SECP amends regulations for election of independent and female directors

July 17, 2023 (MLN): To address practical difficulties faced by the listed companies in election of directors, and to promote diversity in boards of the companies, the Securities and Exchange Commission of Pakistan (SECP) has introduced amendments for election of independent and female directors, as per the latest notice issued by SECP.

The amendments are proposed to the Listed Companies (Code of Corporate Governance) Regulations, 2019, and the Companies (Postal Ballot) Regulations, 2018.

The new regulations will also strengthen the corporate governance framework by introducing the concept of voting in categories on a proportionate basis.

Under the category voting, a three-tier voting structure for listed companies is being prescribed whereby votes shall be cast separately for the three categories of directors i.e. female, independent, and others.

The division of maximum votes available to each member for a category shall be proportional to the number of directors' seats under such category.

Furthermore, the number of votes for each category shall be counted separately.

For the female director, the seat shall be fixed to one; and for the independent director, it shall be two or one-third, whichever is higher.

However, there will be no restriction on the total number of female and independent directors that can be elected to the board of the company in all categories combined.

It is pertinent to mention that the role of independent directors is globally recognized in bringing specialized expertise to the board and contributing to conflict resolution.

The subject reform will also promote women’s inclusion and is part of SECP’s integrated approach to strengthening corporate governance in listed companies.

These reforms will further improve the corporate governance framework and play an essential role in protecting minority interests by ensuring election of independent directors in an efficient and transparent manner.

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