  Rewards  are  given  both  at  the  team   and   individual   level.   The   company   has   in   place   a   training   program,   accessible   to   all   employees,   which   encourages  individuals  to  formulate  personal  development  plans  and  provides  for  coaching,  mentoring   and  formal  skill-­‐enhancing  trainings.   The   company   sanctions   the   illegal   use   of   confidential   and   insider   information   by   all   officers   and   employees  and  has  developed  a  detailed  procedure  to  effectively  deal  with  this  matter.     A  regular  consultation  process  between  the  company’s  employees  and  managers  has  been  put  in  place   to   effectively   deal   with   employment   conditions   and   other   issues   that   affect   the   employees   work   environment.     These  principles  do  not  limit  the  right  of  the  company  to  enforce  discipline  or  to  terminate  workers  in   accordance  with  Myanmar  legislation.     Customers   Customer  satisfaction  is  paramount  to  the  company.  Safe  and  quality  products  and  services,  fair  pricing   and  appropriate  after-­‐sales  service  shall  define  the  company’s  relations  with  its  customers.     The  company  always  seeks  to  deliver  what  it  promises.     Relations  with  its  Business  Partners   The   company   believes   that   a   long-­‐term   relationship   with   its   business   partners   (suppliers,   contractors,   participants   in   joint   ventures   and   _____________)   founded   on   respect,   trust,   honesty   and   fairness   is   vital  to  its  success.     The  company  will  put  forth  its  best  effort  to  only  cooperate  with  those  business  partners  that  share  the   company’s  ethical  standards.     The  company  will  respect  the  sanctity  of  contracts  and  business  relations.  Contractual  negotiations  shall   be  conducted  on  the  basis  of  mutual  advantage.     Business  relations  shall  be  based  on  high  performance  standards,  delivering  in  a  timely  and  qualitative   manner,  prompt  settling  of  bills  and  _________.     56 Implementing Corporate Governance Practices ANNEX II. B In  case  of  a  commercial  dispute,  the  company  will  strive  to  negotiate  and  compromise  in  good  faith  in   order  to  reach  an  amicable  solution.   The  company  is  committed  to  complying  fully  with  the  Myanmar  law  on  anti-­‐money  laundering  and  only   conducts  business  with  reputable  suppliers,  business  customers  and  other  partners  who  are  involved  in   legitimate  business  activities  and  whose  funds  are  derived  from  legitimate  sources.     Government   The  company  will  pay  all  taxes  that  are  owed  and  due,  fully  and  in  a  timely  manner.     The   company   abides   by   all   federal   and   local   regulations,   including   voluntary   codes   and   guidelines,   in   both  spirit  as  well  as  letter.     The  company  has  also  legally  obtained  all  licenses  required  to  do  business.   The   company   seeks   to   build   and   manage   a   sound   relationship   with   governmental   authorities   on   an   arm’s  length  basis.  No  attempts  to  improperly  influence  governmental  decisions  shall  be  made,  and  the   company  will  not  offer,  pay,  solicit  or  accept  bribes  in  any  form  or  shape,  either  directly  or  indirectly,  in   its   dealings   with   the   government,   administration   or   courts.   Transparent   procedures   regarding   transactions  engaged  in  by  the  company  with  any  government  agency  or  official,  or  in  dealings  with  any   company  owned  or  controlled  by  a  government  agency  or  official,  shall  be  established  to  this  end.     The  company  will  never  make  political  contributions  whether  in  cash  or  in  kind.     Society,  environment  and  the  wider  community   The  company  views  itself  as  an  integral  part  of  the  community  in  which  it  operates  and  is  committed  to   a  sound  relationship  built  on  respect,  trust,  honesty  and  fairness.     The   company   is   committed   to   creating   jobs   and   developing   local   talent   when   this   is   economically   sustainable.     The  preservation  of  the  environment  is  of  the  utmost  importance  to  the  company.  The  company  thus   strives   to   minimize   any   disruption   to   the   environment   arising   from   its   activities   by   reducing   waste,   emissions  and  discharges,  and  by  using  energy  efficiently.  All  operations  and  activities  will  be  carried-­‐out   according  to  the  highest  standards  of  care  and  in-­‐line  with  internationally  recognized  principles.     Company   employees   are   encouraged   to   engage   and   commit   part   of   their   time   to   help   the   local   community   through   a   variety   of   charities   and   foundations,   educational   organizations   and   similar   institutions.     Non-­‐governmental   organizations   (NGOs)   are   a   key   element   to   any   society   and   the   company   seeks   to   build  constructive  relationships  with  such  organizations  in  building  a  better  society  and  environment-­‐-­‐in   an  economically  sustainable  matter.   The   company   promise   to   engage   and   consider   the   specific   developmental   needs   of   communities   in   which  it  operates,  through  a  process  of  regular  and  open  dialogue.     57 ANNEX II. B 4. Implementation   Means  to  obtain  advice   Many   business   decisions   involve   ethical   dilemmas   and   require   complex   judgments   to   make   the   right   choice.  In  cases  of  uncertainty,  all  officers  and  employees  are  expected  to  act  responsibly  and  raise  the   ethical  dilemma  with  their  managers.  Should  this  not  lead  to  a  satisfactory  solution,  the  ethical  issue  is   to  be  raised  with  a  designated  officer  to  obtain  clarification.  All  officers  and  employees  have  the  right  to   make  confidential  reports  directly  to  the  designated  officer  who  in  turn  shall  decide  whether  to  report   the  matter  to  the  audit  committee  to  recommend  appropriate  action  against  any  director  or  employee   who  acts  in  a  manner  inconsistent  with  this  code  of  ethics.     Processes  and  responsibility   Each  individual  is  responsible  for  his  or  her  ethical  behavior.  The  company  has  implemented  a  procedure   for   all   officers   and   employees   to   regularly   state   that   they   understand   and   apply   the   provisions   of   this   code   of   ethics.   Adherence   to   this   Code   is   further   made   obligatory   as   it   is   referenced   in   all   employee   contracts  and  linked  to  disciplinary  procedures.  A  copy  of  this  code  of  ethics  is  given  to  every  employee   on  his  or  her  first  working  day.   Department  heads  are  accountable  to  the  CEO  and/or  executives  for  implementing  this  code  of  ethics   within   their   departments,   ensuring   that   all   officers   and   employees   understand   it,   and   for   providing   assurance  on  compliance.  The  CEO  and/or  executives  are  in  turn  accountable  to  the  board.   The  principles  and  provisions  in  this  code  of  ethics  have  been  integrated  into  the  company’s  system  of   internal   control.   Rigorous   and   objective   processes   to   measure   performance,   identify   gaps   and   implement  measures  to  address  ethical  gaps  are  regularly  reviewed  and  modified.   Willful  or  careless  breach  or  neglect  of  this  code  of  ethics  will  be  treated  as  a  serious  disciplinary  matter   and  can  lead  to  the  termination  of  employment.   The   board’s   [audit   committee]   periodically   reviews   and   updates   compliance   with   these   principles   and   formulates  proposals  for  the  board’s  approval.     Training  program   The   company   offers   an   introductory   ethics-­‐training   course   once   per   year   for   all   new   officers   and   employees.  This  course  offers  practical  examples  of  this  code  of  ethics  in  action.     Periodic  and  specialized  training  courses  are  further  offered  to  the  company’s  officers  and  employees,   as  well  as  to  the  company’s  other  stakeholders  such  as  suppliers  and  other  business  partners,  as  part  of   the  company’s  continuous  professional  education  program.   58 Implementing Corporate Governance Practices ANNEX II. C ANNEX II. C: SAMPLE CONFLICTS OF INTEREST POLICY ANNEX  C:  SAMPLE  CONFLICT  OF  INTEREST  POLICY     [NAME  OF  MFI]   CONFLICTS  OF  INTEREST  POLICY   Effective  Date:  __________   Revised  Date:  __________   Last  Board  Review  Date:  __________     1. Conflicts  of  interest   Conflict   of   interest   is   defined   as   a   situation   in   which   one’s   personal   interests   (and   one’s   relatives,   friends,  and  business  partners)  may  be,  or  may  have  the  appearance  of  being,  in  conflict  with  the  best   interests  of  the  company.  The  range  of  potential  conflicts  includes,  but  is  not  limited  to,  the  following   areas:     • engaging   in   activities   to   the   detriment   of   the   company   in   order   to   benefit   another   related   organization  or  individual;       • having   an   interest   in   or   providing   consulting   services   to,   an   organization   that   does   material   business  with  the  company,  or  performs  the  same  services  as  the  company;     • disclosing  or  using  information  about  the  company  for  personal  gain  or  at  the  expense  of  the   company;  or     • having  any  interest  in  an  entity  that  has  a  material  contract  with  the  company.     In  order  that  actions,  decisions  and  judgments  are  taken  in  the  best  interests  of  the  company’s  business,   directors  are  expected  to  have  no  relationship,  activity  or  personal  financial  interest  that  might  impair  or   affect   their   judgment   or   influence   their   decisions   in   this   regard.   Sensitive   information   concerning   the   company’s  financial  matters,  plans,  changes  in  products,  prospects  or  business  ventures  is  to  be  treated   as  confidential  and  is  not  to  be  disclosed  to  anyone  other  than  company  personnel  who  need  to  have   the   information   to   carry   out   their   responsibilities   and   to   those   involved   in   conducting,   assisting,   reviewing,  auditing  or  regulating  the  company’s  business  and  affairs.     This   policy   also   applies   to   family   members   of   directors,   with   the   latter   thus   being   responsible   for   the   conduct  of  their  family  members.     Anyone  who  is  aware  of  a  breach  or  possible  breach  of  this  policy  must  make  full  and  prompt  disclosure   to  the  chair  of  the  board  of  directors.   2. Disclosure  of  Conflicts  of  Interest     Prior  to  becoming  a  director  of  the  company,  the  person  must  disclose  any  possible  conflict  of  interest.       Directors   are   expected   to   avoid   any   action,   position   or   interest   that   conflicts   with   an   interest   of   the   company   or   gives   the   appearance   of   a   conflict.   A   director   who   has   a   material   personal   interest   in   a   matter  that  relates  to  the  affairs  of  the  company  must  give  the  other  directors  notice  of  such  interest.   Such  notice  should  be  provided  in  writing  to  the  board  chair  [board  secretary],  who  is  to  ensure  that  the   59 ANNEX II. C notice   is   brought   to   the   attention   of   the   other   directors.   Directors   may   also   disclose   the   nature   and   extent  of  a  conflict  or  potential  conflict  to  be  entered  in  the  minutes  of  the  board  meeting.   Disclosure  by  a  director  shall  be  made  at  the  first  board  meeting  after  the  board  member  is  aware  of  the   conflict.  There  will  be  varying  degrees  of  interest  and  affiliation  of  directors.  Directors  should  err  on  the   side   of   caution   and   ensure   they   are   up-­‐to-­‐date   and   knowledgeable   about   their   potential   conflicts   and   their  obligations  to  disclose  them  to  the  company.     3. Specific  rules  regarding  conflict  of  interest     A  director  shall  take  no  part  in  discussions  nor  exercise  any  influence  over  other  members  of  the  board   or  participate  in  voting  on  matters  that  relate  to  any  person  or  institution  in  which  they  have  an  interest   or  to  which  they  are  affiliated,  including:     • institutions  on  which  they  serve  as  Board  members;     • institutions  in  which  they  serve  as  an  employee;     • institutions  in  which  they  have  a  material  interest;  and     • when  they  have  a  material  interest  in  a  person  who  is  a  party  to  a  material  contract   with  the  company.     Such  individuals  shall  not  participate  in  voting  on  matters  that  relate  to  his/her  spouse,  parent  or  child   or  the  spouse,  parent  or  child  of  an  individual  who  is  a  party  to  a  material  contract  with  the  company.     A   director,   with   an   interest   in   a   supplier,   customer   or   other   major   stakeholder,   may   be   asked   by   the   board  to  refrain  from  participation  in  discussions  or  vote  on  matters  that  relate  to  that  interest  directly   (in  the  case  of  a  supplier,  be  that  a  contract  with  that  supplier  or  a  contract  with  one  of  that  supplier’s   competitors).   If  a  significant  conflict  of  interest  with  a  director  exists  and  cannot  be  resolved,  the  director  is  expected   to  tender  his  resignation  after  consultation  with  the  chair.         60 Implementing Corporate Governance Practices ANNEX II. D ANNEX II. D: SAMPLE BOARD CHAIR   TOR     [NAME  OF  MFI]     CHAIR  OF  THE  BOARD  OF  DIRECTORS  –  TERMS  OF  REFERENCE     1. Appointment       The   Chairperson   of   the   Board   shall   be   appointed   annually   by   the   Board   of   Directors   following   the   Company's  Annual  General  Meeting.         2. General       The  Board  Chairperson  shall  be  a  duly  elected  Director  of  the  Company  The  Chairperson  of  the  Board  of   Directors   is   primarily   responsible   for   governing   the   Board   and   thus   for   the   activities   of   the   Board   of   Directors  and  its  Committees.  He/she  shall  act  as  the  spokesperson  of  the  Board  of  Directors  and  is  the   principal  contact  for  the  Company  CEO  and  the  management  team.       3. Accountability     The   Chairperson   of   the   board   is   accountable   to   the   board   of   directors   for   the   fulfillment   of   the   responsibilities  of  the  office  of  chair  as  outlined  in  this  terms  of  reference.     4. Duties  and  Responsibilities     Chairing  the  Board  and  Ensuring  Board  Effectiveness.  The  responsibilities  of  the  Chairperson  are  to:     • Lead  the  Board  to  ensure  effectiveness  in  all  aspects  of  its  role;   • Ensure   that   directors,   when   appointed,   participate   in   an   induction   program   and,   as   needed,   additional  education  or  training  programs;   • Ensure  that  directors  receive  all  information  necessary  for  them  to  perform  their  duties;     • Ensure  that  the  Board  has  sufficient  time  for  consultation  and  decision-­‐making;   • Determine  the  agenda  of  board  meetings,  chair  such  meetings,  and  ensure  that  minutes  are   kept;   • Promote  a  culture  of  openness  and  debate  in  the  Board;   • Ensure  that  the  Board  and  committees  function  properly;   • Ensure   that   directors   have   full   opportunity   to   provide   their   views   and   opinions   on   board   matters  and  that  issues  are  discussed  and  vetted  fully  prior  to  taking  a  decision;   • Ensure   that   the   performance   of   the   management   team   and   directors   are   evaluated   at   least   once  a  year;   • Ensure  that  the  Board  has  proper  contact  with  the  management  team;     • Ensure  that  the  Board  satisfies  its  duties;   • Consult  with  external  advisors  appointed  by  the  Board,  as  and  when  applicable;   • Address  problems  related  to  the  performance  of  individual  directors,  if  any;   • Address   internal   disputes   and   conflicts   of   interest   concerning   individual   directors   and   the   possible  resignation  of  such  members  as  a  result;  and   • Promote  a  high  standard  of  corporate  governance.   61 ANNEX II. D     Board   Linkage   to   Chief   Executive   Officer   and   Shareholders.   The   Chairperson   is   a   direct   link   for   the   board   to   the   shareholders;   and   to   the   company,   through   the   CEO.   The   Chairperson   provides   advice,   counsel  and  mentorship  to  the  CEO,  particularly  with  respect  to  matters  of  strategic  significance  to  the   company.  The  Chairperson  is  responsible  to:     • Periodically   interact   with   the   CEO   to   champion   the   mission   of   the   company   and   discuss   key     issues  confronting  the  company;   • Serve  as  confidant  and  adviser  to  the  CEO  on  operational  and  governance  issues  and  board-­‐-­‐-­‐ management  relationships;   • Lead  the  monitoring  and  evaluation  of  CEO  performance;  and   • Chair  annual  and  special  meetings  of  shareholders.     Board  representation.  The  Chairperson  represents  the  company  and  is  the  official  spokesperson  for  the   board   in   regard   to   internal   and   external   constituents.   The   Chairperson   may   undertake,   in   conjunction   with  or  with  advisement  from  management,  activities  such  as  the  following  on  behalf  of  the  board:     • Represent   the   company   to   the   shareholders,   the   public,   the   financial   community,   suppliers,     clients  and  staff  and  other  stakeholders;   • Maintain   relationships   and   represent   the   company   with   government,   regulators,   and     government  agencies;  and   • Carry  out  other  duties  as  requested  by  the  shareholders  and  the  board,  depending  on  needs   and  circumstances.     5. Term  of  office   The   board   chair   will   be   elected   on   an   annual   basis   for   a   period   of   one   year,   renewable   for   additional   terms  at  the  discretion  of  the  board  of  directors.   • Record  of  achievement  in  one  or  several  areas  of  skills  and  experience  used  to  select  board   members       62 Implementing Corporate Governance Practices ANNEX II. E ANNEX II. E: SAMPLE FORM FOR ANNUAL DECLARATION Annex  II.  E:  SAMPLE  FORM  FOR  ANNUAL  DECLARATION  OF  INTEREST     OF INTEREST   [NAME  OF  MFI]   DECLARATION  OF  INTEREST     Name  of  person  required  to  fill  out  form:   Position:       (A) Interests  of  person/entity   Names   of   other   organisations   (other  than  MFI)  where  person   Type  of  interest   Brief  description  of  interest   has  interests                         (B) Organisations  where  person  is  employer:         (C) Interests  of  family  members/relatives Name  of  family   Family   Names  of   Type  of  interest2   Brief  description  of   member/relative   relationship1   organisations  where   interest   person/entity  has   interests                                     1 Refers to spouse, brother, sister, parent, child, cousin, in-law, aunt, uncle, nephew, niece, grandparent and grand child 2 Refers to director, senior manager, substantial shareholder, representatives, guarantor or other 63                           ANNEX II. F   ANNEX II. F: SAMPLE LETTER FOR IMMEDIATE DECLARATION OF INTEREST Annex  2.  Immediate  Letter  for  Declaration  of  Interest       Declaration  of  Interest     I  hereby  give  notice  that  I  am  to  be  regarded  as  interested  in  any  transaction  or  contract  or  proposed   transaction   or   contract   between   ______________   and   ____________.   The   nature   of   my   interest   is   as   follows:           Yours  faithfully,                       [Name  of  Director  or  Senior  Manager]                 Date     64 Implementing Corporate Governance Practices IFC  Board  Toolkit     Sample  Charter  –  Audit  Committee   ANNEX II. G   ANNEX II. G: SAMPLE AUDIT COMMITTEE CHARTER [NAME  OF  MFI]   AUDIT  COMMITTEE  CHARTER   Objective   1. The   Board   of   Directors   (“Board”)   of   the   Company   has   resolved   to   establish   an   Audit   Committee   (the  “Committee”).    The  Committee’s  function  is  one  of  oversight,  and  is  separate  to  that  of  the   Company’s  management,  internal  audit  department  and  external  auditors.   2. The  primary  responsibilities  of  the  Committee  are  to  assist  the  Board  in:   a) fulfilling   its   oversight   of   the   integrity   of   the   financial   statements   of   the   Company   and   its   consolidated   subsidiaries   and   any   formal   announcements   relating   to   the   Company’s   financial   performance;   b) reviewing   the   Company’s   internal   financial   controls,   internal   control   and   risk   management   systems;   c) monitoring  and  reviewing  the  effectiveness  of  the  Company’s  internal  audit  function;   d) recommending   to   the   Board   that   the   external   auditor   be   put   to   the   shareholders   for   their   approval  in  general  meeting,  and  approving  the  remuneration  and  terms  of  engagement  of  the   external  auditor;     e) monitoring   and   reviewing   the   external   auditors’   independence   and   objectivity   and   the   effectiveness  of  the  audit  process;   f) developing  and  implementing  policy  on  the  engagement  of  the  external  auditor  to  supply  non-­‐ audit  services;  and   g) ensuring   the   Company’s   compliance   with   all   legal   and   regulatory   requirements   and   other   internal  regulations  of  the  Company.   Committee  Composition   1. The  Committee  shall  be  appointed  by  a  majority  vote  of  the  Board  from  among  its  members.    The   Committee   shall   consist   of   no   fewer   than   three   members,   the   exact   number   to   be   determined   from   time   to   time   by   the   Board,   all   of   whom   shall   be   non-­‐executive   directors   and   a   majority   of   whom   shall   meet   the   independence   requirements   set   out   in   the   [Relevant   Regulations].     The   Chairman  of  the  Board  shall  not  be  a  member  of  the  Committee.   2. As  long  as  they  remain  directors  of  the  Company,  members  shall  serve  for  a  period  of  one  year,   with  the  possibility  of  re-­‐election  so  long  as  each  relevant  member  continues  to  be  independent.   3. At   least   one   of   the   Committee   members   shall   have   recent   and   relevant   financial   expertise,   as   determined  by  the  Board.       4. The  Board  shall  designate  one  member  of  the  Committee  to  act  as  its  Chairman,  who  shall  meet   the   independence   requirements.     The   Chairman,   with   input   from   the   other   members   of   the   Committee,  shall  set  the  agenda  for  Committee  meetings,  which  shall  be  distributed  to  the  Board,   and   shall   attend   the   annual   general   meeting   of   the   Company’s   shareholders   to   discuss   with   65 Sample_Charter_Audit_Committee_022813.docx     Page  1  of  7   IFC  Board  Toolkit     Sample  Charter  –  Audit  Committee     ANNEX II. G shareholders   matters   within   the   responsibility   of   the   Committee.     Where   the   Chairman   or   his   designee  is  unable  to  attend  a  Committee  meeting,  the  remaining  members  present  should  elect   one  of  their  number  present  to  chair  the  meeting.     5. The  secretary  of  the  Company  or  his  designee  shall  act  as  secretary  to  the  Committee.   6. The   Committee   may   request   that   any   director,   officer,   member   of   the   internal   audit   function   or   other  employee  of  the  Company,  or  any  other  persons  whose  advice  and  counsel  are  sought  by   the   Committee,   attend   any   meeting   and   provide   such   pertinent   information   as   the   Committee   requests.     The   head   of   internal   audit   function   shall   meet   with   the   Committee   at   least   annually   without   the   presence   of   the   management.   The   Committee   may   exclude   from   its   meetings   any   persons  it  deems  appropriate  in  order  for  it  to  fulfil  its  responsibilities.   7. The  Company’s  external  auditors  will  be  invited  to  attend  meetings  of  the  Committee  on  a  regular   basis,   and   shall   meet   with   the   Committee   at   least   annually   without   the   presence   of   the   management.     Procedures  for  Meetings   1. The  Committee  shall  meet  as  often  as  it  deems  necessary  but  in  any  case  at  least  four  times  per   year,  held  to  coincide  with  key  dates  in  the  financial  reporting  and  audit  cycle,  at  such  times  and   places  as  determined  by  the  Committee  Chairman,  with  further  meetings  to  occur,  or  actions  to   be  taken  by  unanimous  written  consent,  when  deemed  necessary  or  desirable  by  the  Committee   or  its  Chairman.    Special  meetings  may  be  convened  upon  the  request  of  the  Board,  CEO,  the  head   of   internal   audit   function   and   the   audit   partner   of   the   Company’s   external   auditors.   The   Committee  shall  develop  and  approve  the  annual  calendar  of  its  meetings.   2. Meetings  of  the  Committee  may  be  conducted  when  the  members  are  physically  present  or  in  the   form  of  either  video-­‐  or  audio-­‐conferences.     3. Notice   and   details   of   meetings   shall   be   given   to   members   of   the   Committee   at   least   5   working   days  in  advance,  unless  otherwise  agreed  unanimously.     4. Two  members  of  the  Committee  shall  constitute  a  quorum,  provided  that  each  is  an  independent   director.  When  more  than  two  members  are  present,  the  act  of  the  majority  of  such  members  at  a   meeting   at   which   a   quorum   exists,   shall   be   the   act   of   the   Committee,   and   when   only   two   members   are   present,   the   unanimous   vote   of   the   two   members   shall   constitute   the   act   of   the   Committee.   In   addition,   the   Committee   can   take   action   at   any   time   by   unanimous   written   consent.   5. The   Committee   shall   keep   minutes   of   its   meetings   which   shall   be   circulated   to   members   for   objections  and  approval.  If  no  objection  is  lodged  within  five  business  days,  the  minutes  shall  be   approved.  Once  approved,  such  minutes  shall  be  provided  to  the  Board.   6. Except  as  expressly  provided  in  these  Terms  of  Reference,  the  Committee  shall  set  its  own  rules  of   procedure.     Sample_Charter_Audit_Committee_022813.docx     Page  2  of  7   66 Implementing Corporate Governance Practices IFC  Board  Toolkit     Sample  Charter  –  Audit  Committee     ANNEX II. G Compensation   No   member   of   the   Committee   may   receive,   directly   or   indirectly,   any   compensation   from   the   Company  other  than  (i)  any  fees  paid  to  directors  for  service  on  the  Board,  (ii)  additional  fees  paid  to   directors  for  service  on  a  committee  of  the  Board  (including  the  Committee)  or  as  the  Chairman  of  any   committee  and  (iii)  a  pension  or  other  deferred  compensation  for  prior  service  that  is  not  contingent   on   future   service   on   the   Board   as   long   as   it   does   not   compromise   the   Committee   member’s   independence.   Functions  and  Responsibilities   The  Committee  shall  have  such  authority  as  it  may  require  to  carry  out  any  functions  and  obligations   as  may  be  stipulated  by  the  internal  regulations  of  the  Company  or  recommended  or  required  of  it  by   the  [Relevant  Regulations].    In  particular,  and  without  limitation  to  the  foregoing,  the  Committee  shall   have  the  following  specific  authority  (in  addition  to  any  other  authority  that  the  Board  may  from  time   to  time  delegate  to  the  Committee):   1. Information  Seeking   The  Committee  shall  be  authorised  to:   a) Investigate  any  activity  within  its  authority  as  outlined  in  this  charter  ;  and   b) Seek  any  information  that  it  requires  from  any  employee  of  the  Company,  and  all  employees   are  directed  to  cooperate  with  any  request  made  by  the  Committee.   2.Internal  Audit   a) The  Committee  shall:   • monitor  and  review  the  effectiveness  and  organizational  structure  of  the  Company’s  internal   audit  function  in  the  context  of  the  Company’s  overall  risk  management  system;   • approve  the  appointment  and  removal  of  the  head  of  the  internal  audit  function,  review  the   qualifications  and  effectiveness  of  internal  audit  personnel;   • consider   and   approve   the   remit   of   the   internal   audit   function   and   ensure   it   has   adequate   resources   and   appropriate   access   to   information   to   enable   it   to   perform   its   function   effectively  and  in  accordance  with  the  relevant  professional  standards;   • review  and  assess  the  annual  internal  audit  plan;   • review  promptly  all  reports  on  the  Company  from  the  internal  auditors;   • review  and  monitor  management’s  responsiveness  to  the  findings  and  recommendations  of   the  internal  auditor;  and   • meet  the  head  of  internal  audit  at  least  once  a  year,  without  management  being  present,  to   discuss  their  remit  and  any  issues  arising  from  the  internal  audits  carried  out.    In  addition,  the   head  of  internal  audit  shall  be  given  the  right  of  direct  access  to  the  Chairman  of  the  Board   and  to  the  Committee.       Sample_Charter_Audit_Committee_022813.docx     Page  3  of  7   67 IFC  Board  Toolkit     Sample  Charter  –  Audit  Committee     ANNEX II. G 3.External  Auditors   a) The   Committee   shall   consider   and   make   recommendations   to   the   Board,   to   be   put   to   shareholders  for  approval,  in  relation  to  the  appointment,  re-­‐appointment  and  removal  of  the   Company’s   external   auditors.     The   Committee   shall   oversee   the   selection   process   for   new   auditors  and  if  an  auditor  resigns  the  Committee  shall  investigate  the  issues  leading  to  this  and   decide  whether  any  action  is  required.   b) The  Company’s  external  auditors  shall  report  directly  to  the  Committee.   c) In  addition  to  its  responsibilities  above,  the  Committee  shall  oversee  the  relationship  with  the   external  auditor  including  (but  not  limited  to):   • approval  of  their  remuneration,  whether  fees  for  audit  or  non-­‐audit  services  and  that  the  level  of   fees  is  appropriate  to  enable  an  adequate  audit  to  be  conducted;   • approval  of  their  terms  of  engagement,  including  any  engagement  letter  issued  at  the  start  of  each   audit  and  the  scope  of  the  audit;   • assessing   annually   their   independence   and   objectivity   taking   into   account   relevant   professional   and   regulatory   requirements   and   the   relationship   with   the   auditor   as   a   whole,   including   the   provision  of  any  non-­‐audit  services;   • satisfying  itself  that  there  are  no  relationships  (such  as  family,  employment,  investment,  financial   or  business)  between  the  auditor  and  the  company  (other  than  in  the  ordinary  course  of  business);   • agreeing   with   the   Board   a   policy   on   the   employment   of   former   employees   of   the   company’s   auditor,  then  monitoring  the  implementation  of  this  policy;   • monitoring   the   auditor’s   compliance   with   relevant   ethical   and   professional   guidance   on   the   rotation   of   audit   partners,   the   level   of   fees   paid   by   the   company   compared   to   the   overall   fee   income  of  the  firm,  office  and  partner  and  other  related  requirements;  and   • assessing  annually  their  qualifications,  expertise  and  resources  and  the  effectiveness  of  the  audit   process   which   shall   include   a   report   from   the   external   auditor   on   their   own   internal   quality   procedures;   d) The  Committee  shall  develop  and  implement  policy  on  the  supply  of  non-­‐audit  services  by  the   external   auditor,   taking   into   account   relevant   ethical   guidance   and   legal   requirements   regarding  the  matter.   e) The  Committee  shall  consider  whether,  in  order  to  assure  the  continuing  independence  of  the   external  auditors,  there  should  be  regular  rotation  of  the  lead  audit  partner.     f) The  Committee  shall  review  and  discuss  with  the  Board,  external  auditors  and  the  Company’s   internal   auditors   the   performance   and   adequacy   of   the   Company’s   internal   audit   function,   including   its   responsibilities,   budget,   staffing,   and   any   proposed   changes   in   the   scope   or   procedures   of   the   internal   audit   year   on   year.     The   Committee   shall   monitor   and   review   management’s   responses   to   recommendations   of   the   external   auditor,   including   those   in   the   Management  Letter.     Sample_Charter_Audit_Committee_022813.docx     Page  4  of  7   68 Implementing Corporate Governance Practices IFC  Board  Toolkit     Sample  Charter  –  Audit  Committee     ANNEX II. G 4.Financial  Reporting  and  Financial  Statements   a) The  Committee  shall  monitor,  review  and  assess  the  integrity  of  the  financial  statements  of  the   Company   and   any   formal   announcements   relating   to   the   Company’s   financial   performance,   and  review  any  significant  reporting  issues  and  judgments  contained  therein.   b) The   Committee   shall   discuss   with   management   and   external   auditors   on   a   quarterly   basis   (except  in  respect  of  the  final  quarter),  review  and  approve  prior  to  the  approval  by  the  Board,   the  quarterly  financial  statements.   c) The   Committee   shall   discuss   with   management   and   external   auditors   on   an   annual   basis,   review  and  approve  prior  to  the  approval  by  the  Board,  the  annual  financial  statements.   d) The   Committee   shall   discuss   with   management   and   external   auditors   prior   to   their   release,   Company   disclosures   required   by   laws,   rules   and   regulations,   including   announcements   of   a   price  sensitive  nature.   e) The  Committee  shall  discuss  with  the  external  auditors  the  results  of  any  audit  or  review  of  the   Company’s   financial   information   (prior   to   the   release   of   such   information)   and   the   matters   required  to  be  disclosed  in  them  by  applicable  standards.       f) The  Committee  shall  review  and  challenge  where  necessary:     • the  consistency  of,  and  any  changes  to,  accounting  policies  both  on  a  year  on  year  basis  and   across  the  company/group;   • the   methods   used   to   account   for   significant   or   unusual   transactions   where   different   approaches  are  possible;   • whether  the  company  has  followed  appropriate  accounting  standards  and  made  appropriate   estimates  and  judgments,  taking  into  account  the  views  of  the  external  auditor;     • the   clarity   of   disclosure   in   the   company’s   financial   reports   and   the   context   in   which   statements  are  made;  and     • all  material  information  presented  with  the  financial  statements,  such  as  the  operating  and   financial   review   and   the   corporate   governance   statement   (insofar   as   it   relates   to   the   audit   and  risk  management).   g) The   Committee   shall   review   the   findings   of   the   audit   with   the   external   auditor.   This   shall   include  but  not  be  limited  to,  the  following;   • a  discussion  of  any  major  issues  which  arose  during  the  audit,   • any  accounting  and  audit  judgments,  and   • levels  of  errors  identified  during  the  audit.   h) The   Committee   shall   review   with   the   internal   auditors   and   the   external   auditors   their   annual   audit  plans  and  the  degree  of  coordination  of  such  plans  and  ensure  that  it  is  consistent  with   the  scope  of  the  audit  engagement.   Sample_Charter_Audit_Committee_022813.docx     Page  5  of  7   69 IFC  Board  Toolkit     Sample  Charter  –  Audit  Committee     ANNEX II. G i) The   Committee   shall   oversee   and   regularly   review   the   adequacy   and   performance   of   established  procedures  for  (a)  the  receipt,  retention  and  treatment  of  complaints  received  by   the   Company   regarding   financial   reporting,   accounting,   internal   accounting   controls   and/or   auditing   matters;   and   (b)   the   confidential,   anonymous   submission   by   Company   employees   of   concerns   regarding   questionable   financial   reporting,   accounting,   auditing   or   other   matters.       The   Committee’s   objective   shall   be   to   ensure   that   arrangements   are   in   place   for   the   proportionate   and   independent   investigation   of   such   matters   and   for   appropriate   follow-­‐up   action.   5.Internal  Controls  and  Risk  Management   a) The  Committee  shall  monitor  and  review  the  internal  control  and  risk  management  systems  of   the  Company.   b) The   Committee   shall   review   all   material     related   party   transactions   prior   to   the   Board   consideration.   c) The  Committee  shall  discuss  the  Company’s  disclosure  controls  and  procedures  (including  any   significant  internal  control  deficiencies  or  material  weaknesses  and  any  changes  implemented   in  light  of  material  control  deficiencies  or  weaknesses)  with  the  Board  and  external  auditors  on   a  quarterly  basis  (prior  to  issuing  quarterly  or  annual  financial  statements).   d) The  Committee  shall  discuss  with  management,  the  internal  auditors  and  the  external  auditors   the  Company’s  policies  with  respect  to  risk  assessment  and  risk  management.    This  discussion   should  cover  the  Company’s  risk  tolerance,  major  financial  and  non-­‐financial  risk  exposures  and   the  steps  management  has  taken  to  monitor  and  control  these  exposures.   6.Compliance   a) The   Committee   shall   review   the   findings   of   any   examinations   by   regulatory   and   supervisory   agencies.   b) The  Committee  shall  review  with  the  Company’s  legal  counsel,  the  internal  auditors  and  other   appropriate  parties,  legal  matters  that  may  have  a  material  impact  on  the  Company’s  financial   statements   and   compliance   procedures,   and   any   material   reports   received   from   or   communications  with  regulators  or  government  agencies.   Committee  Performance  Evaluation   The   Committee   shall   review   its   own   performance   at   least   annually   in   such   manner   as   it   deems   appropriate,  and  submit  such  evaluation,  including  any  recommendations  for  change,  to  the  full  Board   for  review,  discussion  and  approval.   Access  to  Advisors  and  Training   1. The   Committee   shall   have   its   own   budget   and   the   authority   to   engage   and   obtain   advice   and   assistance   from   internal   or   external   legal,   accounting   or   other   advisors,   without   having   to   seek   Board  approval  and  at  the  Company’s  expense.   Sample_Charter_Audit_Committee_022813.docx     Page  6  of  7   70 Implementing Corporate Governance Practices IFC  Board  Toolkit     Sample  Charter  –  Audit  Committee     ANNEX II. G 2. The   Committee   shall   make   determinations   with   respect   to   the   payment   of   the   Company’s   external  auditors  and  other  advisors  retained  by  the  Committee.   3. Members  of  the  Committee  shall  receive  appropriate  training  on  taking  office  and  on  an  ongoing   and  timely  basis  to  ensure  that  they  can  carry  out  their  functions.   Reporting  Obligations   1. The  Committee  shall  maintain  minutes  of  its  meetings  and  shall  give  regular  reports  to  the  Board,   including  on  the  Committee’s  actions,  conclusions  and  recommendations  and  such  other  matters   as   the   Board   shall   from   time   to   time   specify.     Reports   to   the   Board   may   take   the   form   of   oral   reports  by  the  Chairman  of  the  Committee  or  any  other  member  of  the  Committee  designated  by   the  Committee  to  give  such  report.   2. In   addition   to   the   Committee’s   reporting   obligations   above,   it   shall   prepare   a   report   describing   the  Committee’s  work  in  discharging  its  responsibilities  to  be  included  in  the  Company’s  Annual   Report.   3. This   charter,   as   may   be   amended   from   time   to   time,   shall   be   posted   on   the   website   of   the   Company.   Sample_Charter_Audit_Committee_022813.docx     Page  7  of  7   71 ANNEX II. H ANNEX II. H: SAMPLE BOARD MEETINGS AGENDA ANNEX  E:  SAMPLE  BOARD  MEETING  AGENDA     [NAME  OF  MFI]   MEETING  OF  THE  BOARD  OF  DIRECTORS   [DATE]   [LOCATION]   Invited:   Board  of  Directors:   [Name  of  Director  serving  as  Chair]  (Chair)   [Name  of  Director  serving  as  Vice-­‐Chair]  (Vice-­‐Chair)   [Name  of  Director  serving  as  Board  Secretary]  (Secretary)   [Name  of  Executive  Director]  (CEO)   [Names  of  other  executive,  non-­‐executive  and  independent  directors]   Staff:   [Name  of  Corporate  Secretary]  (Corporate  Secretary)   [Name  of  CFO]  (Chief  Financial  Officer)   [Name  of  IT  Manager]  (IT  Manager)   [Name  of  other  invited  staff,  if  any]   Guest(s):   [Names  of  individual  invited  as  observers]   Item   Purpose   Item  Lead   Time   Reference  Docs   1. Welcome       Chair       2. Call  to  order     Declaration   Chair       • Establishment  of  quorum     3. Agenda   Approval   Chair     • This  document   • Call  for  additional  items   • Approval  of  agenda  –  motion   4. Specific  declarations  of  conflict  of  interest   Declaration         5. Consent  Agenda   Approval   Chair     • Draft_minutes.docx     • Declaration  of  conflict  of  interest     • Related_party_policy.docx   • Minutes  from  previous  meeting   • Board_evaluation_policy.docx   • Board  policies     o Related-­‐party  transactions  policy   o Board  evaluation  policy   6. Chairman’s  Report   Information,   Chair     • Action_items.docx   • Update  on  Action  Items  (information)   Approval   • Regulations  update   7. Reports  of  Board  Committee  Chairs         • Committee_minutes.docx   • Audit  Committee   • Nomination  and  Remuneration  Committee   8. CEO  Report   Information,     CEO,  CFO     • CEO_report.docx   • Unaudited  financial  results   Discussion   • Financial_Statements.docx   • Business  updates  against  plan     • Performance_Dashboard.pdf   9. Project  update  -­‐  IT  upgrade   Information,   IT  Manager       Discussion   10. Lunch  Break           11. Executive  Session   Information,           • CEO  Performance  Review   Discussion   12. Corporate  Governance  Committee   Information,   Committee     • GC_workplan_  revised.docx     • Presentation  of  annual  workplan     Discussion     Chair     13. Adjourn             72 Implementing Corporate Governance Practices ANNEX II. I Sample Meeting Minutes ANNEX II. I: SAMPLE MEETING MINUTES [NAME  OF  THE  MFI]   BOARD  OF  DIRECTORS  –  MEETING  MINUTES   Date:     Location:     Time:     Chairman  of  the  meeting:     Board  Members:   Attendees:       ___________   Absent:       ___________   Quorum  present?  _________   Others  Present:  ___________     The  meeting  has  a  quorum.   Meeting  Agenda   1:  __________________________________   2:  _________________________________   3:  _________________________________     Item  No.  1:  __________________________________   1.  Discussed:   2.  Presenters:    ___________________________________  ;    ___________________________________  ;  and    ___________________________________  .   3.  Decision  to  approve  the  following  ________________________________   73 Sample Meeting Minutes ANNEX II. I Voting  results  on  this  item:       Name  of  the  Director   Voting  options   FOR   AGAINST   Abstained   1.           2.           3.           4.           5.           Item  No.  2:   _____________________________________________________________     Item  No.  3:   _____________________________________________________________     Date  of  the  minutes:     The  Board  Chairman     ___________________________________     Director  1     ___________________________________     Director  2     ___________________________________     Director  3     ___________________________________     Director  4     ___________________________________     Director  5     ___________________________________     The  Corporate  Secretary     ___________________________________       (signatures)     74 Implementing Corporate Governance Practices ANNEX II. J ANNEX  H:  SAMPLE  INTERNAL  AUDIT  CHARTER   ANNEX II. J: SAMPLE INTERNAL AUDIT CHARTER         [NAME  OF  MFI]     INTERNAL  AUDIT  CHARTER     1. Definition   Internal   auditing   is   an   independent,   objective   assurance   and   consulting   activity   designed   to   add   value   and  improve  the  company's  operations.  Internal  audit  is  concerned  with  controls  that  ensure:     • Reliability  and  integrity  of  financial  and  operating  information;     • Effectiveness  and  efficiency  of  operations;     • Safeguarding  of  assets;  and   • Compliance  with  laws  and  regulations.   It   helps   to   accomplish   its   objectives   by   bringing   a   systematic,   disciplined   approach   to   evaluate   and   improve  the  effectiveness  of  risk  management,  control,  and  governance  processes.   2. Purpose   The   purpose   of   the   Internal   Audit   Charter   is   to   formally   establish   and   provide   guidance   for   an   independent  audit  function  that  consults  with  and  supports  management,  complies  with  best  practices   as  identified  in  the  auditing  profession.   3. Role  and  responsibilities   The  role  of  Internal  Audit  is  to  understand  the  key  risks  of  the  organization  and  to  examine  and  evaluate   the  adequacy  and  effectiveness  of  the  system  of  risk  management  and  internal  control  as  operated  by   the  company.  To  achieve  this,  Internal  Audit  will:     • review  the  risks  relating  to  the  achievement  of  the  company’s  strategic  objectives;   • review  and  appraise  the  soundness,  adequacy,  and  application  of  accounting  and  management   procedures  to  determine  that  they  provide  adequate  controls,  and  expected  results  as  defined   by  management  and  the  board;     • perform  sufficient  tests  during  the  course  of  review  to  determine  compliance  with  established   policies,   plan,   procedures,   laws,   and   regulations;   the   quality   and   control   environment   around   the  loan  portfolio  and  the  adequacy  of  provisionsthe  related  processes/activities;   • review   the   suitability,   accuracy,   reliability   and   integrity   of   financial   and   other   management   information  and  the  means  used  to  identify  measure,  classify  and  report  such  information;     • appraise  the  quality,  efficiency,  effectiveness,  and  integrity  of  processes  and  systems,  including   those  under  development,  to  ensure  that  controls  offer  adequate  protection  against  error,  fraud   and  loss  of  all  kinds;  and  that  the  process  aligns  with  the  company’s  strategic  goals;     • review  management’s  risk  management  procedures  and  risk  assessment  methodologies;     • review  the  operation  of  the  company’s  corporate  governance  arrangements;  and   • coordinate   with   the   company’s   management   team   the   auditing   efforts   with   other   risk   and   compliance  functions,  external  auditors,  regulators,  external  consultants  and  other  government   agencies.   75 ANNEX II. J Internal  Audit  is  an  independent  function  set  up  within  the  company   as  a  service  to  the  board  including   all  board  committees  and  all  levels  of  management.  It  does  not  relieve  management  of  the  responsibility   for   effective   control   and   for   informing   Internal   Audit,   with   immediate   effect,   of   any   material   lapses   in   controls  or  irregularities.     4. Head  of  Internal  Audit   Internal   Audit   Department   shall   be   led   by   a   Head   of   Internal   Audit   (also   refereed   as   Chief   Audit   Executive  /  Chief  Internal  Auditor)  who  will  have  overall  responsibility  for  internal  audit.  The  Board  Audit   Committee   will   set   qualification   criteria   for   the   Head   of   Internal   Audit   and   recommend   his/her   appointment  to  the  Board.  The  Head  of  Internal  Audit  will  collaborate  with,  support  and  report  to  the   Audit  Committee  functionally,  and  to  the  CEO  administratively.  The  Board  Audit  Committee  will  also  be   responsible   for   annually   reviewing   his/her   performance   and   any   increase   in   salary   and   other   employment   benefits   and   making   recommendations   to   the   Board   for   final   approval.     Only   Audit   Committee   shall   have   the   authority   to   recommend   the   removal   of   the   Head   of   Internal   Audit   to   the   Board  after  undertaking  a  thorough  inquiry  into  any  allegation  of  misconduct  or  lack  of  performance.       5. Authority  and  Scope  of  Activity     In   carrying   out   their   duties,   Internal   Auditors   and   employees   performing   internal   audit   activities   shall   have   full,   free,   and   unrestricted   access   to   any   and   all   company   and   board   documents,   books,   records,   files,   personnel   and   organizational   activities   necessary   for   their   duties.   It   is   expected   that   internal   auditors  will  exercise  discretion  in  the  review  of  records  to  ensure  the  confidentiality  of  all  matters  that   come  to  their  attention.     Internal  Audit  does  not  have  any  authority  nor  should  engage  in  policy  or  procedure  development  and   implementation.  Internal  Audit  specifically  does  not  have  the  authority  to  initiate  or  approve  accounting   transaction  of  any  nature  or  administer  or  supervise  any  operational  function.  Impartiality  requires  that   Internal   Audit   is   not   involved   in   operations   in   implementing   internal   control   measures.   However,   the   audit   department   shall   give   recommendations   for   strengthening   internal   controls   and   can   also   give   opinions  on  specific  matters  related  to  internal  control  procedures  and  risk  management.  In  this  respect,   Internal  Audit  provides  an  advisory  and  consulting  service  to  management.     6. Board  Audit  Committee   The  Board  Audit  Committee  of  the  board  of  directors  is  a  standing  committee  of  the  board  that  complies   with  an  Audit  Committee  Charter  setting  forth  the  membership  requirements,  roles  and  responsibilities   regarding  internal  controls  and  financial  reporting,  compliance  with  laws  and  regulations,  internal  audit,   external  audit,  and  meetings  and  reporting.    The  Board  Audit  Committee  approves  the  internal  audit  risk   assessment  methodology,  annual  plan,  budget  and  resource  plan  and  reviews  the  functioning  of  Internal   Audit  to  ensure  its  independence  and  overall  effectiveness.  The  head  of  internal  audit  will  confirm  to  the   Board  Audit  Committee,  at  least  annually,  the  organizational  independence  of  the  internal  audit.   7. Risk  Assessment  and  Internal  Audit  Plan     The  Internal  Auditor  will  in  coordination  with  the  CEO  and  the  risk  management  or  senior  management   team,  conduct  an  annual  risk  assessment  of  the  company  and  develop  an  annual  internal  audit  plan  that   will   set   forth   the   frequency   of   the   audits,   priority   areas   to   audit   based   on   risk   assessment,   and   other   responsibilities   as   determined.   Prior   to   each   internal   audit   activity,  auditors   will   conduct   engagement-­‐ 76 Implementing Corporate Governance Practices ANNEX II. J based   risk   assessment   and   assess   risks   and   expected   internal   controls   of   the   area   to   be   audited.   The   annual  plan  will  include  adequate  availability  for  special  procedure  audits  and  management  requests  for   special  assignments   8. Quality  Assurance  and  Improvement  Program   The  head  of  internal  audit  will  maintain  a  quality  assurance  and  improvement  program  that  covers  all   aspects  of  the  department.  The  results  of  the  internal  and  external  quality  assessments  will  be  disclosed   to  the  senior  management  and  the  Board  Audit  Committee.     9. Auditing  Standards     Internal  audits  will  be  conducted  in  accordance  with  Professional  Practice  Standards  and  Code  of  Ethics   of   the   Institute   of   Internal   Auditors   (www.theiia.org).   The   internal   audit   staff   will   work   with   utmost   integrity,   honesty,   objectivity,   confidentiality   and   discretion   in   conducting   audit   assignments,   investigating  problems  and  in  reporting  audit  findings.     10. Internal  Audit  Reporting     Internal   Audit   reports   regularly   on   the   results   of   its   work   to   the   Board   Audit   Committee.   The   Head   of   Internal  Audit  is  accountable  to  the  Board  Audit  Committee  for:     • providing   regular   assessments   of   the   adequacy   and   effectiveness   of   the   company's   systems   of   risk  management  and  internal  control  based  on  the  work  of  Internal  Audit;     • reporting   significant   control   issues   and   potential   for   improving   risk   management   and   control   processes;     • providing   periodically   information   on   the   status   and   results   of   the   annual   audit   plan   and   the   sufficiency  of  Internal  Audit  resources.     Internal   audit   reports   should   include   material   audit   findings,   relevant   and   practical   recommendations   for  improvement,  subsequent  follow-­‐up  on  the  findings  (if  any),  and  management  comments/responses   to  the  report  before  submission  of  the  report  to  the  Board  Audit  Committee.  The  Internal  Auditor  will   also  report  on  the  status  of  all  audit  recommendations,  highlighting  those  recommendations  that  have   not  been  implemented  but  remain  as  high  or  medium  risks  to  the  company.   11. Internal  Audit  Responsibilities  and  Duties     The  Job  Description  of  the  Internal  Auditor  lays  out  the  specific  responsibilities  of  the  position.  Principal   responsibilities  include:     • developing   an   annual   plan   based   on   an   understanding   of   the   company   strategy   as   well   as   significant  risks  to  which  the  company  is  exposed;   • submitting   the   risk-­‐-­‐based   annual   audit   plan   to   the   Board   Audit   Committee   for   review   and   approval;   • maintaining  of  a  professional  audit  staff  with  sufficient  knowledge,  skills  and  experience  to  carry   out  the  plan;     • implementing  the  agreed  audit  plan;   • communicating  audit  findings  and  recommendations  to  the  CEO  and  senior  management;   • working  with  the  CEO  and  senior  management  to  resolve  any  findings;       77 ANNEX II. J • providing  internal  audit  reports  to  the  Board  Audit  Committee  for  review  and  oversight;   • monitoring  and  documenting  the  completion  of  audit  recommendations  that  require  additional   time  after  the  completion  of  the  audit  to  implement;  and   • undertaking  special  reviews  and  investigations  when  requested  by  the  CEO  or  the  Board  Audit   Committee.     Internal  Audit  is  not  relieved  of  its  responsibility  in  areas  of  the  company  which  are  subject  to  review  by   others  such  as  external  auditors  and  regulators  but  must  assess  the  extent  to  which  it  can  rely  upon  the   work  of  others  and  plan  its  audits  accordingly.   This  Internal  Audit  Charter  for  the  company  was  approved  on:  ______________________   _______________________     Audit  Committee  Chair   78 Implementing Corporate Governance Practices ANNEX II. K ANNEX II. K: SAMPLE MANAGEMENT DISCLOSURE POLICY ANNEX  I:  SAMPLE  MANAGEMENT  DISCLOSURE  POLICY     [NAME  OF  MFI]   MANAGEMENT  DISCLOSURE  POLICY   Effective  Date:  __________   Revised  Date:  __________   Last  Board  Review  Date:  __________       1. Purpose   The   purpose   of   this   policy   is   to   provide   guidance   to   management   in   the   determination   of   appropriate   disclosure  to  the  board  for  operating  decisions,  which  would  normally  be  within  delegated  management   authority.     The  board  respects  the  differentiation  in  roles  between  the  board  and  management  and  has  delegated   operating   decisions   to   management.   However,   in   addition   to   regular   reporting   on   performance,   there   may   be   certain   categories   of   decisions   made   by   management   within   the   ordinary   course   of   delegated   authority   in   which   the   board   should   be   informed   for   the   purposes   of   fulfilling   their   governance   responsibilities.     This  policy  clarifies  the  circumstances  which  may  give  rise  to  a  responsibility  by  management  to  disclose   to  the  board  certain  operational  decisions  and  the  process  for  doing  so.     2. Criteria  for  disclosure     In   determining   whether   disclosure   may   be   required,   there   is   a   need   to   balance   the   board’s   “need”   to   know,   compliance   with   confidentiality   obligations,   and   respect   for   the   appropriate   division   of   responsibility  between  the  board  and  management.     Caution   needs   to   be   exercised   by   both   the   board   and   management   in   determining   which   operational   decisions  give  rise  to  a  need  to  inform  the  board  in  order  to  respect  the  division  of  authority  between   board  and  management,  and  avoid  the  board  slipping  into  micro-­‐management.     There  is  a  differentiation  to  be  made  between  those  decisions  taken  by  management  that  do  not  create   any  additional  significant  “risk”  to  the  company,  however,  may  be  “politically  sensitive”  in  nature,  and   those  decisions  that  do  carry  some  level  of  additional  material  risk.       3. Decisions  that  May  Give  Rise  to  Additional  Significant  Risk     If  a  decision  taken  by  management  gives  rise  to  additional  material  risk  or  exposure  to  the  company,  the   board  should  be  advised.  Whether  it  is  a  matter  that  can  be  addressed  by  management  through     regular   reporting   mechanisms   (regular   board   meetings);   or   needs   to   be   undertaken   expediently   may   depend   on   whether   the   decision   is   also   politically   sensitive,   requiring   an   appropriate   communication   strategy  to  be  in  place  prior  to  the  next  board  meeting.     79 ANNEX II. K If  the  matter  gives  rise  to  a  potential  for  increased  risk  or  exposure,  then  the  amount  of  detail  disclosed   should  place  the  Board  in  a  position  to  be  assured  that  management  has  identified  the  potential  risk(s)   involved  and  is  taking  the  appropriate  action(s)  to  address  the  potential  increased  risk(s)  or  exposure.   4. Politically  Sensitive  Decisions     If   a   decision   taken   by   management   does   not   generate   additional   material   risk,   however,   may   be   considered  politically  sensitive,  it  may  be  prudent  to  advise  the  Board  expediently  for  the  purposes     of:     • avoiding  surprise  and/or  potential  embarrassment  to  individual  directors  when  caught  off  guard   by  others  outside  the  company  who  may  know  more  than  directors  may  know;     • assisting  individual  directors  in  a  prepared  response  or  communication  strategy;  and     • avoiding   risk   to   the   company   by   individual   directors   potentially   jeopardizing   the   company’s   communication  strategy.     In   most   instances,   management   reporting   can   provide   the   necessary   information   to   the   board   in   a   manner   that   does   not   require   disclosure   of   unnecessary   details   that   may   breach   confidentiality   requirements.       5. Process     • The   CEO   shall   make   a   determination   that   a   matter   by   reason   of   its   potential   for   increased   risk   or   exposure   to   the   company,   or   by   reason   of   its   political   sensitivity   may   require   the   board   to   be   informed.     • The   CEO   shall   consult   with   the   board   chair   for   the   purpose   of   determining   or   confirming   that   the   decision  or  action  warrants  disclosure  to  the  board.     • The  CEO  shall  develop  a  communication  to  the  board,  normally  to  be  distributed  through  electronic   means,  that  will  address:     o The  decision  or  action  taken,  including  a  brief  description  of  the  circumstances  giving  rise  to   the   decision   and/or   action   taken   by   management   (in   sufficient   detail   that   the   board   will   understand  the  governance  implications  while  maintaining  confidentiality  requirements);     o An  outline  of  the  potential  risks  or  exposure  that  the  decision  /  circumstances  may  generate;     o A   brief   outline   of   the   steps   that   management   has   taken   to   address   the   potential   risk   or   exposure,  including  legal  or  other  external  advice  sought  in  making  the  decision;     o Confirmation  that  the  board  chair  or  designate  has  been  consulted;     o A   brief   outline   of   both   the   company’s   communication   strategy   and   methodology   to   be   deployed  if  necessary;  and     o An  indication  of  how  /  when  management  will  report  back  to  the  board  on  the  final  resolution   or  disposition  of  the  matter.     The   steps   shall   be   undertaken   expeditiously,   and   in   any   event,   prior   to   external   communication   commencing.     6. Responsibilities  of  the  Board  Chair     The   board   chair   shall   act   as   the   voice   of   the   board   when   consulting   with   the   CEO   regarding   whether   there   is   a   need   to   share   or   disclose   operating   decisions   or   other   information   of   an   operational   nature   with  the  board.     80 Implementing Corporate Governance Practices ANNEX II. K   The   chair   may,   by   reason   of   his/her   position   and   responsibility,   be   privy   to   additional   information   not   available  to  other  directors  as  a  result  of  his/her  consultation  with  the  CEO  regarding  decisions  taken  by   management  within  their  authority,  however  potentially  sensitive,  controversial,  etc.     The  appropriate  response  by  the  chair  to  an  individual  director  who  may  request  additional  information   or  detail  should  be  to  advise  the  director  that  the  board  has  adopted  an  appropriate  process  in  relation   to  these  matters  that  will  be  followed.  In  addition,  the  chair  should  indicate  that  it  is  the  “board”  who   will   be   kept   informed   and   not   individual   directors.   The   chair’s   obligation   is   to   ensure   that   the   appropriate  process  has  been  followed,  and  that  all  directors  respect  this  process.     7. Responsibilities  of  Individual  Directors     The  appropriate  forum  for  review  and  discussion  of  information  related  to  a  matter  subject  to  this  policy   is  at  the  full  board  level.  Concerns  or  issues  that  individual  directors  may  have  regarding  the  application   of  this  policy  should  be  addressed  to  the  board  chair.     Individual  directors  shall  also  ensure  that  they  are  aware  of  any  communication  strategy  that  has  been   put   in   place   in   relation   to   a   matter   that   may   be   subject   to   this   policy   and   shall   behave   in   a   manner   consistent  with  the  approved  communication  strategy.   81 ANNEX II. L ANNEX II. L. SAMPLE INFORMATION DISCLOSURE POLICY Annex  13:  Example  of  a  Policy  on  Information  Disclosure     A.    Information  Disclosure  Policy  General  Provisions     I. This  policy  on  information  disclosure  ("the  policy")  (“the  Company”)  has  been  developed   in  accordance  with  applicable  provisions  of  the  laws  of  the  _________  [name  of  country],   the  Company  articles  of  association  and  the  recommendations  of  the  _________  [name  of   country   corporate   governance   code](hereinafter   the   country’s   code   of   corporate   governance).     II. This   policy   shall   regulate   the   disclosure   of   information   by   the   Company   about   the   Company  and  its  business  activities.     III. The   chief   executive   officer   (CEO)   of   the   Company   shall   be   responsible   for   ensuring   the   adherence  to  and  compliance  with  this  policy.     B.   Objectives  and  Principles  of  Disclosure     I. The  goal  of  disclosure  is  to  provide  information  for  interested  parties  and  shareholders  in   order  to  assist  such  persons  in  making  informed  decisions  or  taking  actions.     II. When  disclosing  information,  the  Company  shall  be  guided  by  the  principles  of  accuracy,   accessibility,   timeliness,   completeness,   and   regularity,   and   additionally,   will   seek   to   maintain   a   reasonable   balance   between   the   transparency   of   the   Company   and   the   protection  of  its  commercial  interests  while  complying  with  relevant  provisions  of  the  laws   of   the   _________   [Name   of   Country],   the   articles   of   association,   this   By-­‐law   and   other   internal  documents  of  the  Company.     III. The  Company  shall  not  avoid  the  disclosure  of  negative  information  about  the  Company  if   such  information  might  be  considered  material  or  essential  for  shareholders  or  potential   investors.     IV. For  the  purposes  of  disclosure,  the  preferential  treatment  of  any  one  group  of  recipients   of   such   information   (selective   disclosure)   shall   be   prohibited   unless   otherwise   provided   for  by  the  laws  of  the  _________  [name  of  country].       C.   Persons  Authorized  to  Make  Disclosures  on  Behalf  of  the  Company     I. The   following   officers   of   the   Company   (hereinafter   authorized   persons)   shall   be   authorized  to  disclose  information  to  interested  third  parties  such  as  investors,  the  public,   the  mass  media,  governmental  authorities:     a. The  CEO  of  the  Company;   b. The   Deputy   CEO   [or   another   person,   for   example   head   of   investor   relations]   responsible  for  information  disclosure  (hereinafter  the  Deputy  CEO);   c. The  chief  financial  officer  (CFO);   82 Implementing Corporate Governance Practices ANNEX II. L d. The  chief  operating  officer  (COO);   e. ____________________;  and/or   f. ____________________.     II. In  order  to  ensure  a  uniform  and  consistent  disclosure  policy,  authorized  persons  may  also   designate   other   persons   to   act   on   their   behalf   and   respond   to   any   inquiries,   under   extraordinary   circumstances.   However,   no   person   other   than   the   Company's   duly   authorized   officers   may   comment   upon   or   answer   any   questions,   or   respond   to   any   inquiries   regarding   the   Company's   business   activities,   without   special   authorization   or   order  of  an  authorized  person.     III. Public  statements  that  may  have  a  significant  impact  on  the  Company’s  business  activities   and/or   the   value   of   its   securities   shall   be   coordinated   with   the   Deputy   CEO   (or   other   person  determined  by  the  CEO).     IV. If   any   employee   of   the   Company   participates   in   any   public   event,   as   part   of   his   or   her   official   or   other   duties,   such   employee   shall   ensure   that   any   disclosure   of   information   regarding  the  Company  is  made  in  strict  compliance  with  the  Company's  disclosure  policy   and  with  the  prior  approval  of  an  authorized  person.     V. Authorized   persons   shall   be   fully   informed   regarding   the   Company's   business   activities   that   might   be   also   of   interest   to   the   business   community.   The   communications   of   the   authorized  persons  shall  be  directed,  coordinated  and  controlled  by  the  Company's  CEO.     D.   Parties  and  Rules  for  the  Disclosure  of  Information     I. The  board,  or  such  other  person  or  committee  responsible  for  the  Company's  disclosure   policy,   in   coordination   with   the   CEO   and   any   other   authorized   persons,   shall   develop,   regularly  review,  and  improve  the  Company’s  disclosure  policy.     II. The  CEO  shall  be  responsible  for  the  organization,  accuracy,  and  timeliness  of  disclosure,   and   for   filing   reports   with   the   relevant   governmental   authorities.   The   CEO   shall   also   be   responsible   for   providing   information   about   the   Company   to   its   shareholders,   creditors   and  other  interested  parties.     III. The   Corporate   Secretary   shall   play   a   key   role   in   implementing   the   Company's   disclosure   policy.   In   particular,   the   Corporate   Secretary,   in   coordination   with   the   CEO,   shall   ensure   the:     a. Timely   disclosure   of   information   contained   in   the   securities   prospectuses   and   quarterly   reports   of   the   Company,   and   information   regarding   material   events   affecting  the  Company's  business  and  financial  operations;  and   b. Safekeeping   of   the   Company's   documents   that   are   subject   to   mandatory   storage,   control   access   thereto   and   provide   copies   thereof.   The   corporate   secretary   shall   certify  copies.     83 ANNEX II. L IV. The  Company's  disclosure  policy  shall  be  implemented  in  accordance  with  applicable  law,   and  in  the  best  interests  of  the  Company  and  its  shareholders.     V. The   CEO   and   other   authorized   persons   shall   always   have   complete   information   on   all   aspects  of  the  Company's  business  activities  for  one  or  more  of  the  following  purposes:   a. Determining  whether  such  information  meets  the  disclosure  requirements,  whether   it  is  material,  and  whether  it  may  be  disclosed  at  that  particular  time  or  should  be   treated  as  confidential;   b. Ensuring   the   proper   understanding   of   the   current   operations   of   the   Company   that   may  be  of  interest  to  investors;  and   c. Preventing  situations  where  the  Company  might  inadvertently  deny  the  occurrence   of  any  significant  events,  despite  the  fact  that  they  actually  occurred.     VI. In   addition   to   mandatory   disclosure   requirements,   the   Company   shall   prepare   and   disclose  information  regarding  its:     a. The  Company’s  corporate  governance  policy;   b. The  social  and  environmental  policy  of  the  Company;   c. The   activities   of   the   Company’s   various   governing   bodies,   and   the   corporate   documents  of  the  Company;   d. Those   shareholders   who   own   five   percent   or   more   of   the   Company's   shares,   including  information  on  indirect  (beneficial)  ownership;   e. The  following  persons:     i. Those  persons  specified  in  Article  C,  Clause  I  hereof;   ii. The  CFO;   iii. Members  of  the  board;   iv. The  corporate  secretary;   v. ______________;  and   vi. ______________;     f. ____________________;  and   g. ____________________.     VII. Those  persons  and  channels  responsible  for  the  dissemination  of  information  shall  ensure   unrestricted   access   thereto   by   interested   parties.   In   addition   to   the   means   of   disclosure   required  by  law,  the  Company  shall:     a. Publish   information   about   the   Company,   on   proposed   presentations   by   the   Company's  officers  and  interviews  with  them  in  the  mass  media;   b. Conduct   regular   meetings   (information   briefings   and/or   press   conferences)   with   shareholders,  potential  investors  and  other  market  participants;   c. In  addition  to  the  disclosures  required  by  law,  disclose  additional  information  on  the   Company's  website;   d. Issue  press-­‐releases;  and   84 Implementing Corporate Governance Practices ANNEX II. L e. Conduct  any  other  means  of  disclosure  as  established  by  the  CEO  and  the  board  of   the  Company.     VIII. The   Company   shall   publish   on   its   website   all   significant   announcements   and   materials,   and   may   also   publish   brochures   and   booklets.   The   Company’s   website   shall,   at   a   minimum,  contain  the  following  information:       a. The  articles  of  association  and  all  amendments  thereto;   b. Annual   reports,   annual   and   quarterly   financial   statements   (local   GAAP   and   IFRS   when  available);   c. Securities  prospectuses;   d. Audit  reports  or  opinions;   e. Information  on  material  facts;  and   f. Information   on   general   assemblies,   significant   decisions   of   the   board   and   the   development  strategy  of  the  Company.     E.   Public  Information     I. Public  information  in  the  securities  market  shall  mean  information,  access  to  which  is  not   restricted  in  any  way,  and  the  disclosure  of  which  is  required  by  the  _________  [name  of   relevant  law  or  regulation].     II. Public  information  shall  include:     a. The  Company's  articles  of  association,  as  amended;   b. The   by-­‐laws   of   the   Company   including,   but   not   limited   to,   the   by-­‐laws   of   the   governing   bodies,   audit   and   control   bodies,   disclosure   policy,   committees   of   the   Company,  etc.;   c. The  external  auditor's  reports  and  opinions;   d. Annual   financial   statements   prepared   in   accordance   with   _______   [name   of   country]  accounting  standards;   e. Annual   accounting   statements   prepared   in   accordance   with   International   Financial   Reporting  Standards  (“IFRS”);1   f. The  annual  report  of  the  Company;   g. An  approved  development  strategy  of  the  Company;   h. Information   about   the   securities,   and   the   financial   and   business   operations   of   the   Company;   i. _______________________________;  and   j. _______________________________.     III. The  Company  shall  disclose  information  about  its  securities,  and  its  financial  and  business   operations  in  the  form  of:     a. Quarterly  reports  on  the  issued  securities  of  the  Company;   1     If  the  Company  files  accounting  statements  in  accordance  with  international  standards,  e.g.  US  GAAP,  IFRS,  etc.   85 ANNEX II. L b. Statements  of  material  events  affecting  the  financial  and  business  operations  of  the   Company;   c. Disclosures   of   information   contained   in   the   registered   decision   regarding   the   issuance  of  the  Company’s  securities;   d. Disclosures  of  information  contained  in  the  registered  securities  prospectuses  of  the   Company;  and   e. Disclosures  of  information  contained  in  the  registered  report  on  results  of  the  issue   of  the  Company's  securities.     IV. The  Company  shall  disclose  information  regarding  material  facts  affecting  its  financial  and   business   operations   in   accordance   with   the   requirements   of   the   laws   of   the   _________   [name  of  country].     V. The  Company  shall  also  disclose  information  on  the  following  events  and  activities:       a. Changes  in  the  name  of  the  Company;   b. Decisions  regarding  the  increase  or  decrease  of  the  charter  capital;   c. A   purchase   by   the   Company   of   its   own   shares   provided   that   such   purchase   is   not   related  to  a  decrease  in  the  charter  capital,  and  a  statement  disclosing  the  source  of   funding  for  the  acquisition,  the  purchase  price,  as  well  as  the  goals  and  reasons  for   such  purchase;   d. Price   fluctuations   of   5   percent   or   more   of   the   Company's   shares   over   a   relatively   short  period  of  time;   e. Transactions   that   may   affect   the   interests   of   the   shareholders   or   the   use   of   the   Company's  assets,  including  information  regarding  the  use  of  shares  and  the  other   parties  involved  in  such  deals;   f. Cessation  of  the  production  of  goods  or  the  provision  of  services,  the  sales  of  which   accounted   for   at   least   10   percent   of   the   Company’s   total   output   based   on   the   results  of  the  previous  fiscal  year;   g. Changes  in  the  business  priorities  of  the  Company;   h. Amendments   to   the   articles   of   association   relating   to   the   issuance   of   preferred   shares  of  categories  other  than  those  previously  issued;  and   i. Changes  of  the  external  auditor,  registrar,  or  depository  of  the  Company;   j. ______________________________;  and   k. ______________________________.     VI. The   Company   shall   disclose   all   material   events   affecting   the   financial   and   business   operations   of   the   Company   even   if   not   listed   herein,   but   are   nevertheless   deemed   material,  and  may  affect  the  price  of  the  Company's  shares.     VII. If   securities   are   issued   which   require   the   registration   of   the   securities   prospectus,   the   Company   shall   provide   access   to   information   contained   in   the   prospectus   and   shall   publish  a  notice  of  the  procedure  of  disclosure  in  _______________.     VIII. The  prospectus  shall  disclose  all  material  information  about:     a. The  motives  for  the  issuance  of  such  shares;   86 Implementing Corporate Governance Practices ANNEX II. L b. The  Company’s  dividend  policy;   c. The  intention  of  any  members  of  the  board,  the  CEO,  the  CEO's  deputies  and  other   executives,  CFO  and/or  the  corporate  secretary  to  purchase  and/or  sell  shares;  and   d. Members   of   the   board,   the   CEO,   members   of   executives,   the   CEO's   deputies,   the   corporate  secretary  and  other  key  staff  from  the  Company.     IX. The  board  shall  prepare  the  annual  report  of  the  Company  for  presentation  at  the  annual   general  assembly.   X. In  addition  to  statutory  information,  the  annual  report  of  the  Company  shall  contain  the   following:     a. An  analysis  of  the  competitive  position  of  the  Company;   b. An  analysis  of  the  Company’s  profitability;   A  comparison  of  the  planned  and  actual  results  of  the  Company  for  the  year;   c. Net   profit   information,   including   total   net   profit,   net   profit   from   the   Company’s   principal  activities,  and  net  earnings  per  share;   d. An  assessment  of  changes  in  the  asset  structure  over  the  past  three  years;   e. The  Company's  HR  and  training  policy;   f. The  Company’s  corporate  governance  system  during  the  reporting  period;   g. ___________________________;  and   h. ___________________________.     XI. The  annual  report  shall  be  signed  by  the  CEO  and  the  CFO  of  the  Company,  and  be  subject   to   prior   approval   by   the   board.   The   annual   report   shall   be   approved   at   least   30   days   before  the  date  of  the  annual  general  assembly.     XII. The  Company  shall  publish  its  annual  financial  statements,  including  the  external  auditor’s   opinion  in  _______________.2     XIII. The   Company   shall   publish   annual   accounting   statements   not   later   than   __________   of   the  year  following  the  reporting  year.     XIV. The   Company   shall   keep   a   record   of   its   affiliated   persons,   and   file   reports   on   affiliated   persons  as  required  under  the  laws  of  the  _________  [Name  of  Country].     XV. The  Company  shall  hold  quarterly  informational  briefings.     XVI. Notice   of   informational   briefings   shall   be   published   in   _________________   at   least   10   days  before  the  date  of  the  briefing.     XVII. At   the   informational   briefings,   the   shareholders   and   any   other   interested   parties   may   receive   information   on   the   Company's   business   activities,   and   pose   questions   to   representatives  of  the  executive  bodies  and  the  board  of  the  Company.     2     Name  of  the  media  or  resource  in  which  the  annual  financial  statements  are  published.     87 ANNEX II. L XVIII. The   Company   shall   disclose   public   information   on   its   internet   website   located   under:   www.__________________.com.     F.   Information  Provided  to  Shareholders     I. The   Company   shall   ensure   that   shareholders   have   access   to   the   documents   and   information  as  set  forth  in  __________  [name  of  law  or  regulation].     II. All  shareholders  shall  have  the  right  to  review  the  documents  listed  in  Article  E.II.  above,   at   the   address   of   the   executive   body   of   the   Company   which   is   located   at:   ________________. 3  The   Company   shall   provide   copies   of   any   such   documents   upon   request  of  any  shareholder.     III. Requests   to   review   or   receive   copies   of   documents   shall   be   made   in   writing   to   the   attention   of   ________________, 4  and   be   sent   to   the   following   address:   _________________5.  The  request  shall  state  the  full  name  of  the  shareholder  (for  legal   entities,  their  names  and  location),  the  number  and  category  (class)  of  shares  owned  by   the   shareholder   and   the   title   of   the   document   requested.   The   request   is   to   be   accompanied  by  an  extract  from  the  share  register.     IV. The  corporate  secretary  of  the  Company  shall  be  required  to  verify  the  share  ownership  of   the  person  requesting  information.     V. The   documents   shall   be   made   available   for   inspection   free   of   charge   within   seven   calendar  days  after  the  date  of  the  request.     VI. Copies   of   the   documents   shall   be   made   available   within   five   business   days   after   the   relevant   request   and   after   receipt   of   payment   from   the   shareholder   for   the   copy   and   postage   costs   incurred   by   the   Company.   If   copies   of   the   documents   are   sent   to   the   requesting   party   by   mail,   the   date   of   dispatch   shall   be   considered   the   date   of   providing   the  documents.     VII. Payment   for   providing   copies   shall   be   made   in   the   following   manner:   _____________________.6     VIII. At   the   request   of   a   shareholder,   the   Company   or   the   registrar   shall,   within   ____   days7   after  the  receipt  of  such  request,  make  available  to  the  shareholder  an  extract  from  the   list  of  persons  entitled  to  participate  in  the  general  assembly  containing  information  about   such  persons,  or  a  certificate  that  the  person  is  not  included  in  the  list  of  persons  entitled   to  participate  in  the  general  assembly.   3     Name  the  location  (physical  address)  of  the  executive  body  of  the  Company.  Name  the  contact  telephone  number  of   the   corporate   secretary,   the   investor   relations   department   or   other   as   applicable.   It   is   also   advisable   to   provide   an   alternative  location,  if  available,  where  the  shareholders  may  review  the  Company'ʹs  documents.   4     Name   the   position   of   the   relevant   person:   CEO,   corporate   secretary,   or   other   person   performing   the   functions   of   the   corporate  secretary.   5     Name  the  location  of  the  executive  body  of  the  Company.   6     Specify  how  the  payment  for  copies  shall  be  made.   7     For  example,  3-­‐‑5  days.   88 Implementing Corporate Governance Practices ANNEX II. L G.   Confidential  Information     I. Trade  secrets  or  confidential  information  shall  mean  any  non-­‐public  information  about  the   Company   having   actual   or   potential   commercial   value   because   of   the   fact   that   it   is   unknown   to   third   parties.   There   is   no   legal   right   to   free   access   to   such   information,   and   the   possessor   of   such   information   shall   be   responsible   for   taking   steps   to   protect   its   confidentiality.     II. The   Company   shall   take   all   necessary   steps   and   actions   to   protect   its   trade   secrets   and   confidential  information.     III. The  following  persons  shall  have  access  to  confidential  information:8   a. The  board  members;   b. The  CEO;   c. The  executive  board  members  and  other  executives;   d. Deputy  CEOs;   e. The  CFO   f. The  company  secretary;  and   g. _______________.     IV. These  persons  shall  sign  confidentiality  agreements  with  the  Company.   V. The  CEO  of  the  Company  shall  have  the  right  to  make  changes  and  amendments  to  the  list   of  persons  having  access  to  confidential  information.     VI. Persons   having   access   to   confidential   information   shall   not   use   such   information   for   entering  into  any  business  transactions,  nor  shall  they  disclose  such  information  to  third   parties  for  commercial  use.     VII. Persons   who   have   illegally   acquired   the   Company’s   trade   secrets   or   confidential   information  shall  reimburse  the  Company  for  any  losses  incurred.  The  same  shall  apply  to   the  employees  of  the  Company  who  have  disclosed  confidential  information  in  violation  of   their   employment   contracts,   and   to   any   other   contracting   parties   disclosing   such   information  in  violation  of  their  contractual  agreement.     VIII. Confidential   information   shall   include,   but   not   be   exclusively   limited   to,   the   following   information:     a. _________________________;   b. _________________________;  and   c. _________________________.     IX. The  following  documents  shall  not  constitute  confidential  information  of  the  Company:     a. The  Company’s  founding  documents;   8     List   any   other   officers   and   employees   of   the   Company   that   shall   have   access   to   proprietary   information,   or   make   reference  to  any  other  Company  by-­‐‑laws  containing  a  list  of  employees  having  access  to  such  information.   89 ANNEX II. L b. Documents  providing  evidence  of  certain  legal  rights,  such  as  patents,  or  documents   evincing   the   Company’s   legal   right   to   engage   in   business   operations,   for   example,   registration  certificates,  licenses,  etc.;   c. Mandatory  reports  on  financial  and  business  operations;   d. Documents  confirming  the  solvency  of  the  Company;   e. Documents   containing   information   on   the   number   and   composition   of   the   Company’s   employees,   their   aggregated   salaries   and   labor   conditions,   as   well   as   available  vacancies;   f. Documents  regarding  the  payment  of  taxes  and  other  mandatory  payments;   g. Documents  containing  information  on  environmental  and  social  impact;   h. Documents  concerning  compliance  with  antitrust  laws;   i. Documents   with   information   on   noncompliance   with   labor   safety   regulations,   the   sale  of  products  that  may  have  a  harmful  effect  on  people's  health,  as  well  as  any   other  violations  of  the  laws  of  the  _________  [name  of  country],  and  the  amount  of   damage  caused  by  such  noncompliance;   j. Documents  containing  information  about  the  participation  in  other  organizations  of   any   of   the   members   of   the   board   or   executive   committee,   the   CEO   or   the   CEO's   deputies,  or  the  CFO  of  the  Company;     k. Any   documents   containing   confidential   information   which   have   been   released   by   the  Company  and  have  become  public  information;   l. _____________________________;  and   m. _____________________________.     X. The  Company  shall  provide  access  to  the  documents  and  information  listed  in  G.VIII  when   requested   by   those   governmental   and   law   enforcement   authorities   entitled   to   have   access   to   such   information   pursuant   to   applicable   law   of   the   _________   [name   of   country],  as  well  as  when  requested  by  employees  of  the  Company.     H.   Insider  Information     I. Insider  information  shall  include  any  material  non-­‐public  information  about  the  business   activities  of  the  Company,  its  shares  and  any  other  securities,  as  well  as  any  transactions   with  these  securities,  which,  if  disclosed,  might  materially  affect  the  market  value  of  these   shares  or  other  securities  of  the  Company.     II. Information  that  meets  the  following  criteria  shall  be  considered  insider  information:     a. Information   that   directly   relates   to   the   Company,   its   subsidiaries   and   their   securities,  as  well  as  the  business  prospects  of  the  Company  and  its  subsidiaries;   b. Information  of  a  specific  nature;   c. Any  non-­‐public  information;  and   d. Information   that,   if   published,   might   significantly   affect   the   price   of   any   of   the   Company's  securities.     III. Any  individual  or  legal  entity  that  has  access  to  insider  information  pursuant  to  any  law  or   regulation,  job  description  or  other  internal  regulation  of  the  Company,  shall  be  deemed   an  insider.   90 Implementing Corporate Governance Practices ANNEX II. L   IV. The  following  persons  shall  be  considered  insiders:     a. Members  of  the  board  and  any  other  corporate  executive  and  control  bodies,  and   those  persons  acting  as  a  single-­‐member  executive  body  of  the  Company,  as  well  as   its  subsidiaries  and  related  companies;   b. Persons  employed  by  the  Company  or  its  subsidiaries  and  related  companies  in  any   official   or   professional   capacity   pursuant   to   an   employment   contract,   and   having   access  to  insider  information  pursuant  to  the  terms  of  such  contract;  and   c. The  spouses  and  close  relatives  of  the  persons  listed  herein;   d. Persons   that   own   a   _________%   of   the   voting   shares   or   a   _____%   of   votes   of   the   issuer,  its  subsidiaries  or  related  companies;   e. Officials  of  governmental  authorities  and  agencies,  or  local  authorities;     f. Legal  entities  affiliated  with  any  of  the  aforementioned  persons  or  legal  entities;   g. _____________________________;  and   h. _____________________________.     V. Insiders   shall   be   prohibited   from   disclosing   insider   information   or   from   engaging   in   any   transactions  using  insider  information.     VI. The   procedures   for   the   appropriate   handling   and   use   of   insider   information   shall   be   established  by  the  board.     VII. The   CEO   of   the   Company   shall   be   responsible   for   ensuring   compliance   with   applicable   laws  and  any  special  requirements  provided  for  in  the  Company's  articles  of  association,   charters,   by-­‐laws   and   other   internal   documents   to   prevent   conflicts   of   interest   and   to   prevent  the  improper  use  of  insider  information  by  the  employees  and  business  units  of   the  Company.     I.   Information  Provided  to  the  Company       I. If  the  Company  is  required  to  disclose  information  that  is  provided  to  it  by  other  persons   or   legal   entities,   the   Company   shall   use   its   best   efforts   to   ensure   the   timely   receipt   and   continuous  update  of  such  information.     II. The   Company   shall   be   entitled   to   receive   information   that   is   material   to   the   business   activities   of   the   Company   in   accordance   with   the   laws   of   the   _________   [name   of   country].     III. The   Company’s   internal   regulations   shall   set   forth   the   appropriate   procedure   and   deadlines  for  filing,  and  define  the  personal  information  required  to  be  filed  by  candidates   for  the  Company's  elective  bodies.     IV. The  members  of  the  board,  the  CEO,  the  executives,   and  shareholders  owning  more  than   5  percent  of  the  voting  shares  of  the  Company  who  have  been  deemed  interested  parties   in  any  transaction  shall  provide  the  board,  and  the  external  auditor  of  the  Company  with   information  regarding:   91 ANNEX II. L   a. Legal   entities   in   which   such   person   owns   5   percent   or   more   of   the   voting   shares   (interest),   regardless   of   whether   individually   or   jointly   owned   with   affiliated   persons;   b. Legal  entities  in  which  they  hold  positions  in  the  governing  bodies;  and   c. All  executed,  negotiated  or  proposed  deals  known  to  them  in  which  they  might  be   considered  an  interested  party.     V. When  requested  by  the  CEO  or  other  persons  duly  authorized  by  the  CEO,  the  registrar  of   the  Company  shall  make  available  that  information  contained  in  the  share  registry  of  the   Company   in   accordance   with   the   procedures   set   forth   by   the   laws   of   the   _________   [name  of  country].     VI. The   Company   shall   keep   a   record   of   its   affiliates   and   file   reports   on   such   affiliates   in   accordance  with  the  laws  of  the  _________  [name  of  country].     VII. Affiliates   of   the   Company   shall   notify   the   Company   in   writing   within   ten   days   of   the   purchase  by  such  affiliate  of  any  of  the  Company’s  shares,  and  such  notification  shall  state   the  number  and  category  (class)  of  the  shares  so  purchased.     VIII. If  any  damage  is  caused  to  the  Company  because  of  the  failure  by  any  affiliate  to  disclose   such  information,  or  by  the  untimely  disclosure  of  such  information  by  the  affiliate,  then   that  affiliate  shall  be  held  liable  for  any  damages  caused  thereby  to  the  Company.     IX. The   external   auditor   of   the   Company   shall   provide   the   Company   with   the   results   of   any   audit  of  the  Company’s  financial  and  business  operations  in  accordance  with  the  laws  of   the  _________  [Name  of  Country]  and  the  contract  with  the  external  auditor.       92 Implementing Corporate Governance Practices III RAISING THE CORPORATE GOVERNANCE BAR 93 (The following continues the story of the fictional ‘Clients First MFI’.) After several years, the Win family began to find that their efforts to put in place basic corporate governance practices were beginning to pay off. First, they felt more confident in their ability to oversee and grow the business. Secondly, they found that their reputation had improved with their business and banking partners, and regulator all of whom had a clearer sense of how Clients First MFI was organized and run. During this time, the MFI grew significantly nearly achieving its goal of reaching 50,000 clients. However, there were many new MFIs entering the market and while Clients First MFI was still growing they were concerned that they might begin to lose market share. To help retain their customer base, they decided to seek permission from the regulator to mobilize deposits. They also knew that their ability to expand further was going to require more funding and that improving their sustainability was key to attracting new investors and funders. To lead the next phase of their development, they decided to hire a new CEO with expertise in leading and managing MFIs. They knew that in doing so they would need to further develop their corporate governance practices especially around Board – CEO relations while at the same time continuing to work towards improving the functioning of the Board. Specifically, they decided to hire a corporate secretary and create a board development plan. Finally, they wanted to begin developing an enterprise-wide risk management framework and so embarked on documenting a risk appetite statement for the MFI as a first step. The table below lists the additional actions they undertook to improve their governance. Again, they kept in mind the key elements of good corporate governance in IFC’s corporate governance framework. Corporate Governance Actions Corporate Governance Objective 1. Commitment to Corporate Governance 1.1. Governance Policies Develop and approve a set of policies related to conduct, strategy, and operations that guide the activities of the MFI 1.2. Related Party Transactions Develop and approve a policy that sets out the procedures by which the MFI may enter into a related party transaction 2. Board – CEO Relations 2.1. Delegation of Authority Articulate the delegation of decision-making and operating authority within the MFI board, between the board and the CEO, and subsequently to management 2.2. CEO Job Description Improve accountability by formalizing the CEO’s job description 2.3 CEO’s Relationship to the Board Articulate and document in writing the CEO’s responsibilities with respect to supporting good governance 2.4 CEO Performance Evaluation Formalize the process by which the performance of the CEO is evaluated 3. Board Effectiveness 3.1 Corporate Secretary Appoint a corporate secretary and articulate role and responsibilities 3.2 Board Development Develop board training program to maintain and enhance the skills of the board 4. Control Environment 4.1 Compliance Function Establish a compliance function whose purpose is to ensure that the MFI complies with all regulatory and legal requirements 4.2 Risk Appetite Statement Articulate the amount and type of risk that the MFI is willing to take in order to meet its strategic objectives 94 Implementing Corporate Governance Practices 1. Commitment to Corporate Governance 1.1. Governance Policies The board is responsible for enacting governance policies related to business practices and conduct, strategy, and risk, and that establish compliance with government laws and regulations. Effective board policies support accountability and performance outcomes of the MFI. Policies adopted by the board should be documented and their approval recorded in company minutes. Board policies should be effectively communicated to relevant members of management or the function(s) responsible to ensure compliance. Approved policies are typically organized in a manual and distributed to board directors, the CEO, and management as appropriate. A board policies manual greatly helps to orient and train new board members. It further ensures efficient organization and access to these materials and is a tangible sign of the board’s commitment to corporate governance. Board policies should be reviewed on an annual basis and the manual updated accordingly. In broad categories, board policies cover the following responsibilities of the board: • Operations and functioning of the board; • Appointment and oversight of the CEO including succession planning; • Strategy development, operations oversight, and disclosure; and • Risk and control framework. A list of sample board policies that may be enacted by an MFI board is attached as Annex III. A. The list is not meant to be exhaustive or indicative of policies that must be adopted by an MFI board. The ultimate contents of board policies manuals will differ among different MFIs, depending on the needs and nature of the MFIs and their business activities. Board policies should be distinguished from operational policies that guide the day-to-day practices across a range of activities within the MFI. Based on the standards set by the board, it is management’s responsibility to develop operational policies to be approved by the board with accompanying procedures to direct the efforts of staff. For MFIs, these are typically compiled into manuals covering but not limited to the following areas: • Anti-Money Laundering and Combating the Financing of Terrorism • Asset Liability Management Policy • Compliance Policy • Credit Policy • Human Resources Policy • Internal Controls Policy • Information Technology and Communications Policy • Marketing Policy Formal documentation is a critical part of governance. It is also essential for effective and efficient communication and assists with ensuring accountability. Appropriate care should be given therefore, to ensure that board policies are written, clear, up-to-date, unambiguous, and available to relevant parties responsible to ensure they are enacted. 95 1.2. Related Party Transactions Related party or affiliated transactions involve parties that are either insiders or related to the MFI, such as directors, managers, or large shareholders. Some related party transactions have legitimate purposes and can be conducted fairly while others cannot. Regardless, they are easily abused and warrant attention since they can potentially reduce the MFI’s value and may expropriate shareholder rights. To ensure such transactions are handled appropriately, MFI boards should adopt a policy for related party transactions. Related party transactions may occur not only between the MFI and its directors, managers, and large shareholders, but more importantly, within groups of companies (holding structures) where transactions between the parent and subsidiary companies frequently occur. In other words, related party transactions are typically conducted among related parties of the company. A potentially related party can be also a member of their family (the connected persons). Family members of a person that has a duty towards a company include his/her spouse, father, adoptive father, mother, adoptive mother, child, adopted child or sibling. In addition, MFIs must meet the following two conditions in order for a transaction to fulfil the definition of an affiliated transaction: • To be deemed affiliated or related to the company for the purposes of an affiliated transaction, the party must owe a duty to the company, including: o Person/groups that are able to control the MFI’s decision-making process and operations through management; o Persons/groups with contractual authority for managing the business of the MFI; o Members of the Board of Directors; o Employees; o Subsidiaries/parent companies; and o Controlling shareholders. • The parties must be involved in the transaction in one of the following capacities: o Act directly as a party to the transaction; o Have a financial relationship with a party to the transaction, or with a person who has a financial interest in that transaction, which can reasonably be expected to make him/her act contrary to the company’s interests; or o Is controlled by a party to the transaction, or by a person who has a financial interest in that transaction, such that the controlling party can be reasonably expected to compel him/her to act contrary to the company’s interests. Company laws of many countries require persons who are related parties to disclose information to the board of directors, the audit committee, and the external auditor regarding: • Legal entities in which they, either independently or together with affiliated persons, own a certain percentage of voting shares; • Legal entities in which they hold managerial positions; and • Pending or planned transactions in which they may be considered a related party. 96 Implementing Corporate Governance Practices Moreover, disclosure of beneficial ownership is an important aspect in detecting related party transactions. If the identity of the company’s true owners is hidden, then it is difficult, if not impossible, to establish whether the parties in the transaction are related. Companies should be required to include the following information regarding related party transactions in their annual report: • A list of related party transactions concluded by the company during the reporting year; • Significant terms and conditions of each related party transaction; and • The governing body that approved any related party transactions. Accounting legislation typically requires companies to disclose information on operations with related parties in their accounting documents. MFIs should develop and approve a policy that sets out the procedures by which the MFI may enter into a related party transaction. This is to help ensure that related party transactions are conducted at arm’s length, i.e., that both parties in the deal are acting in their own self-interest and are not subject to any pressure or duress from the other party, and that the terms of the transaction are no less favorable than terms available to any unconnected third party under the same or similar circumstances. A sample related party transaction policy is attached as Annex III. B. 2. Board – CEO Relations A strong relationship between the board and management is critical to effective governance. Similarly, an appropriate balance of power between them is important to creating good governance. A board must not entrust the management and CEO with its responsibilities (management capture) or take over management responsibilities such that it no longer performs board responsibilities (board capture). The ultimate guiding principle is that the board should establish policies and practices that hold management accountable for performance. To the extent that a board achieves a balance by avoiding either board or management capture, good governance can emerge. The following sections provide guidance to implement policies and practices that help clarify the role of the CEO vis-à-vis the role of the board including delegation of authority by the board to the CEO, the role and responsibilities of the CEO, and guidance on the evaluation of the CEO. The purpose of these policies and practices is to remove ambiguity in the respective roles of the board and CEO as well as to promote good practices with respect to the board’s oversight responsibilities. 2.1. Delegation of Authority Essential to the relationship between the board and the CEO is a clear understanding of their respective roles. Poorly defined divisions between the roles and responsibilities of the board and those of the CEO can send confusing messages to board members, the CEO, and staff as to who has authority and decision-making power over particular issues. If lines of authority are blurred, then accountability for results becomes blurred as well. New board members must be made aware of their role and what classifies as appropriate behavior within the context of the MFI. A delegation of authority policy and an authority matrix are standard tools that are used to articulate the delegation of decision-making and operating authority within board, between the board and 97 the CEO, and subsequently to management. The delegation of authority policy should: • provide for a general mandate for delegation of authority to the CEO to manage and supervise the business and affairs of the MFI, subject to the direction of the board and the standards, policies and values established by the board; and • articulate decisions requiring approval of the board or committee of the board. An authority matrix is a further tool that sets forth in a table format the body (for example, the board, the CEO, the shareholders) that has the ultimate decision-making authority and any associated monetary thresholds for the decision authority. It may also set out the body that will make a recommendation to the decision-making body and the body that must be informed when a decision is taken. A sample Delegation of Authority to the CEO Policy and a sample Authority Matrix is attached as Annexes III. C and D, respectively. 2.2. CEO Job Description The CEO job description is an additional tool which assists in clarifying the specific responsibilities that have been delegated by the board. It is a clear, written statement of the CEO’s role and responsibilities and the board’s expectations. The development of a CEO’s job description is the joint responsibility of the board and the CEO. The job description is updated as often as necessary. Key elements of the CEO’s job description include: • Job title. The name given to the position. • Reporting line. The job description should indicate that the CEO reports to the board. • Date of last review. As the job description should be reviewed periodically, it is good to indicate when the document was last reviewed. • Job summary or purpose. The goal of the position is summarized taking into consideration the mission, vision and purpose of the MFI. • Delegation of authority. A statement of the Board’s general delegation of the authority to the CEO. • Essential Responsibilities and Accountabilities. The CEO is responsible for the overall management and operations of the MFI. This includes a number of categories of responsibility including strategic and operational planning, financial stewardship and risk management, human resources, stakeholder relations, etc. The critical responsibilities should be listed for each of these categories of responsibility. • Decision-making authority. A list of the extent and limits of any major area of responsibility and authority invested in the position. • Competences and attributes. The job description should list major skills and personal attributes needed or desired to successfully carry out the job. • Education/knowledge and experience. The job description should list knowledge areas and qualifications needed or desired for the position. • Working conditions. A list of any special or unique working conditions of the job. A sample CEO Job Description is attached as Annex III. E. 98 Implementing Corporate Governance Practices 2.3. CEO’s Relationship to the Board The CEO’s primary role is in day-to-day management and execution of the strategy of the MFI. However, due to her/his unique insight and understanding of the business and position, the CEO also plays a critical role in supporting board governance. The CEO supports the board in formulating business strategies, developing policies in particular with respect to internal controls systems and risk management, as well as providing general support to the board’s overall oversight responsibilities. In particular, the CEO should ensure that the board has adequate, timely, and accurate financial and operating information. The following are the key responsibilities the CEO has toward the board:42 • Help the board to govern more and to manage less (avoid board capture); • Articulate the MFI’s strategy and work with the board, whose role is to review, modify as necessary, and approve the strategy; • Prepare materials for the board meetings to focus on policy and strategy issues as per the Chair’s request (frame significant questions and complex problems in ways that facilitate board action); • Deliver to the board, and to its committees as appropriate, standard financial and operational reports to monitor institutional performance and progress; • Develop with the board a set of institutional performance indicators, including social performance; • Assist the board in managing the double bottom line; • Get material to the board in a timely fashion; • Be available to answer questions of individual board directors before and during committee and board meetings; • Maintain ongoing contact with the board chair to keep the chair informed of, and to consult about, major developments; and • Assist in orienting new board directors. Such responsibilities may be incorporated into the CEO job description or in a separate board policy, a sample separate board policy is attached as Annex III. F. 2.4. CEO’s Performance Evaluation In addition to hiring and compensating the CEO, the board has a critical role in evaluating the performance of the CEO. This role is undertaken as a consistent part of the board’s oversight responsibilities and can be reflected by questions asked and challenges made to the CEO as a regular part of board meetings. On an annual basis, the board should conduct a formal performance evaluation. This requires the board and CEO to have agreed to a set of performance objectives and targets at the beginning of the year. The performance evaluation can serve as the basis for compensation, incentives or bonuses as well as any profit-sharing that may be involved as part of the CEO’s overall employment contract. 42 Adapted from “The Practice of Corporate Governance in Microfinance Institutions.” Consensus Statement of the Council of Microfinance Equity Funds, (2012), 21. 99 The CEO performance evaluation should take into account the responsibilities articulated in the CEO job description as well as the MFI’s goals and targets set for the year. It is important for the performance evaluation to be as objective as possible and based on clear criteria. Key areas among which a CEO should be evaluated are: • Financial (and Social) Performance. The CEO is responsible for maintaining (and improving) financial solvency, achieving budgeted financial results for operational efficiency and profitability, and asset growth. Asset quality and the ability to mobilize financial resources are also key responsibilities of the CEO and in obtaining good financial results. Double-bottom line MFIs, may also include social performance goals and targets as part of CEO performance evaluation. • Vision and Planning. The CEO has a primary responsibility for driving the MFIs long-term vision and ensuring the institution’s sustainability over time. As such, the CEO is responsible for the preparation of short- and long-term strategic, tactical, and operational (and contingency) plans to ensure sustainability and appropriate responses to changing conditions. • Risk Management. The CEO is ultimately responsible for delivering performance and value. To do this, MFI must manage risks effectively. As such, the CEO is de facto responsible for the management of risks. As the level of risks and new risks emerge over time, the CEO is responsible and should be evaluated as to whether she/he ensured appropriate safeguards are in place with respect to risk management. • Organizational Development and Management. The CEO has a fundamental responsibility for ensuring that the MFI has the human capital required to implement the MFI’s short- and long-term plans. As such, the CEO is responsible for the recruitment and development of staff as well as ensuring that the MFI receives the technical assistance required to achieve its goals. • Board Relationship and Key Competencies. The board should also appraise the CEO’s relationship with the board as well as key leadership competencies required for the position. Among the factors that contribute to a good relationship include the extent to which the board is well informed of key issues and are provided with timely and sufficient information (verbal and written) to facilitate full and informed board decision-making, and how well the CEO seeks, listens and responds to advice from board members. At a minimum, boards should establish a two-step process for CEO performance management. The first is in setting the performance objectives for the new fiscal year and the second in appraising the performance. The primary responsibility for managing this process may be delegated to a board committee such as the board nomination and remuneration committee. A sample CEO Performance Evaluation Tool is attached as Annex III. G. 3. Enhancing the Functioning of the Board The challenge in building an effective board should not be underestimated, and MFIs should take every opportunity and concrete steps to support the board’s functioning and abilities. Two such concrete steps are outlined in the following sections: Corporate Secretary and Board Development. 3.1. Corporate Secretary The MCL says a company may appoint a corporate secretary but does not make it a requirement. International best practice recommends that larger companies, both public and private, appoint a 100 Implementing Corporate Governance Practices corporate secretary. International best practice further suggests that a company’s constitution or other internal documents should define the corporate secretary’s authority in detail and specify requirements for all governing bodies to assist the corporate secretary in discharging his/her duties. The corporate secretary plays an essential role in a company’s governance and administration by providing critical support to enable the board to perform their duties and responsibilities. This section outlines the functions and authority of corporate secretaries in implementing good corporate governance practices. A sample Corporate Secretary TOR is attached as Annex III. H. The following lists the main functions of the corporate secretary: Function Description Develop corporate governance The corporate secretary can play an important role in developing the policies MFI’s corporate governance policies and practices, and in monitoring compliance with such policies. Provide assistance on Best practice recommends that the corporate secretary should assist governance issues directors to interpret corporate governance related laws and regulations, including listing rules, corporate governance codes, and international regulations and developments. The secretary must also assist the MFI to ensure it meets all information disclosure obligations and follows proper procedures for conducting shareholders’ and board meetings. Corporate secretary will usually be responsible for organizing all regulatory filings resulting from decisions made at the Board or shareholder meetings. Ensure information disclosure The corporate secretary plays an important role in supporting the and transparency board and the CEO to fulfill their respective information disclosure obligations such as by disclosing material information to all shareholders and potential investors. The corporate secretary also helps to maintain transparency in corporate procedures. Assist in the protection of The corporate secretary plays an important role in organizing shareholder rights shareholder meetings and facilitating resolution of shareholder related issues. Facilitate the flow of The corporate secretary plays a key role in providing the board with information timely, regular, and comprehensive information to properly execute their duties and responsibilities including: minutes of board meetings, decisions and documents approved by the board, minutes of meetings and reports prepared by the audit committee and any other committees, internal audit, and the external auditor, and financial documents. Organize board meetings Although the Chair and CEO are primarily responsible for conducting board meetings, the corporate secretary handles all administrative and organizational matters. Facilitate induction program for The corporate secretary should brief newly elected directors on: new board members corporate procedures regulating the company’s governing bodies, corporate structure and company officers, the company’s internal regulations and other documents, shareholder and board decisions that are in effect, and any other relevant information required by the directors for the proper discharge of their duties. When selecting a corporate secretary, the board should use a range of sources to determine the general requirements and specific criteria to be used in evaluating candidates for the position, such as the relevant regulations, the constitution, and internal regulations. Importantly, the corporate secretary also needs to be a person with an impeccable reputation. Companies must avoid appointing individuals with a criminal record or who have been connected to significant administrative offenses. Best practice recommends that this position be filled by a dedicated employee in a full-time capacity. Large companies may find it necessary to establish an office of the corporate secretary, to be staffed by several officers. Additional staffing may be useful for companies with large numbers of directors and shareholders. Should a company decide to establish an office of the corporate secretary, it may 101 wish to specify the office’s responsibilities in the internal company regulations or other documents. In smaller companies, legal counsel or a person holding a similar position may carry out the duties of the corporate secretary. However, the corporate secretary must devote sufficient time to his/her duties. Positions should be shared only if this does not hinder the corporate secretary from fulfilling his/her duties effectively. 3.2. Board Development Good governance starts with a well-functioning board of directors that is at the heart of a company’s corporate governance framework and is crucial to ensuring all other governance components are working effectively. A well-functioning board must be developed over time. Most codes of best practice in corporate governance require board directors to undergo periodic training to improve their knowledge and skills, so they can become better leaders and change agents of their companies. Among the processes that boards can and should follow to improve their own functioning are: • Ongoing support and recognition. Board members need ongoing support to fulfill their obligations. New board members can be paired with a director that has been on the board for some time to provide guidance. The board chair can provide director feedback or devote time in board meetings to reflect on board performance, provide reminders on roles and responsibilities, or give guidance as to where to go should questions arise. • Board training. Board training opportunities are important to the effectiveness of boards. Training sessions can involve a planned workshop for the board on specific industry issues, guest speakers or presentation by a member of the board or MFI staff, participation in seminars or conferences, or networking opportunities with board members of other MFIs. • Board retreats. Board retreats are helpful to re-energize and re-engage the board. They are an opportunity to disrupt the normal workings of the board to re-focus on the MFI’s mission and strategy. They are also opportunities for team building and building consensus among board members. • Site visits. Board members should visit the head office, branches, and the field to see the MFI’s operations in action including meeting and interacting with clients. • Board evaluations. Boards evaluations are critical to identifying areas of improvements both for individual board members and the board as-a-whole. Board evaluations should be done annually and, ultimately, boards should strive to have an external board evaluation conducted to receive independent feedback. Board development is an ongoing process and must be actively managed to ensure that the board has the required knowledge, skills and capacity to lead the MFI into the future. A sample Board Training Program is attached as Annex III. I. 102 Implementing Corporate Governance Practices 4. Control Environment: Compliance and Risk Appetite An MFI can further improve its control environment and processes by establishing a compliance function and setting the MFI’s overall risk appetite. 4.1. Compliance Function The Basel Committee on Banking Supervision defines compliance risk as the risk of legal or regulatory sanctions, material financial loss, or loss to reputation a bank may suffer as a result of its failure to comply with laws, regulations, rules, related self-regulatory organization standards, and codes of conduct applicable to its banking activities.43 The same definition applies to MFIs particularly those that operate in a regulated environment. The tone and culture of compliance starts at the top. It concerns everyone in the MFI and should be viewed as an integral part of the MFIs operations. The board of directors has the specific responsibility to oversee the management of the MFI’s compliance risk. The board should approve the MFI’s compliance policy, including a formal document establishing a permanent and effective compliance function. At least once a year, the board or a committee of the board should assess the extent to which the MFI is managing its compliance risk effectively. The compliance function should be organized according to the needs and size of the institution and aligned with the MFI’s risk management strategy and structures. The main purpose of the compliance function is to support the MFI’s efforts to comply with all regulatory and legal requirements and uphold high standards of honesty and integrity. For smaller MFIs, the compliance function staff may be housed in one unit. The MFI should appoint a head of compliance. In general, the main responsiblities of the compliance function include the following: • Developing compliance (and security) programs for the MFI, consistent with laws and regulations; • Ensuring compliance with applicable domestic law and regulations; • Ensuring compliance with anti-money laundering and financing terrorism requirements; in particular, account activity reviews and investigations to identify unusual and suspicious patterns (increasingly involves detection software); • Ensuring compliance with the MFI’s internal policies, including adequate knowledge of them and documenting compliance; • Ensuring compliance with ethics policy and implementation of whistle-blowing procedures; • Responding to regulatory findings, deficiencies and violations, in conjunction with the head of internal audit; • Monitoring resolution of customer complaints; • Overseeing fraud investigations involving customer accounts and recovery of funds, and coordinating investigations with appropriate internal resources and external investigation and enforcement officials; • Conducting internal investigations of employee activities where there are violations of the MFI’s policy or regulation; 43 Basel Committee on Banking Supervision. “Compliance and the compliance function in banks. Bank for International Settlements.” (Basel, Switzerland: Bank for International Settlements, April 2015). 103 • Maintaining effective documented compliance and security programs; • Overseeing the records retention program, with appropriate attention to safeguarding customer privacy; and • Provide training to staff where gaps in knowledge become apparent or there is a consistent failure to follow procedures relating to anti-money laundering, know your customer, and other regulatory requirements. • Ensure that there is a robust process for monitoring compliance with lender covenants/donor grant requirements An effective compliance function should have adequate resources and be staffed by an appropriate number of competent staff who are sufficiently independent of the business and operating units. The head of the compliance function and staff should not be placed in a position where there is a possible conflict of interest between their compliance responsibilities and any other responsibilities they may have. The activities of the compliance function should be subject to periodic and independent review by the internal audit function. A sample Head of Compliance job description is attached as Annex III. J. 4.2. Risk Appetite Statement The board is responsible for ensuring appropriate and effective risk management and internal control systems. Setting the MFI’s risk appetite is a core component to fulfilling this responsibility. It is important for MFI’s to have an approved risk appetite statement (RAS), because it: • Clarifies senior management’s authority and boundaries for risk taking; • Serves as a guide in strategy setting and in allocating resources, where it represents the acceptable balance of growth, risk and return; • Helps in prioritizing or triggering mitigation actions for risks approaching or exceeding the risk appetite; • Supports board oversight and senior management actions to bring/keep the MFI’s risk profile within its risk appetite or determine whether its risk appetite requires recalibration; and • Helps make forward-looking and well-informed strategic decisions that can shape the MFI’s ability to remain profitable while also managing risk prudently in the face of economic, market, and regulatory events. The RAS defines the level of enterprise-wide risk that the MFI is willing to accept or the capacity to absorb; it should include thresholds for specific actions, such as acquisitions, new product development, or market expansion. While senior management can propose risk appetite levels, the board must review and adopt the risk appetite or challenge it for further assessment. The evaluation should be based on the risk appetite alignment with the MFI’s solvency requirements, business strategy and stakeholders’ expectations. The board should define, approve and incorporate it in the MFI’s strategic and tactical plans. Board should also ensure management has established a sound risk management and internal control systems with an aim to operate within the MFI’s risk appetite and tolerance thresholds. Board should seek periodic reports from the executive team and review the actual risk profile and risk limits against the MFI’s approved Risk Appetite Statement. 104 Implementing Corporate Governance Practices An effective RAS should: • Include key background information and assumptions that informed the MFI’s strategic and business plans at the time they were approved; • Be linked to the MFI’s short- and long-term strategic, capital and financial plans, as well as compensation programs; • Establish the amount of risk the MFI is prepared to accept in pursuit of its strategic objectives and business plan, taking into account the interests of its customers (for example, depositors) and the fiduciary duty to shareholders, as well as capital and other regulatory requirements; • Determine for each material risk and overall the maximum level of risk that the MFI is willing to operate within, based on its overall risk appetite, risk capacity, and risk profile; • Include quantitative measures that can be translated into risk limits applicable to business units and at group level, which in turn can be aggregated and disaggregated to enable measurement of the risk profile against risk appetite and risk capacity; • Include qualitative statements that articulate clearly the motivations for taking on or avoiding certain types of risk, including for reputational and other conduct risks across retail and corporate markets, and establish some form of boundaries or indicators (for example, non- quantitative measures) to enable monitoring of these risks; • Ensure that the strategy and risk limits of each business unit align with the enterprise-wide risk appetite statement as appropriate; and • Be forward looking and, where applicable, subject to scenario and stress testing to ensure that the financial institution understands what events might push the MFI outside its risk appetite and/or risk capacity. Where possible, the risk appetite should be quantified either as a monetary figure or as a percentage of revenue, capital, or other financial measure (such as loan losses). However, less quantifiable risk areas, such as reputational risk, also need to be considered when setting risk appetite levels. A sample Risk Appetite Statement is attached as Annex III. K. List of Chapter III Annexes III. A. List of Sample Board Policies III. B. Sample Related Party Transaction Policy III. C. Sample Delegation of Authority to CEO Policy III. D. Sample Authority Matrix III. E. Sample CEO Job Description III. F. Sample CEO’s Role in Corporate Governance Policy III. G. Sample CEO Performance Evaluation Tool III. H. Sample Corporate Secretary Terms of Reference III. I. Sample Board Training Program III. J. Sample Head of Compliance Job Description III. K. Sample MFI Risk Appetite Statement 105 CHAPTER III ANNEXES ANNEX III. A ANNEX III. A: LIST OF SAMPLE BOARD POLICIES ANNEX  A:  LIST  OF  SAMPLE  BOARD  POLICIES   Board  Operations  Policies   Description   Board  Evaluation     policy  related  to  the  (self)  evaluation  of  the  board’s  performance   on  a  regular  basis  which  provides  the  board  a  formal  opportunity   to  evaluate  its  strengths  and  weaknesses   Board  Meetings   policy   covering   the   number   of   board   meetings,   notices,   quorums,   meeting   participation,   agendas,   voting,   executive   sessions,  etc.     Board  Election  Policy   policy   regulating   the   process   by   which   the   board   members   are   renewed,  which  may  include  elections  for  board  officer  positions   (Chair,   Vice   Chair);   election   of   Board   committee   chairs   and   members   Code  of  Conduct     policy  establishing  the  expectations  for  officials  of  the  company   to   use   their   best   efforts   to   fulfil   the   company’s   purposes   and   treat  clients,  employees,  agents,  consultants,  property  and  other   people   and   resources   with   respect   and   care;   may   also   include   policy  with  respect  to  conflict  of  interest       Director  Nominations   policy  and  process  on  the  criteria,  objectives,  and  procedures  for   nominating  board  members   Director  Orientation     policy  to  ensure  that  new  directors  are  in  a  position  to  fulfil  their   governance  responsibilities  and  duties  as  soon  as  possible  after   they  are  elected  to  the  board     Director  Remuneration  &   policy   to   describe   the   remuneration   to   which   directors   are   Expense  Reimbursement     eligible,   together   with   the   type   of   expenses   eligible   for   reimbursement,   any   expense   limits,   and   the   process   for   payment   of   such   remuneration   and   reimbursement   of   eligible   expenses  for  directors   CEO/  Management  Oversight   Description   CEO  Emergency  Succession  Plan   policy   to   among   others   provide   an   orderly   process   for   the   immediate  appointment  of  an  interim  replacement  for  the  CEO   in   the   event   of   a   “CEO   Emergency”;   ensure   stakeholders   are   promptly   informed,   confident   and   secure   with   the   continuity   and   capability   of   executive   leadership   for   the   company;   and   prepare   a   communications   plan   in   the   event   of   a   “CEO   Emergency”   CEO  Expense  Reimbursement     policy  regarding  the  reimbursement  of  CEO  expenses     106 Implementing Corporate Governance Practices ANNEX III. A CEO  Performance  Management     policy   describing   the   CEO   performance   management   process   including   at   a   minimum   the   setting   of   performance   objectives   and  appraising  performance  on  the  set  objectives   CEO’s  Role  Concerning  Corporate   policy   describing   the   CEO’s   role   with   respect   to   corporate   Governance     governance   and   articulating   the   CEO’s   key   responsibilities   towards  the  board   Delegation  of  Authority  to  CEO     policy   to   articulate   the   delegation   of   decision-­‐making   and   operating   authority   within   the   company’s   board   of   directors,   between  the  board  of  directors  and  the  CEO,  and  subsequently   to  the  management     Management  Disclosure  Policy   policy  to  provide  guidance  to  management  in  the  determination   of   appropriate   disclosure   to   the   Board   for   operating   decisions,   which   would   normally   be   within   delegated   management   authority   Succession  Planning  Policy   policy  to  establish  the  framework  for  identifying  and  maintaining   key  skills  and  core  competencies  to  allow  the  company  to  meet   its   business   objectives;   identifying   succession   candidates   and   initiating   development   plans;   ensuring   the   orderly   transfer   of   critical   knowledge   as   a   result   of   staff   turnover;   and   recognizing   situations   where   it   may   be   more   appropriate   for   external   recruitment   Operations  Oversight     Description   Business  Continuity  &  Recovery     policy   to   preserve   the   ability   of   the   company   to   continue   to   provide   its   products   and   services   by   preparing   for   any   unplanned,   short   or   long   term,   interruption   of   business   operations   Client  Protection  Principles     policies   and   principles   by   which   the   company   seeks   the   protection   of   its   clients   including   mechanisms   for   complaint   resolution   Communications  Policy   policy   establishing   the   spokesperson(s)   on   behalf   of   the   company   and   with   respect   to   communications   practices   and   public  relations   Corporate  Planning  Process     policy  establishing  the  company’s  approach  to  planning  on  both   an  annual  and  multi-­‐year  basis   External  Audit  Policy   policy   with   respect   to   the   selection   and   appointment   of   the   external  auditor  of  the  company   107 ANNEX III. A Donor/  Funder  Relations  Policy   policy   with   respect   to   periodic   reporting   to   funders/donors/strategic   partners   setting   out   key   reporting   obligations   and   a   clear   mechanism   to   enhance   trust   and   confidence   between   the   MFI   and   funders/donors/strategic   partners.   Organizational  Structure     policy   regarding   the   development   of   the   company’s   organizational  structure  and  staffing   Signing  Authorities     policy   establishing   who   can   sign   deeds,   transfers,   assignments,   contracts,   MOUs,   obligations,   certificates,   checks,   drafts   and   orders  for  payment  of  money  and  all  notes  and  acceptances  and   bills   of   exchange   and   other   instruments   on   behalf   of   the   company     Whistleblowing  Policy   policy   which   establishes   the   right   and   mechanisms   for   any   director,   officer,   employee,   consultant,   contractor,   subcontractor   or   agent   with   concerns   relating   to   the   financial   management   of   the   business   to   raise   these   issues   without   fear   of   reprisal   and   without   concerns   that   they   are   placing   their   relationship  with  the  company  in  jeopardy   Risk  Management  Policies   Description   Capital  Management     policy  establishing  the  company’s  risk  tolerance  with  respect  to   the   capitalization   of   the   company;   may   also   include   dividend   policy     Credit  Risk  Management     policy   to   address,   among   others,   authorized   types   of   credit   instruments;   limits   or   prohibitions   on   credit   exposures;   assessment   criteria   and   security   requirements   for   each   type   of   loan;   an   effective   credit   assessment   and   monitoring   system;   defined   and   prudent   levels   of   decision-­‐making   authority   for   approving   credit   exposures;   and   management   of   deteriorating,   delinquent  and  impaired  loans   Foreign  Exchange  Risk     policy  establishing  the  company’s  risk  tolerance,  procedures  and   control  mechanisms  with  respect  to  foreign  exchange  risk     Interest  Rate  Risk     policy  establishing  the  company’s  risk  tolerance,  procedures  and   control  mechanisms  with  respect  to  interest  rate  risk   Liquidity  Risk  Management   policy   among   others   to   establish   an   overall   framework   of   liquidity   risk   management   which   ensures   that   company   faces   limited  exposure  to  all  material  liquidity  risks   Operational  Risk  Management     policy   to   establish   an   overall   framework   of   operational   risk   management   which   seeks   to   ensure   that   the   company   faces   limited  exposure  to  all  material  risks       108 Implementing Corporate Governance Practices ANNEX III. B ANNEX III. B: SAMPLE RELATED PARTY TRANSACTION POLICY ANNEX  B:  SAMPLE  RELATED  PARTY  TRANSACTION  POLICY   [NAME  OF  MFI]   RELATED  PARTY  TRANSACTION  POLICY   Effective  Date:  __________   Revised  Date:  __________   Last  Board  Review  Date:  __________     1. Introduction     It   is   ______________’s   [enter   company   name]   (hereinafter   “the   Company”)   policy   that   related   party   transactions  are  conducted  at  arm’s  length  with  any  consideration  paid  or  received  by  the  Company  or   any   of   its   subsidiaries   in   connection   with   any   such   transaction   being   on   terms   no   less   favorable   than   terms  available  to  any  unconnected  third  party  under  the  same  or  similar  circumstances.  The  purpose  of   this  policy  is  to  set  out  the  procedures  by  which  the  Company  or  any  of  its  subsidiaries  may  enter  into  a   related  party  transaction.     2. Application  of  this  Policy     This   policy   applies   to   the   Company’s   directors   and   senior   managers.   Related   party   transactions   constitute   a   conflict   of   interest   within   the   meaning   of   the   Company’s   code   of   corporate   governance.   This   policy   is   not   intended   to   conflict   with   any   applicable   laws   or   regulations   and   if   any   such   conflict   occurs  the  requirements  of  the  law  or  regulation  shall  prevail.     3. Review  and  Approval  Procedures     Directors   shall   disclose   to   the   board,   through   the   corporate   secretary,   details   of   all   their   other   directorships  and  any  shareholdings  owned  by  them  or  members  of  their  family.  Any  changes  to  these   notifications   must   be   communicated   promptly   to   the   board   of   directors   through   the   corporate   secretary.     It   is   the   responsibility   of   each   director   and   senior   manager   to   promptly   notify   the   board,   through   the   corporate  secretary,  of  any  proposed  related  party  transaction  as  soon  as  they  become  aware  of  it.  It  is   the  responsibility  of  a  director  or  senior  manager  who  is  involved  in  a  proposed  related  party  transaction   to   inform   the   board,   through   the   corporate   secretary,   and   obtain   approval   prior   to   entering   into   the   transaction.     Conflicted   board   members   shall   not   participate   in   discussions   on   transactions   in   which   they   are   a   conflicted  party  and  abstain  from  voting  on  such  issues       The  board  shall  decide  whether  or  not  to  approve  the  related  party  transaction  involving  a  director  in   the  absence  of  that  director.     109 ANNEX III. B 4. Identification  of  Related  Party  Transactions     For  purposes  of  this  policy,  a  “related  party  transaction”  is  a  transaction  between  the  Company  or  any  of   its  subsidiaries  and  any  “related  party”.     “Related  Party”  includes  the  following:1       a.   The   board   members   of   the   Company,   its   parent   company,   affiliated   or   sister   companies   and   associates;     b.   A  parent  company  and  any  subsidiary  or  affiliated  company  that  is  not  wholly  owned;     c.   The   CEO   or   General   Manager,   and   key   officers,   including   anyone   who   directly   reports   to   the   board  or  the  CEO;   d.   Any   significant   shareholder   having   the   ability   to   control,   or   exercise   a   significant   influence   on,   the   outcome   of   resolutions   voted   on   by   shareholders   or   directors   of   the   Company,   its   parent   company,  affiliated  or  associated  companies;     e.   The   father,   mother,   sons,   daughters,   husband,   or   wife   of   any   of   the   natural   persons   listed   in   Clauses  (a,  b  and  c);     f.   Any   business,   and   the   directors,   CEO   and   key   officers   of   any   business,   in   which   the   natural   persons  listed  in  paragraphs  (a)  to  (e)  own  jointly  or  severally  at  least  20  percent  of  the  voting   rights;     g.   Any   person   whose   judgment   or   decisions   could   be   influenced   as   a   consequence   of   an   arrangement   or   relationship   between   or   involving   themselves   and   any   of   the   persons   in   paragraphs  (a)  to  (f);       A  “significant  shareholder”  of  the  Company  is  one  who  owns,  or  controls,  or  has  the  ability  to  exercise  or   influence   the   voting   rights   of,   5   percent   or   more   of   the   shares   of   that   company.   “Immediate   family”   includes   a   person’s   parent,   grandparent,   child,   brother,   sister,   aunt,   uncle,   cousin,   nephew,   niece,   spouse,  widow  or  in-­‐law.”     5. Disclosure     The   Company   shall   report   to   its   shareholders   in   its   annual   report   and   accounts   on   all   related   party   transactions   to   the   extent   required   by   applicable   laws   or   regulations.   If   the   law   so   requires,   the   prior   approval  of  shareholders  will  be  sought  for  any  proposed  related  party  transaction.     6. Policy  Review     The   audit   committee   shall   review   and   assess   the   adequacy   of   this   policy   at   least   annually   and   recommend  for  approval  by  the  board  any  changes  it  considers  are  needed.     1 This   definition   of   related   parties   is   intended   to   be   consistent   with   the   definition   in   IAS   24.   In   paragraph   (d)   the   Company   will   generally   interpret  a  significant  influence  as  meaning  owning  or  controlling  more  than  10  percent  of  the  voting  rights.  Ownership  or  control  of  more  than   20  percent  of  the  voting  rights  is  definitely  a  significant  influence.  In  paragraph  (f)  “business”  includes  joint  ventures.     110 Implementing Corporate Governance Practices ANNEX III. C ANNEX III. C: SAMPLE DELEGATION OF AUTHORITY TO CEO POLICY ANNEX  B:  SAMPLE  DELEGATION  OF  AUTHORITY  TO  CEO  POLICY     [NAME  OF  MFI]    DELEGATION  OF  AUTHORITY  TO  CEO  POLICY   Effective  Date:  __________   Revised  Date:  __________   Last  Board  Review  Date:  __________         1. Purpose   The  purpose  of  this  policy  is  to  articulate  the  delegation  of  decision-­‐making  and  operating  authority   within   the   board   of   directors,   between   the   board   of   directors   and   the   CEO,   and   subsequently   to   management.     2. General  mandate  for  delegation  of  management  authority  to  the  CEO     • The  board  delegates  to  the  CEO  the  authority  to  manage  and  supervise  the  business  and  affairs   of  the  company,  subject  to  the  direction  and  oversight  of  the  board  and  the  standards,  policies   and  values  established  by  the  board.     • This   delegation   includes   making   all   decisions   regarding   the   company’s   operations   that   are   not   specifically   reserved   to   the   board   or   a   committee   of   the   board,   and   that   do   not   require   shareholder  approval.     • The   CEO   has   the   authority   to   sub-­‐delegate   operational   decision-­‐making   as   necessary   and   appropriate   for   the   effective   operation   of   the   business,   and   he   or   she   will   put   in   place   a   delegation   of   operational   authority   policy   which   will   be   approved   by   the   board   or   designated   committee.     • The  board  determines  what,  if  any,  executive  limitations  may  be  required  in  the  exercise  of  the   authority  delegated  to  the  CEO,  and  in  this  regard  approves  operational  and  risk  management   policies  within  which  management  operates.     • The   board   establishes   effective   mechanisms   for   annually   evaluating   the   CEO’s   performance   based  on  a  defined  set  of  responsibilities,  objectives  and  performance  targets.   3. Governance  decisions  requiring  approval  of  the  full  board  or  a  committee  of  the  board   In  conjunction  with  the  policy  to  delegate  certain  matters  to  the  CEO,  the  board  expressly  identifies   the  following  governance  matters  that  require  the  approval  of  the  board  and/or  a  duly  authorized   committee  of  the  board:     • Mission  and  vision  of  the  company   • Code  of  ethics  for  the  company  and  for  board  operations   • Strategic  framework,  strategic  plan,  and  key  financial  targets     • Endorsement  of  annual  report  and  accounts,  for  further  approval  by  shareholders   • Risk  management  policies  and  frameworks   111 ANNEX III. C • Risk  appetite  or  tolerance  and  risk  limits   • Oversight  of  sound  compliance  policies  and  practices     • Selection,  remuneration,  and  evaluation  of  the  CEO  and  Internal  Auditor   • Succession  plan  of  the  CEO   • Proposal  of  board  members  and  appointment  of  the  chair  and  board  officers   • Governance  structure,   board   governance  policies   (for  example,   conflict  of  interest,  related   party  transactions),  board  operating  procedures,  and  board  evaluation     • HR  policies  approvals  and  frameworks   • Amendments  to  the  company’s  constitution  for  further  approval  by  shareholders     • Any  decision  required  by  applicable  legislation  and  regulations  governing  the  company     • Matters  that  may  involve  personal  legal  liability  of  individual  directors     • Director’s  and  officer’s  insurance  (as  applicable)     • Commencing  litigation/arbitration   • Any  other  matter  that  in  the  opinion  of  the  CEO,  or  the  board  chair  or  a  committee  chair,   should  be  determined  by  the  board       4. Finance  and  operations  decisions  requiring  approval  of  the  full  board  or  a  committee  of  the  board       In  conjunction  with  the  policy  to  delegate  certain  matters  to  the  CEO,  the  board  expressly  identifies   the  following  finance  and  operations  matters  that  require  the  approval  of  the  board  and/or  a  duly   authorized  committee  of  the  board:   • Any  multi-­‐year  or  annual  business  plan,  operating  plan  and/or  budget   • Revision  or  reallocation  to  approved  plans  and  budgets  in  excess  of  $[      ]     • Emergency,  unplanned  expenditures  in  excess  of  $[      ]   • Approval  of  new  contracts  within  prescribed  procedures  in  excess  of  $[      ]   • Capital  investments  in  excess  of  $[      ]   • Obtaining  of  debt  financing  in  excess  of  $[      ].   • Any  significant  change  in  the  accounting  principles  and  policies  of  the  company     • Acquisitions  or  divestitures  that:     o are  of  strategic  significance  to  the  company;     o represent  a  material  deviation  from  the  ordinary  course  of  business;     o have   the   potential   for   jeopardizing   the   company’s   ability   to   meet   its   ongoing   service   commitments;  and/or     o represent  a  potential  for  incurring  reputation  risk.     • Approval,   renewal,   restructuring   or   rescheduling,   or   write   off   of   a   loan   that   has   not   been   otherwise  specifically  delegated  to  management       112 ANNEX III. D: SAMPLE AUTHORITY MATRIX ANNEX  C:  SAMPLE  AUTHORITY  MATRIX Audit   Risk  Mgt   Nominations   AGM/SGM Board   CEO Management No. Authority Committee Committee Committee A. General  Corporate  Authorities A.1 Amendments  to  authorized  share  capital x A.2 Deciding  on  major  acquisitions  and  divestures  of  other  entities x A.3 Dissolution  of  MFI  or  merger  thereof  with  any  other  organization x recommend A.4 Public  offering  of  shares  for  MFI x A.5 Obtaining  debt  financing x  (>$) x  (<$) A.6 Formation  and  liquidation  of  subsidiaries  and  affiliates inform x A.7 Share  acquisition  and  equity  participation  in  other  entities inform x A.8 Endorsement  of  annual  report  and  accounts x recommend A.9 Approval  of  annual  report  and  accounts x recommend A.10 Decisions  on  dividends  and  net  profit  allocations x recommend A.11 Amendments  to  MFI's  Constitution x recommend A.12 Proposal  of  the  Board  of  Director  Members x recommend A.13 Appointment  of  Board  of  Directors  Members x recommend A.14 Appointment  of  Chairman,  Deputy  Chairman x A.15 Approval  of  fees  for  Directors x recommend recommend A.16 Conducting  evaluation  of  the  Board x recommend A.17 Appointment  and  remuneration  of  External  Auditors x recommend recommend A.18 Commencing  litigation/arbitration x recommend recommend A.19 Developing  a  Code  of  Ethics inform x recommend A.20 Developing  and  implementing  policies  on  conflict  of  interest,  relatated  party  transactions inform x recommend B. Operational  Authorities B.1 Approving  corporate  strategy  and  budget x recommend recommend B.2 Revision    or  reallocation  of  annual  budget x  (>$) x  (<$) x  (<$) B.3 Approval  of  unit  specific  plans  and  budgets x recommend B.4 Reporting  of  authority  and  oversight  to  Internal  Audit x recommend B.5 Oversight  of  sound  compliance  policies  and  practices x recommend B.6 Day-­‐to-­‐day  compliance  against  internal  policies  and  external  laws,  regs. x recommend B.7 Approval  to  participate  in  new  development  projects inform  (>$) x   recommend B.8 Emergency,  unplanned  expenditures x  (>$) x  (<$) x  (<$) B.9 Approval  of  new  contracts  within  prescribed  procedures x  (>$) x  (<$) x  (<$) B.10 Approval  of  individual  expenditures  approved  in  budget x  (<$) x  (<$) B.11 Approval  of  invoices  within  prescribed  procedures x  (<$) x  (<$) B.12 Sale  or  retirement  of  inventory,  materials  &  fixed  assets inform  (>$) x recommend B.13 Approval  of  Risk  Management  Policies  &  Frameworks x recommend recommend B.14 Setting  of  Risk  Appetite x recommend Implementing Corporate Governance Practices 113 1  of  2 ANNEX III. D ANNEX III. D 114 ANNEX  C:  SAMPLE  AUTHORITY  MATRIX Audit   Risk  Mgt   Nominations   AGM/SGM Board   CEO Management No. Authority Committee Committee Committee B.15 Setting  Organizational  structure  and  staffing  plans inform x recommend B.16 Approving  HR  policies  approvals  and  frameworks x recommend B.17 Appointment  of  CEO x recommend recommend B.18 Appointment  of  other  Senior  Management x recommend recommend B.19 Appointment  of  other  non-­‐Senior  Management  staff x recommend B.20 Remuneration  of  CEO x recommend B.21 Remuneration  of    Senior  Executives x recommend recommend B.22 Succession  Plan  for  CEO x recommend recommend B.23 Succession  Plan  for  Senior  Executives x recommend recommend B.24 Annual  Employee  evaluation  for  CEO x recommend B.25 Annual  Employee  evaluation  for  Senior  Executive x recommend recommend B.26 Annual  Employee  evaluation  for  non  Senior  Executives x recommend B.27 Approval  of  Employee  Benefits  and  Compensation  Policies inform x recommend B.28 Setting  IT  Strategy x   recommend recommend B.29 Approving  IT  Projects x   recommend recommend B.30 Approving  Capital  Investments x  (>$) x  (>$) x  (>$) X  =  indicates  this  body  has  the  ulbmate  decision-­‐making  authority. $  =    defined  threshold  for  the  decision  authority. Recommend  =  this  body  will  make  a  recommendabon  to  the  decision-­‐making  body. Inform  =  the  decision  taken  should  be  communicated  to  this  body. 2  of  2 Implementing Corporate Governance Practices ANNEX III. E ANNEX III. E: SAMPLE CEO JOB DESCRIPTION ANNEX  E:  SAMPLE  CEO  JOB  DESCRIPTION   [NAME  OF  MFI]     CHIEF  EXECUTIVE  OFFICER  JOB  DESCRIPTION   Title:  Chief  Executive  Officer     Reports  to:  Board  of  Directors   Date  of  last  review:  _______________   Job  Summary:   Reporting  to  the  board  of  directors,  and  liaising  through  the  chair,  the  Chief  Executive  Officer  (CEO)  has  the   prime   responsibility   and   accountability   for   the   development   and   execution   of   strategies   necessary   to   attain  the  goals  and  objectives  of  [NAME  OF  MFI]  as  established  by  the  board.  The  CEO  is  responsible  to   communicate   the   company’s   vision   and   mission   to   employees   and   for   ensuring   they   live   out   these   values  in  their  daily  work  and  the  delivery  of  services  to  clients.       The   CEO   is   additionally   responsible   for   effectively   integrating   and   coordinating   the   functions   of   the   organization;  initiating  and  maintaining  effective  contact  and  liaison  with  key  stakeholders;  ensuring  sound   financial  management  and  financial  stability;  maintaining  high  levels  of  client  satisfaction  while  guarding   the  best  interests  of  the  company  as  a  whole;  and  monitoring  and  reporting  organizational  activities  and   progress.     General  Delegation  of  Authority:     The   board   of   directors   has   provided   the   CEO   with   the   authority   to   achieve   the   mission   and   business   goals  and  objectives  within  policies  established  by  the  board,  subject  to  specific  limitations  documented   in  board  policy.   Essential  Responsibilities  &  Accountabilities:   Strategic  Planning  &  Management   • In   collaboration   with   the   board   and   senior   management   team,   develop   the   company’s   vision   and   strategic   and   operating   plans   and   ensure   senior   management   translates   vision/mission   and   objectives   into   an   actionable   annual   plan   with   related   budget   including   short-­‐term   and   long-­‐term   objectives  and  targets.   • Provide  information  and  reports  upon  which  the  board  can  base  meaningful  policies  and  decisions   for  the  overall  direction  of  the  organization.   • Analyze   the   company’s   operating   results   relative   to   established   objectives   and   ensure   that   appropriate  steps  are  taken  to  correct  unsatisfactory  conditions  or  performance.   • Keep   current   on   the   Myanmar   microfinance   industry   and   its   global   context,   in   terms   of   trends,   major  initiatives,  performance,  legislative/regulatory  changes,  and  innovations.   Financial  &  Risk  Management   • Ensure   the   adequacy   and   soundness   of   the   company’s   financial   structure   by   managing   the   overall   structure  of  the  assets  and  liabilities  of  the  organization  to  ensure  acceptable  financial  performance   and  financial  viability  with  emphasis  on  enterprise  risk  management,  capital  adequacy  and  ongoing   profitability.   115 ANNEX III. E • Ensure  sound  financial  planning,  management  and  reporting.   • Develop   and   recommend   to   the   board,   comprehensive   enterprise   risk   management   policies   covering  all  areas  of  risk.   • Develop  and  maintain  internal  control  and  management  reporting  systems.   • Prescribe   the   specific   limitations   of   the   authority   of   subordinates   regarding   policies,   contractual   commitments,  expenditures,  and  human  resources  management  processes.   Legislative,  Regulatory  &  Compliance  Issues   • Build  an  effective  working  relationship  with  regulatory  bodies.   • Ensure  that  the  company  is  in  compliance  with  all  applicable  and  appropriate  laws  and  regulations   set  forth  by  the  Financial  Regulatory  Department  and/or  other  regulatory  agencies  as  applicable.   • Ensure  communication  of  and  compliance  with  approved  board  and  operational  policies.   Operations   • Ensure   that   the   company   is   adequately   staffed   with   competent   employees   and   a   management   structure  necessary  to  achieve  objectives.     • Ensure  the  development  and  cultivation  of  a  sales  and  service  culture  along  with  development  and   effective  implementation  of  required  financial  products  and  services.   • Build  an  effective  working  relationship  with  affiliated  organizations  and  major  partners.   • Oversee  the  security  and  safety  of  the  company,  employees  and  data  systems,  with  responsibility  to   analyze  security  and  safety  policies  and  procedures,  and  to  alert  staff  of  changes  in  a  timely  manner.   • Maintain   effective   relationships   with   major   suppliers   in   conjunction   with   other   members   of   the   senior  management  team.   • Resolve  any  conflict  arising  between  operating  groups,  staff  units  under  immediate  supervision.   Human  Resources  &  Professional  Development   • Ensure   the   company   attracts   and   retains   the   necessary   leadership   and   expertise   required   for   the   delivery  of  a  full  suite  of  world-­‐class  financial  products  and  services  for  clients.   • Supervise   and   evaluate   the   job   performance   of   senior   management   team   direct   reports   based   on   established  objectives.     • Review   and   approve   the   appointment,   employment,   transfer,   and   dismissal   of   all   senior   management  personnel.   • Develop  and  recommend  to  the  board,  comprehensive  human  resources  policies.   • Undertake  ongoing  self-­‐directed  professional  development  and  education  to  keep  current  regarding   trends  and  best  practices  relevant  to  microfinance  operations.   • Ensure  provision  of  opportunities  for  professional  development  at  the  senior  and  mid-­‐management   levels  to  ensure  succession  planning  is  addressed  in  the  management  structure.   Communications   • Conduct  meetings  with  the  senior  management  team  on  a  regular  basis  to  ensure  the  dissemination   of  information,  exchange  of  ideas,  resolution  of  problems,  discussion  of  trends,  etc.       • Ensure  that  appropriate  information  is  communicated  throughout  the  organization  regularly.   • Oversee  external  communications  related  to  the  company.   • Represent   the   organization,   along   with   the   board   chair   as   required,   to   regulatory   authorities,   financial   and   business   communities,   competitors,   affiliated   organizations,   shareholders,   funders,   clients  and  the  general  public.   116 Implementing Corporate Governance Practices ANNEX III. E Board  Relations   • Maintain  effective  working  relationship  with  the  board,  and  in  particular  in  regard  to  supporting  the   ongoing  liaison  with  the  board  chair.   • Participate  in  board  meetings  and  board  committee  meetings  (as  required  under  committee  terms   of  reference).   • Ensure  effective  support  and  information/analysis  is  provided  to  the  board  and  its  committees.   • Ensure,   together   with   the   board,   the   provision   of   opportunities   for   professional   development   and   education  at  the  board  level  to  ensure  succession  planning  is  addressed  in  the  governance  structure   and  appropriate  competencies  are  developed  as  required  at  the  board  level.   Other   • Carry  out  such  other  duties  as  may  be  assigned  by  the  Board  of  Directors  from  time  to  time.   Authority:   • To   approve   the   expenditure   of   funds,   both   capital   and   operating,   that   is   within   budget   and   organizational  policy.       • To  act  as  a  signing  officer  for  corporate  commitments.   • To  undertake  programs/initiatives  within  the  annual  plan  or  otherwise  approved  by  the  board.   • To  speak  on  behalf  of  the  company  to  the  media  and  general  public.   • To  delegate  authority  to  carry  out  specific  duties  to  members  of  the  senior  management  team.   • To  carry  out  all  actions,  singly  or  in  concert  with  other  officers,  that  are  delegated  to  the  position  by   board  or  operating  policy.   Competencies  and  attributes:   • Visionary  –    motivates  others  through  communicating  a  clear  and  compelling  vision   • Leadership  Skills  –  emphasizes  team  building,  people  management  and  mutual  accountability     • Interpersonal   Skills   –   recognizes   people   as   the   most   important   asset   and   understands   the   link   between  successful  interpersonal  strategies  and  practices  and  bottom  line  results   • Strength  of  Character  –  admits  mistakes  and  learns  from  them,  shows  consistency  between  stated   values  and  behavior,  takes  a  stand  on  important  issues,  confident  but  not  arrogant   • Strategic/Tactical  –  sees  the  big  picture  while  thoroughly  understanding  day-­‐to-­‐day  operations   • Possesses  Sound  Judgment  –  able  to  weigh  information  carefully  and  make  sound  decisions   • Thinking   Skills   –   thinks   comprehensively   and   strategically,   inspires   innovative   thinking,   balances   between  conceptual/strategic  thinking  and  a  practical  perspective   • Management   Skills   –   surrounds   self   with   high   quality   talent,   defines   and   communicates   objectives   and   desired   outcomes   clearly,   drives   towards   results   and   holds   self/others   accountable   for   them,   keeps  the  organization  focused,  and  addresses  poor  performance  in  a  fair  and  timely  manner   • Change  Management  Skills  –  takes  initiative  required  to  modify  strategies  effectively  and  efficiently   in  order  to  redirect  resources  to  meet  changing  needs/requirements  of  stakeholders   • Excellent  Communication  Skills  (verbal  and  written)  and  board-­‐level  presentation  skills     • Credible   and   Trustworthy   –   able   to   establish   credibility,   trust   and   confidence   quickly   with   stakeholders,  and  possessing  a  high  level  of  integrity  and  confidentiality   • Personal   Values   –   demonstrates   commitment   to   community,   exhibits   sensitivity   for   the   market   segments  served,  willingness  to  better  understand  local  context,  communities  and  related  needs   117 ANNEX III. E Education/Knowledge  and  Experience:   • Relevant  college/university  degree  –  for  example  Business/Finance  related   • Extensive  experience  in  a  leadership  capacity  at  a  senior  management  level  -­‐  with  a  minimum  of  ten   years   of   experience   within   a   retail   financial   institution,   preferably   within   a   bank,   microfinance   institution,  or  cooperative   • Exposure  to  reporting  to/working  with  a  board  of  directors   • Demonstrated   success   with   setting   priorities   and   developing   and   implementing   strategic   and   operational  business  plans  within  a  retail  financial  services  setting   • Breadth   of   financial   and   operations   management   knowledge/experience   in   retail   financial   services   setting   • Highly  developed  business  acumen,  with  excellent  understanding  of  financial  management  including   balance  sheet,  profit  &  loss,  cash  flow  statements  specifically  in  a  retail  financial  services  setting   • Experience   and   understanding   of   compliance   and   related   functions   within   a   regulated   financial   institution  environment   • Experience  with  financial  institution  software  systems  preferred   • Understanding  of  the  challenges/opportunities  within  the  microfinance  sector  preferred   This   Job   Description   is   not   a   complete   statement   of   all   duties   and   responsibilities   comprising   this   position.     The   company   reserves   the   right   to   revise   or   change   the   essential   functions   and   employment   standards   as   the   need   arises.     This   description   does   not   constitute   a   written   or   implied   contract   of   employment.     Acknowledgement:     _____________________________________________________                          ____________________   Reviewed  and  Acknowledged  by  Chief  Executive  Officer     Date     _____________________________________________________                          _____________________   Reviewed  and  Acknowledged  by  Chair  of  the  Board  of  Directors     Date     118 Implementing Corporate Governance Practices ANNEX III. F ANNEX III. F: SAMPLE CEO'S ROLE IN CORPORATE GOVERNANCE POLICY ANNEX  E:  SAMPLE  CEO’s  ROLE  IN  CORPORATE  GOVERNANCE  POLICY     [NAME  OF  MFI]   POLICY  ON  CEO’S  ROLE  IN  CORPORATE  GOVERNANCE     Effective  Date:  __________   Revised  Date:  __________   Last  Board  Review  Date:  __________         1. CEO’s  role  in  board  governance   Due  to  the  CEO’s  unique  role  and  insight,  the  CEO  plays  a  critical  role  in  supporting  and  guiding  board   governance.   The   CEO   should   guide   and   support   the   board’s   activities   and   implement   its   policies   and   represent   the   interests   of   the   company   and   all   of   its   stakeholders   in   managing   the   company   and   executing  strategy.     The   CEO   should   ensure   that   the   board   has   adequate,   timely,   and   accurate   financial   and   operating   information  in  hand  before  board  meetings,  so  that  the  board  can  provide  required  oversight.  The  CEO   should   further   ensure   the   board   has   adequate   information   with   respect   to   decisions   the   CEO,   in   consultation  with  the  chair,  has  presented  to  the  board  for  consideration.   2. Key  responsibilities     The  following  are  the  key  responsibilities  the  CEO  has  toward  the  board:1   • Help  the  board  to  govern  more  and  to  manage  less  (avoid  board  capture);   • Articulate   the   MFI’s   strategy   and   work   with   the   board,   whose   role   is   to   review,   modify   as   necessary,  and  approve  the  strategy;   • Structure   materials   for   the   board   meetings   to   focus   on   policy   and   strategy   issues   (frame   significant  questions  and  complex  problems  in  ways  that  facilitate  board  action);     • Deliver  to  the  board,  and  to  its  committees  as  appropriate,  standard  financial  and  operational   reports  to  monitor  institutional  performance  and  progress;     • Develop   with   the   board   a   set   of   institutional   performance   indicators,   including   social   performance;     • Assist  the  board  in  managing  the  double  bottom  line;     • Get  material  to  the  board  in  a  timely  fashion;     • Be  available  to  answer  questions  of  individual  board  directors  before  and  during  committee  and   board  meetings;   • Maintain   ongoing   contact   with   the   board   chair   to   keep   the   chair   informed   of,   and   to   consult   about,  major  developments;  and   • Assist  in  orienting  new  board  directors.                                                                                                                             1  Council  of  Microfinance  Equity  Funds  (CMEF).  2012.  “The  Practice  of  Corporate  Governance  in  Microfinance   Institutions.”  Consensus  Statement  of  the  Council  of  Microfinance  Equity  Funds,  p.  21.   119 ANNEX III. G ANNEX III. G: SAMPLE CEO PERFORMANCE EVELUATION TOOL ANNEX  F:  SAMPLE  CEO  PERFORMANCE  EVALUATION  TOOL     The  following  is  a  sample  framework  for  a  CEO  performance  evaluation.  It  should  be  tailored  according   to   the   specific   annual   objectives   and   workplan   of   the   MFI.   Quantitative   and   qualitative   performance   criteria  should  be  established  for  each  sub-­‐category  with  corresponding  weight  and  rating  for  the  level   of  achievement  to  determine  the  points  awarded.     OVERVIEW  OF  PROPOSED  CEO  PERFORMANCE  OBJECTIVES  &  WEIGHTINGS*                         Points  Awarded   1. Financial  Performance  –  max  30  pts                                                               1.1  Achievement  of  profitability  targets  (max  9  pts)                           _____             1.2  Achieved  operational  efficiency  targets  (max  6  pts)                                                 _____   1.3  Achieved  loan  portfolio  growth  targets  (max  9  pts)                                             _____   1.4  Achieved  funding  targets  (max  6  pts)               _____                                            Financial  Performance  Subtotal:  _____         2. Planning  –  max  30  pts     2.1  Annual  Plan  &  Budget  developed  and  achieved  (max  10  pts)             _____   2.2  Marketing  Plan  developed  and  achieved  (max  10  pts)               _____   2.3  Technology  Plan  developed  and  implemented  (max  10  pts)         _____                                        Planning  Subtotal:  _____     3. Risk  Management  –  max  20  pts               3.1  Internal  Audit  (max  7  pts)                           _____                                                     3.2  Financial  and  Operational  Risk  Management  (max  7  pts)         _____   3.3  External  Auditor’s  Management  Letter  &  Year-­‐End  Audit  Report  (6  pts)     _____                            Risk  Management  Subtotal:  _____     4. Organizational  Development    -­‐  max  10  pts       4.1 HR  Recruitment  Strategy  (max  4  pts)                 _____                                                       4.2 Performance  Management  (max  3  pts)             _____   4.3 Organizational  Strengthening  (max  3  pts)                                                    _____                                          Organizational  Development  Subtotal:  _____       Board  Relationship  &  Key  Competencies  –  max  10  pts                                    Subtotal:  _____   -­‐  Use  of  Board  Member  Survey  (attached)                                                                      Total  (max  100):  _____               120 Implementing Corporate Governance Practices ANNEX III. G CEO  PERFORMANCE  REVIEW  –  BOARD  MEMBER  SURVEY     The  board  of  directors  uses  the  following  survey  tool  to  appraise  the  CEO’s  relationship  with  the  board   as  well  as  key  leadership  competencies  required  in  the  position.    Please  select  your  response  to  indicate   the  CEO’s  level  of  performance  in  each  case  and  provide  any  comments  as  applicable.       Rating  Scale:         Exceptional  (5)     -­‐  Exemplifies  the  ideal  leader   Highly  Effective  (4)   -­‐  Demonstrates  a  clear  strength   Effective  (3)     -­‐  Performs  in  an  acceptable  manner   Marginally  Effective  (2)   -­‐  Could  hinder  performance   Deficient  (1)     -­‐  Creates  obvious  negative  impact   Not  Applicable  (0)   -­‐  Not  relevant  or  I  don’t  know       1. The  CEO  is  effective  in  developing  strategy,  objectives  and  business  plans  to  translate  vision  into   realistic  business  strategies.     How  strongly  does  the  CEO  perform  in  this  area?     Not  Applicable        Deficient            Marginally  Effective        Effective    Highly  Effective      Exceptional   0                                        1       2      3         4                 5                     2. The  CEO  is  effective  in  implementing  organizational  strategy  by  aligning  resources  and  assigning   clear  accountability  to  accomplish  key  business  objectives.     How  strongly  does  CEO  perform  in  this  area?     Not  Applicable        Deficient            Marginally  Effective        Effective    Highly  Effective      Exceptional   0                                        1       2      3         4                 5                 121 ANNEX III. G   3. The  CEO  ensures  that  board  members  are  kept  informed  of  key  issues  facing  the  company  and  are   provided   with   timely   and   sufficient   information   (verbal   and   written)   to   facilitate   full   and   informed   board  decision-­‐making.     How  strongly  does  CEO  perform  in  this  area?     Not  Applicable        Deficient            Marginally  Effective        Effective    Highly  Effective      Exceptional   0                                        1       2      3         4                 5                   4. The   CEO   demonstrates   sound   judgment   as   shown   in   his   understanding   of   complex   issues   and   development  of  solutions  that  effectively  address  problems  /  issues  facing  the  company.     How  strongly  does  CEO  perform  in  this  area?     Not  Applicable        Deficient            Marginally  Effective        Effective    Highly  Effective      Exceptional   0                                                        1              2                  3                      4                                  5                   5. The   CEO   communicates   effectively,   responding   to   questions   from   board   members   concerning   the   company,   its   operations,   challenges   and   operating   environment,   demonstrating   a   sound   and   comprehensive  knowledge  of  the  organization.     How  strongly  does  the  CEO  perform  in  this  area?     Not  Applicable        Deficient            Marginally  Effective        Effective    Highly  Effective      Exceptional   0                                        1       2      3         4                 5                 122 Implementing Corporate Governance Practices ANNEX III. G     6. The  CEO  seeks  out  and  listens  to  advice  from  board  members  on  issues  facing  the  company;  using   the  board  effectively  as  a  “sounding  board”  for  ideas.     How  strongly  does  CEO  perform  in  this  area?     Not  Applicable        Deficient            Marginally  Effective        Effective    Highly  Effective      Exceptional   0                                        1       2      3         4                 5                   7. The   CEO   treats   board   questions   and   comments   constructively   –   challenging   them,   where   appropriate,  without  becoming  defensive.     How  strongly  does  CEO  perform  in  this  area?     Not  Applicable        Deficient            Marginally  Effective        Effective    Highly  Effective      Exceptional   0                                        1       2      3         4                 5                   8. The   CEO   is   building   an   effective   and   cohesive   senior   team,   inspiring   commitment   and   individual   initiative,  and  is  promoting  an  environment  of  cooperation  and  positive  employee  relations  within   the  company.     How  strongly  does  CEO  perform  in  this  area?     Not  Applicable        Deficient            Marginally  Effective        Effective    Highly  Effective      Exceptional   0                                        1       2      3         4                 5                 123 ANNEX III. G   9.      The  CEO  acts  decisively  to  tackle  difficult  issues,  perseveres  in  the  face  of  problems  and  takes  the   lead  on  unpopular  though  necessary  actions.     How  strongly  does  CEO  perform  in  this  area?     Not  Applicable        Deficient            Marginally  Effective        Effective    Highly  Effective      Exceptional   0                                        1       2      3         4                 5                     10. The   CEO   instills   confidence   and   trust,   conducting   business   with   uncompromising   integrity   and   professionalism.     How  strongly  does  CEO  perform  in  this  area?     Not  Applicable        Deficient            Marginally  Effective        Effective    Highly  Effective      Exceptional   0                                        1       2      3         4                 5                   Personal  &  Professional  Development:       A. The  area(s)  for  personal  and  professional  development  for  the  CEO  in  my  view  are:                       124 Implementing Corporate Governance Practices ANNEX III. G   B. The  qualities  and/or  expertise  (strengths)  of  the  CEO,  which  I  respect  the  most  are:                               Focus  for  Next  Year:     List  any  issue(s)  relevant  to  the  operation  of  the  company  that  you  think  the  CEO  should  pay  particular   attention  to  in  the  upcoming  year.                                             125 ANNEX III. H ANNEX III. H: SAMPLE CORPORATE SECRETARY TERMS OF REFERENCE ANNEX  G:  SAMPLE  CORPORATE  SECRETARY  TERMS  OF  REFERENCE   [NAME  OF  MFI]     CORPORATE  SECRETARY  –  TERMS  OF  REFERENCE   1. General  provisions   The   company’s   constitution   or   other   internal   documents   shall   regulate   the   Corporate   Secretary’s   authority   to   help   with   the   development   of,   compliance   with,   and   periodic   review   of   the   company’s   corporate  governance  policies  and  practices,  ensuring  that  the  company  and  its  governing  bodies  follow   and  comply  with  the  Law,  as  well  as  internal  corporate  rules  and  policies  as  determined  by  the  company   constitution   and   internal   documents;   the   preparation   and   conducting   of   the   General   Meeting   of   Shareholders  (hereinafter  the  GMS),  board  meetings;  the  establishment  and  maintenance  of  clear  and   effective   channels   of   communications   between   the   various   governing   bodies   of   the   company;   the   disclosure  of  appropriate  information  about  the  company;  the  keeping  of  corporate  records;  the  review   of  shareholder  requests;  and  the  resolution  of  disputes  involving  the  rights  of  shareholders.   2. Election,  term,  and  dismissal   The  Corporate  Secretary  shall  be  appointed  by  the  board  by  a  majority  vote  of  directors  participating  in   the   meeting.   Any   director   may   nominate   a   candidate   for   the   position   of   Corporate   Secretary.   The   Corporate   Secretary   must   have   the   necessary   qualifications   to   properly   carry   out   his   or   her   duties.   A   candidate  nominated  for  the  position  of  Corporate  Secretary  must  disclose  to  the  board  information  on:   • Education  and  professional  experience;   • Personal  references;   • Share  ownership  in  the  company;   • Positions  held  in  other  companies;   • Relationships  with  affiliated  parties  and  business  partners  of  the  company;  and   • Other   information   that   may   affect   his   performance   in   carrying   out   the   functions   of   the   Corporate  Secretary.   The  Corporate  Secretary  shall  be  elected  for  the  term  of  __  year(s).  The  terms  of  the  contract  with  the   Corporate   Secretary   shall   be   approved   by   the   board.   The   contract   shall   be   signed   by   the   chair   of   the   board   on   behalf   of   the   company.   The   board   may   dismiss   the   Corporate   Secretary   and   appoint   a   new   Corporate  Secretary  at  any  time.   3. Functions,  duties,  and  responsibilities   The   Corporate   Secretary   shall   assist   the   board   [and   its   Corporate   Governance   Committee]   in   the   development  of,  compliance  with,  and  periodic  review  of  the  company’s  corporate  governance  policies   and  practices.   The  Corporate  Secretary  shall  help  ensure  that  the  company  and  its  governing  bodies  follow  and  comply   with  the  Law.  In  doing  so,  the  Corporate  Secretary  will  keep  abreast  of  the  latest  legal  and  regulatory   developments,   as   well   as   internationally   recognized   best   practices,   as   they   relate   to   corporate   126 Implementing Corporate Governance Practices ANNEX III. H governance,   and   provide   periodic   updates   and   briefs   to   the   company’s   directors   and   managers.   The   Corporate   Secretary   shall   work   and   coordinate   closely   with   the   company’s   legal   department   in   this   context.   The  Corporate  Secretary  ensures  that  the  governing  bodies  follow  existing  internal  corporate  rules  and   policies   as   determined   by   the   company   constitution,   board   charter,   and   other   internal   documents,   as   well   as   to   change   such   rules   and   policies,   or   institute   new   ones   where   appropriate.   The   Corporate   Secretary  is  to  inform  the  chair  of  the  board  of  all  violations  of  corporate  procedures  in  a  timely  manner.   The  Corporate  Secretary  shall  properly  prepare  and  conduct  the  GMS  in  accordance  with  the  Law,  the   company   charter,   and   other   relevant   by-­‐laws   and   internal   documents   of   the   company   following   the   decision   on   calling   a   GMS.   In   the   course   of   preparing   and   conducting   a   GMS,   the   Corporate   Secretary   shall:   • Ensure  that  the  list  of  the  shareholders  entitled  to  participate  in  the  GMS  is  properly  prepared;   • Ensure   that   the   persons   entitled   to   participate   in   the   GMS   are   properly   notified   by   preparing   and  sending  (delivering)  voting  ballots  to  shareholders,  as  well  as  properly  notifying  all  directors,   the  CEO  and  the  External  Auditor  of  the  company;   • Prepare   and   ensure   unrestricted   access   to   all   materials   that   shall   be   made   available   for   the   GMS,   and   authenticate   and   provide   copies   of   the   materials   upon   the   request   of   the   persons   entitled  to  participate  in  the  GMS;   • Collect  the  completed  voting  ballots  received  by  the  company;   • Organize  the  minutes  of  the  GMS;   • Ensure  that  the  persons  entitled  to  participate  in  the  GMS  are  informed  of  the  voting  results  of   the  GMS  in  a  timely  manner;  and   • Answer   procedural   questions   during   the   GMS   and   take   measures   to   resolve   conflicts   arising   when  preparing  and  conducting  the  GMS.   The   Corporate   Secretary   shall   help   the   chair   prepare   and   conduct   the   company’s   board   meetings   in   accordance  with  the  Law,  the  company  constitution,  board  charter,  and  other  internal  documents  of  the   company.  The  Corporate  Secretary  shall  help  prepare  the  annual  schedule  of  board  meetings  and  notify   all  directors  of  the  upcoming  meeting  __  weeks  in  advance.  If  necessary,  the  Corporate  Secretary  shall   send  (or  deliver)  voting  ballots  to  all  directors,  collect  the  completed  ballots  and  written  opinions  of  the   directors  who  were  not  physically  present  at  the  meeting,  and  transfer  these  to  the  board  chair.     The  Corporate  Secretary  shall  ensure  that  board  meetings  are  held  in  accordance  with  the  procedures   established  in  the  board  charter.  The  Corporate  Secretary  shall  assist  the  chair  in  keeping  minutes  of  the   board   meetings   that   reflect   the   location   and   time   of   the   meeting,   the   names   of   the   persons   who   participated  in  the  meeting,  the  agenda  of  the  meeting,  quorum  and  voting  results,  and  a  description  of   decisions  made  by  the  board.  The  Corporate  Secretary  shall  assist  directors  in  obtaining  the  information   necessary  to  take  informed  decisions.   The  Corporate  Secretary  shall  help  organize  induction  trainings  for  newly  elected  directors  to  brief  these   directors  on  their  duties  and  responsibilities,  the  procedures  that  regulate  the  operations  of  the  board   and   other   working   bodies   of   the   company,   the   company’s   organizational   structure   and   officers   of   the   company,  internal  documents  of  the  company,  applicable  decisions  of  the  GMS  and  the  board  to  their   work   as   directors,   and   other   information   that   may   be   required   by   directors   for   the   appropriate   discharge  of  their  duties.   127 ANNEX III. H The  Corporate  Secretary  shall  inform  and  advise  directors  on  legal  requirements,  charter  provisions,  and   other   internal   corporate   regulations   that   regulate   their   rights   and   responsibilities   with   respect   to   preparing  and  conducting  the  GMS  and  board  meetings  and  ensuring  for  information  disclosure.   The  Corporate  Secretary  shall  assist  in  establishing  and  maintaining  clear  communication  between  the   various  governing  bodies.  To  this  extent,  the  CEO,  CFO,  and  other  relevant  parties/bodies  must  provide   timely  and  accurate  information  upon  the  Corporate  Secretary’s  request.   The   Corporate   Secretary   shall   ensure   for   the   proper   disclosure   of   information   about   the   company.   In   particular,  the  Corporate  Secretary  shall:   • Ensure  compliance  with  the  requirements  of  the  Law,  the  company  constitution,  board  charter,   and   other   internal   corporate   documents   on   keeping   and   disclosing   information   about   the   company;  and   • Help   ensure   for   the   timely   disclosure   by   the   company   of   information   contained   in   quarterly   reports,  annual  report  as  well  as  information  on  all  material  facts  that  may  affect  the  financial   and  business  performance  of  the  company.   The   Corporate   Secretary   should   notify   the   chair   of   the   board   of   any   potential   or   real   conflicts   of   interests   among   the   company’s   shareholders,   directors,   or   executives   so   that   they   can   be   dealt   with   appropriately,  and  act  as  a  liaison  in  case  of  conflicts  of  interests  among  directors.   The   Corporate   Secretary   shall   keep   the   company   records   and   documents   as   specified   under   the   Law,   make   these   available   to   authorized   parties,   prevent   un-­‐authorized   access,   and   make   copies   of   such   documents.  The  copies  of  the  documents  must  be  authenticated  by  the  Corporate  Secretary.   The   Corporate   Secretary   shall   ensure   that   all   shareholder   requests   are   properly   processed   by   keeping   records  of  all  incoming  shareholder  requests,  transferring  the  requests  to  the  relevant  governing  bodies   and  departments,  and  monitoring  the  timely  and  full  response  to  such  requests  by  the  governing  bodies   and  departments.   The   Corporate   Secretary   shall   have   the   right   to   obtain   any   information   necessary   for   the   proper   discharge  of  his  or  her  duties.     The  Corporate  Secretary  shall  act  solely  in  the  function  of  the  Corporate  Secretary  and  shall  not  perform   any  other  duties  in  the  company.   4. Office  of  the  Corporate  Secretary   To  ensure  the  Corporate  Secretary’s  performance  of  his  or  her  duties,  the  company  shall  establish  the   Office  of  the  Corporate  Secretary.  The  staff  of  the  Office  of  the  Corporate  Secretary  (hereinafter  staff)   shall   consist   of   __   employees   that   report   directly   to   the   Corporate   Secretary.   The   staff   shall   be   appointed  by  the  CEO  upon  the  recommendation  of  the  Corporate  Secretary.  The  staff  must  have  the   necessary  qualifications  to  properly  carry  out  their  duties  and  responsibilities.  The  staff  may  not  at  the   same  time  be  directors,  managers,  or  employees  of  another  company.   128 Implementing Corporate Governance Practices ANNEX III. I ANNEX III. I: SAMPLE BOARD TRAINING ANNEX  H:  SAMPLE  BOARD  TRAINING  PROGRAM 1   PROGRAM1 Training  topic   Learning  objective   Sample  areas  to  be  covered   Introduction  to  corporate   Aim  is  to  provide  a  background  on  why   • Why  corporate  governance  is  essential  for   governance   corporate  governance  has  grown  in   today’s  Board;  and   prominence  and  a  crucial  corporate   • Background  and  evolution  of  corporate   agenda.   governance.   Overview  of  corporate   At  the  end  of  the  session,  the  directors   • Corporate  governance  defined;   governance   will  be  able  to  understand  the   • Key  concepts;   concepts  related  to  corporate   • Typical  corporate  governance  structure;   governance.   and   • Key  corporate  governance  actors.   Principles  of  corporate   Objective  will  be  to  highlight  various   • Principles  of  corporate  governance;     governance   best  practice  and  local  good  practice   • Corporate  governance  minimum   corporate  governance  principles  such   guidelines  in  the  [include  region]  market;   as  those  issued  by  key  regulators  of   • Board  composition  and  leadership;   the  financial  services  industry.   • Board  organization;   • Board  charter;   • Code  of  ethics;   • Independence  declarations;  and   • Delegation  of  authority  and  decision-­‐ making.   Role  in  risk  management   This  aims  at  sensitizing  the  Board  on   • Definition  of  risk  and  risk  management;   what  is  required  so  as  to  ensure  that   • Key  risks  facing  the  MFI  and  relevant  laws   the  Board  has  effective  oversight  on   and  regulations;   risk  management  within  the   • Understand  the  MFI’s  risk  management   organization.   framework,  policies,  processes,  limits;  and   • How  the  Board  can  provide  leadership  on   the  risk  agenda  and  drive  the  MFI  toward   effective  risk  management.   Oversight  in  action—roles   The  objective  is  to  sensitize  the   Specific  roles  of:   and  responsibilities   directors  on  the  roles  and   • Board  Chair;   responsibilities  of  the  Board  so  as  to   • Directors;   effectively  carry  out  their  oversight   • Board  committees;   role.   • CEO;   • Corporate  Secretary;  and   • Senior  management.   Elevating  Board   The  objective  is  to  highlight  how  the   • Director  induction;   effectiveness   Board  can  assure  itself  on  its   • Continued  Board  education;   effectiveness.   • Board  and  Board  committees  evaluation;   • Board  succession  planning;  and   • Senior  management  development  and   succession  planning.   1 Adapted  from  “Risk  Culture,  Risk  Governance  and  Balanced  Incentives:  Recommendations  for  Strengthening  Risk   Management  in  Emerging  Market  Banks.”  IFC  (2015,  Annex  6).   129 ANNEX III. J   ANNEX III. J: SAMPLE HEAD OF COMPLIANCE   JOB DESCRIPTION     [NAME  OF  MFI]     HEAD  OF  COMPLIANCE  JOB  DESCRIPTION     Title:  Chief  Compliance  Officer  (CCO)     Reports  to:   Chief  Executive  Officer  /  Chief  Risk  Officer  (CCO  has  a  “dotted  line”  reporting  relationship  to   Board  Audit  Committee  /  Board  Risk  Committee.)     Date  of  last  review:  _______________       Job  Summary:  The  CCO  has  primary  responsibility  for  coordinating  the  management  of  the  MFI’s  compliance   risk   with   an   aim   to   ensure   that   MFI   conduct   its   businesses   and   operations   conforming   with   the   highest   standards   of   ethical   conduct   and   in   compliance   with   applicable   local   and   international   laws,   rules   and   regulations.     Responsibilities  of  the  CCO:   Compliance  risk  management   • Ensure   that   there   are   robust   processes   to   identify,   document,   assess   and   quantify   the   compliance   risks   (including   money   laundering   and   terrorism   financing   related   risks)   associated   with   the   MFI’s   current  activities,  proposed  new  businesses  or  customer  relationships,  development  of  new  products   and  business  practices,  and  business  expansions;   • Monitor   and   regularly   assess   the   appropriateness   and   adequacy   of   the   MFI’s   internal   compliance   policies  and  identify  and  address  any  noted  deficiencies;         • Provide  regular  and  ad-­‐hoc  reports/  updates  to  the  Board,  the  Audit  Committee/Risk  Committee  and   Senior   Management   on   identified   compliance   risks,   compliance   deficiencies   and   breaches   in   applicable  policies,  as  well  as  material  compliance  risk  failures.   Advisory  role   • Provide   advice   and   up-­‐to-­‐date   information   to   the   Board,   Audit   Committee/Risk   Committee   and   Senior   Management   on   compliance   /AML   laws,   rules   and   regulations   affecting   the   MFI   in   close   coordination  with  the  Legal  Department;   • Analyze   and   update   the   Board,   Audit   Committee/Risk   Committee   and   Senior   Management   on   the   impact  of  any  regulatory  changes  to  the  MFI’s  business  and  operations;       • Act   as   the   key   contact   person   within   the   Bank   with   respect   to   compliance   related   queries   and   clarifications;   • Provide  guidance  to  the  MFI  on  the  implementation  of  applicable  laws,  rules  and  regulations  through   issuance  of  circulars  and  memorandums,  policies  and  procedures,  codes  of  conduct,  among  others;   and   • Provide  inputs  to  the  MFI’s  standard  operating  procedures  to  ensure  adherence  with  applicable  laws,   rules  and  regulations;   Statutory  responsibilities  and  liaison  role   130 Implementing Corporate Governance Practices ANNEX III. J • Manage   all   compliance-­‐related   communication   to   and   from   external   bodies   such   as   regulators,   standard-­‐setters  and  external  experts;   • Coordinate   with   various   departments   within   the   MFI   to   ensure   timely   and   complete   submission   of   statutory/  regulatory  requirements  and  reports;  and   • Act  as  liaison  during  external  reviews  conducted  by  the  [                                    ]  ,  other  regulatory  authorities  and   external  bodies.   Others   • Ensure   close   coordination   with   the   MFI’s   Human   Resources   Department   in   rolling   out   compliance   related   trainings   and   knowledge   updates   on   a   regular   basis   to   keep   MFI   employees   abreast   on   applicable  laws,  rules  and  regulations;  and   • Ensure  Compliance  Department  maintain  an  inventory  of  all  applicable  laws,  rules  and  regulations.       Education/Knowledge  and  Experience:   • Relevant  college/university  degree  –  e.g.  Business/Finance  related   • Extensive  experience  in  a  leadership  capacity  at  a  senior  management  level  -­‐  with  a  minimum  of  ten   years   of   experience   within   a   retail   financial   institution,   preferably   within   a   bank,   microfinance   institution,  or  cooperative   • Exposure  to  reporting  to/working  with  a  board  of  directors   • Breadth   of   financial   and   operations   management   knowledge/experience   in   retail   financial   services   setting     • Specific  understanding  of  compliance  risk  factors  affecting  the  MFI.  Has  extensive  knowledge  of  anti-­‐ money  laundering/combating  the  financing  of  terrorism  (AML/CFT)  risks     • Understanding  of  the  challenges/opportunities  within  the  microfinance  sector  preferred   • Holds  all  applicable  licenses  (if  required  by  local  regulation)       131 ANNEX III. K ANNEX III. K: SAMPLE MFI RISK APPETITE STATEMENT ANNEX  K:  SAMPLE  MFI  RISK  APPETITE  STATEMENT   [Name  of  MFI]’s  Risk  Appetite  incorporates,  at  minimum,  the  following  dimensions:   • Strategic  focus  (the  types  and  scope  of  business  activities  to  be  pursued);     • Profitability  and  growth  (based  upon  approved  business  plan  goals);     • Capital  Adequacy  (the  amount  of  capital  buffer  the  [Name  of  MFI]  should  maintain);     • Liquidity   (the   amount   of   liquidity   [name   of   MFI]   should   maintain   to   protect   itself   against   potential  funding  problems);  and     • Compliance  to  all  applicable  laws  and  regulations.     The  concept  of  “overall  risk  profile”  of  [name  of  MFI]  is  used  to  achieve  a  profile  that  is  desired.  Under   such  an  approach,  the  overall  risk  profile  will  be  coordinated  by  the  CRO  with  input  and  endorsement   from   Senior   Management,   and   ultimately   reviewed   and   approved   by   the   Board.   The   risk   levels   to   be   achieved   in   the   different   types   of   risks   that   are   monitored   and   controlled   will   be   predetermined   and   recommended  by  Senior  Management  as  goals  to  be  achieved.     This  approach  will  enable  [name  of  MFI]  to  take  risks  in  business  lines,  sectors  or  client  groups  that  are   important  for  the  mission  and  vision  of  the  MFI,  profitability  reasons,  or  from  the  point  of  view  of  the   national  economy,  or  for  other  policy  considerations.  In  other  words,  the  risk  appetite  of  [name  of  MFI]   is  defined  based  on  policy  considerations.     The  Risk  Appetite  Statement  is  presented  below:   Risk  Type   Risk  Appetite   Approach   Maintain  higher  than  regulatory  minimum  capital   Enterprise-­‐wide  Risk     Low   adequacy.     Moderate  tolerance  for  credit  risk,  adequate  returns  to  be   Credit  Risk     Moderate   generated  and  loans  to  be  given  with  suitable  mitigants.     Market  Risk     Low   Low  tolerance  for  losses  from  Treasury.     Low  tolerance  for  operational  risk  losses  and  zero  tolerance   Operational  Risk     Low   to  legal  and  compliance  or  regulatory  risks.     Low  tolerance  to  liquidity  risk,  with  stability  of  funding   Liquidity  Risk     Low   sources  and  proper  Contingency  Funding  Plan.     Low  appetite  for  activities  that  may  have  a  potential   Reputational  Risk     Low   negative  impact  on  the  company’s  reputation.     All  important  initiatives  to  be  properly  analysed,  planned   and  successfully  implemented.     Strategic  Risk     Low   Low  appetite  for  business  activities  outside  plan  or  policy   without  prior  authorization.     132 Implementing Corporate Governance Practices ANNEX III. K [Name   of   MFI]’s   Risk   Tolerance   Limits   are   initially   established   as   follows.   Where   appropriate,   the   Risk   Tolerance  Limits  are  set  with  a  buffer  versus  regulatory  requirements  to  ensure  that  [name  of  MFI]  takes   early  action,  and  hence  minimize  the  risk  of  the  regulatory  requirements  being  breached.   Risk  Type   Metric   Risk  Tolerance   Regulatory   Limit   Requirement   Enterprise-­‐wide  Risk     Capital  Adequacy  (Solvency)  Ratio     __%     Equity  to  Assets  (or  Debt  to  Equity)   __%     Fixed  Assets  to  Equity  Ratio     __%     Return  on  Assets  Percentage     __%     Return  of  Equity  Percentage     __%     Credit  Risk     Maximum  NPL  ratio   __%     Maximum  loan  size   K__  million     Related  Party  Exposure  Limit   ≤__%  of  capital     Single  Borrower  Limit   ≤__%  of  capital     Max  Sector  Limit(s)   __%     Prohibited  Industry  /  Sector  Limit   Zero     Portfolio  in  balloon  payment  /  unequal   __%  gross     installment     loan  portfolio   __%  gross     Individual  branch  portfolio   loan  portfolio   __%  gross     Rescheduled  loan  ratio   loan  portfolio   Write-­‐off  ratio     __%     Market  Risk     Single  Currency  FX  Risk  Ratio     __%     Aggregate  FX  Risk  Ratio     __%     Interest  Rate  Risk     -­‐__%  to  __%     Aggregate  Interest  Rate  Risk     -­‐__%  to  __%     Operational  Risk     Total  annual  operational  risk  losses  (e.g.     TBD   fraud,  errors,  negligence,  system  failures)   Compliance  or  Regulatory  Violations   Zero     Liquidity  Risk     Liquidity  Ratio   __%     FX  Maturity  Gap  Ratio     -­‐__%     Aggregate  Negative  Maturity  Gap  Ratio     -­‐__%     Funder  Covenants                             133 134 Implementing Corporate Governance Practices IV BECOMING A CORPORATE GOVERNANCE LEADER 135 (The following continues the story of the fictional ‘Clients First MFI’.) Several more years passed, and Clients First MFI continued expanding their business. They now had 14 branches including three in rural areas and were serving 75,000 clients. They continued their strong focus on clients and reported very high repayment and client retention rates. They were also now generating profits and were using those profits to reinvest in the business to grow further. Their application to mobilize deposits was eventually accepted. After an extensive search, the board of Clients First MFI hired an external CEO with microfinance banking experience. She had previously run a small microfinance bank in another part of Asia. In the beginning, the relationship between the board and the new CEO was challenging. It took them some time to find a balance between the authority of the Board and the CEO. The corporate governance practices they put in place were helpful, however, a great deal of effort and strong communication with the CEO was necessary to ensure they were followed. After a couple of years, the board started to become much more comfortable with their oversight role and were excited with the results they were seeing with the MFI. It was at this time, that Clients First MFI decided to embark on a third phase of improvements to their corporate governance. This time it was in view of applying for a banking license sometime in the future. They realized that in order to meet the capital requirements they would need to attract new shareholders. They knew as well that they would need more advanced corporate governance practices – ones that were aligned with international best practices. In this phase, they focused on the board’s strategic and risk governance roles given their desire to eventually transform to a bank. They further decided to expand the structure of the board by adding new committees and strengthen they effectiveness by formalizing their board evaluation process and succession planning. The table below lists the additional actions they undertook to put into place more advanced corporate governance practices. Corporate Governance Actions Corporate Governance Objective 1. Commitment to Corporate Governance 1.1 Annual Corporate Governance Put in place a tool to improve accountability and help prioritize Calendar and ensure agreed activities are attended to in a timely manner 1.2 Strategic Planning Process Bring discipline to the MFI’s strategic planning process by defining the Board’s policy and approach to undertaking its responsibility to set the MFI’s strategy and business priorities 2. Structure and Functioning of the Board 2.1. Corporate Governance Committee Establish and articulate the role and responsibilities of the Corporate Governance Committee 2.2. Nomination and Remuneration Establish and articulate the role and responsibilities of the Committee Nomination and Remuneration Committee 3. Board Effectiveness 3.1 Board Evaluation Establish a process and tools, and undertake a board evaluation both as-a-whole and of individual directors 3.2 Succession Planning Establish a framework for identifying and developing the talent to fill critical roles, especially CEO, in the future or in times of crisis 4. Control Environment 4.1 Board Risk Committee Establish and articulate the role and responsibilities of the Board Risk Committee 4.2 Chief Risk Officer Appoint and define the role and responsibilities of the Chief Risk Officer 5. Disclosure, Transparency, Stakeholder Relations Stakeholder Engagement Develop strategies for stakeholder engagement 136 Implementing Corporate Governance Practices 1. Commitment to Corporate Governance Following a corporate governance calendar is a further way boards demonstrate their commitment to corporate governance. The corporate governance calendar helps boards plan ahead and ensure they fulfill their many duties. One such major responsibility is in setting the strategic direction of the organization. While management typically prepares the strategic plan, the board should have significant input in the MFI’s strategic direction, in the commitment of resources, and in oversight. To fulfil this responsibility, the board should formalize its approach and embed its strategic planning process into its annual corporate governance calendar. The following sections provide further insight into the annual corporate governance calendar and strategic planning process for MFIs. 1.1. Annual Corporate Governance Calendar An effective corporate governance calendar can be a valuable tool to assist boards and committees with their many duties. A corporate governance calendar sets out important activities which the board and management team agree typically covering the company’s fiscal year if not longer. The calendar lists each meeting, activity or deadline and who is responsible whether the board, a committee or management. The calendar should be tabled at board meeting to ensure all items are being kept on track and to ensure adequate time and resources are being dedicated to each item. The calendar should be updated as appropriate. An effective corporate governance calendar serves the following purposes: • Help the board prioritize its activities; • Assist in the allocation of the board’s limited time and resources; • Prevent critical items from being overlooked; • Ensure adequate notice and improve attendance of board and committee meetings by establishing meeting dates well in advance; • Provide ample time to complete important work by establishing deadlines; • Help ensure compliance with all external and internal regulations; and • Avoid confusion and duplication of efforts by clearly identifying the responsible parties in fulfilling the board’s objectives from a governance perspective. The board and its committees have many duties to fulfill. The following is a list of possible board tasks that may be incorporated into the annual corporate governance calendar with timelines and responsible parties. A board may identify different or additional tasks which should also be included. • Meetings of the board and board committees • Annual review of governance framework: o mission, vision and code of ethics; o corporate governance structure and policies; o board and committee charters; o delegation of authority matrix; and o succession plans. • Board nominations, orientation, and reorganization • Internal and external compliance matters: o appointment of external auditors; 137 o review of the audited financial statements; o filing of the annual return; and o calling and holding a GMS. • Strategic planning: o Board and management strategic planning session; o Approval and annual plans and budgets; o Establish CEO [senior management] performance objectives; and o [Quarterly] monitoring of key milestones. • Review of remuneration framework and outcomes • Review of risk appetite, risk limits, and risk profile • Public and stakeholder communications • Performance evaluations: o Board as a whole and individual directors; and o CEO [senior management]. • Board training and continuing education events, site visits • Other urgent issues requiring board attention The board corporate governance committee may delegate the responsibility of developing the annual corporate governance calendar and ensuring that it is followed. The corporate secretary is often responsible for managing it and coordinating with the appropriate individuals to help ensure that activities occur in a timely manner and appropriate follow up is made for any outstanding items. A commitment to following a corporate governance calendar helps boards engage more strategically rather than simply reacting to issues as they arise. 1.2. Strategic Planning Process The microfinance industry is currently undergoing rapid change. The 2018 Finance for All survey (previously, Microfinance Banana Skins survey) has found technology risk and strategy to be the top two risks facing financial service providers in the business of financial inclusion.44 Given this reality, the board’s role in setting strategy and in strategic oversight has become ever more critical. MFI boards that take this responsibility seriously can be extremely instrumental in identifying the need for innovation and change and assist the organization in making such changes. A formal strategic planning process provides an institution the following opportunities: • reflect on the institution’s mission, vision and desired financial and social outcomes; • critically review its past and current performance identifying both strengths and weakness; • assess where the market is headed and opportunities that exist; • establish broad goals and objectives; • identify the barriers, obstacles, weaknesses and threats the MFI will need to overcome to successfully achieve its goals; • determine what changes or innovations are required for the institution in the future; 44 “Finance for all: Wedded to Fintech, for better or worse.” A CSFI ‘Banana Skins’ survey of the risks in financial inclusion, (United Kingdom: Centre for the Study of Financial Innovation, August 2018). 138 Implementing Corporate Governance Practices • identify key requirements and resources going forward; and • establish metrics and a monitoring plan. The ultimate outcome of a strategic planning process is a three to five-year business plan which defines the specific social and financial objectives an MFI seeks to achieve and the path to achieve them. Specifically, the plan outlines markets served, growth, product offerings, product delivery, channel development, marketing, staffing, technology requirements, funding, risk management and related systems. The business plan should be reviewed annually by management and the board to keep it relevant and current, especially in light of potentially rapid changes in the market. A more detailed operating plan and budget covering similar subject matter is prepared on an annual basis as well. The following are key elements that may be incorporated into the strategic planning process and included in the annual corporate governance calendar: • Board and Management strategic planning session to discuss the following: o the vision, mission and long-term direction of the organization; and o environmental issues examining regulatory, political, economic, social, and technological factors in the broader context in which the MFI operates; o strategic, operational, financial strengths and weaknesses; o external and competitive issues, opportunities and challenges; and o various strategic alternatives selecting those which will enable the MFI to be most effective in serving its clients and eliminating others. • Management updates the MFI’s business plan and sets operational and financial performance goals and tactical plans with a focus on: o balance sheet growth; o income and expenses; o capital plan; o marketing plan; o human resources plan; o technology plan; and o social performance plan. • Preparation of annual operating plan and budgets; • Annual budget presentation to board for approval; • Identification, prioritization and assignment of short-term projects and actions to implement tactical plans; • Project status monitoring and reporting to senior management; • Quarterly reporting to the board by management of operational and financial performance, and performance of annual operational plan and project; and • Annual collection of feedback from stakeholders including clients, staff, business partners, suppliers, vendors, funders, regulators, among others. There is no single approach to a strategic planning process and many ways to develop a strategic plan. In all cases, the clients and the company’s mission and vision should be kept at the forefront. 139 2. Structure and Functioning of the Board As MFIs expand they often form new committees to support the governance work of the board. Two such committees are the board governance committee and the nomination and remuneration committee. At times, these two committees are combined. 2.1. Corporate Governance Committee A corporate governance committee is a committee of the board whose purpose is to assist the board in ensuring that an appropriate corporate governance system is in place to support the board’s overall stewardship responsibility and the discharge of its obligations to the shareholders of the company. The corporate governance committee typically has the following responsibilities: • Develop board director and board officer duties and responsibilities descriptions; • Advise on board committee structure and mandates/terms of reference and qualifications for membership on such committees; • Facilitate director orientation and board training/development programs; • Lead board evaluation processes; • Assist the board in developing the company’s corporate governance policies; • Monitor and review the effectiveness of the company’s corporate governance practices, including those related to environmental and social aspects; and • Establish the annual corporate governance calendar and ensuring that it is followed. A sample corporate governance committee charter is attached as Annex IV. A. 2.2. Board Nomination and Remuneration Committee A board nomination and remuneration committee is a committee of the board whose purpose is to assist the board in ensuring that the board and executive management retain an appropriate structure, size, and balance of skills to support the strategic objectives of the MFI. The nomination and remuneration committee is responsible for the following: • Review and recommend to the board the size and composition of the board; • Make recommendations to the board on the criteria for board nomination, including assessment of necessary and desirable competencies of potential board nominees; • Propose to the board any candidate who might qualify as a member of the board, to be submitted to the GMS; • Oversee arrangements for executive appointments; • Assist the board regarding the determination, implementation and oversight of executive remuneration arrangements; • Assist the board by reviewing and making recommendations in respect of the remuneration policies and framework for all staff; and • Review and approval of the board succession plan and the succession plans for the board chair and senior management, as well as the CEO emergency succession plan and CEO search process, as required. 140 Implementing Corporate Governance Practices A sample board nomination and remuneration committee charter is attached as Annex IV. B. 3. Board Effectiveness Hallmarks of an effective board are that they have developed their corporate governance practices to the point that they conduct annual board performance reviews and have a succession plan in place for the CEO. These elements are considered among corporate governance best practices, namely (i) the performance of the board as well as each individual director is reviewed annually, and (ii) the company has an established succession plan for the CEO and has an emergency succession plan in place. These two issues are addressed further in the following sections. 3.1. Board Evaluation To be effective, board members should have the necessary resources to develop and maintain their knowledge, skills, and expertise. Training programs based on periodic evaluations of the board and its members play a fundamental role in meeting this need. It is important that the board conduct performance evaluations on a regular basis through self- evaluation, confidential peer evaluation, or evaluation by an external party. The collective results of the board performance evaluations should be disclosed in the company’s annual reports. Self- evaluation serves as a useful tool for the board to assess the quality of its work. Through critical reflection and self-evaluation, board members can be more responsive to shareholders, investors, and other stakeholders. Self-evaluation methods may include: • Organizing a retreat and inviting an outside facilitator; • Organizing a special board meeting to evaluate the work of the board or, alternatively, setting aside time during a regular meeting to address performance issues; • Designing checklists that board members can use to assess their work; and • Participating in specialized training programs, thereby providing directors the opportunity to critically reflect on their performance and develop and share ideas. Evaluations can generate important insights into the strengths and weaknesses of the board and its members. This information is useful to assist the board to identify areas of weakness and where further training may be needed. Corporate governance training can be particularly valuable for companies that operate in transitional economies, where board members need to stay abreast of frequent changes to the legal and regulatory framework as well as best practice standards. All this makes a company’s education and training policy a key factor for success in developing and supporting a competent, knowledgeable, and vigilant board. Sample individual board director evaluation and board as a whole evaluation tools are attached as Annexes IV. C and D, respectively. 3.2. Succession Planning The board, or its nomination and remuneration committee if it has one, should establish a clear policy for the succession of board directors, the chair and CEO to support long-term business sustainability. Succession plans for CEOs should consider both planned departures, for example, retirement, or 141 emergency situations such as leave without notice, medical emergency, or untimely death. In order to ensure that appropriate senior management expertise is maintained, it is important to plan for an orderly development and/or transfer of necessary skills and knowledge of key employees through training and personal development initiatives for identified succession candidates. This is particularly important for key positions such as CEO that are not easily replaced in the marketplace. A sample emergency succession plan policy and a sample succession planning process policy are attached as Annexes IV. E and F, respectively. 4. Control Environment: Risk Management Successful management of risk is central to the success of all organizations. The practice of risk management has evolved significantly from its original emphasis on operational risks. Key differentiators of the recent international standards on risk management (such as ISO 31000:2009 and COSO Enterprise Risk Management—Integrating with Strategy and Performance) from traditional risk management are the linking of key risks into an organization’s strategic objectives, the expansion of responsibility for managing risks across the organization, and a broader definition of risk as “the effect of uncertainty on objectives”, which therefore includes strategic, reputational, financial, or ICT risks, among others, as opposed to focusing solely on operational risks. Enterprise risk management is a particularly relevant approach to managing risk for financial institutions. As defined by COSO, enterprise risk management is the culture, capabilities, and practices that organizations integrate with strategy-setting and apply when they carry out that strategy, with a purpose of managing risk in creating, preserving, and realizing value.45 Enterprise risk management is a comprehensive and holistic approach to managing risk focusing on: (i) the practices management puts in place to proactively manage risk, (ii) strategy-setting, governance and risk culture, and stakeholder engagement in addition to business risks and internal controls, (iii) reviewing performance and continuously improving enterprise risk management practices. The COSO Enterprise Risk Management Framework is a set of principles organized into the five interrelated components46 as listed below which can be applied by organizations of any size. • Governance and culture. Sets the tone and reinforces the importance of and establishing oversight responsibilities of enterprise risk management. • Strategy and objective-setting. Enterprise risk management is made an integral to the strategic planning process, risk appetite is aligned with strategy, and business objectives are the basis for identifying, assessing, and responding to risk. • Performance. Risks are identified, prioritized and responded to on the basis of strategy and business objectives. • Review and revision. Enterprise risk management components and practices are reviewed and revised on the basis of institutional performance. • Information, Communication, and Reporting. Enterprise risk management requires a continual process of gathering and communicating risk information throughout the organization. The board is ultimately responsible for determining the nature and extent of risks that an organization is willing to take to achieve its strategic objectives and for ensuring that these risks are identified and managed properly. Risk management is one of the board’s most important functions. The board 45 Enterprise Risk Management – Integrating with Strategy and Performance: Executive Summary (Committee of Sponsoring Organizations of the Treadway Commission (COSO), June 2017). 46 Ibid, 6. 142 Implementing Corporate Governance Practices should ensure the MFI maintains systems which enable it to assess and mitigate risks. Among other things, the board should: • Set the MFI’s risk appetite in the pursuit of its strategic objectives; • Approve risk management procedures and monitor the MFI’s compliance with these procedures (the procedures should require the company and its employees to notify the board promptly of any substantial deficiency in risk management mechanisms); • Review and evaluate the effectiveness of risk management and internal controls on a regular basis; • Develop adequate incentives for the executive bodies, departments, and employees to apply internal control systems; • Establish a risk management committee if necessary; and • Ensure the MFI complies with laws and regulations as well as its constitution. The board delegates to the CEO and senior management the primary ownership and responsibility for managing risk. In turn, management establishes adequate line functions including monitoring and assurance functions. The ‘Three Lines of Defense’ model as shown in the diagram below is a standard approach to managing risk within financial institutions. Figure 7 The Three Lines of Defense 1st Line of Defense 2nd Line of Defense 3rd Line of Defense Day-to-day risk management, Risk oversight, policy Independent assurance control & decision-making formulation & methodology review Risk Management Audit Committee Management Board Committee Chief Risk Officer/ Chief Compliance Executive-Level Risk Officer Internal Audit Committees Risk Management Department/ Compliance Business Units External Audit Department The model enhances the understanding of risk management and control by clarifying roles and duties as follows: • First Line of Defense: Operations/Internal Control. Heads of departments, field managers and staff who have day-to-day ownership and management over risks and controls. • Second Line of Defense: Risk Management. Compliance, legal and enterprise risk management functions that establish policies and procedures and support senior management to ensure that risks and controls are properly managed by the first line. 143 • Third Line of Defense: Internal Audit. The internal audit function provides independent assurance to senior management and the board that the first and second lines’ efforts are consistent with expectations. MFIs should implement the model in way that is suitable to their size, nature and the complexity of their operations. Implementation of all three lines of defense represents sound practice. When applied properly, the three lines of defense work in concert to ensure that the company proactively manages risk and achieves its strategy and objectives. Within the context of an MFI’s overall risk management framework, the following sections focus on the establishment of the Board Risk Committee and the Chief Risk Officer and their respective roles and responsibilities. 4.1. Board Risk Committee A board risk committee is a committee of the board whose purpose is to assist the board in setting the risk governance structure, determining levels of risk tolerance, and monitoring key risk indicators and results regularly and reviewing the adequacy and effectiveness of risk management and internal control systems. The board may establish a board risk committee that should be charged with:47 • Overseeing the risk management infrastructure. The full board may oversee the organization’s risk management infrastructure, or this oversight responsibility can be delegated to the board risk committee, rather than to the audit committee; • Addressing risk and strategy simultaneously. The board risk committee should address risk management and governance when strategies for growth and value creation are being created and management decisions are being made. The purpose of this responsibility is to promote risk taking for reward in the context for practicing sound risk governance; • Assisting with risk appetite and tolerance. The board risk committee can assist, establish, communicate, and monitor the risk culture, risk appetite, risk tolerances, and risk utilization of the MFI at the enterprise and business units; • Monitoring risks. The board risk committee should assist in assessing and monitoring the MFI’s compliance with the risk limit structure and effective remediation of noncompliance on an ongoing and enterprise-wide basis; • Overseeing risk exposures. The board risk committee should consider the full range of risks and potential interactions among risks, including risk concentrations, escalating and de- escalating risks, contingent risks, and inherent and residual risk; • Advising the Board on risk strategy. The board creates the risk committee to serve as a repository of information and expertise on risk and to advise the Board on risk strategy; • Approving management risk committee charters. The board risk committee may consider and approve the charters of any management risk committee; • Overseeing the CRO. The board or its risk committee should hire, evaluate, and determine the compensation of the CRO and establish ongoing communication with the CRO; and • Consulting with external experts. The board risk committee should consider having access to external expert advice regarding risk and risk governance and management in the form of meetings, presentations, verbal or written briefings, or assignments commissioned by it. Members of the risk committee need experience in the industry in which the company is active. 47 Adapted from “Risk Culture, Risk Governance, and Balanced Incentives: Recommendations for Strengthening Risk Management in Emerging Markets Banks,” (Washington, D.C.: International Finance Corporation, August 2015). 144 Implementing Corporate Governance Practices However, the committee will likely benefit from having members with other areas of expertise such as risk management, finance, and operations. The committee should consist primarily of board members, but the company may appoint professionals from outside of the company if needed. A sample board risk committee charter is attached as Annex IV. G. 4.2. Chief Risk Officer The Chief Risk Officer (CRO) implements the execution of the company’s risk management framework as a key facilitator to achieving the business objectives of the organization with regard to risk and compliance matters. The CRO will be a member of the senior management of the MFI and will be expected to work with the senior management to ensure that the MFI’s overall business objectives are fully met. Unlike the internal auditor, the CRO will report directly to the CEO rather than the board or board committee unless otherwise required by law in certain jurisdictions. Responsibilities of the CRO: • Assist the Board and senior management to establish and communicate the MFI’s risk management principles, objectives and direction to staff; • Assist the CEO and the Risk Management Committee to develop and communicate risk management policies, risk appetite / tolerance level and risk limits on different corporate activities; • Implement appropriate risk reporting to the CEO, Risk Management Committee, and full Board; • Work with management in developing risk mitigation measures to address the MFI’s key risks and to monitor their effectiveness; • Establish policies and procedures, risk metrics, risk reports and improvements in risk readiness through communication, training, and risk-based performance management systems; • Set the strategic risk management vision and deliver that strategy to the MFI; • Facilitate enterprise-wide risk assessments and monitor priority risks across the MFI; • Promote an environment that supports transparency and the MFI’s key risk-return objectives; • Implement appropriate systems, controls, and reporting to ensure risk can be managed effectively and in a cost-effective manner; • As a key member of the senior management team, help develop strategy in a manner that integrates risk management and controls; • Work with business units to establish, maintain and continuously improve risk management capabilities; • Work with the Head of Internal Audit and the Chief Financial Officer to ensure alignment between the risk management process and internal audit and risk financing; • Develop and champion the implementation of technologies and information systems to support risk management; and • Support the development of the risk management team, working as a mentor to direct reports. The CRO should be someone that has considerable risk management experience and credibility among internal and external stakeholders. A sample CRO Job Description is attached as Annex IV. H. 145 5. Disclosure, Transparency, Stakeholder Relations: Stakeholder Engagement IFC recognizes stakeholder engagement as a critical component of good corporate governance. Stakeholder engagement is the basis for building strong, constructive, and responsive relationships that are essential for improved business and reputational risk management, and better environmental, social and economic performance. In this context, good stakeholder relations are a prerequisite to good corporate governance. Stakeholders are persons or groups who are directly or indirectly affected by the company, as well as those who may have interests in the company and/or the ability to influence outcomes, either positively or negatively. Stakeholders may include locally communities directly affected by the company, customers and regulators, employees, contractors, and suppliers. Stakeholders also include national or local government authorities, politicians, religious leaders, civil society organizations and groups with special interests, the academic community, and other businesses. The depth of the relationship and the degree of engagement required will vary for each set of stakeholders. Stakeholder engagement is an umbrella term encompassing a range of activities and interactions with stakeholders by the MFI. These can be divided into the following eight components:48 • Stakeholder Identification and Analysis. Invest time in identifying and prioritizing stakeholders and assessing their interests and concerns. • Information Disclosure. Communicate information to stakeholders early in the decision- making process, in ways that are meaningful and accessible, and continue this communication. • Stakeholder Consultation. Plan out each consultation process, consult inclusively, document the process, and communicate follow-up. • Negotiation and Partnerships. For controversial and complex issues enter into good faith negotiations that satisfy the interests of all parties. Add value to impact mitigation or outcomes by forming strategic partnerships. • Grievance Management. Establish accessible and responsive means for stakeholders to raise concerns and grievances about the company. • Stakeholder Involvement in Project Monitoring. Involve directly affected stakeholders in monitoring project impacts, mitigation and benefits, and involve external monitors where they can enhance transparency and credibility. • Reporting to Stakeholders. Report back to stakeholders on environmental, social and economic performance, both those consulted and those with more general interests in the company. • Management Functions. Build and maintain sufficient capacity within the company to manage processes of stakeholder engagement, track commitments, and report on progress. IFC has developed a progression matrix as shown below which includes best practices in governance of engagement with stakeholders. The progression matrix can be used first to gauge an MFI’s level of progress with its governance of stakeholder engagement and then used to develop a workplan to improve the MFI’s stakeholder engagement. 48 For further discussion on each of these components see “Stakeholder Engagement: A Good Practice Handbook for Companies Doing Business in Emerging Markets,” (Washington, D.C.: International Finance Corporation, 2007). 146 Implementing Corporate Governance Practices Level 1 Level 2 Level 3 Level 4 Basic Practices Intermediate Practices Good Practices Leadership 1. Ad hoc stakeholder 1. Key stakeholders 1. Formal stakeholder- 1. Senior executive identification, including identified also include mapping process and responsible for workers, customers, local Non-Governmental expanded definition of stakeholder regulators, and the Organizations (NGOs) stakeholders includes relationships, including locally Affected and Civil Society contracted workers, ensuring integration Community. Organizations (CSOs). primary supply chain with strategy and target workers, neighboring setting. 2. HR policy and 2. Established Stakeholder projects, and procedures for worker Engagement (SE) policy international NGOs and 2. Issues raised through engagement. and strategy. CSOs. grievance mechanism for workers are analyzed 3. Informal response to 3. Basic grievance 2. Effective grievance and resolved with the stakeholder requests mechanism for workers. mechanism for workers participation of a worker and concerns. (including contracted representative. 4. External Communications workers). 3. Commitment to Mechanism for 3. Well-defined SE policy, stakeholder engagement stakeholder questions strategy, and procedure visible to staff, and complaints, and with stakeholder contractors, suppliers, if there are Affected analysis, differentiated and collaborators Communities, a approaches for via codes of conduct grievance mechanism is priority groups, setting out expectations established. iterative disclosure for stakeholder and consultation interactions and human requirements, and rights. reporting. 4. Periodic analysis of 4. External and grievances to identify publicly accessible trends and root causes communication is conducted by senior procedure to (a) receive management. and register external communication from 5. Senior management the public; (b) assess participate actively in issues raised and international industry determine response; (c) discussions on related provide and document topics. responses, if any; 6. SE practices and (d) adjust the incorporated into management program, requirements for as appropriate. primary suppliers. 5. Grievance mechanism 7. SE and reporting facilitates the resolution consistent with of concerns from international standards Affected Communities. (AA 1000 Standards 6. Designated worker and on Stakeholder Affected Communities Engagement and engagement personnel Accountability Principles with clearly defined and ISO 26000). responsibilities, 8. SE activities and adequate training, and outcomes included in reporting lines to senior board decision making management and the and external reporting board. procedures. 7. SE practices are incorporated into requirements for contractors. 8. Unresolved stakeholder issues require a management action plan. 147 List of Chapter IV Annexes IV. A. Sample Corporate Governance Committee Charter IV. B. Sample Nomination and Remuneration Committee Charter IV. C. Sample Board Director Evaluation Tool IV. D. Sample Board as A Whole Evaluation Tool IV. E. Sample Emergency Succession Plan Policy IV. F. Sample Succession Plan Process Policy IV. G. Sample Risk Committee Charter IV. H. Sample CRO Job Description 148 Implementing Corporate Governance Practices CHAPTER IV ANNEXES ANNEX IV. A ANNEX  A:  SAMPLE  CORPORATE  GOVERNANCE  COMMITTEE  CHARTER   ANNEX IV. A: SAMPLE CORPORATE GOVERNANCE COMMITTEE CHARTER         [NAME  OF  MFI]     CORPORATE  GOVERNANCE  COMMITTEE  –  TERMS  OF  REFERENCE     1. Establishment   The  board  of  [name  of  MFI]  (the  "company")  hereby  agrees  and  establishes  the  corporate  governance   committee  of  the  board  (the  "Committee"),  with  all  the  authority,  powers  and  duties  delegated  to  it  by   law,  the  company’s  constitution,  internal  regulations,  resolutions  of  the  board,  and  its  charter.     2. Purpose   The   board   establishes   the   Committee   to   assist   the   board   in   ensuring   that   an   appropriate   corporate   governance   system   is   in   place   to   support   the   board’s   overall   stewardship   responsibility   and   the   discharge  of  its  obligations  to  the  shareholders  of  the  company.   3. Composition   The  committee  shall  consist  of  a  minimum  of  three  (3)  directors  elected  annually  by  and  from  the  board,   one  (1)  of  whom  shall  be  the  board  chair.  The  members  of  the  Committee  shall  consist  only  of  directors   of   the   company.   The   members   of   the   Committee   shall   be   appointed   by   the   board   during   the   board   meeting   held   immediately   after   the   decision   of   the   board   to   create   the   Committee   or   at   the   meeting   immediately  after  the  election  of  directors  at  the  general  meeting  of  shareholders.   The  Committee  members  shall  serve  until  their  successors  shall  be  duly  designated,  qualified  and  accept   their  appointment.  Any  Committee  member  may  be  removed  at  any  time,  with  or  without  cause,  by  a   majority  of  the  board.  Any  vacancy  in  the  membership  of  the  Committee  shall  be  filled  by  appointment   by  the  board.     4. Meetings     Meetings   of   the   Committee   shall   be   held   at   the   call   of   the   Committee   chair   or   a   majority   of   the   Committee   members.   Each   Committee   member   will   have   one   (1)   vote.     Meetings   will   be   held   as   required   but   at   least   four   (4)   times   per   year.   Meetings   may   be   conducted   with   members   present   in   person,  or  by  telephone  or  other  communications  facilities  that  permit  all  persons  participating  in  the   meeting  to  hear  or  communicate  with  each  other.  A  quorum  shall  be  a  majority  of  the  members  of  the   Committee.  The  meeting  shall  be  presided  by  the  Committee  chair  or  in  his/her  absence  by  a  designated   member.  One  of  the  members  of  the  Committee  shall  serve  as  secretary.       5. Duties  and  responsibilities     The  Committee  shall  have  the  functions  and  responsibilities  set  out  below,  as  well  as  any  other  matters   that  are  specifically  delegated  from  time  to  time,  to  the  Committee  by  the  board.    The  Committee  shall   review  and  assess  its  charter  and  performance  on  an  annual  basis  and  make  recommended  changes  to   its  charter  for  board  approval  as  appropriate.   149 ANNEX IV. A The  Committee  shall  develop,  oversee  and  monitor  implementation  of  company’s  corporate  governance   structures,   policies   and   processes   to   optimize   the   board’s   capacity   for   governance   excellence.   This   includes  the  following  responsibilities:     • Develop  board  director  and  board  officer  duties  and  responsibilities  descriptions;     • Advise   on   board   committee   structure   and   mandates/terms   of   reference   and   qualifications   for   membership  on  such  committees;   • Facilitate  director  orientation  and  board  training/development  programs;     • Lead  board  evaluation  processes;     • Assist  the  board  in  developing  the  company’s  corporate  governance  policies;     • Monitor   and   review   the   effectiveness   of   the   company’s   corporate   governance   practices,   including  those  related  to  environmental  and  social  aspects;  and   • Establish  the  annual  corporate  governance  calendar  and  ensuring  that  it  is  followed.     In   addition,   the   Committee   will   be   responsible   for   leading   and/or   ensuring   delivery   of   the   following   processes,  together  with  the  evaluation  of  their  effectiveness:     • annual  director  orientation  session  as  per  board  policy  on  the  same;     • annual  board  training/development  program;  and     • annual  board  evaluation  processes  as  per  board  policy  on  the  same  (and  resulting  development   of  governance  changes  necessary  to  address  such  board  evaluation  outcomes).     The  Committee  will  be  further  responsible  for:     • recommending  to  the  board  the  agenda  and  format  of  the  annual  board/management  strategic   planning  session;     • monitoring   the   quality   of   the   relationship   between   the   board   and   CEO/management   to   recommend  improvements  for  effective  and  appropriate  working  relationships;     • consider   the   engagement,   at   the   company’s   expense,   of   outside   advisors   for   corporate   governance  matters;  and     • On  an  annual  basis,  reviewing  the  budget  for  expenditures  related  to  the  board  and  monitoring   its  use.     6. Other  Duties     The  Committee  will  be  responsible  for  such  other  tasks  and  duties  as  assigned  by  the  board  in  relation  to   the  board’s  corporate  governance  framework.     7. Reporting     Minutes   shall   be   kept   of   the   proceedings,   recommendations,   and   decisions   of   all   meetings   of   the   Committee.  The  Committee,  through  its  chair,  shall  report  to  the  board  at  the  next  board  meeting  after   each  Committee  meeting.  Minutes  of  the  Committee  meeting  shall  be  submitted  to  the  board.       150 Implementing Corporate Governance Practices ANNEX IV. B ANNEX IV. B: SAMPLE NOMINATION AND REMUNERATION COMMITTEE ANNEX  B:  SAMPLE  NOMINATION  AND  REMUNERATION  COMMITTEE  CHARTER   CHARTER         [NAME  OF  MFI]     NOMINATION  AND  REMUNERATION  COMMITTEE  CHARTER     1. Establishment   The   board   of   [name   of   MFI]   (the   "company")   hereby   agrees   and   establishes   the   nomination   and   remuneration   committee   of   the   board   (the   "Committee"),   with   all   the   authority,   powers   and   duties   delegated  to  it  by  law,  the  company’s  constitution,  internal  regulations,  resolutions  of  the  board,  and  its   charter.     2. Purpose   The   board   establishes   the   Committee   to   assist   the   board   in   ensuring   that   the   board   and   executive   management   retain   an   appropriate   structure,   size,   and   balance   of   skills   to   support   the   strategic   objectives   of   the   company   and   fulfill   its   statutory,   fiduciary   and   regulatory   responsibilities   and   the   requirements  of  shareholders.   3. Composition     The  Committee  shall  be  composed  of  at  least  three  (3)  members  of  the  board  including  at  least  one  (1)   independent  director,  who  shall  serve  as  the  Committee  chair.  The  members  of  the  Committee  shall  be   appointed  by  the  board  during  the  board  meeting  held  immediately  after  the  decision  of  the  board  to   create   the   Committee   or   at   the   meeting   immediately   after   the   election   of   directors   at   the   general   meeting  of  shareholders.   The  Committee  members  shall  serve  until  their  successors  shall  be  duly  designated,  qualified  and  accept   their  appointment.  Any  Committee  member  may  be  removed  at  any  time,  with  or  without  cause,  by  a   majority  of  the  board.  Any  vacancy  in  the  membership  of  the  Committee  shall  be  filled  by  appointment   by  the  board.     4. Meetings     Meetings   of   the   Committee   shall   be   held   at   the   call   of   the   Committee   chair   or   a   majority   of   the   Committee  members.  Each  Committee  member  shall  have  one  (1)  vote.    The  Committee  shall  meet  as   required.   Meetings   may   be   conducted   with   members   present   in   person,   or   by   telephone   or   other   communications  facilities  that  permit  all  persons  participating  in  the  meeting  to  hear  or  communicate   with  each  other.  A  quorum  shall  be  a  majority  of  the  members  of  the  Committee.  The  meeting  shall  be   presided  by  the  Committee  chair  or  in  his/her  absence  by  a  designated  member.  One  of  the  members  of   the  Committee  shall  serve  as  secretary.     151 ANNEX IV. B 5. Duties  and  responsibilities     The  Committee  shall  have  the  functions  and  responsibilities  set  out  below,  as  well  as  any  other  matters   that  are  specifically  delegated  from  time  to  time,  to  the  Committee  by  the  board.    The  Committee  shall   review  and  assess  its  charter  and  performance  on  an  annual  basis  and  make  recommended  changes  to   its  charter  for  board  approval  as  appropriate.     Director  Nominations  Process     The   Committee   is   responsible   for   overseeing   the   director   nominations   process   for   members   of   the   board  of  directors.  As  such,  the  Committee  shall:     • Recommend  criteria  and  processes  for  the  selection  of  board  members;     • Identify   specific   skill   gaps   needed   to   be   filled   on   the   board   and   develop   recommendations   for   shareholders  on  the  strategic  competencies  to  be  considered  when  nominating  a  director;     • Review  and  evaluate  the  qualifications  of  all  persons  nominated  to  the  board;  and   • Recommend   the   slate   of   nominees   to   the   board   for   approval   and   presentation   to   the   shareholders  for  election.       CEO  [Senior  Management]  Nomination  and  Performance  Management  Process     The   Committee   is   responsible   for   overseeing   the   nomination   and   annual   performance   management   process  of  the  CEO  [senior  management  team].  As  such,  the  Committee  shall:     • As   required,   undertake   a   CEO   [senior   management]   search   process   to   identify   potential   candidates,  review  and  evaluate  their  qualifications,  and  make  recommendations  to  the  board;   • Develop   framework   for   the   CEO   [senior   management]   performance   evaluation   process,   linked   to  corporate  strategy,  and  update  as  necessary;   • Oversee   the   annual   CEO   [senior   management]   performance   management   process   in   conjunction  with  the  board  chair;  and   • Recommend  to  the  board  on  an  annual  basis,  a  total  compensation  package  and  incentive  plan   for  the  CEO  [senior  management].   Human  Resources  Policy     The  Committee  is  responsible  for  oversight  of  the  design  and  operation  of  the  staff  remuneration  and   incentives   policy.   This   includes   (i)   review   of   staff   remuneration   framework,   incentives   and   benefits   programs   to   ensure   alignment   with   the   company’s   strategic   priorities,   code   of   ethics   and   risk   profile;   and  (ii)  an  annual  review  of  processes  and  outcomes  to  ensure  policy  objectives  are  met.     Succession  Planning     The  Committee  is  responsible  for  the  review  and  approval  of  the  board  succession  plans  and  succession   plans  for  the  board  chair  and  CEO  [senior  management],  as  well  as  the  CEO  emergency  succession  plan.   Within  this  area  of  responsibility,  the  Committee  shall  maintain  a  record  of  the  most  recently  approved   succession  plans.     6. Other  Duties     The  Committee  shall  be  responsible  for  such  other  tasks  and  duties  as  assigned  by  the  board.       152 Implementing Corporate Governance Practices ANNEX IV. B 7. Reporting     Minutes   shall   be   kept   of   the   proceedings,   recommendations,   and   decisions   of   all   meetings   of   the   Committee.  The  Committee,  through  its  chair,  shall  report  to  the  board  at  the  next  board  meeting  after   each  Committee  meeting.  Minutes  of  the  Committee  meeting  shall  be  submitted  to  the  board.     153 ANNEX IV. C ANNEX IV. C: SAMPLE BOARD DIRECTOR EVALUATION TOOL ANNEX  C:  SAMPLE  BOARD  DIRECTOR  EVALUATION  TOOL     Numbers  to  be  entered  into  each  box  which  in  your  opinion  best  describes  the  performance  of  the  Board   Director  in  the  past  year.  To  be  completed  by  each  director  on  a  confidential  basis.       Rating  Key:           4=excellent/very  strong                                                                  2=some  development  required                                                 3=meets  expectation/good                                            1=  significant  work  needed       Meeting  Preparation       Specific  Competency   Overall  Contribution   Industry  Knowledge   Active  Participation   Business  Judgment   Strategic  Vision   Team  Player   Professional   Attendance   Experience   Integrity   Self-­‐assessment                                               Director  2                                               Director  3                                               Director  4                                               Director  5                                                         154 Implementing Corporate Governance Practices ANNEX IV. D ANNEX IV. D: SAMPLE BOARD AS A WHOLE EVALUATION TOOL ANNEX  D:  SAMPLE  BOARD  AS  A  WHOLE  EVALUATION  TOOL     Mark  the  box  which  in  your  opinion  best  describes  the  performance  of  the  Board  in  the  past  year.   Rating  Key:           4=excellent/very  strong                                                                  2=some  development  required                                                 3=meets  expectation/good                                            1=  significant  work  needed       Section  I:  Authorities  and  General  Information   1   2   3   4   1.  Is  the  board  focusing  on  protecting  the  interests  of  the  company  and  all  of  its           members?   2.  How  would  you  rate  the  board's  consideration  of  member  value  in  its  decision-­‐         making  process?   3.  Do  you  feel  that  the  board  understands  its  role,  authority  and  priorities?             4.  To  what  degree  is  the  boards’  authority  distinct  from  that  of  the  CEO  and  the           general  assembly  in  practice?   5.  Does  the  board  know  and  understand  the  company's  values,  mission  and  strategic           and  business  plans,  and  reflect  this  understanding  on  key  issues  throughout  the  year?   6.  How  effective  is  the  board  in  guiding  and  setting  strategy?           7.  Does  the  board  have  the  tools  to  properly  oversee  the  operational  and  financial           performance  of  the  company?   8.  Is  the  board  doing  a  good  job  in  evaluating  the  CEO?           Comments:             Section  II:  Composition   1   2   3   4   1.  Does  the  board  have  the  right  size,  i.e.  is  the  number  of  board  members  consistent           with  the  needs  of  the  company?   2.  How  effective  is  the  chairman’s  leadership,  both  at  the  board  and  committee  levels?             3.  Has  the  board  designed,  articulated  and  implemented  policies  related  to  its           composition  (size,  composition  and  mix  of  skills,  breadth  of  experience  and  other   pertinent  qualities)?   4.  Is  the  board’s  composition  (in  terms  of  competencies  and  mix  of  skills)  suited  to  its           oversight  duties  and  the  development  of  the  company’s  strategy?   5.  How  effectively  does  the  board  work  together,  for  example  is  the  board  effective  as           a  team,  or  are  directors  encouraged  to  voice  dissenting  opinions?   6.  Do  you  feel  that  the  company’s  independent  directors  are  truly  independent?           Comments:             Section  III:  Structure  and  Committees   1   2   3   4   1.  Does  the  board  have  an  appropriate  number  of  committees?           2.  How  effective  do  you  believe  the  board’s  committees  to  be,  that  is  do  they  provide           useful  recommendations  allowing  for  better  decision-­‐making,  and  do  they   consequently  make  board  meetings  more  efficient  and  effective?   3.  Do  you  feel  that  members  of  the  _______  committee  have  sufficient  expertise  on           ________  issues?   Comments:           155 ANNEX IV. D   Section  IV:  Working  Procedures   1   2   3   4   1.  How  well  has  the  board  identified,  prioritized  and  scheduled  key  issues  that  should           be  reviewed  on  a  regular  basis?     2.  Is  information  on  the  various  agenda  items  provided  to  you  well  in  advance  of  board           meetings,  allowing  you  to  properly  prepare?     3.  Are  you  as  a  director  receiving  proper  information  for  good  decision-­‐making,  i.e.  is           the  information  presented  in  a  succinct  manner,  are  key  issues  and  risks  properly   highlighted  and  do  the  materials  also  contain  annexes  with  relevant  detail  for  further   study  allowing  you  to  understand  and  evaluate  board  agenda  items  and  take  effective   decisions?   4.  Are  board  meetings  conducted  in  a  manner  that  ensures  open  communication,           meaningful  participation  and  timely  resolution  of  issues?   5.  Are  the  presentations  given  to  you  during  the  board  meetings  sufficiently  clear  to           make  good  decisions?   6.  Is  the  board  meeting  time  appropriately  allocated  between  board  discussion  and           management  presentations?   7.  Do  you  have  sufficient  access  to  key  executives  outside  of  board  meetings?           8.  Has  the  board  identified  the  company’s  key  performance  indicators  to  monitor           management  performance?     9.  Does  the  financial  information  provided  to  you  prior  to  board  meetings  give  you  the           necessary  information  to  understand  the  important  issues  and  trends  in  the  business?     10.  Is  the  financial  information  presented  in  such  a  way  as  to  highlight  these  important           issues  and  trends?   11.  Does  the  board,  together  with  management,  focus  on  major  risk  issues  that  could           have  a  significant  impact  on  the  company?   12.  Does  the  board  have  a  system  for  auditing  the  other  less  significant  risk  issues  that           still  have  the  potential  under  certain  circumstances  to  influence  significantly  or   negatively  the  company's  performance?   13.  Is  the  company's  orientation  program  for  new  directors  providing  helpful           information  about  board  processes  and  the  company?   Comments:             Section  V:  Duties  and  Liabilities   1   2   3   4   1.  Have  your  duties  of  loyalty,  care  and  business  judgment  been  sufficiently           communicated  to  you?     2.  Do  the  board  members  spend  sufficient  time  learning  about  the  company's  business           and  understand  it  well  enough  to  provide  critical  oversight?   3.  Do  you  generally  believe  that  board  members  ask  appropriate,  yet  challenging  and           critical  questions  of  management?   4.  Do  directors  disclose  personal  interests  in  transactions  and  abstain  from  voting           where  appropriate?   5.  Are  you  indemnified  in  any  way?           Comments:               156 Implementing Corporate Governance Practices ANNEX IV. E ANNEX IV. E: SAMPLE EMERGENCY SUCCESSION PLAN POLICY ANNEX  E:  SAMPLE  EMERGENCY  SUCCSSION  PLAN  POLICY     [NAME  OF  MFI]   EMERGENCY  SUCCESSION  PLAN  POLICY   Effective  Date:  __________   Revised  Date:  __________   Last  Board  Review  Date:  __________         1. Objective   The   objectives   of   this   policy   are   (i)   to   provide   an   orderly   process   for   the   immediate   appointment   of   a   replacement   for   the   CEO   in   the   event   of   an   emergency   such   as   his/her   leave   without   notice,   sudden   resignation,   medical   emergency,   untimely   death   or   other   unexpected   event,   and   (ii)   to   ensure   implementation  of  an  appropriate  communication  plan  to  stakeholders.     2. Board  Responsibilities   The   continuity   of   capable   executive   leadership   of   the   company   is   important   to   staff,   clients,   business   partners,   shareholders,   and   other   stakeholders.   The   company   must   ensure   the   operations   are   not   disrupted  in  the  event  of  an  emergency  involving  the  CEO.  As  such,  the  board  establishes  the  following   practices  with  respect  to  a  CEO  emergency  succession  plan:   •The   board   shall   immediately   confirm   a   recommended   Acting   CEO   to   take   over   critical   CEO   functions  until  an  Interim  CEO  is  appointed  or  the  CEO  returns;     • The  board  shall  formally  communicate  with  staff  within  __  hours  of  the  loss  of  the  services  of   the  CEO  services;   • The  board  shall  establish  an  ad-­‐hoc  committee  from  among  its  members  to  provide  oversight,   guidance  and  support  during  the  emergency  period  and  devise  and  implement  an  internal  and   external  communications  plan;   • The  board  shall  appoint  an  Interim  CEO  with  ___  weeks  of  a  CEO  emergency;  and   • In   the   event   that   it   is   determined   the   CEO   will   never   return   to   his/her   duties,   the   board   shall   initiate  a  CEO  search  process  to  appoint  a  permanent  CEO.     3. CEO  Responsibilities   The  CEO  has  the  following  responsibilities  with  respect  to  the  emergency  succession  plan:   • annual   recommendation   to   the   board   for   the   appointment   of   an   Acting   CEO   (including   both   a   first  and  second/alternate  preference  candidate);     • internal  and  external  communications  plan  to  be  approved  by  the  board;     • a   written   plan   to   affect   the   immediate   transfer   of   signing   authority   for   financial   operations   where  the  CEO’s  signature  is  required;   • file   containing   pertinent   passwords,   security   codes   as   well   as   copies   of   work-­‐related   keys   accessible  to  a  designated  staff  person;  and   • list  of  critical  functions  and  important  deadlines  (updated  on  a  rolling  3-­‐month  basis).   157 ANNEX IV. F ANNEX IV. F: SAMPLE SUCCESSION PLAN PROCESS POLICY ANNEX  F:  SAMPLE  SUCCSSION  PLAN  PROCESS  POLICY     [NAME  OF  MFI]   SUCCESSION  PLANNING  PROCESS  POLICY   Effective  Date:  __________   Revised  Date:  __________   Last  Board  Review  Date:  __________   1. Rationale     To  ensure  that  appropriate  expertise  is  maintained  throughout  the  company,  it  is  important  to  plan  for   successful  management  and  staff  transitions  and  avoid  extended  and  costly  vacancies  in  key  positions.   This  is  particularly  important  for  key  executive  and  management  positions  that  are  not  easily  replaced  in   the  marketplace.     2. Objective   The   objectives   of   this   policy   are   to   establish   the   framework   for:   (i)   identifying,   maintaining   and   developing  key  skills  and  core  competencies  to  meet  business  objectives;  and  (ii)  identifying  succession   candidates  and  initiating  development  plans  so  that  they  have  the  necessary  knowledge  and  skills.     3. Responsibility   The  board  has  direct  responsibility  to  ensure  a  successful  succession  of  the  CEO  and  shall  maintain,  and   update  as  needed,  a  management  succession  plan  for  the  CEO.  The  CEO  has  the  principal  responsibility   for  succession  planning  for  members  of  the  management  team.  The  CEO  and  the  management  team,  in   turn,  have  responsibility  for  the  succession  of  other  managers  and  officers  within  the  company.     4. Process   The  succession  planning  of  the  CEO  is  an  ongoing  and  collaborative  effort  between  the  board  and  the   incumbent  CEO.    Management  succession  planning  is  an  ongoing  collaborative  effort  on  the  part  of  the   CEO   and   the   management   team.   Annually,   management   will   develop   a   succession   plan   for   its   senior   management.  The  plan  will  consider  such  issues  as:     • Requirements  of  the  3  to  5-­‐year  strategic  plan;     • Key  skills  and  competencies  that  need  to  be  maintained;     • Additional  skills  and  competencies  that  may  be  required;   • Demographics   of   staff,   including   timing   of   expected   staff   retirements   and   potential   turnover;   and     • Personal  development  plans  for  individuals  identified  as  succession  candidates.     Annually,  the  CEO  will  submit  a  summary  of  the  plan  to  the  nomination  and  remuneration  committee   for   review   and   ultimately   board   approval.   The   plan   shall   identify   critical   executive   and   management   positions,   forecast   vacancies   in   those   positions,   and   identify   potential   candidates   who   would   fill   vacancies   on   a   permanent   basis   or   serve   on   an   “acting”   basis   while   an   external   recruitment   effort   is   158 Implementing Corporate Governance Practices ANNEX IV. F conducted.   The   CEO   will   report   annually   to   the   board   potential   internal   candidates   based   on   their   qualifications  and  desire  for  succession  to  the  position  of  CEO.     159 ANNEX IV. G 1   ANNEX IV. G: SAMPLE RISK COMMITTEE CHARTER1     [NAME  OF  MFI]     BOARD  RISK  COMMITTEE  CHARTER       1. Purpose       • Establishing   the   MFI’s   risk   policies,   including   risk   tolerances,   consistent   with   the   risk   management   program   and   ensuring   that   senior   management   takes   the   necessary   steps   to   identify,  measure,  monitor  and  control  risk,  and  has  active  oversight  of  the  risk  exposure  of  the   MFI.     • Reviewing   the   adequacy   of   the   MFI’s   capital   and   liquidity   in   current   and   future   scenarios,   including   stress   events.   Limits   and   capital   allocated   in   accordance   with   type   of   risks   and   tolerance  across  the  MFI  and  its  business  units.       2. Composition     • The  committee  consists  of  two  (2)  independent  non-­‐executive  members  and  one  nonexecutive   member.     • The  Committee  is  chaired  by  an  independent  director.     3. Qualifications  of  Committee  Members     • Member  qualifications  below  should  also  be  considered  based  on  the  Articles  of  Association  of   the  MFI,  the  [                                      ]  Law  and  other  applicable  regulations.     • The  candidate/member  should  possess  the  knowledge  and  skills  required  to  provide  leadership   by  setting  the  vision,  principles,  values  and  strategic  plan,  and  to  supervise  management  team.   • All   committee   members   have   the   requisite   skills   and   knowledge   to   oversee   the   MFI’s   risk   management  program.   • The  members  have  the  time  and  desire  to  fulfill  their  committee  obligations.   • Periodic  professional  education/training  is  provided  for  all  committee  members.     4. Appointment  and  Term       • Appointed  by  the  Board  with  full  board  ratification  of  committee  members  where  nomination  is   by  Chair  or  Nominations  committee.     • Members  of  the  Risk  Committee  shall  be  elected  for  a  renewable  term  of  one  year.                                                                                                                                 1  Adapted  from  “Risk  Culture,  Risk  Governance  and  Balanced  Incentives:  Recommendations  for  Strengthening  Risk   Management  in  Emerging  Market  companys.”  IFC  (2015)  Annex  3.     160 Implementing Corporate Governance Practices ANNEX IV. G 5. Committee  Meetings     • Venue:  The  Risk  Committee  shall  hold  its  meetings  at  the  head  office  premises  of  the  MFI  upon   invitation  of  the  Chairperson  or  upon  the  request  of  another  member  of  the  Board.     • Frequency:  At  least  six  (6)  Committee  Meetings  shall  be  held  during  each  financial  year.     • Meetings   may   be   in   person,   by   telephone,   web,   or   other   means   of   electronic   communication   agreeable  to  the  committee.     6. Agenda     • The  Meeting  Agenda,  together  with  any  related  reports  and  materials,  will  be  circulated  by  the   Committee   Secretary   at   least   ten   (10)   days   prior   to   the   meeting.   If   the   Chair   believes   confidentiality   requires   related   to   certain   documentation/material,   in   which   case   a   general   description   of   subject   of   the   meeting   is   circulated,   with   a   statement   from   the   chair   as   to   the   reasons  for  confidentiality.   • The   Committee   may   invite   MFI’s   management,   staff   or   any   other   third   party   to   attend   the   meetings  to  obtain  information,  recommendations  and  clarifications  as  required.         7. Attendance  and  Quorum     • Quorum  is  required.  A  meeting  of  the  Committee  shall  not  be  valid  unless  it  is  attended  by  at   least  a  simple  majority  as  a  minimum.   • The  chief  of  internal  audit,  the  external  auditor  and  chief  compliance  officer  are  given  notice  of   all  meetings.   • Independent   members   of   the   committee   meet   without   executive   officers   present   at   each   committee  meeting  if  invited.     8. Reporting  to  the  Board  and  Shareholders     • The   Committee   Secretary   will   submit   written   reports   and/or   minutes   to   the   board   following   each  committee  meeting.   • The   Committee   Cahir   will   submit   an   annual   written   report   to   the   board   about   the   committee   activities.   • General  report  on  committee  activities  should  be  included  in  the  MFI’s  Annual  Report,  including   qualitative  and  quantitative  data  enabling  shareholders  and  the  public  to  understand  the  MFI’s   risk   profile   and   policies   as   well   as   information   on   environmental   and   social   risk   management   activities,   the   internal   capital   adequacy   assessment   process,   stress   testing,   and   independent   evaluation  of  risk  management  capabilities.     9. Evaluation     • The   Committee   will   evaluate   the   effectiveness   of   the   committee   including   its   processes   on   an   annual  basis.  The  periodic  evaluation  of  the  committee  charter  should  also  be  carried  out,  with  a   written  report  to  the  board  suggesting  improvements,  if  any.   161 ANNEX IV. G • The   Committee   will   engage   independent   evaluation   of   committee   effectiveness   as   and   when   needed.     10. Responsibilities   Policies  and  Procedures   • Review   and   recommend   to   the   Board,   in   conjunction   with   executive   officers,   proposed   aggregate  loss  limit  targets  for  various  risk  categories  (e.g.,  loan  losses,  operational  risk.)   • Review   the   MFI’s   risk   management   infrastructure   and   control   systems   to   ensure   adequacy   to   enforce  the  MFI’s  risk  policies.     • Ensure   that   management   (e.g.,   the   CEO   and   chief   risk   officer)   develops   a   comprehensive   risk   management   program   and   oversee   the   implementation   of   the   risk   management   program   and   reviewing  its  quality  and  soundness.   • Review  management’s  determination  of  key  balance  sheet  and  off-­‐balance-­‐sheet  risks.     • Oversee  the  chief  risk  officer  and  the  annual  plan  of  his/her  activities.   • Review  risk  exposure  and  compliance  with  limits  and  receiving  exception  reports.   • Ensure   that   the   risk   measurement   and   management   functions   have   adequate   expertise   and   resources  to  fulfill  their  responsibilities.   • Recommend   to   the   board   the   candidate   for   chief   risk   officer,   leading   the   chief   risk   officer’s   performance   assessment   and   record,   and   making   recommendations   to   the   board   on   his/her   remuneration.   • Review  and  recommend  risk  measurement  and  rating  methodologies  for  board  approval,  to  be   reported  to  regulators  (e.g.,  value  at  risk,  risk-­‐adjusted  return  on  capital,  credit  ratings,  etc.)   • Review  assumptions  in  risk  measurement  models  and  ensuring  that  model  risk  issues  have  been   properly  considered.   • Review   stress   tests   on   credit,   liquidity,   market   and   operational   risks;   approve   contingency   planning  and  capital  adequacy.   • Review  the  level  of  delegated  authority  and  make  recommendations  for  full  board  approval.     • Proactively  monitoring  “best  practice”  risk  management  developments.   • Oversee  a  periodic  review  of  the  effectiveness  of  the  environmental  and  social  risk  management   system.   • Oversee   the   engagement   of   independent   experts   to   periodically   review   the   risk   management   framework.     Specific  Risk  Reviews       • Regularly   receive   summary   risk   data   from   responsible   managers   (CEO,   chief   risk   officer)   and   comparing  that  data  with  adopted  policies.   • Regularly  receive  disaggregated  data  on  major  risk  categories  from  responsible  managers  (CEO,   chief  risk  officer).   • Receive  regular  reports  from  the  management  risk  committee.   • Receive  and  act  on  compliance  and  internal  audit  reports  relevant  to  risk  management.   • Receive  a  copy  of  the  executive  evaluation  of  the  chief  risk  officer.   • Review  reports  on  financial  compliance  issues  such  as  compliance  risk  and  money-­‐laundering   risks  (unless  specifically  reserved  for  the  audit  and  compliance  committee).   162 Implementing Corporate Governance Practices ANNEX IV. H BLUE  TITLE:  SAMPLE  CHIEF  RISK  OFFICER  JOB  DESCRIPTION   ANNEX IV. H: SAMPLE CRO JOB DESCRIPTION       [NAME  OF  MFI]     CHIEF  RISK  OFFICER  JOB  DESCRIPTION     Title:  Chief  Risk  Officer  (CRO)     Reports  to:   Chief  Executive  Officer  (CRO  has  a  “dotted  line”  reporting  relationship  to  Board  /  Board  Risk   Committee.)     Date  of  last  review:  _______________       Job   Summary:   The   CRO   has   primary   responsibility   for   overseeing   the   development   and   implementation   of   the   MFI’s   risk   management   function.   This   includes   the   ongoing   strengthening   of   staff   skills   and   enhancements   to   risk   management   systems,   policies,   processes,   quantitative   models   and   reports   as   necessary  to  ensure  that  the  MFI’s  risk  management  capabilities  are  sufficiently  robust  and  effective  to  fully   support  its  strategic  objectives  and  all  of  its  risk-­‐taking  activities.  The  CRO  is  responsible  for  supporting  the   Board   Risk   Committee   in   its   engagement   with   and   oversight   of   the   development   of   the   MFI’s   risk   appetite   and  Risk  Appetite  Statement  and  for  translating  the  risk  appetite  into  a  risk  limits  structure1.       Responsibilities  of  the  CRO:   Policy  Framework   • Assists  in  developing  policies  and  processes  for  identifying,  classifying,  assessing,  monitoring  and   managing  risks.     • Specifically,  reviews  and  recommends  aggregate  loss  limit  targets  for  various  risk  categories  (e.g.   loan   losses,   market   losses,   operational   risk),   paying   special   attention   to   capital   adequacy   and   liquidity  requirements.   • Develops   and   recommends   a   comprehensive   risk   management   program   including   exception   reporting  mechanisms.   • Reviews   the   MFI’s   risk   management   infrastructure   and   control   systems   (including   business   continuity  planning)  to  ensure  adequacy  to  enforce  MFI’s  risk  policies.   • Moves  the  MFI  risk  policies  towards  an  “enterprise  risk  management”  approach  (as  defined  by   COSO2  or  similar).   • Specifically  addresses  strategic  risks.   • Stays   abreast   of   “best   practice”   risk   management   practices   and   suggests   modifications   to   MFI   policy  based  on  new  developments.   • Suggests  ways  to  instill  risk  culture  in  the  MFI,  such  as  training,  compensation,  etc.    Works  with   Board  (the  Risk  Committee)  and  CEO  to  implement.                                                                                                                                 1  Basel  Committee  on  Banking  Supervision,  Corporate  Governance  Principles  for  Banks,  July  2015   2  Committee  of  Sponsoring  Organizations  of  the  Treadway  Commission   163 ANNEX IV. H   Policy/  Framework  Implementation     • Implements  risk  policies  and  framework  established  by  Board  to  monitor  and  report  risk  exposures   and  assess  how  the  MFI’s  changing  risk  profile  affects  need  for  capital.   • Develops   an   early   warning   or   trigger   system   for   breaches   of   the   MFI’s   risk   appetite   or   limits.   Regularly  reviews  MFI’s  risk  exposures  and  compares  to  approved  limits.  Serves  as  independent  and   objective  check  of  the  risk-­‐taking  activities.   • Reviews  MFI’s  risk  management  infrastructure  to  ensure  adequacy,  at  least  annually.     • Documents  risk  measurement/management  program.   • Proposes  his/her  annual  work  plan  to  the  CEO  and  Board  (ordinarily  the  Risk  Committee  or,  if  not   established,  the  Audit  and  Compliance  Committee).   • Supervises  contingency  (business  continuity)  planning.   • Conducts  stress  tests  on  credit,  liquidity,  market,  and  operational  risks.     • Together   with   senior   management,   reviews   adequacy   of   MFI’s   capital   and   allocation   to   business   units.   • Provides  technical  assistance  to  business  unit  managers.   • Reviews   new   products   to   ensure   they   are   consistent   with   the   MFI’s   risk   policies   and   risk   management  systems.   • Works   with   senior   management   and   Board   (Risk   Committee)   to   establish   an   enterprise-­‐wide   risk   management  framework  for  all  business  units  at  all  levels.   • Responsible  for  instilling  a  risk  culture  in  the  MFI.     Education/Knowledge  and  Experience:   • Relevant  college/university  degree  –  e.g.  Business/Finance  related   • Internationally  accepted  relevant  certification  (e.g.  PRMIA,  CPA,  CFA,  etc.).   • Extensive  experience  in  a  leadership  capacity  at  a  senior  management  level  -­‐  with  a  minimum  of  ten   years   of   experience   within   a   retail   financial   institution,   preferably   within   a   bank,   microfinance   institution,  or  cooperative   • Exposure  to  reporting  to/working  with  a  board  of  directors   • Breadth   of   financial   and   operations   management   knowledge/experience   in   retail   financial   services   setting   • Specific  understanding  of  risk  factors  affecting  the  MFI   • Highly  developed  business  acumen,  with  excellent  understanding  of  financial  management  including   balance  sheet,  profit  &  loss,  cash  flow  statements  specifically  in  a  retail  financial  services  setting   • Understanding  of  the  challenges/opportunities  within  the  microfinance  sector  preferred   164 Implementing Corporate Governance Practices REFERENCES Myanmar Laws and Regulations Microfinance Business Law (No.13/2011) Myanmar Companies Law (No.29/2017) International Standards Basel Committee on Banking Supervision. 2015. “Guidelines - Corporate Governance Principles for Banks.” Committee of Sponsoring Organizations of the Treadway Commission. 2017. “Enterprise Risk Management—Integrating with Strategy and Performance.” _____. 2013. “Internal Control—Integrated Framework.” International Organization for Standardization. 2009. “ISO 3100:2009 Risk Management—Principles and Guidelines.” OECD. 2015. “G20/OECD Principles of Corporate Governance.” Other References Council of Microfinance Equity Funds. 2012. “The Practice of Corporate Governance in Microfinance Institutions.” Consensus Statement of the Council of Microfinance Equity Funds. Di Benedetta, Pasquale, Ira Lieberman, and Laura Ard. 2015. “Corporate Governance in Microfinance Institutions.” World Bank, Washington, D.C. Hartenstein, Stephan. 2014. “Challenges for Corporate Governance at Microfinance Institutions from IFC’s Corporate Governance Experience.” International Finance Corporation. 2018. “Corporate Governance Case Studies: Cambodia.” _____. 2018. “Corporate Governance Case Studies: Vietnam.” _____. 2017. “Corporate Governance for Financial Inclusion. Insights for Boards of Microfinance Institutions: Managing Current Issues, Crisis and Change.” Washington, D.C. _____. 2015. “Risk Culture, Risk Governance, and Balanced Incentives: Recommendations for Strengthening Risk Management in Emerging Markets Banks.” Washington, D.C. _____. 2010. “Corporate Governance Success Stories.” IFC Advisory Services in the Middle East and North Africa, Cairo, Egypt. _____. 2010. “Governing Banks - A Supplement to the Corporate Governance Board Leadership Training Resources.” Washington, D.C. 165 166 Room 20-11~13, 20th Floor, Sule Square 221 Sule Pagoda Road, Kyauktada Township Yangon 11182, Myanmar Tel: +95 1 9255020, Fax: +95 1 9255021 ifc.org December 2019