Pakistan: Major Progress Towards Requiring, Institutionalizing Director Training and Certification

In recent years, Pakistan has made major progress in improving its corporate governance ecosystem, especially in the area of director training and certification – which is now generally required for all directors of public companies pursuant to the Corporate Governance Code. In this area and in terms of having a quality Corporate Governance Code at all (Japan has none), it far surpasses Japan, which does not even have rules or guidance about director training of any type – even regarding mere disclosure of company policy about director training, orknowledge qualifications.

Below, we have set forth excerpts of the 2012 Corporate Governance Code that relate to these subjects. The entire Pakistan Code of Corporate Governance (2012) can be downloaded at:

MESSAGE from Muhammad Ali Chairman, Securities and Exchange Commission of Pakistan

Good governance instills investor confidence. The investment decisions taken by the local and international investors are impacted by the governance practices. As markets compete to attract the capital from world over, companies are gauged by the investors using various factors that demonstrate sustainable track record. In order for our companies to compete globally, they have to follow enhanced corporate governance standards. This is a major factor towards making capital markets transparent, protecting rights of minority shareholders and attracting and retaining foreign investment.

The importance of corporate governance lies in its contribution both to business prosperity and to accountability. The Securities and Exchange Commission of Pakistan (SECP) thusendeavors to raise the corporate governance standards in the country. The first major effort was made in March 2002, when the Code of Corporate Governance (Code) was issued bySECP. It was subsequently made part of the listing regulations of the three stock exchanges and became applicable to all public listed companies.

Directors’ Training Program

(xi) All listed companies shall make appropriate arrangements to carry out orientation courses for their directors to acquaint them with this code, applicable laws, their duties and responsibilities to enable them to effectively manage the affairs of the listed companies for and on behalf of shareholders. It shall be mandatory for all the directors of the listed companies to have certification under any directors’ training program offered by institutions—local or foreign—that meet the criteria specified by the SECP:

Provided that from June 30, 2012 to June 30, 2016 every year, a minimum of one director on the board shall acquire the said certification under this program each year andthereafter all directors shall obtain it:

Provided further that individuals with a minimum of 14 years of education and 15 years of experience on the board of a listed company—local and/or foreign—shall be exempted from the directors’ training program. ….



Provided that where necessary the following information shall also be annexed to the Directors’ Reports of listed companies: ….

i) The details of training programs attended by directors;

Criteria for Institutions desirous of offering Directors' Training Program


The Code of Corporate Governance (Code) 2002, required all listed companies to make appropriate arrangements to conduct orientation and training courses for their directors toacquaint them with their duties and responsibilities and enable them to effectively manage the affairs of listed companies on behalf of the shareholders.

Clause (xiv) of the Code 2002 (clause xi of the Code 2012) requires the directors of the listed companies to have certification under directors’ training program offered by any institution —local and/or foreign— that meet the criteria specified by the SECP.

This document lays down the minimum criteria for the eligibility of institutions and the areas that have to be covered in the Directors’ Training Program (DTP) offered by them. While the SECP will give initial approval of an institution that can offer DTP, the stock exchanges will formalize an on-going compliance mechanism to ensure that the criteria is met at all times.

This document provides a formal set of criteria to assess and evaluate the programs as well as the institutions offering these programs. The minimum eligibility criteria will help to ensure that only institutions equipped with the necessary infrastructure and resources, offer these programs. The list of areas covered in the said program shall serve to standardize the DTPs in their content and coverage of the subject.

For the aforesaid certification required under the Code, foreign directors who have alreadyparticipated in a training program that broadly covers the areas listed under para 6 below shallbe exempt from the requirement of DTP.

Criteria for Institutions

DTP may be offered by an institution, after seeking prior approval of the SECP and subject to any conditions imposed by the SECP. An application received by the SECP from any of the institutions, will be judged on the following minimum parameters:

 permanent training set up;
 infrastructure and facilities;
 track record of the institution for the last five years;
 program content and structure as given in this document; and
 key resource (faculty) profile (permanent and adjunct).

The institutions approved by the SECP, will seek its prior approval, if any material change is to be brought to the DTP. The names of the institutions that are approved by the SECP to offer DTP will be placed on the website of the SECP as well as the stock exchanges.

Program outline

The following minimum criteria shall be met by the institutions who intend to offer DTP:

1. The DTP shall be designed to impart knowledge and develop skills of the board of directors of listed company that are essential for successful achievement of the company’s objectives;

2. The course of study shall include both theory and case studies;

3. All faculty members shall have both practical experience as well as an appropriate academic background, suitable for carrying out DTP effectively;

4. The DTP must be spread over a span of at least 40 hours (divided into modules);

5. To increase the knowledge base, it is recommended that pre-training material based on the key elements of corporate governance should be developed and distributed amongst the trainees. The institution shall also provide latest research to the trainees as post-training material to keep them updated with the latest developments taking placearound the globe in the areas including following:

 Good board practices;
 Control environment and processes;
 Disclosure and transparency; and
 Protection of shareholders’ rights.

6. The program must cover, inter alia, an overview of the principles and the key pillars of corporate governance, its benefits and objectives, the roles and responsibilities of the board and executive management in light of relevant regulatory requirements and latest trends in corporate governance. This will assist the participants to be better equipped to understand and evaluate different approaches to structuring the ownership, control and regulation of companies. The following topics at a minimum shall be included in thecourse contents:

Legal overview
 An overview of relevant laws that have to be adhered to, including the Code of Corporate Governance and the Companies Ordinance 1984;
 The key principles and elements of good corporate governance;
 Significance of director’s report in the annual report;
 Directors’ fiduciary duties to shareholders under the law; and
 Procedure of appointment, election, retirement and removal of directors.

Role and responsibility of the Board of Directors
 Development of code of conduct and other policies, and internal control system;
 Conduct of meetings of board of directors;
 Disclosures of shareholding and trading of securities by directors and their families;
 Ethical obligations;
 Determining closed period;
 The board’s role in shaping the company’s dividend policy;
 Board composition, roles and responsibilities, powers and functions, duties and liabilities & procedures and practices;
 The right mix of skills and board diversity;
 The institution and importance of independent directors;
 Executive and non-executive remuneration – how to attract, retain and motivate directors and officers;
 Board committees and their roles;
 Succession planning; 24

 Appointing the CEO, determining terms of appointment of the CEO and evaluating performance of the CEO;
 Defining the roles and responsibilities of the Chairman and the CEO;
 Board performance evaluation;
 Avoiding a box-ticking approach to corporate governance, and stressing the importance of substance over form; and
 Control environment.

Financial overview
 Analysis of related party transactions;
 Disclosures and financial reporting framework;
 The benefits of corporate governance including its impact on profitability and shareholder value; and
 How to read, understand and interpret financial statements.

Risk management
 Governance, risk management and compliance (GRC) issues; and
 Measures to assess risk

International trends and practices
 Global best practices including OECD Guidelines on Corporate Governance;
 The importance of integrity and ethical obligations in exercising business decisions;
 Corporate Social Responsibility (CSR) and Sustainability reporting; and
 Corporate governance framework concerns and challenges.

7. An assessment at the end of each module/section and/or the whole course is mandatory to qualify for the certification.

Additional general requirements

1. The institutions offering DTP shall place the names of the certified directors on their websites and also disseminate their names amongst industry and business associations,chambers of commerce and industry, etc. through an appropriate mechanism, so that their names are readily available to the companies who wish to appoint trained directors
on their boards. The names of certified directors shall also be sent through email to the stock exchanges and the SECP within 15 days of the conclusion of a DTP.

2. The institutions shall strive to meet or exceed all established standards, both domestically as well as internationally. The institution shall clearly lay down the objectives of the DTP.

3. The availability and proper utilization of high quality instructional material is essential for conducting effective DTP. The institutions shall ensure that adequate material including: relevant laws; case studies; syllabus; multimedia; reference texts; etc. are made available for instructional purposes. Special focus should be on developing case studies, which are relevant to the business environment of Pakistan and these should be included in the curriculum.

4. The institutions are encouraged to arrange research programs, seminars, conferences, workshops, etc. for promoting good corporate governance practices in Pakistan.

5. The potential of undertaking continuing professional development of the trainees through the institution’s websites in the form of on-line, self-study courses may be considered by the institutions.


Directors’ Training Program

21. If a foreign director on the board of a listed company has already participated in a director training program abroad, then will it still be mandatory for him to attend the orientation and director training program as required by the Code 2012? It is mandatory for the company to provide orientation to all directors – local and foreign.

An orientation should cover the relevant information about the company as well as the relevant governing laws, rules and regulations.

Statement of Compliance with the Code of Corporate Governance

[See clause (xl)]
Name of company ………………………………………………………………………… Year ending…………………………………………………………………………………. This statement is being presented to comply with the Code of Corporate Governance contained in Regulation No. .…………… of listing regulations of …………………… for the purpose of establishing a framework of good governance, whereby a listed company is managed in compliance with the best practices of corporate governance.

9. The board arranged ………. training programs for its directors during the year.

Foreign directors who have received training aboard shall be exempt from Directors’ Training Program (DTP) requirement of the Code 2012 if the program they attendedbroadly covered the areas stated in the criteria specified by the SECP for the purpose.

The Board Director Training Institute (BDTI) is a "public interest" nonprofit in Japan dedicated to training about directorship, corporate governance, and related management techniques. It is certified by the Japanese government to conduct these activities as a regulated nonprofit. Read a summary about BDTI here, and see a menu of its services for both corporations and investors here.

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