Dear Distinguished Audience, Effective Board and management leadership in any financial institution is the key pillar that would enable the institution to achieve its objectives and guarantee its development and growth for the service of all parties including shareholders and staff. Effective leadership stems from sound corporate governance practiced by competent and highly experienced officials and directors at the various levels, setting a comprehensive strategy and elaborate business plans with appropriate mechanisms of responsibility, transparency and accountability in the financial institution. In this regard, the board of directors plays a prominent role in overseeing the development of a comprehensive strategy of the financial institution and in monitoring the decisions made by senior management for achieving these objectives. This requires having necessary skills and competencies for realizing the objectives set by the Board. In addition, the board should establish clear guidelines regarding the independence of all departments and businesses in the organization and should ensure their compliance with established policies and approved procedures. Therefore, special committees of the Board such as the Audit, Compliance, Compensation and other special committees, can play extremely important roles in this respect. The senior management should set a comprehensive business strategy; oversee day-to-day decisions that support the long-term objectives and policies determined by the board. To ensure financial stability, the execution of the overall objectives of the firm must be supported by rigorous internal supervisory controls and effective risk management.

An effective internal control system is critical for providing reasonable assurance and producing appropriate timely information by the organization that would help in discovering and correcting errors promptly. Such a system will also promote the organization's operational efficiency and ensure compliance with managerial policies, laws, regulations, and other prescribed mechanisms. BIS Review 83/2007  1  Effective risk management is based on a foundation of good corporate governance and rigorous internal controls. Risk identification in all activities is a core function of any financial institution. At the same time, the institution must have in place the technical systems and management processes necessary to effectively measure, monitor, and control risks. An effective risk management and control structure must be supported by an institutional culture that ensures that written policies and procedures are actually translated into practice. The institution's culture is determined by the philosophy and the behaviour of its board of directors and the senior management. In particular, the actions of senior management and consistency of their decisions and behavior with the values and principles they articulate are critical in shaping the institution's culture. It is vital that senior managers should emphasize their commitment to ethical behaviour, effective risk management and rigorous controls and that these principles should be continuously applied to all levels of the organization. The other important factor that supports financial stability is effective market discipline, which also contributes significantly to good corporate governance.