The MALAWI CODE II - European Corporate Governance … · · 2011-07-05The Malawi Code II (Code of Best Practice for Corporate Governance in Malawi) was published by the Institute

National Corporate Governance Review Committee (NCGRC)

The MALAWI CODE II

CODE OF BEST PRACTICE FOR

CORPORATE GOVERNANCE IN MALAWI

Sector Guidelines

for Parastatal Organisations

and State Owned Enterprises

Officially launched on 3rd

February 2011

Sector Guidelines for Parastatal Organisations and SOE – February 2011 Page 2 / 46

The implementation of the Corporate Governance Action Plan for

Malawi, in response to the Report on the Observance of Standards

and Codes (ROSC) carried out by the World Bank Group in 2007, is

funded by the Government of Flanders.

This publication has been proudly sponsored by National Bank of Malawi

Add logo of National Bank of Malawi

These Sector Guidelines are published by the Institute of Directors. Blantyre, February 2011

Copyleft The IOD of Malawi, as custodian of the Malawi Code II, allows and encourages the free reproduction, copying, and use of the text, concepts and ideas developed for and used in the Malawi Code II and in these Sector Guidelines. All such use is however subject to the condition that any derived use or adaptation remains freely available under the same conditions.


TABLE OF CONTENTS

INTRODUCTION ................................................................................................................................................... 4

ACKNOWLEDGEMENTS ....................................................................................................................................... 5

DEFINITIONS ....................................................................................................................................................... 6

1. COMPLIANCE WITH THE CODE ...................................................................................................................... 11

2. OWNERS ........................................................................................................................................................ 12

3. BOARD STRUCTURE ....................................................................................................................................... 18

4.THE ROLE OF THE BOARD ............................................................................................................................... 20

5. BOARD EVALUATION ..................................................................................................................................... 24

6. BOARD SUB-COMMITTEES............................................................................................................................. 25

7. THE CHAIRMAN ............................................................................................................................................. 26

8. MEMBERS OF THE BOARD ............................................................................................................................. 28

9. NON-EXECUTIVE MEMBERS OF THE BOARD .................................................................................................. 29

10. APPOINTMENT OF MEMBERS OF THE BOARD ............................................................................................. 30

11. REMUNERATION OF MEMBERS OF THE BOARD ........................................................................................... 32

12. TRAINING AND DEVELOPMENT OF MEMBERS OF THE BOARD .................................................................... 33

13. THE COMPANY SECRETARY .......................................................................................................................... 34

14. RELATED PARTY TRANSACTIONS ................................................................................................................. 36

15. RISK MANAGEMENT AND INTERNAL CONTROLS ......................................................................................... 37

16. ETHICS ......................................................................................................................................................... 37

17. GOOD CITIZENSHIP ...................................................................................................................................... 38

18. SUSTAINABILITY .......................................................................................................................................... 39

19. EXTERNAL COMMUNICATIONS .................................................................................................................... 39

20. INTEGRATED REPORTING AND AUDITING .................................................................................................... 40


INTRODUCTION

The Malawi Code II (Code of Best Practice for Corporate Governance in Malawi) was published by the

Institute of Directors (IOD) on 1st June 2010.

When reviewing the first Malawi Code, published in 2001, the “National Corporate Governance Review

Committee” (NCGRC) decided that the Malawi Code II would comprise a set of Overarching Provisions

(OPs) that would apply to all organisations in Malawi, not just incorporated entities. The OPs should be

appealing and applicable to all types of organisations in Malawi; this, however, does not imply that these

OPs should be vague or sketchy. On the contrary, they are as concrete and as detailed as possible;

while still remaining applicable to all types of organisations in Malawi.

In addition to the OPs of the Malawi Code II, the NCGRC and the IOD envisaged some Sector

Guidelines that would detail how the OPs would apply in specific cases or specific types of

organisations. The sector specific guidelines provide the necessary interpretation, best practice and,

where appropriate, more stringent requirements for implementation in that particular sector.

While drawing upon and being inspired by international best practices with respect to corporate

governance for Parastatal Organisations and State Owned Enterprises (SOE), such as the “OECD

Guidelines on Corporate Governance of State-owned Enterprises” (2005), these sector guidelines have

also been specifically designed and tailor-made in order to meet the challenges and needs of Parastatal

Organisations and SOE in Malawi.

These Sector Guidelines for Parastatal Organisations and SOE should therefore contribute to the

ongoing reform and continuous development of the parastatal sector in Malawi.

The parastatal organisations and SOE are of utmost importance to the economy and social

development of Malawi. By providing Malawi with these “Sector Guidelines for Parastatal Organisations

and SOE”, the IOD and the NCGRC have given a positive impulse. It is hoped that this will trigger the

adoption of better corporate governance practices throughout the Parastatal sector in Malawi. This in

turn will lead to sustainable businesses, improved transparency, increased trustworthiness, less

corruption, economic development and poverty reduction.

Some provisions of these Sector Guidelines may only be achieved over time. It is also recommended

that any future revision of laws, regulations or statutes that govern Parastatal Organisations and/or SOE

in Malawi would take into account the provisions as set forth in these sector guidelines; leading to a

gradual and further alignment of parastatal sector regulations with the requirements and international

best practices of Corporate Governance.

In order to set a good example, while exerting its ownership rights and responsibilities, government

should itself fully respect and promote the regulatory framework and corporate governance principles for

parastatal organisations and SOE.

The NCGRC and the IOD invite the Department of Statutory Corporations, in close collaboration with

the Public Enterprises Reform and Monitoring Unit (PERMU) at the Ministry of Finance, to take on the

role as main custodian of these sector guidelines. Only a corporate governance improvement process

may lead to the envisaged “full compliance” by the Parastatal Sector in Malawi. Such a process can

only result from a systematic promotion and monitoring of compliance with these sector guidelines by

the key driving and coordinating actors of the parastatal sector.


Acknowledgements

These “Sector Guidelines for Parastatal Organisations and SOE” were commissioned by the IOD and

the NCGRC in order to provide the necessary interpretation, best practice and specific requirement for

applying the Malawi Code II in the many Parastatal Organisations and SOE in Malawi. It is the result of

the hard work of many people representing different organizations operating in Malawi.

The IOD would particularly like to thank the following:

The members of the NGRC‟s Subcommittee for Parastatal Organisations :

Mr. H. Mazengera, Roads Fund Administration (RFA), chair of the Subcommittee

Mr. Ben Mbewe, Department of Statutory Corporations of OPC

Mr. Fumbani Sichinga, Department of Statutory Corporations of OPC

Ms. Zione Ntaba, Malawi Energy Regulatory Authority (MERA)

Mr. Lowani Munkhondia, Malasha Holdings Company Ltd

The Malawi Institute of Management (MIM) and the Public Enterprises Reform Monitoring Unit

(PERMU) at the Ministry of Finance who supported the subcommittee and provided feedback.

Those individuals who attended the consultation events on 28th September in Lilongwe.

Those who provided written comments as part of the general written consultation between 9th

October and 8th November 2010.

Prof. Mervyn King, Mr. Miles Templeman and other members of the IFC Global Corporate

Governance Forum‟s Private Sector Advisory Group (PSAG), who provided feedback on the draft

sector guidelines.

The International Finance Corporation (IFC) – Global Corporate Governance Forum (GCGF) for

providing technical advice to the project through the following Consultants:

Mr. Patrick Stoop,

Mrs. Alison Dillon Kibirige.

The members of the National Corporate Governance Review Committee

The IOD staff, particularly Mr. Anthony Kamtimaleka, for providing secretarial support.

Mr. Dixies Kambauwa Mr. John Robson Kamanga

Executive Director Chairman

Institute of Directors in Malawi Institute of Directors in Malawi


Preliminary Remarks

These Sector Guidelines are presented in a table with two columns.

The left column comprises the general definitions and overarching provisions of the Malawi Code II,

applicable to all types of organisations and sectors in Malawi.

The right column comprises the corresponding sector-specific definitions and provisions for the

Parastatal Organisations and State Owned Enterprises (SOEs).

In addition to the sector-specific provisions, the right column also comprises additional comments and

explanations on how to interpret and apply these provisions in the Parastatal Organisations and SOEs.

Malawi Code II Sector guidelines for Parastatal Organisations and

SOEs

DEFINITIONS

Def. 1. Owners The owners of the organisation shall be understood as those who constitute the supreme authority of the organisation, for example, Government, Shareholders, Holding or Parent organisation, etc. There may be a sole owner of the organisation; the shareholders or the members might exercise their ownership role in the Annual General Meeting (or General Assembly); owners may entrust “trustees” to take on the “ownership role” on their behalf; or there may be another ownership arrangement appropriate to the type of organisation.

OP-Def.1_P0.1 In the case of Parastatal Organisations, the owners shall be deemed to be the Government of the Republic of Malawi.

OP-Def.1_P0.2 State Owned Enterprises (SOEs) shall be deemed to be fully or partially owned by the Government of the Republic of Malawi, with the Government having a significant level of controlling ownership on the organisation.

Comments: OP-Def.1_P0.2-C1 It should be emphasised that the

true owners of Parastatal Organisations and (of the government‟s shares in) SOEs are the citizens of Malawi. Representing the people, it is the responsibility of the Government of the Republic of Malawi to exercise the ownership rights and responsibilities on behalf of the people of Malawi.



SOEs

OP-Def.1_P0.2-C2 For further explanations on the difference between “Parastatal Organisations” and “SOEs”, please refer to definition SG-Def_PO.1. For a definition of “Statutory Corporation”, please refer to definition SG-Def_PO.2.

Def. 2. Boards The board, often called board of directors, is a body of elected or appointed members who jointly oversee and direct the affairs of an organization. The body sometimes has a different name, such as board of trustees, board of governors, board of managers, governing board, governing council, board of commissioners, etc. It is often simply referred to as "the board." A board's activities are determined by the powers, duties, and responsibilities delegated to or conferred on it by the owners of the organisation and/or as specified by laws and regulations applicable to the type of organization. While the “Owners” constitute the supreme authority of the organisation, they confer the supreme governing role to the board. The board therefore is the main governing body situated between the Owners and the Executive Management of the organisation.

OP-Def.2-PO.1: In the case of Parastatal Organisations and SOEs, the “Board” shall be regarded as the highest body of authority responsible for strategically guiding the organisation and effectively monitoring management. The Board shall also be properly accountable to the owners of the organisation in the exercise of the ownership rights and responsibilities of the Government (and of the private shareholders in case of partially government owned SOEs).

Comments: OP-Def.2_P0.1-C1 These sector guidelines provide

clear guidance with respect to the respective roles of and the relationships between the Board, the Government‟s Ownership Unit and the Technical Ministry. For example refer to the following provisions: 2.1-PO.12, 2.4-PO.1 and 2.9-PO.2.

Def. 3. Member of the Board A member of the board shall be understood as any individual elected to or appointed as member of the Board (see definition above) e.g. Directors, members of governing councils, etc.



SOEs

Def. 4. Private, Public and Not for Profit Sectors Private Sector is that part of the economy which is both run for private profit and is not controlled by the state. It includes family owned businesses, private companies, Micro, Small and Medium Enterprises, as well as the informal sector. Public Sector, sometimes referred to as the state sector, is a part of the state that deals with the production, delivery and allocation of goods and services by and for the government or its citizens, whether national, regional or local/municipal. It includes State Owned Enterprises, Parastatals and Public Authorities or Commissions. Not for Profit Sector is that part of the economy where organizations are not for profit and are not part of the government. This sector is also called the third sector, in reference to the private sector and the public sector, or the Civic sector emphasizing the sector's relationship to civil society. It includes Non-Governmental Organizations, Community Based Organizations and other related organisations.

Additional Definitions of the Sector Guidelines for Parastatal Organisations and SOEs

SG-Def_PO.1 Parastatal Organisations and SOEs: a) “Para-” means something that is close or

comparable to, but also somehow different from. “Para-statal” therefore means close to governmental but still somehow different.

b) A “Parastatal Organisation” is defined as a public (fully government owned) corporate body that has been set up as a specific entity. Parastatal Organisations are clearly separated from regular government administration and are given sufficient autonomy to pursue their objectives in a flexible manner.

c) The precise nature of Parastatal Organisations varies by jurisdiction or legislation. They are created as autonomous public bodies, without shareholders but controlled by the government exercising its rights and responsibilities as owner of the Parastatal Organisation. The definition of “Parastatal Organisation” used for these Sector Guidelines therefore corresponds to the concept of “Statutory Corporation” (see definition SG-Def_PO.2 below).

d) “State Owned Enterprises” (SOEs), sometimes also called “Government Owned Enterprises”, are organisations that are created as companies and constituted according to the Company Law. They are, fully or partially, owned by government with, the Government having a significant level of controlling ownership on the organisation.



SOEs

SG-Def_PO.1-C1 Comment In Malawi the term “parastatal” is often used to comprise both statutory corporations and SOE‟s However, these sector guidelines are using the commonly used international definitions that separate between “parastatal organisations” and SOE‟s. (See also Annex I for additional definitions and explanations.)

SG-Def_PO.1-C2 Comment Internationally it is usually considered best practice to distinguish between:

on the one hand “Parastatal Organisations”: public (fully government owned) corporate bodies that have been set up as a specific entity, clearly separated from regular government administration and given sufficient autonomy to pursue their (“fully social / public” or “mixed social / public & commercial”) objectives in a flexible manner;

on the other hand (fully or partially) state owned enterprises (SOEs) that have a mainly commercial objective and that are expected to make a profit for the Country and to contribute to the state budget.

SG-Def_PO.2 Statutory Corporation: A statutory corporation is an autonomous public corporate body set up under a special Act of Parliament (or of other Legislative Authority) or otherwise created by statute (including a trust deed or a fund order).

SG-Def_PO.3 Technical Ministry. The technical ministry is the ministry responsible for government policy in the sector / area of business (such as: education, health, infrastructure, transport, mining, agriculture, energy, ....) in which the Parastatal Organisation / SOE operates. a) Depending on its mission and area(s) of business,

a Parastatal Organisation or SOE may have links with several technical ministries.

b) The policy role of technical ministries usually includes the regulatory function that may influence the conditions within which a Parastatal Organisation or SOE (as well as all other organisations active in the same area of business) has (have) to operate.



SOEs

SG-Def_PO.4 Ex-officio Members of the Board. a) Ex-officio Members of the Board are appointed to

the Board because of the office they hold; i.e. because of the specific function / position / job that they have been appointed to.

b) Ex-officio members can be “executive” (such as the Chief Executive Officer or other members of the management of the Parastatal Organisation / SOE concerned) or “non-executive” (such as representatives from specific ministries / departments); but they cannot be “independent”.

c) Their rights as Member of the Board may be limited by the Statute that appointed them or by the by-laws or articles of association of the organisation; for example they may not have the right to vote.

SG-Def_PO.5 Chief Executive Officer (CEO). a) The Chief Executive Officer (CEO) is the most

senior manager or head of executive management of the Parastatal Organisation.

b) Different types of denominations are being used in the Malawi Parastatal Sector: o Chief Executive o General Manager, o Executive Director, o Executive Secretary, o Principal, o Vice Chancellor, o Director General, o Secretary General, o Managing Director, o etc. These Sector Guidelines use the term “CEO” or “Chief Executive Officer” to describe this person.

SG-Def_PO.5-C1 Comment: Distinction between the role of CEO and the role of Secretary to the Board (i.e. the Company Secretary).

Whenever a Parastatal Organisation uses the denomination of “Executive Secretary” for its most senior manager, there should still be a clear distinction between this role and the role of the “Secretary to the Board”, in these sector guidelines referred to as “Company Secretary”.

SG-Def_PO.6 Chairman: The Malawi Code II and these sector guidelines use the term “Chairman” as a gender-neutral term for the person (male or female) who holds the position of the chairman. “Chairman” is thus defined as the person (male or female) who chairs a Board or a Committee of the Board and who is invested with the specific roles and responsibilities of the Chairman.



SOEs

1. COMPLIANCE WITH THE CODE

1.1 The Malawi Code II is concerned with the establishment of an environment conducive to enabling organisations to grow, thrive, survive and create sustainable development for Malawi, whilst acting as good corporate citizens.

1.1-PO.1: Parastatal Organisations and SOEs shall conduct their activities in a sustainable and responsible manner with great awareness of their social responsibilities, with great transparency and fairness in accordance with the principles applicable to their line of business, while accepting full accountability to the owners (the Government and the private shareholders in case of partially government owned SOEs) as well as to the entire community.

1.2 These Overarching Provisions (OPs) should thus be applied in all organisations be they large, medium or small; in the private, public or not for profit sector.

1.2-PO.1 Parastatal organisations and SOEs shall apply the Overarching Provisions (OPs) of the Malawi Code II together with these more specific Sector Guidelines.

1.2-PO.2 Parastatal Organisations and SOEs shall also apply other sector specific guidelines on Corporate Governance that may be applicable for their specific line of business (e.g. banking, insurance, listed companies, etc.) in Malawi.

1.3 Organisations in their annual or directors‟ reports should state whether the Code has been adhered to or, if not, explain with reasons in what respects it has not been adhered to.

1.3-PO.1: Parastatal Organisations and SOEs shall in their annual report clearly state to what extent the Malawi Code II and these specific Sector Guidelines have been effectively applied. They shall clearly specify which provisions, if any, have not been applied and provide clear reasons why.

Comments 1.3-PO.1-C.1 Both the Malawi Code II and these

sector guidelines use the “Apply or Explain” concept.

1.3-PO.1-C.2 “Adhered to” in the overarching provision 1.3 should thus be understood as “applied”. See also overarching provision 1.2.



SOEs

2. OWNERS

The owners of the organisation should:

2.1 Jointly and severally protect, preserve and actively exercise the supreme authority of their organisation.

2.1-PO.1 The government should act as an informed and active owner, ensuring that the governance of Parastatal Organisations and SOEs is carried out in a transparent and accountable manner, with the necessary degree of professionalism and effectiveness.

2.1-PO.2 The government should establish a clear and consistent ownership policy that defines the overall objectives of ownership of Parastatal Organisations and SOEs, the government‟s role in the corporate governance of these organisations, and how it will implement its ownership policy.

2.1-PO.3 The exercise of ownership rights and responsibilities with respect to any parastatal organisation or SOE should be clearly identified within the government‟s administration. This may be facilitated by setting up a co-ordinating entity or, more appropriately, by the centralization of the ownership function; hereafter referred to as “ownership entity”.

2.1-PO.4 The ownership entity should be held accountable to representative bodies such as the Parliament and have clearly defined relationships with relevant public bodies, including the National Audit Office.

2.1-PO.5 As an active owner, the government should be represented through the ownership entity at any general meeting of the organisation and actively exercise the ownership rights.

2.1-PO.6 Within the governmental structure and responsibilities, there should be a clear separation between on the one hand the ownership function and on the other hand the regulatory function (i.e. the role of the technical ministry and independent regulators in specific sectors) that may influence the conditions within which a Parastatal Organisation or SOE has to operate.



SOEs

2.1-PO.7 Any obligations and responsibilities that a Parastatal Organisation or SOE is required to undertake in terms of public services, beyond the generally accepted norm applicable in that line of business, should be clearly mandated by laws or regulations. Such obligations and responsibilities should be transparently disclosed to the general public and related costs should be covered in a transparent manner.

Comments 2.1-PO.7-C.1 Parastatal Organisations and SOE‟s

should not carry on sovereign or social burdens, unless this is properly disclosed and forms part of a financially transparent and sustainable framework.

2.1-PO.7-C.2 Examples of social or other obligations, beyond the generally accepted norm applicable in that line of business:

A Parastatal Organisation (or SOE) is given instructions to sell / provide products / services (in specific regions) at specific prices below the costs needed to produce and provide such products or services.

A Parastatal Organisation (or SOE) is given instructions to invest in a project (in a specific area) in spite of low expected rates of return or low probabilities of success.

2.1-PO.8 Parastatal Organisations and SOE‟s should not be exempt from the application of general laws and regulations.

2.1-PO.9 Stakeholders, including competitors, should have access to efficient and impartial redress when they consider that their rights have been violated by a Parastatal Organisation or SOE.

2.1-PO.10 Preferably, all government entities

engaged in commercial activities should be governed by the Companies Act.



SOEs

2.1-PO.11 Parastatal Organisations and SOE‟s should face competitive conditions regarding access to finance. Their relations with state-owned banks, state-owned financial institutions and other state-owned companies should be based on purely commercial grounds.

Comments 2.1-PO.11-C.1 This guideline 2.1-PO.11 does not

exclude transparent government funding of public or social services performed by a Parastatal Organisation or SOE. See among others provision 2.1-PO.7 and related comments.

2.1-PO.12 The role of the technical ministry is to define the overall government strategy and policy for the policy areas and line of business for which they are responsible. In order to implement those strategies the technical ministry may set quality standards and requirements for service delivery or security assurance.

Comments: 2.1-PO.12-C1 In principle the legal and regulatory

framework set by technical ministries should apply to all types of organisations active in a specific line of business; they should not specifically or differently target the Parastatal Organisations and/or SOEs.

2.1-PO.13 The legal and regulatory framework should allow sufficient flexibility for adjustments in the capital structure of Parastatal Organisations and SOE‟s, especially where this is necessary for sustainably achieving the organisation‟s objectives.

2.2 Ensure that only competent and reliable persons with appropriate knowledge, skills and experience are elected or appointed to the board.

2.2-PO.1 The government‟s ownership entity should establish well structured and transparent board nomination processes in all Parastatal Organisations and SOEs; in accordance with their by-laws, memorandum and articles of association and/or any relevant statutes.

2.3 Decide the term to be served by non-executive members of the board and ensure that the board is refreshed on a regular basis; bringing new and unbiased viewpoints into discussions and decision-making.

2.4 Foster constructive relationships with the board to facilitate the success and sustainability of the organisation.



SOEs

2.4-PO.1 The ownership entity should enter in a constructive dialogue with the Board in order to ensure a mutual understanding of the mission and main objectives of the concerned organisation.

Comments: 2.4-PO.1-C1 Such a dialogue can lead to an

agreement on the objectives of the owner and on how the Board shall report on progress in achieving those objectives.

2.4-PO.2 The government should not use a parastatal organisation or SOE to further goals that may conflict with the mission / fundamental objectives, memorandum and articles of association, relevant statutes, sustainability and/or corporate governance of that organisation.

Comments: 2.4-PO.2-C1 See also provision 2.1-PO.7.

2.5 Ensure that the board is constantly held accountable and responsible for the efficient and effective governance of the organisation.

2.5-PO.1 The Government‟s ownership entity should set up reporting systems allowing regular monitoring and assessment of the performance of Parastatal Organisations and SOEs.

Comments: 2.5-PO.1-C1 These reporting systems include the

Performance Management Plans and budgets being currently used by the Parastatal Sector in Malawi.

2.5-PO.1-C2 The line of reporting by a parastatal organisation / SOE to the Government‟s ownership entity should clearly go through the Board. The Performance Management Plans and budgets should be explicitly approved by the Board before management transmits them to the government‟s ownership entity.

2.6 Change the Chairman and/or the composition of a board that does not perform to expectations or in accordance with the mandate of the organisation

2.6-PO.1 In case of a Parastatal Organisation, the government‟s ownership entity should take the necessary steps leading to the required changes in the composition of an underperforming Board. In case of an SOE, the General Meeting should make such decisions.

2.6-PO.2 In case of unsatisfactory performance of the Board, orderly succession should be ensured when changing the composition of the Board.



SOEs

2.7 Ensure that their organization acts as a good corporate citizen, and in a sustainable manner, taking into consideration, as appropriate, the views of stakeholders.

2.8 Comply with all applicable pieces of legislation.

2.9 Respect the fiduciary duties of the members of the Board.

2.9-PO.1 The Government should not use its ownership rights to be involved in the day-to-day management of any parastatal organisation or SOE and should allow these organisations full operational autonomy to achieve their defined objectives.

2.9-PO.2 While fully exercising its ownership rights and responsibilities, the Government should let Boards of Parastatal Organisations and SOEs exercise their responsibilities and should respect their independence.

Comments: 2.9-PO.2-C1 Government‟s objectives and

expectations for respective parastatal organisations or SOEs should be communicated through the Board and not directly to management.

2.9-PO.2-C2 This also means that Government (or its ownership entity) should refrain from hiring, firing, or directly instructing management of Parastatal Organisations and SOEs, because these are clearly responsibilities of the Board.

2.9-PO.2-C3 In case of Boards hiring incompetent management or Boards not resolving performance problems of management, then this should be considered to be unsatisfactory performance of the Board itself and Government should then hold the Board accountable for such underperformance.

2.9-PO.3 The Government should refrain from detailed regulation of working conditions that would significantly hamper the parastatal organisation‟s or SOE‟s capacity to sustainably achieve its mission and objectives.

2.10 Ensure that the level of remuneration for members of the board and top management is sufficient to attract and retain the quality and calibre of individuals needed to run the organisation successfully.



SOEs

2.11 The majority of Owners and the Members of the Board should appropriately respect the rights of minority Owners. The organisation‟s affairs may not be conducted in a manner which is unfairly prejudicial to the interests of minority Owners and/or to the purpose of the organisation.



SOEs

3. BOARD STRUCTURE

3.1 The unitary (or one tier) board structure, comprising executive and nonexecutive directors, rather than the dual (or two tier) board structure adopted in some countries, is considered appropriate for Malawi as it provides greater interaction among all board members when dealing with matters such as strategic planning, performance, standards of conduct, resource allocation and communication with stakeholders.

3.1-PO.1 While using the unitary board structure, the Board of Parastatal Organisations and fully government owned SOE‟s in Malawi shall comprise independent non-executive members and ex-officio members. The Board of partially government owned SOE‟s may also comprise members that are not ex-officio and not independent because they represent private shareholders.

Comments: 3.1-PO.1-C1 In order to qualify as an “Independent”

Member of the Board, that Member shall not be a public servant and shall be free from any business or other relationship which could be seen to materially interfere with the individual‟s capacity to act in an independent manner. (See Appendices 1 for a more detailed definition of “independent” Member of the Board.)

3.1-PO.1-C2 If an independent non-executive Member of the board of a Parastatal Organisation or SOE has served for six years, his independence should be justified to and approved by the government‟s ownership entity or, in case of a partially government owned SOE, by the shareholders at the General Meeting.

3.1-PO.2 A public servant cannot serve as a Member of the Board of a Parastatal Organisation or SOE, unless as an ex-officio member legally mandated to do so.

Comments: 3.1-PO.2-C1 Ex-officio Members of the Board of

Parastatal Organisations and SOEs are defined by the relevant establishing Acts of Parliament and/or statutes and regulations relevant to the organisation.



SOEs

3.1-PO.2-C2 These ex-officio Members of the Board may either be non-executive, representing other governmental organisations, or executive, such as the CEO or individuals holding other specific leading management positions within the concerned Parastatal Organisation or SOE.

3.1-PO.2-C3 Unless the legal mandate appointing the ex-officio Member clearly stipulates that a particular ex-officio Member has full or limited voting rights, an ex-officio Member should not be given any voting rights within the Board.

3.1-PO.2-C4 If an ex-officio member is represented by a delegated officer, it is preferable and recommended that the same delegated officer attends consistently all Board meetings.

3.2 While the size of the Board shall be determined by the organisation, and shall vary from organisation to organisation, the size should be such that it ensures that the organisation operates effectively.

3.2.-PO.1 The Board should, unless stipulated differently by law, be comprised of a minimum of 5 and a maximum of 12 members, including the ex-officio members.

Comments: 3.2-PO.1-C1 It is recommended that future laws,

defining the composition of the Board of a Parastatal Organisation, do not lead to a composition of the Board that exceeds the recommended maximum of 12 Members of the Board.

3.2-PO.1-C2 If there is a need to involve a large number of stakeholder organisations, the government could consider creating a “Stakeholder Advisory Committee” providing a structural basis for strategic interaction between the Board and a broader forum of representatives from stakeholder organisations.

3.2.-PO.2 Within the Board of any Parastatal Organisation or SOE, the total number of ex-officio Members shall not exceed one third of the total number of Board Members.

Comments: 3.2-PO.2-C1 The Board Member nomination

process should therefore enable a majority of Board Members of Parastatal Organisations to be independent and non-executive Directors.



SOEs

4.THE ROLE OF THE BOARD

The Board should:

4.1 Ensure that the organisation complies with all relevant laws, regulations and codes, including the Malawi Code II, and, if appropriate, ask executive management to report periodically on such compliance.

4.2 Exercise leadership, enterprise, integrity and sound judgement in directing the organisation; so as to achieve sustainable success for the organisation.

4.2-PO.1 The Board should have the necessary authority, competencies and objectivity to carry out its function of strategic guidance and monitoring of management. It should act with integrity and be held accountable for its actions.

4.2-PO.2 In discharging their duties and functions, within the framework of the mission and objectives of the organisation as defined by government, Boards of Parastatal Organisations and SOEs should follow best practice as adhered to in the private sector and in well performing parastatal organisations worldwide.

4.3 Determine the organisation‟s mission, values and objectives; ensure that a strategy is in place to achieve these and hold management accountable for its implementation.

4.3-PO.1 The Board should carry out its functions of strategic guidance and monitoring of management, subject to the objectives set by the government and the ownership entity.



SOEs

4.3-PO.2 Boards should set clear strategic direction for the CEO and management.

Comments: 4.3-PO.2-C1 The Board should decide on strategic

corporate planning covering one, three, and more years and comprising (at least): a) the mission of the parastatal

organisations; b) agreed upon strategic objectives

and expected results and outcomes;

c) strategic and business initiatives and corresponding financial planning;

d) key performance measures and indicators for assessing the organisation‟s performance in delivering the desired outcomes and objectives;

e) key issues on risk management and fraud and corruption prevention.

4.3-PO.3 The Board shall effectively empower the CEO and executive management to implement the strategy and realize the objectives as set by the Board. Boards shall hold management accountable for successful implementation of the strategy but shall refrain from interfering in the roles and responsibilities of management.

4.4 Ensure that appropriate procedures and practices, to protect the organisation‟s assets, resources and reputation, are in place and are effective.

4.5 Develop a board charter, based on the organisation‟s Constitution, Articles of Association, and the laws and regulations that apply to the organisation, in which roles and responsibilities are clearly defined.

4.5-PO.1 Parastatal organisations and SOEs must develop a Board charter outlining what is expected of Board Members, and what the sanctions for non conformance are.

4.6 Retain full and effective control over the organisation.

4.7 Ensure that decisions on material matters are in the hands of the Board. The Board should have a definition of materiality on matters such as the acquisition and disposal of assets, investments, capital projects and authority levels. The level or definition of materiality is a matter for each organisation to decide.

4.8 Define the responsibilities of and requirements for reporting by executive management and monitor their performance.



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4.9 Ensure that plans are in place for orderly succession of Members of the Board and of the Chief Executive Officer.

4.9-PO.1 Appointment and Removal of the CEO of any parastatal organisation or SOE should be a responsibility vested in the Board.

4.10 Ensure that every member of the board is able to play a full and constructive role in the affairs of the organisation.

4.11 Develop policies and processes to avoid or minimise conflicts of interest.

4.11-PO.1 Any Parastatal Organisation and SOE should establish clear policies to avoid or minimise conflicts of interest. At least yearly they should review compliance of these policies by Members of the Board and by management.

Comments: 4.11-PO.1-C1 “Avoidance and minimization of

conflict of interest”, shall be a crucial “guiding principle” for any Board of a Parastatal Organisation or SOE.

4.11-PO.1-C2 It should be made clear to any Member of the Board and management that the Members of the Board and management should always prioritize the interests of their Organisation and its capacity to sustainably realize its mission.

4.11-PO.1-C3 Members of the Board should always refrain from pursuing their political obligations, personal interests and / or the interests of their connections at the expense of the Organisation.

4.11-PO.1-C4 When Members of the Board “refrain from interfering in the roles and responsibilities of management” (see provision 4.3-PO.3), this will help to avoid any appearance of conflict of interest with respect to such matters.

4.11-PO.1-C5 As part of the annual Board Evaluation Process (see Overarching Provision 5.1), the Board shall assess to what extent this guiding principle on “avoidance and minimization of conflict of interest” is appropriately adhered to by both Board Members and management.



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4.11-PO.2 Members of the Board shall inform the Board whenever any matter to be discussed and / or decided by the Board may comprise (or appear to comprise) a conflict of interest or that may involve a party related to the concerned Board Member. In such a case, the concerned Board Member should not be present during the discussion and decision by the Board on such matter.

4.12 As part of its decision making process, take into consideration wider societal interests and other circumstances affecting how the organisation fulfils its „license to operate‟.

4.13 Ensure that a dialogue, based on mutual understanding of the objectives of the organisation, exists between the Board itself and the owners of the organisation.

4.14 Ensure that it acts in the best interests of the organisation and that in doing so it meets the organisation‟s purpose.

4.15 Meet regularly. Each Board should decide how regularly it needs to meet to discharge its duties, having regard to the organisation‟s own circumstances.

4.16 On the appointment and throughout the duration of tenure of its members, ensure that the members are able to devote sufficient time to their responsibilities as members of the Board.

4.17 Ensure that its members have among them the right mix of expertise, experience, skills and knowledge appropriate to the organisation.

4.18 Ensure that it is adequately informed and where necessary invite executive management to clarify and/or provide additional information.

4.19 Ensure that its members are of sufficient calibre to bring independent judgement to bear on issues of strategy, performance, resources, standards of conduct, and evaluation of performance.

4.20 Ensure that the integrated reporting by the organisation is accurate and truthful, at the time of disclosure.

4.21 Consider using alternative dispute resolution as a method of resolving disputes arising both within the organisation and between the organisation and other parties. Alternative dispute resolution comprises among others: open communication, win-win arrangements, negotiations, mediation and arbitration.



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5. BOARD EVALUATION

5.1 It is good practice for Boards to evaluate annually the mix of skills and experience of their members as well as the board‟s performance and processes. The level of evaluation would depend on the type of organisation. Large organisations may also consider evaluating the Chairman, other Members of the Board, Board Sub-committees and the Chief Executive Officer.

5.1-PO.1 The Board shall annually evaluate the Board‟s performance and processes, with the Chairman taking a leading role. This annual evaluation process should be facilitated by the Company Secretary and, at least every two years, by outside consultants.

Comments: 5.1-PO.1-C1 The ownership unit should be actively

involved in providing feedback for any Board evaluation.

5.1-PO.2 The annual Board evaluation shall include an evaluation of the individual performance of the Chairman and of the Members of the Board. Such evaluation should explicitly state to what extent each individual member has contributed to the successful performance of the Board as a whole and what her / his main added value was.

5.1-PO.3 The results of any Board evaluation shall

be sent to the appointing authority.

5.2 Organisations should agree in advance the type of evaluation suitable for their organisation and how to measure and report it in the organisation‟s Directors‟ or Annual Report.



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6. BOARD SUB-COMMITTEES

6.1 Boards may find it useful to establish board sub-committees to deal with matters that can best be dealt with in a small forum. The number and nature of sub-committees will depend on the type of organisation. All sub-committees when established should be given, in writing, clear Terms of Reference.

6.1-PO.1 The Board should establish at least two

but not more than five standing Board Committees.

6.1-PO.2 The Board Committees should have clear terms of reference. Such terms of reference should deal with and cover at least: financial, audit, technical, risk management and human resources issues.

6.1-PO.3 The terms of reference of each Board

Committee should be approved by the Board.

6.1-PO.4 The majority of the members, including the Chairman of any Board Committee should be selected from the non-executive Members of the Board.

6.1-PO.5 The Audit Committee Members may, and should whenever appropriate, request the internal auditor and/or the external auditor to attend the Committee meetings.

6.2 Decisions of each sub-committee should be communicated to the Board as recommendations for its further consideration.

6.3 When constituting sub-committees, the Board should ensure that the subcommittees‟ members have the appropriate balance of skills, experience, independence and knowledge of the organisation and the sub-committees‟ Terms of Reference to discharge their duties and responsibilities effectively.

6.4 Sub-committees should also be provided with sufficient and appropriate resources to undertake their duties.



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7. THE CHAIRMAN

7.1 The Chairman should preferably be non-executive

7.1-PO.1 Upon his/her appointment, the Chairman of any parastatal organisation must be independent. This Chairman must also be non-executive.

Comments: 7.1-PO.1-C1 Internationally it is considered that an

individual, once appointed as Chairman to the Board, loses his / her status as “independent director”. Indeed, it is the role of the Chairman to strongly identify with the organisation and promote its strategy and activities; this usually is considered to conflict with the concept of independence.

7.1-PO.2 Ex-officio members of the Board cannot

be appointed as Chairman of the Board or of the Board Committees.

7.2 The roles of the Chairman and the Chief Executive Officer should preferably be separate, but where they are combined, it is important that the Chairman encourages proper deliberation of all matters requiring the Board‟s attention and obtains optimum input from all Members of the Board.

7.2-PO.1 The roles of the Chairman and those of the Chief Executive Officer must be clearly defined and they must be performed by separate individuals.

Comments: 7.2-PO.1-C1 A strong non-executive Chairman

provides the appropriate counterbalance and check to the power of the CEO.

7.2-PO.2 The Chairman should always refrain from undertaking any initiative, activity or decision that is part of the role of the CEO or of executive management.

Comments: 7.2-PO.2-C1 The added value of a strong Chairman

will materialize through strategic guidance and support that create appropriate conditions for the CEO and management to fulfil their own mission and to achieve the strategic objectives as set by the Board.



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7.2-PO.2-C2 The Chairman should indeed provide healthy counterbalance and second opinion, whenever this is needed, and should make sure that the Board retains full and effective control over the organisation.

7.2-PO.2-C3 But the Chairman should always do this from within the role of the Board and should never (try to) take over any duties and responsibilities of the CEO or of other members of executive management.

7.3 The Chairman should ensure that all Board Members are as fully informed as possible on any issue on which a decision is to be made and afford each Board Member a reasonable opportunity to contribute to the Board‟s deliberations.

7.4 It is the responsibility of the Chairman, following a Board Evaluation, to recommend to the Owners the removal of Board Members who do not contribute effectively to the Board.

7.5 Where the Chairman is appointed by the Board, the members of the Board should ensure that only a person that can add value is appointed to the position. The organisation should determine the length of service of the Chairman.

7.6 Where the Chairman is required to exercise a casting vote, he should use it objectively.



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8. MEMBERS OF THE BOARD

In carrying out their functions, Members of the Board should:

8.1 Exercise reasonable care, skill and diligence. This means the care, skill and diligence that would be exercised by a reasonably diligent person with: a) the general knowledge, skill and

experience that may reasonably be expected of a person carrying out the functions of a Member of the Board of the organisation, and

b) the general knowledge, skill and experience that the Member has.

8.2 Both during and after their tenure of office, avoid using privileged information for their own personal benefit or that of other people associated with them.

8.3 Ensure that they devote sufficient time to their responsibilities.

8.3-PO.1 To ensure that a Member of the Board has sufficient time to undertake his or her duties; an individual Member of the Board should not hold directorships in more than 6 Boards, unless legally mandated to do so.

8.4 Be diligent in discharging their duties to the organisation, endeavour to attend meetings regularly and be prepared and able where necessary, to express disagreement with colleagues on the Board including the Chairman and the Chief Executive Officer.

8.4-PO.1 Members of the Board who have, other than for reasons completely beyond their influence and control, not attended at least 50% of the Board meetings during the last year should not be eligible for re-election or re-appointment to the Board.

8.4-PO.2 To the extent that Members of the Board have not attended Board meetings regularly and/or were not prepared sufficiently or were not contributing to discussions and decision making of the Board, their performance as a Board Member should be assessed as insufficient.

8.5 Be truthful and disclose all the information at their disposal to enable the Board to make an informed decision.



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8.6 At the expense of the organisation, be entitled to seek independent professional advice about the affairs of the organisation. Before seeking independent professional advice, however, the member concerned should discuss and clear the matter with the Chairman or the Company Secretary. If to approach either of them is inappropriate in the circumstances of the matter, the board member must act within the best interests of the organisation.

9. NON-EXECUTIVE MEMBERS OF THE BOARD

Non-Executive Members of the Board should:

9.1 Be independent in character and judgement, even where there are relationships or circumstances which are likely to affect, or could appear to affect the judgement of the members of the board.

9.2 Not take part in the day-to-day management of the organisation.

9.3 Not have any benefits from the organisation other than their fees and other approved expenses. All sitting allowances are deemed to be part of fees.

9.4 Not undertake any advisory work for the organisation unless that work has been approved in advance by the Board and is limited in scope and time in order not to compromise the “non-executive” status of that member and to avoid any conflict of interest.

9.5 Be of sufficient calibre to bring independent judgement to bear on issues of strategy, performance, resources, standards of conduct, and evaluation of performance.

9.6 Constructively challenge and contribute to the development of strategy.

9.7 Scrutinise the performance of management in meeting agreed goals and objectives, and monitor the reporting of performance.

9.8 Satisfy themselves that financial information is accurate and that financial controls and systems of risk management are robust and sound.

9.9 Be responsible for ensuring that plans are in place to ensure the long term sustainability of the organisation. In this regard they may have a role in appointing and, where necessary, removing senior management and determining their levels of remuneration.



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10. APPOINTMENT OF MEMBERS OF THE BOARD

10.1 The appointment of the Board should be appropriate for the organisation taking into account good governance and the requirements for the organisation to meet its goals and to ensure its long-term sustainability.

10.1-PO.1 The composition of Boards of parastatal organisations and SOEs should be such that they can exercise objective and independent judgement.

10.2 Appointments to the Board should be planned with strategic considerations and objectives of the organisation in mind.

10.2-PO.1 The process through which Members of the Board of Parastatal Organisations and SOEs are appointed or renewed should allow for appropriate continuity and successful performance of the Board.

Comments: 10.2.-PO.1-C1 A complete renewal of the Board in

the same year should be avoided. 10.2.-PO.1-C2 It is preferable to limit the periodic

replacement of Board membership to a maximum of 50% of Board Members in one same year.

10.2-PO.2 While reconstituting the Boards, there should be a focus on maintaining those existing Board Members that contributed the most and that may be expected to continue to contribute much in the coming years.

10.3 The selection process must be managed by considering a balanced mix of experience and skills needed to add value to the strategic role of the Board. Depending on the type of organisation, the selection process may also consider appropriate diversity of gender and / or social and economic background.



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10.3-PO.1 While constituting the Board of a Parastatal Organisation or SOE, Government and its Board nomination process should consider the required human resources of the Board as a whole.

Comments: 10.3.-PO.1-C1 The Board should be considered as a

multidisciplinary team. 10.3.-PO.1-C2 An integrated approach and

corresponding selection and appointment process, should ensure that the Board as a whole comprises the required competences to govern the Parastatal Organisation and to ensure sufficient capacity within the Board as required for successful performance of all Board Committees.

10.4 An organisation should make appointments to the Board on merit.

10.4-PO.1 The process by which Members of the Board of Parastatal Organisations and SOEs are appointed must be robust and transparent.

10.4-PO.2 All persons involved in recommending, vetting and nominating candidates for Board Membership should be fully aware of the importance of selecting and appointing capable individuals as Member / Chairman of the Boards of Parastatal Organisations and SOEs and they should understand the criteria against which the candidates should be compared and assessed.

Comments: 10.4.-PO.2-C1 In order to decide whether an

individual is capable of being a Member of the Board, the appointing authority should develop criteria against which the candidates should be compared and assessed.

10.4-PO.3 Any recommendation / nomination of an individual, who has already served on the Board of a Parastatal Organisation or SOE, should take into account to what extent that individual has previously added value to the performance of the Board she/he was serving on. The annual Board evaluation process should provide such information.

10.5 The term served by both executive and non-executive Members of the Board should be decided by the organisation; taking into account the period that could reasonably be perceived to materially interfere with the Member‟s ability to act in the best interest of the organisation‟s goals and long-term sustainability.



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10.6 Where appointments to the Board are done in an AGM or General Assembly, Owners should be provided with a list of candidates from whom to elect Members of the Board.

11. REMUNERATION OF MEMBERS OF THE BOARD

11.1 Remuneration of Members of the Board should be appropriate to the organisation and should take into account the long term sustainability of the organisation.

11.2 There should be a formal and transparent process for determining remuneration of Members of the Board and of top management.

11.3 Non-Executive Members of the Board should receive fees at levels that reflect time invested, commitment, performance and responsibilities. Organisations, may however choose for an arrangement where Members of the Board are fully committed to the mission of the organisation and therefore agree to work pro bono.

11.4 An organisation should disclose, at least on an aggregate basis, in its Directors‟ or Annual Report the remuneration, bonuses and other benefits received by Members of the Board. What is to be disclosed should represent the total cost to the organization.

11.4-PO.1 The Board should provide detailed disclosure of Board member remuneration and benefits, giving details of earnings and all other type of benefits. This disclosure, by type of benefit, should at least be on an aggregate basis for all Board Members combined.

11.5 When considering appointing Executive Members of the Board, the Board should seek proper legal advice in relation to termination clauses to avoid the risk of paying excessive amounts on termination of service.



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12. TRAINING AND DEVELOPMENT OF MEMBERS OF THE BOARD

12.1 Members of the Board need proper knowledge of the organisations for which they are responsible. They should acquire a broad knowledge of: 12.1.1 the business of the organisation so

that they can provide meaningful direction to it;

12.1.2 the statutory and regulatory requirements affecting the direction of the organisation and the environment in which the organisation operates;

12.1.3 their role, duties, responsibilities, and obligations as well as board practices and procedures.

12.2 The Board in developing training needs, should take into account any training needs identified during a Board Evaluation.

12.3 The Board should ensure that new Members undergo a tailored induction programme, particularly if the new Members have no previous board experience.

12.3.-PO.1 The Board of a Parastatal Organisation must ensure that newly appointed Members of the Board participate, where appropriate, in an induction and training on their duties, powers and responsibilities.

Comments: 12.3.-PO.1-C1 Both the Government‟s Ownership

Entity and the Boards themselves should encourage any Member of the Board, who has not yet done so, to participate in and successfully complete a comprehensive training; gradually leading to a certification as “qualified Board Member”.

12.3.-PO.1-C2 If a Board Member fails to participate in and progress with such a comprehensive Board Membership training, such weakness shall be taken into account for the annual evaluation of the individual performance of that Member.

12.3.-PO.1-C3 Any Parastatal Organisation or SOE should disclose, in its annual report, whether each individual Board Member has already obtained a certification as “Qualified Board Member” and if/not whether she/he is successfully progressing in such a Board membership training program.



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12.3.-PO.2 The Board should establish a formal orientation programme to familiarise incoming Members of the Board with the organisation‟s operations, senior management and business environment.

12.4 Every Member of the Board should keep abreast of both practical and theoretical developments affecting the environment in which the organisation operates as well as to ensure that their expertise and experience remain relevant to the Board and to the organisation. Members of the Board should be regularly exposed to matters relevant to legal reforms, Corporate Governance, changing corporate environment, risks, opportunities and other matters that may be of interest in the execution of their duties.

12.5 Executive members of the board should be encouraged by their organisation to take non-executive appointments in other organisations. However, the number of non-executive appointments should not be such that the members‟ executive responsibilities to their own organisation are adversely affected.

13. THE COMPANY SECRETARY

13.1 All organisations, where required by law, should ensure that they have access to a competent Company Secretary to render company secretarial services to the organisation. The appointment and removal of the Company Secretary should be a matter for the Board as a whole.

13.1-PO.1 Any Parastatal Organisation or SOE shall employ the services of a qualified Company Secretary.

Comments: 13.1-PO.1-C1 Qualified Company Secretary should be

taken to be a member of an institute of secretaries or one having equivalent legal, financial, and business training.

13.1-PO.1-C2 In the event that the Board cannot justify the cost of a full time in-house Company Secretary, the functions may be performed by external service providers.

13.1-PO.1-C3 The Company Secretary (secretary to the Board) is not a member of the Board; unless he / she has also been appointed as such. The preference is however to avoid such dual appointments.

13.1-PO.1-C4 If the Company Secretary is also a Member of the Board, he/she may not act in both capacities at the same time.



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13.2 The Company Secretary should among other duties, be responsible for advising the Chairman and the Board on the implementation of the Code.

13.2-PO.1 The Company Secretary shall advise the Board and senior management on: a) their respective roles b) their responsibilities and liabilities

with regard to legal and regulatory requirements

c) all issues of compliance with the Code of Corporate Governance (the Malawi Code II) and with these Sector Guidelines for Parastatal Organisations and SOEs

13.2-PO.2 The Company Secretary should provide

advice on compliance with legal, regulatory and statutory requirements.

13.2-PO.3 The Company Secretary should keep an annual record of the extent to which the organisation does effectively apply the provisions of the Malawi Code II and of these Sector Guidelines. If and whenever the organisation is not appropriately applying any provision, an explanation should be sought for the record from the Board.

13.3 All members of the board should have access to the advice and services of the Company Secretary.

13.4 The Company Secretary should be responsible for ensuring effective information flows between the Board and top management and between the Board and its Sub-Committees.

13.5 Wherever possible the role of the Chief Executive Officer and that of the Company Secretary should be separated.

13.5-PO.1 The roles of the CEO and of the

Company Secretary should be clearly stated and separated.



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14. RELATED PARTY TRANSACTIONS

14.1 Organisations should identify, manage and document “related party transactions”.

14.2 The following are “Related parties”: (a) a member of the Board or of the key

management personnel of the organisation;

(b) any other person that significantly controls or influences the organisation;

(c) any close member of the family (such as the individual's domestic partner and children, children of the individual's domestic partner and other dependants of the individual or of the individual's domestic partner) of any individual referred to in (a) or (b);

(d) any entity controlled or significantly influenced by the organisation or by any individual referred to in (a) or (b);

(e) any entity under joint control with the organisation;

(f) any entity that significantly controls or influences the organisation.

14.3 A related party transaction shall be understood as a transfer of resources, services or obligations between related parties and the organisation, regardless of whether or not a price is charged. This includes, among others, purchases or sales of goods, property and other assets; rendering or receiving of services, leases, transfers of research and development, transfers under licence agreements, financial arrangements (including loans and equity contributions in cash or in kind), provision of guarantees or collateral, commitments to do something if a particular event occurs or does not occur in the future, including executory contracts; etc.

14.4 Owners should be informed of any “related party transaction” that may significantly affect the current and or future financial position, the performance, the capacity, the opportunities and/or the risks of the organisation. Such disclosure should explain what the nature of the transactions is and how the potential conflicts of interest or other risks for the organisation are being avoided and/or mitigated.



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15. RISK MANAGEMENT AND INTERNAL CONTROLS

15.1 The Board should be responsible for the governance of risk.

15.2 The Board should regularly review the organisation‟s risks, risk appetite and tolerance, and ensure that it has endeavoured to put in place measures to minimise or avert any identified risks. The Board should also regularly review the appropriateness of these measures.

15.2.-PO.1 The Board should ensure that the

Organisation uses suitable systems of internal controls and risk management.

15.2.-PO.2 It is the responsibility of the Board of a Parastatal Organisation or SOE to ensure that the organisation has a suitably resourced Internal Audit function, which may be outsourced.

15.2.-PO.3 The internal auditor should have

unrestricted access to the chairman of the Audit Committee.

15.2.-PO.4 The internal auditor should bring all significant findings arising from audit activities to the attention of the Audit Committee and if necessary to the Board.

15.3 The Board of an organisation that relies heavily on IT (computer) Systems should ensure that appropriate back-up measures are adopted and that measures are put in place to safeguard all information stored by the organisation.

16. ETHICS

Organisations should:

16.1 Ensure that they act ethically.

16.2 Consider developing a Code of Ethics aimed at fostering an ethical culture within their organisation. Where adopted, a Code of Ethics should: 16.2.1 Commit the organisation to the

highest standards of behaviour; 16.2.2 Be developed with the full

participation of all parties expected to abide by it;

16.2.3 Receive total commitment from the Board and the Chief Executive Officer of the organisation;

16.2.4 Be sufficiently detailed as to give a clear guide to the expected standards of behaviour of all employees.



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16.3 Allow African “umunthu” values to thrive within the ethical framework of the organisation. Relationships within the organisation and with its stakeholders should therefore also be guided by the following concepts: thoroughly valuing others and in doing so valuing ourselves, cooperation, kinship and belonging within the community.

17. GOOD CITIZENSHIP

17.1 An organisation as well as being an economic entity is also a citizen of Malawi and as such has a moral and social standing within Malawian society, with all the responsibilities attached to that status. As such, when making decisions, an organisation should consider the impact of its decisions on its stakeholders (both internal and external), the environment and society as a whole.

17.1-PO.1 As a good corporate citizen in Malawi, Parastatal Organisations and SOEs should regularly (at least annually) reflect on their Corporate Social Responsibility and, whenever appropriate, update and communicate their policy in these matters.

17.1-PO.2 Government, its ownership entity, Parastatal Organisations and SOEs themselves, should recognise and respect stakeholders‟ rights established by law or through mutual agreements, and refer to the Principles of the Malawi Code II in this regard.

17.1-PO.3 Any parastatal organisation or SOE must develop and publish a client service delivery charter, outlining its standards for service delivery and operational performance and its responsibilities towards clients and other stakeholders.

17.1-PO.4 Annually, the organisation will review its client service delivery charter and the way it is being implemented. Where appropriate this charter will be reviewed in order to reflect any new developments in service delivery and/or client / stakeholder relationships.



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18. SUSTAINABILITY

18.1 Organisations should conduct their operations in a manner that meets existing needs without compromising the ability of future generations to meet their needs. It means having regard to the impact that the organisations‟ operations have on the environment, economic and social life of the community in which it operates. This should include its supply chain i.e. access to the resources and raw materials it needs to carry out its operations.

18.2 Organisations should report on how they have both positively and negatively impacted on the environment and on the economic and social life of the community in which they operate and how they believe they can improve the positive and eradicate or lessen the negative aspects in the coming year.

19. EXTERNAL COMMUNICATIONS

19.1 Society now demands greater transparency, accountability and responsibility from organisations. Organisations should consider making regular, timely, balanced and understandable statements about their activities, performance and future prospects.

19.1-PO.1 Parastatal organisations and SOEs should disclose material information on all matters described in the Malawi Code II and in addition focus on areas of significant concern for the government / owner and the general public. Examples of such information include: 1. A clear statement to the public of the

organisation‟s objectives and their fulfilment.

2. The ownership and voting structure of the organisation.

3. Any material risk factors and measures taken to manage such risks.

4. Any financial assistance, including guarantees, received from the state and commitments made on behalf of the organisations.

5. Any material transactions with related entities.

19.1-PO.2 Parastatal Organisations and SOEs

should, at least annually, report on stakeholder relations.



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19.2 Organisations should, where it is in their best interests, disclose publicly their reasons for making decisions which may appear compromised due to a perceived conflict of interest of the members making the decision.

20. INTEGRATED REPORTING AND AUDITING

20.1 Organisations should produce financial statements appropriate to them. To the extent possible the financial statements should be prepared in accordance with nationally recognised standards.

20.1-PO.1 Parastatal organisations and SOEs shall produce their financial statements according to the International Financial Reporting Standard (IFRS) and other nationally recognized standards.

20.1-PO.2 Financial Statements of any parastatal organisation or SOE shall be made available to the public in an appropriate manner. This may be done by publication in two daily leading newspapers or by easily accessible and retrievable publication on the website of the organisation and/or of the ownership entity of the Government.

20.1-PO.3 The ownership entity should develop consistent and aggregate reporting on parastatal organisations and SOE‟s and publish annually an aggregate report on such organisations.

20.2 Where there is a requirement for auditing the financial statements, the audit should be done by an independent external auditor, who is provided with the opportunity to raise matters directly with the Board.

20.2-PO.1 The financial statements of any parastatal organisation and SOE must be audited by an independent external auditor on an annual basis.

20.2-PO.2 The highest level of business and professional ethics should be observed by the external auditors and in particular the independence of the external auditor must not be impaired in any way.

20.2-PO.3 The external auditor should have

unrestricted access to the chairman of the Audit Committee.

20.2-PO.4 The external auditor should bring all significant findings arising from audit activities to the attention of the Audit Committee and if necessary to the Board.



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20.3 Sustainability reporting and disclosure should be integrated with the organisation‟s financial reporting.

20.4 The financial statements of the organisation should also comply with any obligation to disclose „related party transactions”, as is, for their type of organisation, specified in laws, regulations, directives or guidelines.


APPENDICES I: Additional definitions and Guidance

SG-Def_PO.6 Funding of Parastatal Organisations and SOEs. Within the group of parastatal organisations and SOEs, one may distinguish the following three types of organisations, depending on their degree of funding / subsidization by the State Budget (government funding):

a) “Fully Subvented”: Organisations that are fully funded / subsidized by the government / state budget and that have no or insignificant own sources of revenue.

b) “Semi-commercial” or “Partially Subvented”: Organisations that are partially funded / subsidized by the government / state budget and partially use their own sources of revenue.

c) “Commercial” or “Not Subvented”: Organisations that get no funding / subsidies from the government / state budget and that fully use their own sources of revenue.

SG-Def_PO.7 Objective of Parastatal Organisations.

One may distinguish the following three types of organisation, depending on their type of objective:

a) “Fully social / public objective”: Organisations that have a fully social and public objective. None of their objectives have a commercial character and there is no potential for competition with/from the private “for profit” sector.

b) “Mixed social / public & commercial objective”: Organisations that have both social / public and commercial objectives. Some of their objectives have a commercial character with a potential for competition with/from the private “for profit” sector.

c) “Fully commercial objective”: Organisations that have mainly commercial objectives. Their core objectives have a commercial character and therefore there is (a potential for) competition with/from the private “for profit” sector. Such Organisations are expected to make a profit and therefore to contribute to the State budget.

In principle, SOE‟s should belong to the third group, they should have a mainly “commercial” objective

and be fully self funded.

3.1-PO.1-C1 Additional Guidance

Below, a more detailed and more stringent definition of “Independent” Member of the Board, also used for the sector guidelines for listed companies, is provided.

In order to qualify as an “Independent” Member of the Board, that Member:

a) may not, at the moment of appointment as Board Member, be or have been employed by the Organisation in the past three years;

b) shall not be affiliated with an organisation that provides advice or consultancy services to the Organisation;

c) shall not be affiliated with a significant customer or supplier of the Organisation;

d) shall not, other than the execution of his roles and duties as Member of the Board, provide services to the Organisation or its senior management;

e) shall not be affiliated with a non-profit organization that receives significant funding from the Organisation;

f) shall not be employed as an executive of another organisation where any of the Organisation‟s executives serve on that other organisation‟s Board of directors;

g) shall not be a member of the immediate family of an individual who is, or has been during the past three years, employed by the Organisation as an executive officer;

h) shall not be, nor in the past three years have been, affiliated with or employed by a present or former auditor of the Organisation;

i) shall not be a controlling person of the Organisation, or member of a group of individuals and/or entities that collectively exercise effective control over the Organisation, or employee of such entities, or member of the immediate family of such controlling person;

j) shall be free from any business or other relationship which could be seen to materially interfere with the individual‟s capacity to act in an independent manner.


Public Sector Definitions as used in the African Peer Review Mechanism (APRM)

Government-linked company (GLC) is a corporate entity that may be private or public or listed on a stock exchange where government owns a stake (<50%).

Parastatals are quasi-governmental organizations, corporate entities or agencies that are treated by national laws and regulations to be under the guidance of the government, but also separate and autonomous from the government. While the entity may receive some revenue from charging customers for its services, these organizations are often partially or majorly funded by the government. They are usually considered highly important to the smooth running of society, and are sometimes propped up with cash infusions in times of crisis to help surmount situations that would bankrupt a normal privately-owned business. They may also possess law-enforcement authority, usually related to their functions. They pursue purely non-financial objectives. They should be distinguished from State Owned Enterprises that have a distinct legal form and are established usually by government to operate in commercial affairs (see below).

Public Authorities are organizations in the public sector that takes on roles, such as the maintenance of public infrastructure. They often have broad powers to regulate or maintain public property.

Public Commission is a body, in the public sector, that regulates the rates and services of a utility or carries out an investigation into a defined matter on behalf of the government.

State Owned Enterprises (SOEs) have a distinct legal form and are established usually by government to operate in commercial affairs. While they may also have public policy objectives, SOEs should be differentiated from other forms of government agencies or state entities (Parastatals) established to pursue purely non-financial objectives. They should produce a return on investment to government either through share price increase or dividends. SOEs can be fully owned or partially owned by Government (>50% of shares).


APPENDICES II: Suggestions and/or examples of TORs for Board Committees

Model Terms of Reference for an Audit Committee – example of main responsibilities

The Audit Committee‟s responsibilities shall be:

a) to review the effectiveness of the Organisation‟s internal controls and risk management systems;

b) to monitor the integrity of annual and interim financial statements of the company, the clarity of disclosure and the context in which statements are made;

c) to review and challenge where necessary the consistency of, and any changes to, accounting policies;

d) to recommend to the Board for decision on the appointment and removal of the internal auditor,

e) to ensure adequate resources, appropriate access to information and independence of the internal audit function; so that internal audits can be effectively performed to high standards;

f) to review all internal audit reports and plans, and monitor management‟s responsiveness;

g) to meet the internal auditor/head of internal audit at least once a year without management being present to discuss any issues arising from internal audits:

h) to assess the independence and objectivity of external auditors; to assess annually their qualifications, expertise, resources and the effectiveness of the external audit; review and approve the annual audit plan; meet regularly with the external auditor, including at least once a year without management being present to discuss any issues arising from the external audit.

Model Terms of Reference for an Audit Committee – comprehensive example

This model is not intended to be definitive but is only provided as guidance on some of the more

standard terms regulating this type committee. It is for the Board to define precisely the terms necessary

to meet its particular needs.

Constitution

The Board hereby resolves to establish a Board committee to be known as the Audit Committee.

Membership

The committee shall be appointed by the Board. All committee members shall be independent non-executive members of the Board. The committee shall consist of not less than three members. A quorum shall be two members.

The committee chairman shall be appointed by the Board from among the independent non-executive members of the Board.

Attendance at meetings

The finance director, head of internal audit and a representative of the external auditors shall attend meetings at the invitation of the committee.

The Board chairman, the CEO, and other Board members shall attend if invited by the committee.

There should be at least one meeting a year, or part thereof, where the external auditors attend without management present.

The company secretary shall be secretary of the committee.

Frequency of meetings

Meetings shall be held not less than three times a year, and where appropriate should coincide with key dates in the organisation‟s financial reporting cycle.

External auditors or internal auditors may request a meeting if they consider that one is necessary.


Authority

The committee is authorized by the Board to:

investigate any activity within its terms of reference;

seek any information that it requires from any employee of the organisation and all employees are directed to cooperate with any request made by the committee; and

obtain outside legal or independent professional advice, and such advisors may attend meetings as necessary.

Responsibilities

The committee‟s responsibilities shall be:

to consider the appointment of the external auditor and assess independence of the external auditor, ensuring that key partners are rotated at appropriate intervals;

to recommend the audit fee to the Board and pre-approve any fees in respect of non-audit services provided by the external auditor and to ensure that the provision of non-audit services does not impair the external auditors‟ independence or objectivity;

to discuss with the external auditor, before the audit commences, the nature and scope of the audit and to review the auditors‟ quality control procedures and steps taken by the auditor to respond to changes in regulatory and other requirements;

to oversee the process for selecting the external auditor and make appropriate recommendations through the Board to consider by the owners of the organisation

to review the external auditor‟s management letter and management‟s response;

to review the internal audit program and ensure that the internal audit function is adequately resourced and has appropriate standing within the organisation;

to consider management‟s response to any major external or internal audit recommendations;

to approve the appointment or dismissal of the head of internal audit;

to review the organisation‟s procedures for handling allegations from whistleblowers;

to review management‟s and the internal auditor‟s reports on the effectiveness of systems for internal financial control, financial reporting and risk management;

to review, and challenge where necessary, the actions and judgments of management, in relation to the interim and annual financial statements before submission to the Board, paying particular attention to: critical accounting policies and practices, and any changes in them; decisions requiring a major element of judgment; the extent to which the financial statements are affected by any unusual transactions in the year

and how they are disclosed; the clarity of disclosures; significant adjustments resulting from the audit; the going concern assumption; compliance with accounting standards; compliance with legal and other requirements; reviewing the organisation‟s statement on internal control systems prior to endorsement by the

Board; and to review the policies and process for identifying and assessing business risks and the

management of those risks by the organisation; and,

to consider other topics, as defined by the Board.


Reporting procedures

The secretary shall circulate the minutes of meetings of the committee to all members of the Board, and the committee chairman or, as a minimum, another member of the committee, shall attend the Board meeting at which the accounts are approved.

The committee members shall conduct an annual review of their work and these terms of reference and make recommendations to the Board.

The committee‟s duties and activities during the year shall be disclosed in the annual financial statements.

The chairman shall attend the general assembly and shall answer questions, through the chairman of the Board, on the audit committee‟s activities and their responsibilities.

Model Terms of Reference for a Remuneration Committee

This model is not intended to be definitive but is provided only as guidance on some of the more

standard terms regulating this type committee. It is for the Board to define precisely the terms necessary

to meet its particular needs.

The remuneration committee should:

determine and agree with the Board on the framework or broad policy for the remuneration of the Chief Executive Officer, the organisation‟s chairman, and other members of executive management as the committee is designated to consider; At a minimum, the committee should have delegated responsibility for setting remuneration for

all executive members of the Board and the chairman. The remuneration of nonexecutive members of the Board should be decided by the chairman

and the Board‟s executive members. No member of the Board or manager should be involved in any decisions as to their own

remuneration.

determine targets for any performance-related pay schemes operated by the organisation;

determine the policy for and scope of pension arrangements for each executive member of the Board;

ensure that contractual terms on termination, and any payments made, are fair to the individual and the organisation;

ensure that failure is not rewarded and that the duty to mitigate loss is fully recognized;

within the terms of the agreed policy, determine the total individual remuneration package of each executive member of the Board including, where appropriate, bonuses, incentive payments, and share options;

determining such packages and arrangements, give due regard to the comments and recommendations of any code and associated guidance;

be aware of and advise on any major changes in employee benefit structures throughout the organisation and its compatibility with government‟s overall policy for parastatal organisations and SOE‟s;

agree the policy for authorizing claims for expenses from the Chief Executive Officer and Chairman;

ensure that provisions regarding disclosure of remuneration, including pensions, as set out in any remuneration regulations and codes, are fulfilled;

be exclusively responsible for establishing the selection criteria, selecting, appointing, and setting the terms of reference for any remuneration consultants who advise the committee;

report the frequency of remuneration committee meetings and members‟ attendance in the annual report;

make the committee‟s terms of reference publicly available. These should set out the committee‟s delegated responsibilities and be reviewed regularly and, where necessary, updated annually.

Documents

The MALAWI CODE II - European Corporate Governance … · · 2011-07-05The Malawi Code II (Code of Best Practice for Corporate Governance in Malawi) was published by the Institute