cg lecture4 (1)
TRANSCRIPT
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Rights & Powers of
Shareholders & DirectorsA Lecture by
Dr Safdar A Butt
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Powers of Directors
Sources of Power
By and large, absolute powers vest in the
directors
The issue of collective and individual powers
Executive Directors
Non-executive Directors
Members of Board Committees
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Sources of Power
Companies Act
Table A
Articles of Association of the Co. Special Resolution of AGM
Practice in the business world
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Borrowing Powers
How much can a Board borrow?
Is it only a lenders problem, or should the
other stakeholders also have a say?
Regulatory constraints on lenders (e.g.
Prudential Regulations of SBP)
What if the company borrows from non-formalsector?
Tax implications
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Duties of Directors
To act in the best interest of the company
Accountability to owners
Statutory duties Care and Skill Duty
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Statutory Duties
Keep minutes of their meetings
Deliver a copy of Annual report and accounts
to SECP
Maintain proper books
File all periodic returns
Fiduciary duties (Trustee)
To take due care and diligence
Other duties under Stock Exchange Rules
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Test of Fiduciary Duty
Transactions should be reasonably incidental
to the business of the company.
Transactions should be bona-fide (good faith)
Transactions should be for the benefit of the
company.
No conflict of interest
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Skill & Care Duty
Do not agree to be a director if you are not fit
to be a director.
Must have necessary knowledge, skill and
background / experience that is reasonably
expected of a director of a particular company.
Should exercise the degree of care, caution and
skill that can reasonably be expected from
them as directors.
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Delegation of Duties
Law permits delegation
But does the responsibility remain with
directors? (Governance Issue)
Issues in Delegation:
Was it properly delegated.
Was it properly supervised.
The system of oversight and accountability over
delegates.
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Care & Skill by NEDs
Pak law does not differentiate between EDs
and NEDsas yet.
If NEDs are paid (as in West), a letter of
appointment should define extent and nature of
duties and responsibilities.
NEDs should have access to all they need to
perform their tasks
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Directors Liability
Only if they are proved to be negligent, or a
willful party to fraud.
If not negligent or willful party to a fraud,
directors are generally covered by the
company.
Companies may obtain insurance:
For liability of directors
For losses arising from directors
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Dealings with Directors
All deals must be fair
No loans to directors or connected persons
Disclosure of conflict of interest Prevention of misuse of information
As a rule, all substantial transactions should be
presented to shareholders. Related party transaction disclosure
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Directors duties to Stakeholders
other than shareholders
Employees
Except for explicit reasons, directors have no
duty to outsiders.
Irregular contracts may be binding on the
company if outsider acts in good faith.
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Other Issues re directors
Notification to company of interests
Register of directors interests
Dealing in companys shares? Market Abuse
Insider Trading
Moral Code Disqualification
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Types of Directors
Executive / Non-executive
De facto director
Shadow director Alternate director
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Shareholders Powers
Voting power
Cumulative voting rights
Matters covered by voting: Election /removal of directors
Important issues like change in A & M of A
Proxy: use of proxy votes Rights issue of shares
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Thank you
Dr Safdar A Butt