Rasheed Mohammed Al Maraj: The Corporate Governance Code of the
Kingdom of Bahrain - fundamentals and implementation
Address by His Excellency Rasheed Mohammed Al Maraj, Governor of the Central Bank of
Bahrain, at an event, organized by the International Chamber of Commerce, Manama, 4 May
2009.
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Distinguished guests, ladies and gentlemen.
As patron of this event, the Central Bank is proud to take part in today's proceedings. My
thanks go out to the organisers of this event, the International Chamber of Commerce, and
also to the many sponsors who have made this event possible.
Today's conference focuses on the features of good corporate governance and on
developments relating to the proposed new corporate governance code for all companies in
the Kingdom of Bahrain. This initiative by the Ministry of Industry and Commerce is
welcomed by the Central Bank and we will be working with the financial sector and listed
companies on the implementation of the spirit and the letter of the New Code upon its
publication.
In my opening comments, I will highlight what the CBB considers to be the key attributes of
good corporate governance, and how we have encouraged licensees of the CBB and listed
companies to implement a sound corporate governance environment.
Effective corporate governance begins with establishing a clear dynamic between three
different bodies of persons: the shareholders; the board; and the management. In a perfect
World, these three bodies would all recognise their interdependence and their responsibilities
and act promptly, rationally and transparently in the best interests of the concerned
company. However, events globally over the past decade indicate that we do not live in a
perfect World, and so rules from regulators, company law and codes of practice are
necessary to ensure that one set of stakeholders do not act in their own self-interest to the
detriment of other stakeholders, or indeed to the detriment of the economy itself in the case
of the largest companies.
The Central Bank of Bahrain has recognised that the conduct and health of the financial
sector in particular has a far wider impact than just on shareholders' wealth. The health of the
financial sector affects the reputation of the country, the functioning of the payments system
and provides valuable employment in the domestic economy. Therefore the CBB has
implemented several far-reaching initiatives on corporate governance standards over the
past five years or so to complement the requirements of the Commercial Companies Law.
These Standards include: The Disclosure Standards for Listed Companies which were
issued in December 2003; The Guidelines for Insiders, issued October 2004; The Guidelines
for the Issue of Debt Securities, issued March 2004; The Takeovers, Mergers and
Acquisitions Module of Volume 6 of the CBB Rulebook; and also the High Level Controls,
Public Disclosure and Business Conduct Modules of the CBB Rulebook.
You will note that the CBB's emphasis has been on the internal governance, market conduct
and transparency of listed companies and licensees. Let me deal with these three points in
turn.
The CBB's internal governance requirements have concentrated first and foremost on the
role of the Board, and secondly on sound internal controls and risk management systems.
The Board sets the tone at the top and its functions include effectively monitoring the
management and performance of licensees, and to establish the objectives of, and to
develop the strategy of the licensee. In banks in particular, we have asked boards to define
the risk appetite of the institution and to develop and approve its business plans. More
recently we have specifically asked bank boards to quantify the capital needs of their banks.
Market conduct has involved requiring banks to adopt codes of conduct for dealing with
customers and also to adopt staff codes of conduct in dealing with potential conflicts of
interests, for example. Transparency requirements for licensees and listed companies have
increased dramatically over the past decade as we have sought to make management and
boards more accountable for their actions and conduct and to tell stakeholders more about
the affairs of the company. We therefore see the new Code as a highly useful next step and
complement to the CBB's existing measures, and encourage companies, their boards and
their management to work further on implementing good corporate governance standards.
In conclusion, I would like to comment is on the timeliness of this event.
The global financial crisis has badly affected investor confidence all over the World, as
witnessed by falling stock prices across World markets in 2007 and 2008, and a retreat by
investors into so-called safe havens of Government bonds and high quality investments. In
such times, if listed companies or financial institutions wish to obtain funding at reasonable
cost then they must maintain, and in some cases, regain the confidence and trust of
investors by demonstrating good corporate governance. This means demonstrating that the
company is well run at the top level by an independent, well qualified, experienced board
overseeing high quality management. This also means that the company must show that it
has excellent risk management and internal control systems, including an efficient internal
audit. Furthermore, conflicts of interests should be removed or minimised, and properly
disclosed where they remain.
Remuneration for management and directors should be transparent and not excessive.
Management structure must be clear, and management must be held accountable to
shareholders and the board for their actions and performance. Above all, the company must
be transparent in its communications with its shareholders and stakeholders. This would
include in particular the prompt reporting of full financial and risk information and the
disclosure of the governance structure and governance performance of the company. I would
therefore encourage companies, their boards and their management to take the New Code
seriously and adopt it wholeheartedly if they wish to attract new investment and to retain the
confidence of existing investors and other stakeholders in a post - Subprime World.
Thank you.