the lebanese code of - european corporate governance · pdf filethe lebanese code of corporate...

The Lebanese Code ofCorporate Governance

The Lebanese Transparency AssociationBank El-Rif square, Baaklini Center, 4th FloorP.O.Box 50-552, Ain El Remmaneh, Baabda, LebanonTel.: +961 1 29 30 45Telefax: +961 1 28 22 38Email: [email protected]: www.transparency-Lebanon.org

© The Lebanese Transparency Association

Design: matchdhPrinting: print shopISBN: 9953-470-73-1

First Edition, 2006

Project Overview and Acknowledgments

A Note About the Authors and LTA

The Code:

Introduction

Shareholders’ Rights and Obligations

Board of Directors: Structure, Responsibilities, and Prerogatives

Auditing and Related Aspects of Corporate Transparency

Appendix A

Appendix B

Appendix C

Appendix D

Appendix E

Appendix F

Appendix G

Appendix H

04

07

08

14

22

28

30

31

32

34

35

39

43

45

Table of Contents

The Lebanese Code of Corporate Governance .5

The Lebanese Transparency Association (LTA) would like to thank theproject’s generous sponsors, the Center for International PrivateEnterprise (CIPE) for the necessary support and funding to create thisCode.

This Corporate Governance Code is representative of the manyongoing efforts by the Lebanese Transparency Association, its partnersboth in Lebanon and internationally, and other organizations andindividuals dedicated towards continually improving the businessenvironment in Lebanon. In particular, valuable input was provided bymembers of the Lebanon Corporate Governance Task Force (LCGTF)and numerous others in the NGO, private, academic and public sectorswho painstakingly reviewed and debated all aspects of the Code.

This Code is focused on Lebanese joint stock companies. However, theapplicability of the principles of good governance embodied hereincan serve as a model for other types of businesses and nonprofitorganizations, both in Lebanon and throughout the Middle East. ThisCode also represents a positive step towards the high level oftransparency and good governance that is essential for Lebanesecompanies to compete successfully in increasingly global markets.Finally, well-governed and corruption-free companies that adhere torecognized best practices will be better able to absorb political, social,and economic shocks and serve as stable beacons for other institutionsthroughout Lebanese society.

We particularly thank LTA’s co-executive director Mr. Badri El Meouchiand LCGTF’s project manager who has unsparingly devoted his timeand effort to ensure the success of this code.

Project Overview and Acknowledgments LTA wishes to thank the authors of this code Nada AbdelSaterAbuSamra, Esq. and Dr. Norman Bishara for offering their knowledge,time and expertise in drafting this Code. We also thank the followingpersons and institutions for their generous valuable review, supportand contribution:

Institutions (in alphabetical Order):

The American University of Beirut (AUB), the Corporate GovernanceProgram.The Center for International Private Enterprise (CIPE)The Global Corporate Governance Forum, Peer Review (IFCGCGF-PeerReview)The International Finance Corporation, IFC.The Lebanese American University (LAU), the Institute of Family andEntrepreneurial Business at the School of Business.The Lebanese Association for Certified Public Accountants, LCGTFmember. The Lebanon Corporate Governance Task Force.RDCL, the Lebanese Businessmen Association: Rassemblement desDirigeants et Chefs d’Entreprises Libanais.

Individuals (in alphabetical order):

Mr. Antoine Frem, Chairman and General Manager, INDEVCO.Mr. Antoine Farah, General Manager, Projects Development SAL. Dr. Assem Saffiedine, Associate Professor of Finance, Chairperson ofthe Finance, Accounting and Managerial Economics, and Director ofthe Corporate Governance Program at the American University ofBeirut.Chadia El Meouchi, Esq. LTA Board member, head of LCGTF Legal andRegulatory Committee, Partner at Badri and Salim El Meouchi LawFirm. Mr. Charles Adwan, World Bank, Washington DC; LTA founder andBoard member.Mr. Fadi Saab, LTA board member and head of LCGTF’s Information,Communication and Media Committee. Chairman & President, TransMediterranean Airways (TMA).Dr. Fouad Zmokhol, LTA Board member and LCGTF member, andGeneral Manager of Zimco group.

>

>>

>>

>

>>

>>>

>

>

>

>


Ms. Joelle Cattan, Director, the Lebanese Businessmen Association(RDCL).Dr. Josianne Fahed-Sreih, Associate Professor of Management,Department of Economics and Management and the Director of theInstitute of Family and Entrepreneurial Business at the School ofBusiness of the Lebanese American University.Joseph Yazbeck, Esq. Yazbeck Law Firm, LCGTF member.Dr. Kamal Shehadi, Managing Director of Connexus Consulting, LCGTFMember, and Board Member of LTA. Ms. Marie Laurence Guy, Projects Officer, Global Corporate GovernanceForum – IFC. Mohamed Alem, Esq. LCGTF member, Alem & Associates, ManagingPartner.Mr. Mosbah Majzoub, certified accountant.Mr. Nabil Sawabini. Chairman and General Manager, MENA Capital.Mr. Patrick Farajian, Chairman and CEO of Sodetel, LCGTF member. Mr. Philip Armstrong, Head, Global Corporate Governance Forum – IFC. Mr. Philippa Grant Project Officer, Private Enterprise Partnership – IFC.Mr. Sebastian Molineus, Program Manager, Private EnterprisePartnership – IFC.Ms. Sherine Shallah, Consultant at the Ministry of finance, LCGTFmember.Sleiman Dagher, Esq. Senior attorney at Badri and Salim El MeouchiLaw Firm. Tarek Farran, Esq. Farran Law Firm, Partner, LCGTF member. Mr. Wadih Barbara, Lebanese Association for Certified PublicAccountants, LCGTF member. Mr. Yusuf Sidani, CPA, Assistant Professor at the American University ofBeirut (AUB), LCGTF Member.

A Note About the Authors and LTA

Nada AbdelSater-AbuSamra is a Corporate and Finance attorneypracticing in Beirut, Lebanon and is also admitted to the courts ofNew York. In addition to her law degree from the Universite SaintJoseph in Beirut, she holds a BSc from the American University ofBeirut and an LL.M from Harvard Law School at Harvard Universitywith emphasis on corporate governance and corporate law. She is anactive member of several boards of directors, including LTA, LCGTFand the Lebanese Institute for Excellence in Government. She is theauthor of various articles and a speaker on corporate governance inseveral national and international conferences.

Norman D. Bishara is a Visiting Assistant Professor of Business Law atthe Stephen M. Ross School of Business at the University of Michiganin Ann Arbor, Michigan, USA where he concentrates his teachingand research on business law and ethics, with an emphasis on rule oflaw and corporate governance in the Middle East. Dr. Bishara holdsa JD from Cornell Law School, a Master of Public Policy degree fromthe Gerald R. Ford School of Public Policy at the University ofMichigan, and a BA from Colgate University – he has also practicedas a commercial attorney in New York State.

The Lebanese Transparency Association is a preeminent anti-corruption organization in the Middle East. It is an independent,non-partisan non-governmental organization and pressure groupfocused on curbing corruption and working towards reforminitiatives in Lebanon, and is the Lebanese country affiliate ofTransparency International.

Inquiries and comments are appreciated and may be directed to theauthors at [email protected] or [email protected], orthrough the LTA website at: http://www.transparency-lebanon.org.

Gerard ZovighianMember of the International Board of Transparency International

Vice Chairman of Lebanese Transparency Association’s BoardChairperson of the Lebanon Corporate Governance Task

Managing Partner of BDO Fiduciaire du Moyen-Orient.

>

>

>>

>

>

>>>>>>

>

>

>>

>

The Lebanese Code of Corporate Govenance .9

I. IntroductionThis Lebanese Corporate Governance Codedeveloped for Lebanese Joint Stockcompanies, establishes principles andpractices to improve the quality of corporateboard governance as well as the company’sperformance, competitiveness, and access todiverse forms of capital. Accordingly, thisCode also supports the long-term valuecreation and sustainable growth strategies ofLebanese companies.

The principles embodied in this document aredrawn from and inspired by variousinternational sources of good governancebest practices, including the Organization forEconomic Cooperation and Development(OECD) corporate governance principles. Inthat sense this Code is ambitious in itsaspirations to guide Lebanese Joint Stockcompanies in their development. However,the provisions of this Code are practical andhave been specifically adapted to the realitiesof Lebanon’s existing commercial laws, andother aspects of the Lebanese business andlegal systems.

The typical company envisioned in this Codeis currently a private, relatively closely heldcompany, with a number of employees ofapproximately one hundred persons and dulyformed as a “SAL” Lebanese Joint StockCompany under the provisions of theLebanese Code of Commerce and otherapplicable Lebanese laws. The rationale forthe focus on this type of companies thatqualify as Small and Medium Enterprises(SME’s) is simple: SMEs, many of them family-owned and operated, constitute the

backbone of Lebanon’s private sector and theimprovement of SME corporate governance isessential to ensuring economic growth andstability as Lebanon continues to evolveeconomically and politically1. Although thiscode is tailored for joint stock companies, theprinciples contained therein are crucial forLebanese “sarl” (limited liability companies)and other Lebanese companies.

Broadly conceived, corporate governance isthe system by which companies are directedand controlled. The concept of “corporategovernance” embodied in this Code addressesthe internal business rules as well as therelated laws that establish, promote, andprotect the management and ownershiprights and responsibilities of corporatemanagers, employees, and owners(shareholders) of businesses2. In this respect,corporate governance is concerned with howcompanies ought to be run, directed andcontrolled - and how to hold accountablethose who direct and control themanagement. As defined in the 2004 OECDPrinciples of Corporate Governance,“Corporate governance involves a set ofrelationships between a company’smanagement, its board, its shareholders andother stakeholders. Corporate governancealso provides the structure through which theobjectives of the company are set, and themeans of attaining those objectives andmonitoring performance are determined.”

Furthermore, “Good corporate governanceshould provide the proper incentives for theboard and management to pursue objectives

1. A recent survey of corporategovernance commissioned by LTAin partnership with CIPE found,among other details, that there isa need for Lebanese business,which is heavily based on SMEs,to improve their governancestructures. The LebaneseTransparency Association, Surveyof Corporate Governance, (2005),is available at:http://www.transparency-lebanon.org/Corruption%20Charts.pdf .

2. In addition, “[c]orporategovernance describes thestructures, processes, andinstitutions within and aroundorganizations that allocatepower and resource controlamong participants,” includingthe necessary legal andregulatory frameworks. Gerald F.Davis, New Directions inCorporate Governance, Annu.Rev. Social. 2005 31: 143-162 at143. Certainly other, moredetailed definitions exist – mostin the context of large, publiclytraded corporations. Forexample: “Investors incorporations require assurancesthat their contributions –financial capital, human capital,social capital – will generate areturn. Corporate governanceconcerns the institutions thatmake these investments possible,from boards of directors, to legalframeworks and financialmarkets, to broader culturalunderstandings about the placeof the corporation in society.Thus, corporate governanceconsists of “the whole set oflegal, cultural, and institutionalarrangements that determinewhat publicly tradedcorporations can do, whocontrols them, how that controlis exercises, and how the risksand returns from the activitiesthey undertake are allocated.” Id.citing N.M. Blair, Ownership andControl: Re-Thinking CorporateGovernance for the Twenty-FirstCentury (1995) at 3.

It was found outthat more than 84%of the globalinstitutionalinvestors are willingto pay a premium forthe shares of a well-governed companyover one consideredpoorly governed butwith a comparablefinancial record.


that are in the interest of the company andshareholders and should facilitate effectivemonitoring.”3 The underlying principles ofcorporate governance in this Code arecentered on essential objective values andstandards such as transparency, fairness,discipline, accountability and responsibility.Empirical evidence and research conducted inrecent years support the proposition that itpays to have good corporate governance. Itwas found out that more than 84% of theglobal institutional investors are willing topay a premium for the shares of a well-governed company over one consideredpoorly governed but with a comparablefinancial record.4

The main question on the minds of SMEboard members and managers is “why shouldwe voluntarily adopt a new set of rules whichmay constrain our behavior?” The answer isthat for Lebanese small to medium sizedenterprises, like all SMEs around the world,excellent corporate governance is crucial forthe definition of the respective roles ofshareholders as owners, on one hand, andmanagers, on the other. By setting prudentcorporate governance rules, procedures, andchecks and balances to define how thecompany should be ruled, conflicts, abusesand internal clashes are reduced - thusfavoring the company’s growth and profitmaking ability. In addition, well run and wellgoverned companies will be best positionedin today’s global marketplace, they will attractmore investors and they will be more agileand flexible in their responses to the everchanging business and political environments.

3. OECD Principles of CorporateGovernance, Preamble (2004).

4. Executive summary of the KingReport 2002, published by theInstitute of Directors in SouthernAfrica, page 12

5. Frank Chan, “CorporateGovernance For The SME” (2003):www.lawlink.co.nz/resources/governance.pdf

Lebanese companies have, in general, at leastthree major interests in adopting goodcorporate governance. First, good corporategovernance practices will pave the way forpossible future growth, diversification, or asale, including the ability to attract equityinvestors – from Lebanon and abroad – tofree Lebanese SMEs from dependence onhigh-interest loans. Small to mediumbusinesses seeking new funds often findthemselves obliged to undertake seriouscorporate governance reforms at a high costand upon the demand of outsiders, often in atime of crisis. When the foundations arealready in place investors and potentialpartners will have more confidence ininvesting in or expanding the company’soperations.5 Second, adopting good corporategovernance practices leads to a better systemof internal control, thus leading to greateraccountability and better profit margins.Third, it will free up the owner operator fromoperational duties as well as prevent a sourceof disputes. Often in closely-held companies,a falling out of the people involved revolvesaround misunderstandings between themanagers and the owners or a failure toseparate the two functions. Moreover,“practicing good corporate governance couldhelp SMEs establish robust business processesand prepare them for future expansion.”6

This Code is intended as a flexible guide toinnovative Lebanese joint stock companieswishing to improve their corporategovernance. Therefore, adoption of this Codeis voluntary. Also, the legal mechanism bywhich a company may wish to integrate this

6. Paul Chow, Chief Executive,Hong Kong Exchanges andClearing (2005) quoted on p. 26of Toolkit 2 DevelopingCorporate Governance Codes ofBest Practice, The GlobalCorporate Governance Forum:www.gcgf.org

7. Companies wishing to adoptthis code as part of their by lawsshould change the term “should”into “shall” wherever written inthis Code.

8. This voluntary Code would belegally efficient if incorporatedinto each Company’s by-laws. Forexample, article 579 of theLebanese Code of Civil Procedureprovides, inter alia, that thejudge of urgent matters iscompetent to impose suchmeasures necessary for thepurpose of removinginfringements upon legitimaterights. Once incorporated intothe by-laws, the provisions of theCode should be deemed as“legitimate rights” in the senseof the said article 579; thusrendering the judge of urgentmatters competent to rule oncases of usurpation of said rights.This will avoid lengthy andexpensive court proceedings.


Code is optional and left for the company. Hence, adoption of theCode may range from its full integration into the company’s by-laws7

to its adoption in an ordinary general assembly as mandatoryguidelines for the board of directors. By contrast, a company maymerely use the Code as a reference or benchmark to monitor itscorporate governance practices. Indeed, not all provisions of this Codemay necessarily be applicable to all companies, thus the code must beadapted to the needs of each company by deleting or adding someprovisions based on an individualized cost/benefit evaluation8. Tofacilitate the customization of the Code the authors have indicatedsuch provisions that must be specifically scrutinized by the company’sowners in this respect, as well as placing provisions about specificduties and rights of managers and shareholders in appendices.

Whilst consecrating general core principles, the Code suggests specificimplementation mechanisms, but leaves it up to each company toadapt or amend such mechanisms in compliance with each company’sspecificities. For this reason the Code makes specific recommendationswith regard to issues such as the number of days required for a certainaction or the percentage threshold for voting requirements andquorums. However, the intent is that adopting companies willcritically evaluate their individual needs, circumstances, and futureplans when deciding which elements of the Code to adopt or modify.Moreover, where specific Lebanese legal provisions of the LebaneseCode of Commerce (“LCC”) for example, are in contravention withinternationally accepted principles, the Code raises this issue andprovides for alternatives or recommendations.

Finally, this Code is ultimately only truly useful if it is critiqued,debated, and adopted by its target audience: Lebanese Joint stockcompanies. This is only the first version of the Code and this Codeshould be viewed as a “living document” that will be tested, amendedand improved during the coming years.

Wherever used in this Code, the following terms shall have thefollowing meaning:- The Code refers to this Code of Corporate Governance,- LCC refers to the Lebanese Code of Commerce;- Company refers to each joint stock company adopting this Code;- Shareholder(s) refers to the shareholders (owners) of the Company;- Board refers to the board of directors of the Company;- Assembly or Shareholders Assembly refers to the General Assemblyof the Company’s shareholders.


11. Numerous companies inLebanon (even very oldcompanies) have never physicallyissued shares. The physicalexecution and delivery of theshare is an important guaranteefor each shareholder. In somecountries, the Chairman-GeneralManager and/or the Directors aresubject to a penalty if they fail toexecute physical shares. InLebanon, there are no expresspenalties for such a behavior.Each company adopting this codemay wish to provide for a penaltyagainst the Directors for failureto execute physical shares.However, the enforceability ofsuch penalty will vary dependingon the legal procedure pursuantto which the said companydecides to integrate or adopt thisCode.

12. For more details, please referto Appendix B.

9. Each Company adopting thisCode should, in light of itsbusiness model and activities,define the “major transactions”or “fundamental changes” thatrequire a shareholders’ vote, suchas the sale of the corporation,the sale of substantially all theassets of the corporation, orother changes in corporatecontrol.

10. For more details, please referto Appendix A.

Company adopting this Code should definethe maximum time period for execution ofthe shares. The 30 day delay is provided forindicative purposes}.

Existing shares that are transferred orpurchased should be registered and recordedimmediately upon the Chairman-GeneralManager being given written notice of thetransfer of shares11.

4. General Shareholders’ Right to Informationin a Timely Manner and on a Regular Basis12

4.1 The Company should determine in its by-laws the type of information that is madeaccessible on an on-going basis to individualshareholders or to shareholders representinga minimum percentage of the Company’sshare capital, noting that the saidinformation should include at least thedocuments required by the LCC to be madeavailable to shareholders immediately prior tothe annual ordinary general assembly.Legitimate considerations include the possibleabuse of such access rules, the resources ofthe Company that would have to be devotedto allowing different levels of access, and theconcern that competitors might have accessto proprietary and confidential information.

4.2 Each Shareholder (or each group ofshareholders, as applicable) may at any timeduring regular business hours and uponreasonable notice, access, in a timely mannerand at the Company’s principal place ofbusiness, the Company’s corporate documentsdefined pursuant to article 4.1 here above.

1. General Principle

Shareholders enjoy all rights conferred uponthem by the Lebanese Code of Commerce(LCC) including the right to vote atassemblies, the right to dividends, the right totransfer their shares, the preferential right tosubscribe to capital increases, the right tovote on major transactions9 as well as allrights described in this Code.

2. A List of Shareholder’s Rights to be MadeAvailable to all Shareholders10

The Company should develop a detailed “Listof Shareholders Rights” fully elaborating therights of Shareholders, including the rightsdescribed in this Code.

This list should be distributed to allshareholders as follows: upon the subscriptionto, or purchase or acquisition of, shares by anew shareholder (at the latest upon thephysical execution and delivery of the shares)and upon any revision or amendment of thesaid list. Moreover, this list should be madereadily available to every shareholder uponrequest.

3. Secure, Reliable, and Accurate Records ofOwnership

Shares should necessarily be physically issuedand remitted to the relevant Shareholderwithin [30] days of the date of the Assemblyhaving verified their legal issuance. {Each

II. Shareholders’ Rights and ObligationsA. General Rights of Shareholders and Key OwnershipFunctions

4.3 In the absence of other internal Companyregulations governing the access toinformation process, shareholders wishing toexercise this access right shall submit arequest to the Chairman-General Managerwho must within seven calendar days answersuch request by determining at least threebusiness days during which the shareholdermay access the aforementioned information.

5. Shareholders’ Right to Free Transferabilityof Shares Subject Only to ReasonableRestrictions under a Pro Rata Right of FirstRefusalShares are freely transferable to any personsubject to the shareholder’s preferential rightof first refusal as per the provisions of theCompany’s by-laws and provided that no suchprovisions may result in abusive delays in thetransfer of shares.13

14. For more details please referto Appendix C.

15. The 10% figure mentionedabove is given for indicativepurposes. For more details pleaserefer to Appendix C.

13. Some shareholders’protections may be advisablealthough they may arguably beviewed as limitations to thegeneral principle of free sharetransferability. These include firstrefusal rights, tag-along rights tominority shareholders. For moredetails, please refer to item 1 ofAppendix A.

1. The Right to Call Shareholders’ Meetings

1.1 The Board is in principle the corporatebody having the competence and duty to callshareholders’ meetings.

1.2 The Company’s auditors shall also call fora general assembly whenever:i) The Board fails to call for a generalassembly and the Board is under theobligation to call for such assembly either bylaw or pursuant to the Company’s by-lawsand internal regulations including this Code;ii) The auditors deem it appropriate ornecessary pursuant to their professionaldiscretion to call for a general assembly; andiii) The auditors are requested to call thegeneral assembly by a group of shareholdersrepresenting [10]%15 of the company’s sharecapital.

1.3 Shareholders representing [10]% of thecompany’s share capital may request theBoard to call the assembly to resolve uponthe issues proposed by the said shareholders.

1.4 Shareholders representing one fifth of thecompany’s share capital may request thecourt to appoint a court representative toconvene the general assembly to resolveupon the issues proposed by the saidshareholders.

1.5 Any shareholder evidencing a legitimateinterest may file an application with the courtrequesting the appointment of a courtrepresentative to call the general assembly to

B. The Rights of Shareholders withRegard to Shareholders’ Meetings14



resolve upon the issues proposed by theapplicant shareholder.

2. The Right to Place Items on the Agenda

Shareholders representing [1016 ]% of theshare capital are entitled to place items onthe agenda of general meetings bycommunicating such items to the Board, (orto any other person duly calling the meetingsuch as the auditors as applicable). The Board(the auditors or the person duly calling themeeting, as applicable) must include suchplaced items on the meeting’s agenda andconvocation. In the event that the meetinghas been called before receipt of the saidsuggested items, the agenda shall beamended to include the proposed items andthe call shall be repeated on the nextbusiness day following receipt of thesuggested item, provided that the repeatedcall including the amended agenda is dulymade, within the minimum notice period forthe call of the meeting (with regard to thedate of the meeting as such date isdetermined in the first call).

3. Shareholders Must be Convened toShareholders’ Meetings in a Timely Manner

Notice and agenda of shareholders’ meetingsmust be given at least [20] days in advance ofsuch a meeting by means ensuring properand timely notification of shareholders. Each company should list the notification (or publication) means as adopted by theCompany; these may include one or more of

the following:i. postal mail with acknowledgment of receipt at the latest address asnotified by the shareholder to the Company ten days prior to dispatchof the notification;ii. regular mailing at the latest address as notified by the shareholderto the Company ten days prior to dispatch of the notification;iii. fax at the latest fax number as notified by the shareholder to theCompany ten days prior to dispatch of the notification;iv. e-mail or other electronic notification at the latest address asnotified by the shareholder to the Company ten days prior to dispatchof the notification; orv. publication for example in daily newspapers, or the official gazette;

4. Shareholders should be Furnished with all Relevant InformationConcerning Corporate Meetings in a Timely Manner

All documents and information that are required to be made availableto shareholders prior to shareholders’ meetings pursuant to theapplicable laws and regulations as well as the provisions of this Code,should be made available to the shareholders at least [20] days inadvance of the meeting.

5. The Right to Make Informed Decisions and the Right to beInformed of Corporate Issues that are Subject to Shareholder Vote

5.1 Shareholders have the right to make informed decisions.

5.2 Prior to any shareholder assembly and as of the call for suchassembly or at the latest within the delay provided for under item 4here above, each shareholder should be given access to the followinginformation and documents, and should be delivered a copy thereof,immediately upon the shareholders’ request, at the Company’s ownexpenses unless otherwise specified in this Code:i. the meeting’s agenda;ii. the Company’s Inventory. It should be noted that the Company’sInventory may only be reviewed at the Company’s premises;iii. balance sheet and profit and loss accounts and consolidated profitsand loss accounts, if applicable;

16. The 10% figure is provided forindicative purposes. For moredetails please refer to Appendix C.


iv. the Auditors’ report;v. the Board’s report;vi. an updated list of shareholders;vii. the Company’s By-laws;viii. the Company’s Internal Regulationsincluding this Code and the shareholders’ listof rights. It should be noted that thesedocuments are remitted to each shareholderat the company’s expenses, upon execution ofthe shareholder’s shares and upon every update or amendment of the aforementioneddocuments. Additional copies shall bedelivered to shareholders at their ownexpenses; andix. the Company should list all otherdocuments that are to be made available toshareholders as applicable under thecorporate by-laws.

5.3 During the General Assembly, anyshareholder may ask questions to the Boardconcerning the suggested agenda orresolutions as part of the deliberations. TheChairperson may not submit a resolution forvote until such time when no shareholder is,in good faith, requesting the floor to ask aquestion concerning the said resolution.Similarly, the Chairperson shall answer eachproperly submitted question in good faith.

5.4 If during the General Assembly,shareholders representing [2517]% of suchassembly deem to be insufficiently informedon the issues to be resolved upon, theAssembly shall be adjourned and be heldwithin eight days.

5.5 The person chairing the Assembly shouldannounce at the onset of the meeting theShareholders’ right: (i) to be informed andask questions on the issues placed on theagenda, and (ii) the shareholders’ right torequest the meeting’s adjournment asdescribed in the LCC if they deem to beinsufficiently informed on the issues to beresolved upon.

C. Equitable Treatment ofShareholdersAll shares should have equal voting rightsand, to the extent permitted under the LCC,no shares shall have a double voting righteven if held by the same shareholder formore than two years.18

D. The Protection of MinorityShareholders in Board CompositionMinority shareholders should be able toensure election of an appropriate number ofboard members of their choice.19

18. Lebanese law grants sharesthat have been owned by thesame shareholder for more thantwo years, a double voting right.Some Lebanese authors haveconsidered that such doublevoting right may not becontractually waived oreliminated. The authors of thisCode consider that the LCCshould be amended to expresslyprovide for the possibility towaive such double voting right.

19. For more details, please referto Appendix D.

17. Each Company adopting thisCode shall determine thispercentage, provided that suchpercentage is not higher than25% so as to comply with theLCC. Article 190 LCC providesthat if shareholders representingat least one quarter of theshareholders attending theGeneral Assembly deem that theyare not sufficiently informed onthe issues discussed at the saidmeeting, the Assembly shall bepostponed and held within eightdays.


The Board of Directors is entrusted with theduty of ensuring the proper management ofthe Company in the best interest of theCompany and all shareholders in accordancewith applicable laws and regulations. Thisduty may not be delegated and is proper tothe Board who shall assume the finalresponsibility to the Company and itsShareholders regardless of whether the Boardconstitutes special committees or authorizesother persons or entities to undertake specificoperations. The Board is responsible forsetting the strategic direction and conductingmanagerial oversight, including day to dayoperations. Failure to comply with thefiduciary duties mandated herein shouldsubject the Board and individual BoardMembers to liability to any aggrievedShareholder.

A. Board Structure, Membership,and Functioning of the Board

1. Board Structure

1.1 Under current applicable Lebanese law, itis not possible to separate between thefunctions of chairman and general manager20.Until such separation becomes legallyfeasible, it is advisable that the board ofdirectors appoint a deputy general manager21

who reports to the board. As soon as itbecomes possible under applicable law, it isadvisable that the Company separate

between the functions of chairman andgeneral manager so as the same person is notentitled to hold both functions.

1.2 At least [20]%22 of the board membersshould be non-executive members who donot hold any management or executiveposition in the Company.

1.3 The contract term of executive boardmembers should not in principle exceed threeyears, unless there is a valid and clear reasonjustifying a longer term. In the event of termsexceeding three years, the Board mustexplain to the general assembly approvingthe said board member contract andremuneration, the reasons for extending theterm beyond three years.

1.4 Every group of shareholders representing{10%} of the Company’s share capital shouldbe entitled to be represented by a boardmember of their choice.23

2. Family Structures and Board Committees

2.1 Each family owned company adopting thisCode should select the committees and familystructures necessary or advantageous to theCompany after undertaking a cost/efficiencyanalysis and depending on the volume andnature of the Company’s business as well asthe shareholders’ composition.Family owned companies are encouraged toincorporate family adapted governancestructures so as to enhance companysustainability and provide better corporategovernance.

22. Each company adopting thisCode shall determine theappropriate percentage of non-executive board members.

23. Please refer to Appendix Dand item I.(D) above.20. The Deputy General Manager

referred to in article 1.1 of thisCode must have thequalifications to fill such a post ata comparable companyregardless of his/her family ties. Itshould be noted that the LCCcurrently provides that theChairman of the Board is also thecompany’s General Manager.

21. The authors of this Codeconsider that LCC should beamended to provide for thepossible separation between thefunctions of Chairman andGeneral Manager.

III. Board of Directors: Structure,Responsibilities, and Prerogatives


24. For more details on familystructures and instruments,please refer to Appendix Eprepared by Dr. Josianne Fahed-Sreih.

25. For more details on BoardCommittees, please refer toAppendix F of this Code.

Such structures may include24:

i. “Family Council”ii. “Family Assembly”iii. “Family Constitution” iv. “Family coordinating Committee”v. “Succession Plans”

2.2 Whilst sophisticated board committees aremore adapted to larger companies, eachcompany adopting this code is encouraged toseriously consider the advantages of havingone or more of the following boardcommittees depending on each company’sspecificities25:

i. “Audit Committee” ii. “Nomination Committee”iii. “Compensation Committee”iv. “Regulatory Compliance Committee” v. “Stakeholder Relations Committee”

3. Board SecretariatDepending on its size, each Companyadopting this Code should decide whetherthe Board shall have a secretary in charge ofregistering and coordinating all boardmeetings’ minutes, records, books and reportssubmitted by and to the Board. The Secretaryshould also be in charge of coordinatingamong the various board members as well asbetween the board and the other companyconstituencies including shareholders,management, and employees.

4. Access to Company InformationBoard members should have full andimmediate access to all information,documents, and records pertaining to theCompany.

B. Fiduciary Duties of Board Members

1. The Company’s board members owe the Company and itsshareholders the fiduciary duties of care, loyalty and, compliance withcorporate authority. In the discharge of their fiduciary duties theBoard Members must at all time act in good faith, with candor,avoiding all potential or actual conflicts of interest, and in the bestinterests of the Company and in compliance with the Company’sarticles of incorporation and bylaws, and all applicable laws, includingthe LCC and this Code.

2. The Company should adopt a Directors’ Charter detailing thedirectors’ duties along the lines of the attached Directors’ CharterGuidelines (hereto attached as Appendix G). The duties contained inthe Charter should be binding upon and diligently followed by allboard members.

3. No Related Party transaction may be entered into unless dulyauthorized in advance by the affirmative resolution of theshareholders’ assembly held in strict compliance with the requirementsof article 158 of the LCC and as per the Company’s policy concerningrelated party transactions as per the general guidelines described inAppendix G and H to this Code. The “related party policy” shouldconsecrate principles of transparency, fairness and disclosure inaddition to the requirement that any related party transaction beapproved by a majority vote of the shareholders without theparticipation of the concerned related party.

C. Monitoring Board Functions and Accountability to Shareholders1. The Company’s annual report should clearly show the number anddates of board meetings held in the ending year and the names ofboard members being present or absent at each board meeting. TheBoard may also provide to the shareholders general assembly a chartshowing the number of meetings missed by every board member withthe reason for such absence.26

2. The Board of directors shall meet as frequently as necessary for thedischarge of its governance obligations and to ensure the good


26. Each Company adopting thisCode may adopt the appropriateprocess with respect to boardmembers who fail to comply withthis provision.

27. Each Company adopting thisCode should define the positionsencompassed by the expression"top management" according tothe company's managementchart. Also, the Company maywish to require that changes inBoard member remunerationduring a period not immediatelypreceding the publishing of theAnnual Report, should also becontained in the quarterly reportimmediately following theCompensation Committee’sdecision.

functioning of the Company, noting that theBoard shall meet at least once every threemonths.

D. Determining and Disclosing theRemuneration of the Board of Directors

1. The amount of remuneration for eachboard member should be commensurate withthe contribution of that member to theoperations of the Company. The guidelinesfor assessing executive and non-executiveBoard Members’ remuneration and benefitswill be developed and applied by theCompensation Committee and made availablein writing to all Shareholders at the timetheir shares are registered and wheneverrequested by any shareholder in accordancewith Article II of this Code.

2. Board Member remuneration should bedetermined by the Compensation Committeeand shall become effective upon approval bythe Ordinary General Assembly. The power todetermine and approve the remuneration ofthe Board of Directors may not be delegatedto the Board or any corporate body otherthan the shareholders’ assembly.

3. The total remuneration, including allbenefits, of Board members and topmanagement27 should be disclosed in theCompany’s annual report or other companyreports.

E. The Board and the Role of Stakeholders

1. The Board of Directors should ensure that the Company’s employeesare treated according to the principles of fairness and equity andwithout any discrimination whatsoever on the basis of race, gender, orreligion.

2. The Board should develop a remuneration policy and packages thatprovide incentive for the employees and management of theCompany to always perform in the best interest of the Company.Remuneration elements related to the performance of the companyare advisable.

3. Whenever the Board is considering an issue of concern to theemployees, it is recommended that the Board invite employees’representative(s) or trade unions to the Board meeting during whichthe issue shall be discussed.

4. The Board should oversee the implementation of management andemployment systems and charts including several checks and balancesprocedures ensuring compliance with applicable laws and regulationsand respect of shareholders’ and other stakeholders’ rights.

5. The Board should adopt a mechanism enabling company employeesto report to the Board on improper behaviors of any agent orfiduciary of the company, where such behavior is unethical, illegal, ordetrimental to the Company. The Board should ensure that theemployee addressing the Board is afforded confidentiality andprotected from any nuisance or negative reaction by other employeesor the employee’s superiors.


A. Internal Audit1. The Board should establish an efficient system for internal auditwith the internal audit function being managed by a [full time] seniorlevel manager reporting directly to the Board. The mission of theinternal audit function shall include the establishment and monitoringof systems for evaluating and controlling risk management andimplementing sound rules of corporate governance. Because a fulltime function for internal audit may be too costly for some SME’s,each company adopting this Code may elect to adapt this clause tothe needs and interest of its good governance and functioning.

2. The internal audit manager must submit quarterly reports to theAudit Committee (or the Board if the Company does not have astanding Audit Committee) including the assessment of compliance bythe Company with applicable laws and regulations including theprovisions of this Code.

B. External Independent Auditors1. An annual audit should be conducted by an independent,competent and qualified, auditor in order to provide an external andobjective assurance to the board and shareholders that the financialstatements fairly represent the financial position and performance ofthe Company in all material respects.

2. External auditors should not be contracted by the company toprovide any advice or services other than the auditing of theCompany. The external auditors must be fully independent from theCompany and its board members and should not have any conflict ofinterest in relation to the Company.

3.The Company’s external auditors must attend the annual OrdinaryGeneral Assembly and deliver the Accountants’ Annual Report.

4. External auditors are accountable to the shareholders and owe aduty to the Company to exercise due professional care in the conductof the audit.

5. It is advisable that different auditors be appointed on a rotationalbasis, noting that rotation within the audit office among partnersbelonging to the same office ensures compliance with the rotationrequirement.

IV- Auditing and Related Aspects ofCorporate Transparency


Appendix AList of Shareholder’s Rights1.The Content of the ListEach company adopting this Code should create a “List of Shareholder’srights to include the rights of shareholders consecrated in the LCC andthis code. This list may also include additional rights such as minorityshareholders’ tag along rights (also know as co-sale rights). Such rightsprotects the minority shareholders in that it provides them with theoption to “co-sell” their shares in the event of the Company’s take overor consolidation, or any large sale by majority shareholders.

2. The Process of Adopting the ListEach Company adopting this Code should decide on the process ofadopting this list of rights. Concerning the formal adoption of the “Listof Shareholders’ Rights”, the Company may for example decide thatthe list of rights will be submitted to the Shareholders, whereupon a specific majority vote of the Shareholders the list becomes effectiveand is distributed thereafter to all Shareholders of record. The said listcould also be incorporated in the Company’s by-laws in order to bemore durable and binding inasmuch as it concerns such rights that arenot expressly provided for in Lebanese laws.

3. Availability of the ListEach Company adopting this Code should determine whether it wishesto make this list available to non-shareholders such as potentialshareholders (for example potential share purchasers) or otherwise tothe public.

4. The Importance of Adopting a Shareholders’ List Whilst shareholders’ rights contained in the laws of Lebanon areeffective irrespective of the adoption of this Code or theaforementioned list, the formal adoption of such list of shareholders’rights is important notably in terms of:i. raising the awareness of management and shareholders to suchexisting rights. Indeed, many shareholders and even management areunaware of basic shareholders’ rights; andii. consecrating specific shareholders’ rights that may not be expresslyprovided for in Lebanese laws even if such rights may sometimes bederived from existing general principles of Lebanese corporate and civil law.

Appendix BShareholders’ Right to Information

1. Article 4.1 of the Code determines the company documents andinformation that shareholders may access. As part of this Code, eachCompany should adopt internal regulations establishing a clear anddetailed procedure for exercise by the shareholders of their right toinformation. Prompt and efficient enforcement procedures andredress measures for enforcing disclosure requirements should beincluded.

2. In the absence of express legal penalties and sanctions underapplicable Lebanese law, each Company adopting this code may wishto provide for a penalty against the relevant company director oremployee for breaching the disclosure requirements defined in thisCode. However, the enforceability of such penalty will vary dependingon the legal procedure pursuant to which the Company decides tointegrate or adopt this Code.

3. Article 579 of the Lebanese Code of Civil Procedure provides, interalia, that the judge of urgent matters is competent to impose suchmeasures necessary for the purpose of removing infringements uponlegitimate rights. Therefore, if this Code is given contractual power bybeing incorporated into the Company’s by-laws for example, the judgeof urgent matters should be competent to enforce its provisions inevents of infringements upon shareholders’ rights provided for in theCode and should be competent to order the shareholder’s right toaccess the aforementioned information.


Appendix CThe Rights of Shareholders with Regard to Shareholders’ Meetings1. The Right to Call Shareholders’ MeetingsArt 176 LCC provides that shareholders owning at least 1/5 of theCompany’s share capital may request that the auditors call for ageneral assembly. The authors believe that this Code, if approved bythe extraordinary general assembly as part of the Company’s by-laws,may provide for a lower percentage thus increasing minorityshareholder protection. Each Company adopting this Code shalldetermine whether it wishes to lower the said percentage so as toprovide minority shareholders with the express right to call assemblieswhen the board and auditors fail to do so. 10% seems to be anappropriate figure for minority rights, however this figure is given forindicative purposes and each Company adopting this Code shoulddetermine the percentage that is appropriate to each company’s needsand specificities.

2. The Right to Place Items on the AgendaThe LCC doesn’t expressly provide for shareholders’ right to placeitems on the agenda. Whilst the authors of this Code recommend thatthe LCC be amended to expressly include such right, the authorsbelieve that pending such amendment, the right of shareholders toplace items on the assembly’s agenda is in line with general principlesof corporate and contract law and may be expressly consecrated inthis Corporate Governance Code and/or in the Company’s by-laws.

Article II.B.2 of this Code provides that Shareholders representing[10]% of the share capital are entitled to place items on the agenda ofgeneral meetings. This 10% figure is provided for indicative purposesand each Company adopting this Code should define the minimumshareholders’ percentage entitled to place items on the agenda.

3. Minimum Notice PeriodEach Company adopting this Code must determine the minimumnotice period for calling shareholders’ assemblies, provided howeverthat such notice period is not less than 15 days, given that the LCCimplicitly requires a minimum 15 day notice period for the conveningof annual ordinary general assemblies.

4. Convening of Shareholders’ Meetings Depending on shareholders’ composition,residency and other factors, each Companyshould determine the appropriate procedurefor convening general assemblies. A balanceshould be reached between efficiency (toavoid cumbersome notification procedures)and ensuring actual timely and successfulnotification.1

5. The Right to Make Informed Decisions

i. Access to Information: Each company adopting this Code shoulddetermine the information and documents tobe made available to shareholders prior toeach assembly as recommended under articleII.B.5.2 of the Code. Each company may wishto additionally include other items than theones listed in article 5.2, such as draftresolutions, tax returns or simply the annualreport or quarterly reports as needed. Otheritems may also be considered such as acomparative, reader-friendly table showingthe financial results of the company for thelast five financial years with a clear indicationof the board composition for each of the saidyears.

ii. The Right to Ask QuestionsEach Company adopting this Code may wishto consider including the express right ofshareholders to address written questions tothe Board prior to shareholders’ meetings.The Board should answer such questions inwriting at the latest at the beginning of themeeting.

1. Generally, Lebanese companiesprovide for mailing procedures (ifthe number of shareholders islimited) or publication in twodaily newspapers. In the eventthat the Company adopts thepublication procedure forconvening assemblies, it may beadvisable – notably where acompany includes shareholdersresiding abroad – to provideshareholders with the additionaloptional right to receive anyconvocation and agenda at aspecific address determined bythe relevant shareholder (as suchaddress is communicated to theBOD secretariat, or office of theBOD Chairman in writing).


Appendix DBoard Composition and Minority Shareholders

Article II. D of this Code provides that minority shareholders should beable to ensure election of an appropriate number of board membersof their choice. The authors of this Code are of the opinion that eachCompany adopting this Code may validly add a provision to its by-lawswhereby shareholders representing a specific percentage (for example10%) of the Company’s share capital are entitled to elect a boardmember of their choice, provided that they suggest at least threenames for such position.

General Observation:In systems where election of the Board is determined by the simplemajority vote of shareholders’ assemblies , shareholders may face aproblem of ill-representation.

An extreme example is one where shareholders holding 49.5% of thevotes may not elect to the Board even one Board member. Otherconcerns relate to scattered minority shareholders owning smallpercentages, who can never voice their concerns because they areunable to be represented on the Board (noting that board members,once elected, are supposed to represent all shareholders).

In some countries, this issue has been resolved by cumulative voting.The LCC does not provide for cumulative voting and such mechanismis arguably in contravention with the one vote-one share LCCprinciple. However, some authors have considered as valid theprovisions of a company’s by-laws whereby a group of shareholders isentitled to be represented on the board, provided that such groupprovides a choice of candidates for such position.

Appendix EGovernance of Family Owned Entreprises*

This Appendix was contributed by Dr. JosianeFahed-Sreih, Associate Professor ofManagement, Department of Economics andManagement and the Director of the Instituteof Family and Entrepreneurial Business at theSchool of Business of the Lebanese AmericanUniversity

These provisions are specific to Family OwnedBusinesses, whereby the family has majorityownership in the business and/or the family isin management positions of the businessand/or whereby the family dynamics influencedecision making, and the long term directionof the business. The word “family members”refers to any member related by blood and/orby marriage to one another.Governance in family owned enterprises isdifferent from governance in corporations asthe nature of ownership in family businessesdiffers in many ways:- The basis of ownership is long term- There are usually limited numbers ofowners- They are well known to each other- They have family relationships other thanbusiness relationships- They have inherited certain family conflictswhich unconsciously they bring to thebusiness- Their ownership represents a large share oftheir personal net worth- Their presence on board stems from theirfamily relation and not their exclusiveknowledge about the industry in which theyoperate

* This appendix is a synopsis of amore detailed code specific tofamily owned businesses that willbe published at the Institute ofFamily and EntrepreneurialBusiness at the LebaneseAmerican University. For moreinformation, contact Dr. JosianeFahed-Sreih at [email protected],or check: www.lau.edu.lb


- Exit from ownership is difficult financially and emotionally- They are obliged to collaborate for the benefit of the business- They have extensive knowledge about each other which makes itdifficult in some situations.The above reasons are realities that make ownership aninterdependent and intricate factor that should be dealt withcautiously to avoid conflicts and tensions in the family business.Because ownership is not widely spread like in public corporations,owners are the ones who set up their own governance system, unlikethe governance system in publicly- held organizations where thesystem conforms to societal and regulatory expectations, usually led bymanagement. Hence, in family firms, the owners themselves set theirown governance system, in which they define their roles andresponsibilities. Owners take their power of choice in hand and attheir own discretion design the governance system of their choice.Family Business companies in Lebanon should have at least a familycouncil, stemming from the family assembly, and a familycoordinating committee, reporting directly to the family council.

They should come up with a family constitution, in which familypolicies are detailed.

1. Family AssemblyThis family assembly structure should include all family members. Herethe definition of who is family is important. This structure may includeon its agenda, all the family governance committees reports. It alsoincludes presentations by all family governance committees in whichthey report the work of the past year and they set objectives for thecoming years.They invite participation and involvement from the whole family.They make elections for committees where openings have becomeavailable in the next cycle.They report out on a family history projectPresentations by the CEO/Chairman of the board about the latestdevelopments that may enhance the family’s pride in their businessactivities should be done with conformity to the principles of equity,transparency and accountability embodied in this code.

2. Family CouncilThis structure is made up of a small group representative of the familyworking at the discretion of the family as a whole, to manageactivities that provide continuity of family values, family identity,family education, and family socialization; and to give guidance to thefamily directors about the family’s interest in the adopted policies ofthe family business. The council serves as an executive committee ofthe family assembly in between meetings and oversees andcoordinates the work of the committees.The family council decisions are different from the board of directors’decisions. The family council business is geared towards the familywhereas, the boards of directors business is geared to the business. The family council should send reports of the family decisions to theboard of directors and to shareholders for notification andunderstanding of the family aspirations and direction.

3. Family ConstitutionFamilies should come up with a document in which all areas ofpotential tensions and conflicts are dealt with. This document shouldinclude:

i. The family values, which includes the family philosophy, principles,values and beliefs.ii. The family member’s employment policies

Family businesses should come up with a thorough human resourcespolicy for the entire organization in which they list policies pertainingto entry, employment, compensation and benefits, performance andreview, promotion, internships, perquisites, exit, departure and re-entry, retirement and leaves of absences. It is recommended thatfamily members’ policies should be in line with the non-familymembers’ policies or better be the same. The dealing withemployment should be based on merit rather than blood relationshipsto avoid nepotism, and encourage excellence and achievement in thebusiness. They could come up with a family employment committee todeal with all employment issues. The family employment committeewould report to the family council who in turn should report to theboard.


iii. The family code of conductiv. The family decision makingv. The conflict of interest and self dealing policyvi. The family philanthropy, strategies for philanthropy should bedeveloped depending on the size of the business and the type ofindustry and type of community in which the business is.(vii) The inclination of the family to have family or non-family as apotential successor, and the preparation of successors to key positions.Family businesses should have a written succession plan describing theprocess of succession. The selection process is a board decision.(viii) The family training and education strategy(ix) The shareholders’ agreement which should include policiesconcerning the role of family shareholders, their share ownership aswell as the stock transfer and stock sale policies. The value of shares ata given time should be valuated by an independent recognizedauditing firm, or otherwise as provided by the terms of the successionplan.

4. Family Coordinating Committee This committee should meet at least 2 times a year to make up theagenda for the family council, and if needed to discuss other mattersof importance. This committee can appoint teams to work withdifferent projects and handle important matters.

The above structures are family governance structures. Anythingrelating to the business should be considered part of the businessstructure. The family council reports to the board of directors. Theboard of directors should have a minimum of 20% unrelated orindependent directors to ensure professionalism on board. The boardof director’s composition should be widely representative of theshareholders’ base. Every 10% of the shareholders can ask for arepresentation on the board. The board size should be small to ensureprofessionalism and processing of decisions. The board of director’smain duty and responsibility is to create shareholders’ value.

Each company adopting this Code may choose to adapt the electionand composition of the following board committees according to theCompany’s framework and in the Company’s best interest. It should,however, be noted that good corporate governance entails that theNomination and Compensation Committees be comprised of amajority of non-executive board members.

A. Audit CommitteeAn Audit Committee may be formed whose mission shall be toprepare and/or review the Company’s financial records and accounts;and to ensure that the Company adheres to all appropriate financialaccounting and reporting standards.

The Committee must produce quarterly financial reports and adetailed annual report, which shall be submitted to the Board for itsreview and for inclusion in the Company’s annual report.

B. Board Member Nomination and Selection CommitteeA Nomination Committee may be formed whose mission shall be thenomination and recommendation to the Ordinary General Assemblyof candidates for the Board. The nomination committee shall beappointed by the Board of Directors every two years and shall becomprised of all non-executive board members who wish to join suchcommittee. The nomination committee may recommend names whoare not shareholders of the Company. If a non-shareholder isnominated by the nomination committee and elected by the GeneralAssembly, the minimum number of guarantee shares shall beconferred upon such person either via a share transfer, a capitalincrease or as may be agreed upon by the shareholders.

In pursuing its mission, the nomination committee may request theassistance and/or advice of executive board members, specializedcompanies, shareholders and others. It should be noted thatnomination of board members from the floor of the general assemblyis possible.

Appendix FThe Board Committees


C. Compensation CommitteeA Compensation Committee may be formedwhose mission shall be the recommendationof remuneration packages and agreements ofboard members and management. Therecommendation of the CompensationCommittee shall be submitted to the Boardfor submission to and approval by theshareholders’ general assembly. Thecompensation committee shall be elected bythe ordinary General Assembly every twoyears and shall consist of at least [1/3] ofShareholders with less than [10]% ownershipin the Company who are nominated by theBoard and elected to that committee by avote of all Shareholders owning individuallyless than [10]% of the Company’s sharecapital at the time of the General Assembly. It is recommended that the compensationcommittee include a maximum of oneexecutive board member if any, noting thatexecutive board members may not in anyevent constitute more than 30% of theCompensation committee members and maynot vote on their own remuneration.Compensation committee salary decisions areeffective only upon the approval of [themajority] of the committee members.

D. Regulatory Compliance Committee1

A Regulatory Compliance Committee may beappointed by the Board whose mission shallbe the monitoring and reporting of theCompany’s conformity with all applicablegovernment rules, regulations, and laws. Thiscommittee is charged with overseeingcompliance with all laws and regulatory rulesthat govern the Company’s activities and

products, and reporting that compliance to the Board with the aim ofensuring the Company meets its legal obligations and avoids incurringpotential risk from failing to meet those obligations. Within areasonable time of its formation this Committee shall draft, forapproval of the entire Board, a Code of Corporate Conduct and otherethical or compliance frameworks deemed necessary to establish thetransparency and accountability of the Company to its stakeholdersand regulators. The Committee is also charged with establishingsafeguards and policies to ensure the Company and its agents refrainfrom all forms of corruption and unethical business practices. TheCommittee shall have the power to conduct internal investigationsinto alleged misconduct within the Company and has an obligation toreport to the Board any such wrongdoing when it is uncovered.

The Committee must produce a detailed annual report, which shall besubmitted to the Board for its review and for inclusion in theCompany’s annual report.

E. Stakeholder Relations CommitteeA Stakeholder Relations Committee may be formed whose missionshall be to develop and monitor the Company’s relationship to variousstakeholders, including employees, customers, clients, suppliers,business partners and any other interested parties impacted by theCompany’s activities or products. The Committee is charged withensuring that the interests of stakeholders are considered by theBoard when it makes decisions that impact various stakeholders.

The Committee must produce a detailed annual report, which shall besubmitted to the Board for its review and for inclusion in theCompany’s annual report.

1. Committee Composition and Member Rotation At least one committee member shall be a certified accountant orotherwise be capable of understanding and evaluating complexfinancial statements. Committee members shall serve on thecommittee for staggered terms and any single member must not havemore than 2 consecutive terms on the committee without steppingdown from the committee for a period of at least 9 months to ensure

1. The Regulatory ComplianceCommittee may, depending onthe nature of the company’sundertakings and at thediscretion of the Board, becombined with the AuditCommittee. However, a separateAudit Committee is particularlyappropriate where the nature ofthe Company’s business requiresextensive interaction withgovernment regulations andlaws.


that the Committee make changes on a regular basis.

2. Committee Powers and ObligationsIn faithfully discharging its duties the Committee must:i. establish, maintain, and regularly review the Company’s financialreporting guidelines, internal controls, and principles to ensure that allfinancial records are accurate and sufficient;ii. recommend, select, and obtain outside, independent auditingservices and advice in compliance with legal guidelines and acceptedaccounting standards;iii. oversee all employees charged with the Company’s financialrecordkeeping;iv. investigate all irregularities and allegations of Board, employee, oragent misconduct with regard to the Company’s financial records;v. prepare, or otherwise commission the preparation of, all requiredcompany financial records and evaluative reports;vi. obtain independent evaluation of any financial conflicts ofinterests, including proposed related party transactions; andvii. review and approval all financial statements and reports prior tosubmission to the Board and Shareholders.

Each Board member owes the Company the following duties andobligations:1. The Duty of Carea. In faithfully discharging his or her duties, the obligated party mustact in good faith and exercise the same care and diligence which theordinary, prudent person would exercise when in the same position,under similar circumstances, and reasonably acting in the best interestsof the Company. b. A Board Member must take reasonable steps to be fully aware of allrelevant issues, including engaging in due diligence, such as consultingoutside experts when appropriate, and to make informed andindependent decisions when voting on Company matters. In additionto the obligation to be informed on Company decisions and matters,the duty of care also requires Board members to take reasonable stepsto monitor the Company’s management and finances. c. Every newly elected Board Member shall upon his/her electionbecome familiar with the Company structure, management and allother information enabling the said Board Member to assume his/herresponsibility.

2. The Duty of Loyalty/Related Party IssuesThe Board Members owe a Duty of Loyalty to the Company and itsShareholders. This fiduciary duty requires Board Members tosubordinate their personal interests to the interests of the Companyand its Shareholders and at all times act in good faith.In addition to complying with the guidelines concerning Related PartyTransactions set forth in Appendix H of this Code, to fully dischargethis duty the obligated parties should refrain from engaging in any:a. self-dealing where an obligated party or the obligated party’sfamily members, business associates or any other party closelyaffiliated with the obligated party has a financial interest in aCompany action;b. activities which compete with the financial interests of theCompany, including engaging in a competing business; however thissection does not prohibit an obligated party from owning less than10% of a publicly traded company or instances where the conflict is

Appendix GDirectors’ Charter and Duties


disclosed and expressly waived by a majorityof the members of the Board (or the GeneralAssembly);c. usurpation of a corporate opportunitywhich rightfully belongs to the Companyunless the opportunity is first offered to theCompany and duly rejected by a [__]%1 voteof the Shareholders;d. apparent, potential, and actual conflicts ofinterests. In the instance of such a conflict ofinterest involving a Director the affectedDirector must fully disclose the conflict andrefrain from voting on or being present whenany matters related to the conflict arebrought to a Board vote;e. action which results in a preferentialpersonal loan to another obligated partywhen similar loans and loan terms are notoffered to the general public; andf. action which constitutes insider trading orotherwise improperly disclosing confidentialCompany information.

3. The Duty to Comply With the CorporateAuthorityAll obligated parties must act within the scopeof the authority entrusted to them under theCompany’s articles of incorporation, dulyenacted Board directives, Shareholderresolutions, and applicable laws. Directorsacting outside of the scope of their authorityshould be liable for Company losses sufferedas a result of those unauthorized acts.

1. Each company adopting thisCode shall define the percentageshareholding vote required as perthis clause.

1. Each Company adopting thisCode may wish to widen thedefinition of “a related party” toinclude senior executives, majorshareholders, and the Company’spartners in a joint venture, or aboard member’s declaredcompanion.

1. Definition: For the purpose of this Code, a Related PartyTransaction is any transaction entered intobetween the Company and:

i. any of the board members or a boardmember’s spouse, children, mother or father;ii. any company or entity in which one of theCompany’s board members (including theboard member’s spouse, children, motherand/or father) has a direct or indirect stake ofmore than 10%; oriii. any company or entity that includes on itsboard or top-management a board memberof the Company (including the boardmember’s spouse, children, mother and/orfather);iv. and in general any transaction that confersa direct or indirect advantage or benefit untoone of the board members (including theboard member’s spouse, children, motherand/or father or partners in a generalpartnership).1

2. Procedure for Approving a Related PartyTransaction:No Related Party transaction may be enteredinto unless duly authorized in advance by theaffirmative resolution of the shareholders’assembly held as follows and in strictcompliance with the requirements of Article158 of the LCC:

Appendix HRelated Party Transactions


2.1 The Agenda of the meeting where the authorization is to begranted shall clearly state that the proposed transaction is a relatedparty transaction. It should be noted that the Board shall not proposea related party transaction to the general assembly unless the Boardof Directors determines after due deliberation and upon writtenadvice of the auditors:

i. that such related party transaction is beneficial to the Company andits shareholders; and

ii. is in accordance with the principles of fairness and equity wherebyany Company value or assets, present or future, which are proposed tobe transferred must only be done at market rates, in the best interestsof the Company, and not with preferential terms, including in theevent of pending insolvency.

In the case of services proposed to be provided to the Company, theBoard must be satisfied that an independent bidding process withpotential non-related party service providers would not result inbetter value for the Company;

2.2 The Board shall submit a separate report explaining the proposedtransaction and the rationale for entering into such transaction withthe relevant related party and evidencing the relationship betweenthe Company and the concerned Related Party. Such report must becommunicated to the shareholders with the agenda and the call forthe meeting.

2.3 Shareholders shall have the right to inquire on other related partytransactions entered with the same person or with any other relatedparty.

2.4 The Auditors shall submit a separate report concerning theproposed transaction evidencing the relationship between theCompany and the concerned Related Party. Such report must becommunicated to the shareholders with the agenda and the call forthe meeting.

2.5 The chairperson of the General Assemblyshall, at the commencement of any Assembly,inform the attending Shareholders of theirright to request information on the discussedissues and their right to request the meeting’sadjournment if they deem to be insufficientlyinformed2.

2.6 The related party transaction must beapproved by a majority vote of theshareholders without the participation of theconcerned related party.

3. Disclosure:Every Related Party transaction undertakenby the Company shall be listed in anysubsequent financial and annual reports for[three]3 consecutive years and so long as thetransaction represents a material liability forthe Company, whichever is longer.

2. Please refer to item II.B.5.5 ofthe Code.

3. Each company adopting thisCode should decide on thenumber of years mentioned inthis clause.

The Lebanese Code of Corporate Governance

the lebanese code of - european corporate governance · pdf filethe lebanese code of corporate...

Documents