Family-Owned Enterprises: Reference Guidebook On The Corporate Governance of

FAMILY-OWNED ENTERPRISES
REFERENCE GUIDEBOOK ON THE CORPORATE GOVERNANCE OF
REFERENCE GUIDEBOOK ON THE CORPORATE GOVERNANCE OF FAMILY-OWNED ENTERPRISES
Reference Guidebook on the Corporate Governance of Family-Owned Enterprises
Table Of Contents 3 Foreword 6 SECTION 1 GUIDELINES FOR THE IMPLEMENTATION OF CORPORATE GOVERNANCE PRINCIPLES 9 1. 1.1 1.2 1.3 1.4 2. 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 3. 3.1 3.2 3.3 4. 4.1 4.2 4.3 4.4 4.5 4.6 5. 5.1 5.2 6. 6.1 6.2 6.3 6.4 6.5 Commitment To Good Corporate Governance Practices 10 Board Understanding And Commitment To Corporate Governance: 10 Development Of A Code Of Corporate Governance 12 Development Of A Code Of Conduct 12 Disclosure On A Periodic Basis 13 Corporate Governance, The Board Of Directors And Management 14 Role Of The Board Of Directors (The Board) 14 Board Member Duties Of LoyaLty And Care 14 Distinction Between The Roles Of The Board And Management 15 Separation Of The Functions Of Chairman And General Manager 16 Board Composition 16 Advisory Board 17 Board Meetings 18 Corporate Secretary 18 Training For Directors 19 Committees Of The Board Of Directors 19 Quality Of Information Transmitted To Directors 20 Family Governance Considerations 21 Adoption Of A Family Constitution 21 Succession Planning 23 Family Governance StructurEs 24 Control Environment And Processes 25 Creation Of An Executive Committee 25 Risk Management And Internal Control 25 Management Of Human Resources 27 Internal Audit 27 Audit Committee 28 External Auditor 28 Transparency And Disclosure 29 Disclosure Of Information 29 Related-Party Transactions 30 Treatment Of Shareholders And Stakeholders 32 Rights Of Shareholders 32 Equal Treatment Of Shareholders 32 Meetings Of Shareholders 32 Disclosure 33 TReatment Of Stakeholders 33
SECTION 2 CORPORATE GOVERNANCE TOOLKITS 35 How To Draft A Corporate Governance Code 36 1. Introduction 36 2. Commitment To Corporate Governance 36 3. Good Board Practices 37 4. Executive Committee 39
5. 6. 7.
Shareholders Rights 40 Control Environment And Processes 40 Information Disclosure And Transparency 41
How To Draft A Family Constitution 42 1. Values And Objectives Of The Family Business 42 2. Family Decision-Making And Institutions 42 3. Shareholding And Provisions Of The Shareholders Agreement 42 4. Conflict Of Interest 42 5. Employment Of Family Members 42 6. Succession Issues 42 7. Family Code Of Conduct 43 8. Family Training And Education 43 9. Family Philanthropy 43 10. Revision And Overseer Of The Family Constitution 43 How To Draft A Code Of Conduct 44 1. Preamble 44 2. Employees And Supervisors 44 3. Shareholders 46 4. Customers And Consumers 46 5. Business Partners 47 6. Environment And The Communities 47 7. Implementation And Revision Of The Code Of Conduct 48 How To Draft A Whistle-Blowing Procedure 50 1. Purpose Of The Whistle-Blowing Procedure 50 2. Wrongdoings Covered By The Whistle-Blowing Procedure 50 3. Persons Subject To The Whistle-Blowing Procedure 50 4. The Procedure 51 5. Protection Of The Whistle-Blower And The Accused Insider 52 6. Consequences Of Allegations 52 7. Implementation And Revision 53 How To Form An Audit Committee Of The Board Of Directors 54 1. Role Of The Audit Committee 54 2. Membership And Composition 54 3. Meetings And Operational Means 55 4. Authority 57 5. Duties And Responsibilities 57 How To Form A Nomination Committee Of The Board Of Directors 61 1. Role Of The Nomination Committee 61 2. Membership And Composition 61 3. Meetings And Operational Means 62 4. Authority 63 5. Duties And Responsibilities 64 How To Form A Compensation Committee Of The Board Of Directors 66 1. Role Of The Compensation Committee 66 2. Membership And Composition 66
3. 4. 5.
Meetings And Operational Means 67 Authority 68 Duties And Responsibilities 68
SECTION 3 CASE STUDIES 71 Butec 72 Commercial Insurance Company Sal 74
foreword
Corporate Governance is the system by which business corporations are directed and controlled. Corporate governance involves a set of relationships between a companys management, its board, shareholders and other stakeholders. Corporate governance also provides the structure through which the company objectives are set and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the Board and management to always pursue objectives that are in the best interests of the Company and its shareholders. (OECD)
Corporate governance involves the alignment of the interests of the company and its shareholders while taking into account the interest of all stakeholders. There is ample research that demonstrates the positive correlation between good corporate governance and firm performance. Good corporate governance can result in better information flows, improved risk management, increased shareowner confidence, and more effective leadership. Much of this can translate into a reduced cost of capital for the company and a higher return on investment for shareholders. As markets become more open and global and businesses become more complex, societies around the world are placing greater reliance on the private sector as the engine of economic growth. Family-Owned Enterprises (FOEs) are the base of the Lebanese economy. Developing a reliable corporate governance system for FOEs will help lead to sustained market growth over the long-term. It is with this impetus that this Reference Guidebook has been drafted. This Reference Guidebook aims to provide guidance to FOEs for implementing a sound framework for corporate governance. Whilst family ties may constitute a strong basis of common values, a recent survey by the International Finance Corporation (IFC) and Hawkamah demonstrates the extent to which FOEs in the Middle-East can improve their CG practices. This survey identified several areas of weaknesses in the governance of FOEs. Indeed, Family businesses are usually more complex in terms of governance than their counterparts. They also tend to manage their businesses themselves, and demonstrate a lack of interest in setting articulated business practices and procedures. The Lack of discipline is discernible in the financial and operational oversight, the succession planning and the capacity of attracting and retaining skilled outside managers. Hence, the survey states that 95% of family businesses do not survive the third generation of ownership, in large part due to these institutional weaknesses. For the purposes of this Guidebook, an FOE refers to a company where the voting majority is in the hands of the controlling family. As mentioned above, FOEs often have different characteristics
A Corporate Governance Survey for Listed Companies and Banks in the Middle-East and North-Africa, IFC and Hawkamah, March 2008.
from other companies, stemming mainly from the nature of ownership and the relationship of the family with the business. Ownership is usually concentrated in a single family and, depending on the generation of ownership, certain family dynamics may be present in the business. As such, the governance system of the company is usually dictated and dominated by the Family. The principles embodied in this Reference Guidebook are inspired by various international sources of good governance (mainly based on the recommendations of the OECD and the International Finance Corporation). The Reference Guidebook will provide FOEs with (i) guidelines on the implementation of corporate governance principles, (ii) toolkits on practical aspects of corporate governance and best practice, and (iii) actual case studies within Lebanon. Indeed, not all provisions of this Guidebook may necessarily be applicable to all companies. Thus the Guidebook needs to be adapted to the needs of each company by deleting or adding some provisions based on an individualized cost/benefit evaluation. Although this Reference Guidebook is tailored for FOEs, the principles contained therein are crucial for other Lebanese companies. Finally, this Reference Guidebook is ultimately only truly useful if it is critiqued, debated, and adopted by its target audience: Lebanese FOEs. This is only the first version of the Reference Guidebook and it should be viewed as a living document that will be tested, amended and improved during the coming years. This Reference Guidebook is part of a continuous consultation effort and calls for your comments and observations which may be sent to the following email address: info@transparency-lebanon.org As a final note, I would like to thank the Center for International Private Enterprise (CIPE) and the International Finance Corporation for their valuable support in our efforts to promote the practice of corporate governance in Lebanon. We hope that this Reference Guidebook can serve as a useful tool for FOEs in Lebanon. Indeed, in their strategies to grow and expand, corporate governance can be of great benefit to Lebanese FOEs. Gerard Zovighian, Vice-Chairman, LTA Board Member, Transparency International (TI)
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Section 1 Recommendations for the Implementation of Corporate Governance Principles
The main contributors to the drafting of this Code are the following members of the Corporate Governance Program of the Lebanese Transparency Association (LTA): Kamal Naffi, Resident Legal Advisor, Corporate Governance, LTA Cynthia Khalil, Program Manager, Corporate Governance, LTA Badri El Meouchi, Executive Director, LTA Nour Rustom, Project Coordinator, Corporate Governance, LTA
We would also like to thank for their valuable contribution in reviewing this document: Chris Razook, Project Officer, MENA Corporate Governance, International Finance Corporation E-mail: crazook@ifc.org, Tel: [+20]2-2461-9140 Mrs. Sanaa Abouzaid, Corporate Governance Department, International Finance Corporation E-mail: sabouzaid@ifc.org, Tel: [+20]2-458-1614 Linda Clarke, Researcher, MENA Corporate Governance, International Finance Corporation E-mail: lclarke1@ifc.org, Tel: [+20]2-2461-9140 Dr. Aleksandr Shkolnikov, Senior Program Officer, Center for International Private Enterprise E-mail: AShkolnikov@cipe.org, Tel: [202] 721 9200 Amina El-Sharkawy, Program Officer Middle East and North Africa, Center for International Private Enterprise E-mail: AEl-Sharkawy@cipe.org, Tel: [202] 721 9200 Mr. Gerard Zovighian, Chairman of LCGTF, Vice-Chairman of LTA, Board Member of Transparency International, Managing PartnerBDO Lebanon E-mail: gerard.zovighian@bdolebanon.org, Tel: [+961]1- 480917 or 480723 Me Nada Abdelsater-Abusamra, Head of the SMEs Committee and Legal and Regulatory Committee of LCGTF, Board Member of LTA, Managing Partner ASAS Legal Practice E-mail: nada_abdelsater@post.harvard.edu; n.abdelsater@ asaslaw.com Tel : [+961] 3-363663 Me Serena Ghanimeh, Corporate Lawyer, ASAS Legal Practice, LTA member, LCGTF member e-mail: s.ghanimeh@asaslaw.com - Tel : +961 1 424727
SECTION 1 guidelines for the implementation of corporate governance principles

The dissemination of a corporate governance culture within the company is based on a system that ensures a real commitment to good corporate governance practices. This culture consists of the sum of practices, procedures, and behaviors related to the day-to-day guidance and oversight of the business. Leaders should perceive such commitment as a significant challenge for all interested parties. As a consequence, the first step for building a strong corporate governance culture is to promote awareness and understanding of the principles of corporate governance, and then ensure that there is strong commitment at all levels of the organization on an ongoing basis.
1. Commitment to Good Corporate Governance Practices How can directors, managers and officers demonstrate and implement strong commitment to good corporate governance practices? Reaching such an objective requires strong leadership skills and stresses accountability throughout the organization. 1.1 Board understanding and commitment to Corporate Governance: Demonstrating commitment to good corporate governance practices implies that key governance mechanisms be strengthened at all levels of the organization. To that extent, there should first be a clear understanding of corporate governance principles among directors and executives to allow for a well-built corporate governance culture to grow. Indeed, the development of a thorough corporate governance system relies on the thoughtful and ethical behavior of directors and managers. These insiders should understand the importance of the role they play in the improvement of corporate governance within the business, as it primarily relies on them. This is why they should be responsible for developing and implementing a formal system of policies and procedures that will allow the corporate governance
culture to spread throughout the organization. This can only happen provided the Board gains a thorough understanding of where the Company stands in terms of corporate governance. Such policies and procedures mainly revolve around the adoption, implementation and revision of a (i) Code of Corporate Governance outlining the corporate governance practices of the Company, and (ii) Code of Conduct providing insiders and stakeholders with guidance on the Companys values and expected conduct of all staff in their day-to-day activities. Such formalization is a necessary step to facilitate adaptation of the insiders to the corporate governance framework. By having access to formal, understandable corporate governance documents, staff members will fully understand the corporate governance practices of the Company and integrate them quicker. This is why it is crucial for the Company not only to develop such codes, but also to communicate their contents and provide training to all staff. The Company should also update the content of these codes on an annual basis so as to reflect any changes incurred in the governance framework. Following is a suggested approach and some guiding principles to help the Company strengthen its commitment to good corporate governance.
Develop a first impression on the companys governance framework, policies and procedures
The Board of Directors should show leadership and set the tone at the top. The Board Chairman should (i) place corporate governance issues on the agenda of Board meetings to ensure an efficient and timely treatment of all issues arising out in this respect, and (ii) enable Board members to freely open discussions relating to corporate governance so as to develop a first impression at the level of the Board.
Encourage the company to undertake a self-assessment

The Board Chairman should also conduct a formal self-evaluation through a frank, open and innovative discussion at Board meetings. The Board must start a successive process of (i) evaluation, (ii) assessment, and (iii) improvement, so as to identify strengths and weaknesses, opportunities and threats. Although leadership comes from the top, the Chairman or the General Manager can sometimes be reluctant to implement corporate governance changes. If so, an external facilitator could play a role to monitor issues and facilitate debates, since he can evaluate the needs with more impartiality and objectivity.
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Encourage the company to prepare a formal corporate governance plan with a prioritization of issues and actions/reforms
To better drive the preparation of this plan, members of the Board of Directors, along with the help of the Chairman and the General Manager, should discuss the importance of corporate governance at Board meetings and assess the basic needs of the Company in this logic. Board meetings where control, financial or strategic business issues are set on the agenda are of a primary importance and must be envisaged while analyzing all the corporate governance requirements and subsequent restructurings that shall be necessary. These shall be formalized under an action plan with a statement of objectives and settlement of priorities (following an established timeframe). Such assessment can be provided by specialized institutions having substantial expertise in assessing the corporate governance compliance of a company.
Implement the corporate governance plan

The implementation of the corporate governance plan must be carried out under the supervision of the Board of Directors and management, who shall bear full responsibility for the actions undertaken. Compliance with laws, regulations and internal policies falls within the scope of responsibility of senior managers and the Board acting as a collective body. Once finalized, the Board of Directors should approve the plan in a formal resolution and ensure sufficient resources are allocated to implement it. Training of all Board members and managers on corporate governance issues should be arranged by the Chairman, along with the help of the corporate secretary. The Company should also appoint a "champion" to lead, conduct the improvement plan and oversee corporate governance reforms in the Company. Therefore, this person should have strong knowledge of corporate governance and of the Board's internal regulations. Hence, the "champion" could either be the corporate secretary or the legal counsel of the Company. This individual shall report to the Board as a whole. The Company should also consider appointing a senior executive to support the latter.
Review the results of the plan on a periodic basis

The corporate governance plan should be reviewed on an annual basis in light of the experience of the expired year. Such revision should be carried out by the "champion", who shall be responsible under the supervision of the Board for drafting, reporting (ensuring compliance) and periodically reviewing the Company's corporate governance policies and procedures. In addition to the champion or as an alternative (especially in large FOEs), the Company should consider appointing a corporate governance committee for the purpose of evaluating, planning and overseeing the implementation of corporate governance principles within the Company, the functions of which could be combined to those of the nomination committee.
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1.2 Development of a Code of Corporate Governance: The Company should consider drafting and adopting a Code of Corporate Governance outlining the governance practices of the Company and the role of the Board of Directors. The corporate governance principles contained in the code should be formally codified and disclosed to the shareholders, the full staff and the public in general. Every Company adopting such a Code should delineate its various structures and processes both at the Board level and management level related to its corporate governance framework. The Company should also adopt a compliance program or procedures including training of employees, auditing and monitoring system, and guidance on conflict of interest to ensure compliance with its corporate governance principles. International Best Practice: the Code of Corporate Governance Among other relevant corporate governance principles depending on each Companys unique profile, best practice insists that the Code of Corporate Governance should focus on: Board structure, composition and functioning (including sub-committees of the Board of Directors); Directors qualifications and duties; Risk management and control; Internal and external audit; Conflict of interest and related-party transactions; Methods for Board evaluation; Senior management evaluation and succession; and Rights and obligations of shareholders. Please refer to section 2 How to Draft a Code of Corporate Governance for further details in this respect. 1.3 Development of a Code of Conduct: Principles regarding members of the Board and staff behavior as well as principles applicable to the relationships of the business with relevant parties should be formalized in a Code of Conduct. By adopting a Code of Conduct, the Company is committed to growing its business on the basis of
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shared values and common principles that clearly assert its ethical standards and accountability for all its activities. Such Code of Conduct will enable the Company to ensure adherence to appropriate laws, regulations, and ethical standards, while embracing accountability for the impact of corporate activities on the environment, the consumers, employees, stakeholders and communities. The expectations and constraints of the employees should be widely taken into account in the process of drafting the Code of Conduct, as employees are the primary target of such code. In addition, the Company should consider appointing an ethics representative for the purpose of (i) overseeing the development and implementation of the Code of Conduct, (ii) providing conducttraining programs to all employees, and (iii) ensuring that employees comply with all principles stated therein . Reference to a Whistle-Blowing Procedure should be contained in the Code of Conduct. A Whistle-Blowing Procedure provides a safe harbor process for employees to communicate their concerns about illegal, unethical or questionable practices directly to the Board as well as to senior management without fear of reprisal. Such communication should be made anonymously either to a representative within the Company, so as to prevent any nuisance or negative reaction by other employees or employees supervisors. The Board of Directors should also establish procedures to communicate concerns either directly or indirectly. Please refer to section 2 for further details in respect of the Whistle-Blowing Procedure.
The ethics representative, as explained in section 2, can be the corporate secretary or a compliance officer, with oversight by the Audit Committee and/or a designated independent director. Further, the Audit Committee should be vested with the duty to periodically review the organizations Code of Conduct and ensure that it is adequate. Reference Guidebook on the Corporate Governance of Family-Owned Enterprises
International Best Practice: the Code of Conduct The Code of Conduct should, for all employees, shareholders, business partners (e.g., creditors, suppliers), customers, and other stakeholders, address, among other things: Board and staff conduct and ethical behavior; Environmental considerations; Project safety and health considerations; Compliance with laws and regulations; Conflict of interest policy; Related-party transaction policy; Privacy and confidentiality; and Anonymous reporting of abuses of conduct through a whistle blowing procedure
1.4 Disclosure on a periodic basis: Once drafted, the codes should be communicated to staff, Shareholders, and ideally, company stakeholders. Disclosing the codes to the widest public possible will demonstrate the will of the Company in terms of compliance with corporate governance principles. Copies of the Code of Corporate Governance and the Code of Conduct should be freely accessible on a permanent basis at the Companys head office and accessible on its corporate website. The Board of Directors should disclose on a periodic basis to the staff and the public in general the extent to which it is complying with its corporate governance rules and regulations, notably with regard to the rules contained in the Code of Corporate Governance or the Code of Conduct. Please refer to Section 2 How to Draft a Code of Conduct for further details in this respect.
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2. Corporate Governance, the Board of Directors and Management: An effective, professional and independent Board of Directors is essential for the implementation of a sound corporate governance system. For this reason, it is crucial for the Board of Directors to adopt working guidelines, policies and procedures to formalize corporate governance principles and communicate these through the organization. Indeed, only a structured and well-functioning Board of Directors will lead to greater accountability, fairness, transparency and responsibility. 2.1 Role of the Board of Directors (the Board): The Board of Directors is entrusted with providing optimal guidance and oversight to the organization that is in the best long-term interest of the Company and its Shareholders. While doing so, the Board should also be taking into account the interests of the stakeholders, to the extent feasible. The Board should therefore define the corporate objectives and Companys strategy on the basis of proposals from the executive management, and provide ongoing oversight as the Company strives to achieve those objectives. The Board of Directors should discuss its role jointly with management and this role should be consecrated within the Companys Code of Corporate Governance and the Boards internal regulations. The Board should also be cognizant of its duties, responsibilities, and liabilities pursuant to applicable laws and regulations. These requirements should be part of an induction training for members of the Board. Regardless of his/her personal qualities and abilities, each member of the Board should consider himself/herself as representing the interests of all Shareholders and always act accordingly in the performance of his/her duties. This duty is crucial to the Board, which assumes ultimate responsibility to Shareholders for the sound direction and control of the Company, regardless of whether the Board has constituted special committees or if it has authorized other persons or entities to undertake specific operations.
Best practices for the Board include at a minimum the following major roles and responsibilities: Review, approve, and monitor the Companys long term strategic objectives and business plan prepared by the management; Monitor the overall performance of the Company and the collective supervision of the management of the Company; Assess the major risks faced by the Company in the carrying out of its activities and the actions taken to remedy such issues; Review and evaluate managements actions and compliance of management with Board policies; Review and approve major business transactions, including capital allocations and expenditures (such as authorization of transactions involving significant property belonging to the Company, purchase of real estate, authorization of guarantees given in the name of the Company etc.); Select and recommend Director nominees for election by the Shareholders as well as candidates for executive officer positions (including the Companys General Manager); Determine the compensation of the General Manager and other major executive managers and officers as well as approve and monitor any incentive-compensation and equity-based plans; Oversee the integrity of the financial statements and ensure that the Companys records, processes and functions are accurate, complete and present fairly the financial situation of the Company; Oversee the compliance of the Company with legal and regulatory requirements; Oversee the qualifications and the performance of the internal audit function; Oversee the qualifications and independence of the external auditor; Oversee compliance with the Companys Code of Conduct; Oversee overall effectiveness and performance of the Board; and Oversee related-party transactions, e.g. transactions entered into between the Company and, among others, a member of the Board. 2.2 Board member duties of loyalty and care In the discharge of their duties and responsibilities, members of the Board are bound by the duties of loyalty and care. Such duties are both individually and collectively applicable to all
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members of the Board. The duties of loyalty and care comprise mainly the following obligations: Before accepting office, each director should ensure that he/she has familiarized himself/herself with the by-laws of the Company, its internal regulations and the general and specific obligations of his office; Each Director should represent the interests of all Shareholders and should act under all circumstances in the best interests of the Company; Each Director should ensure the effective functioning of the Board of Directors (a director should not accept more than a number of other directorships so as to be able to properly discharge his duties); Each Director must take into account the legitimate expectations of all of the Companys partners or stakeholders (employees, clients, executives, suppliers and creditors); Each Director must report to the Board any conflict of interests, whether actual or potential and abstain from taking part in voting on the related resolution; The Director should apply to his/her duties the necessary time and attention, and should, subject to all applicable laws and regulations, consult the corporate governance and nomination committee before accepting any additional seat on another Board of Directors; The Director should attend all meetings of the Board and meetings of the committees on which he/she sits; The Director is under a duty to obtain all necessary information and request from the Chairman that such information be communicated; Regarding non public information, each Director should consider himself bound by confidentiality obligations with regards to all information learnt upon nomination or during exercise of his/ her functions; and Attend the meetings of the Shareholders. 2.3 Distinction between the roles of the Board and management: There should be adequate separation between management and control of the business. Ideally, the Company will have a Board of Directors that can provide objective oversight of management, which is why the Board should not be entrusted with the day-to-day management of the
business. This is the responsibility of the management team. With the same importance, the Board should not take or participate in decisions reserved by applicable laws and regulations for the assembly of Shareholders. Having appointed members of the management, the Board acts as an advisor or counselor to senior management and ultimately monitors their performance. Whereas the management is in charge of implementing the corporate strategy and objectives of the Company, the Board is vested with the duty of overseeing such management by exercising business judgement in what they reasonably believe to be the best interests of the Company and its Shareholders. However, specific issues or corporate events/decisions taken by the management could have a great impact on the stability or well being of the Company. This is why such sensitive issues or decisions should be valid provided the management has received the prior approval of the Board, to ensure that the Board actually shares the visions of the management and assesses whether or not such decision will be consistent with the Companys corporate objectives. To illustrate the above mentioned, it is recommended to submit the following decisions for prior approval of the Board: Purchase of shares or stakes in another business under any form whatsoever ; Any transfer of shareholding, even by way of corporate dissolution or liquidation; Any purchase or sale of real estate; Any issuance of bonds; Authorization of related-party transactions; Any entering into a partnership, joint venture, merger or acquisition; Creation, extension, elimination, or reduction of any activity/major business line undertaken by the Company; Any granting of security/guarantee (either personal guarantee such as a pledge or a real security interest, such as a mortgage) in respect of undertakings given by the Company; and Any significant financial transaction in excess
Except for companies the purpose of which is to sell and buy shares or to manage a financial portfolio.
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of pre-defined, material thresholds (as typically defined in an Authority Matrix) or a transaction that would change the essential nature of the business model of the Company. 2.4 Separation of the functions of Chairman and General Manager The Company must carefully consider the dichotomy of roles between the Chairman and General Manager and decide whether to separate these two positions. Under current applicable Lebanese laws, it is theoretically not possible to separate between the functions of Chairman and General Manager, as the Chairman continues to bear responsibility for the decisions taken. Until such separation becomes legally feasible, it is recommended that the Board appoints a deputy executive General Manager who shall report to the Board (4). Such separation is compliant with International Best Practice, but is not necessarily, in light of the Lebanese framework, the most appropriate solution in every circumstance. The profile of Lebanese family-owned companies makes it difficult to adopt a fixed rule as to whether the positions of Chairman and General Manager should be filled by the same person or two different people. The needs of the Company and individuals available to play these roles may dictate different outcomes at different times and retaining flexibility in these decisions might be in the best interests of the Company. Bearing this in mind, the Company should therefore assess whether or not combining the positions of General Manager and Chairman shall preserve best its interests.
International Best Practice: the Separation of Functions of Chairman and General Manager Recommends division of responsibilities between the Chairman and General Manager as it entrenches a system of checks and balances at the heart of the Companys highest decision-making body. No individual should have unfettered powers of decision. In any event, if a Company decides to combine the positions of Chairman and General Manager, it should explain and support such decision by demonstrating that its interests will be better preserved in this way. Upon separation, it is also recommended that the Chairman be a non-executive. A non-executive Chairman is likely to be more objective in guiding the Board to fulfill its duties.
2.5 Board composition: Size of the Board: the size of the Board of Directors should provide for sufficient diversity among Directors, while facilitating substantive discussion in which each director can participate meaningfully. The size of the Board should be tailored to the needs of the Company and take into account the strategic direction of the business. Board size and composition should be set to ensure full, productive discussions and vetting of issues to inform good decision-making. Most boards across the MENA region consist of 6 to 12 members. Banks tend to have slightly larger boards than private companies, but it will depend on each organization. The composition of the Board should reflect an adequate equilibrium between independent, non-executive and executive directors (5).
(5) International Best Practice considers that a substantial majority (a minimum of 50%) of Board members should be independent. In parallel, independent and non-executive members should account for 2/3 of the members of the Board. It is our opinion that such numbers are not necessarily adequate for the region. In any circumstances, the Board should be equitably composed between independent, non-executive and executive members, depending on the profile of the Company and its needs with respect to the critical skills required from each director. The Company should consider appointing at least one independent director, who could chair the Audit Committee.
(4) Upon revision of applicable laws, it is recommended for each Company to separate the functions of Chairman and General Manager so that the same person is not entitled to hold both functions.
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International Best Practice suggests that a majority of the Board members be independent, nonexecutive members. The rationale for this is that independent directors are likely to bring more objective decision-making. However, having a majority of independent directors may not always be practical or in the best interest of each FOE. Therefore, each FOE should decide what mix is appropriate, bearing in mind the merits of having at least some independent representation. For example, at a minimum, an FOE may wish to have at least two independent members who can then also sit on key committees (e.g., Audit, Nomination, Remuneration Committees) to ensure those have a majority or high proportion of independence. Each year, the Board should review the independent Directors against the Companys independence criteria to ensure they still meet the requirements. To help ensure consideration of minority shareholder interests, it is good practice to include representation of minority Shareholders on the Board in some capacity. Critical skills: when recruiting Board members, the Board, along with the help of the nomination committee, should evaluate the skills required from each Board member so as to provide the Board with a broad base of competences and skills. For example, some particular skill-sets which are often useful to Boards include: financial and accounting, relevant industry experience, risk management, strategic planning, human resources, marketing, corporate governance, and other types of skills. Of course, the precise skill requirements will depend on the Companys needs. However, it is recommended to bring on the Board at least one member with strong financial or accounting expertise so as to review the work of the internal and external auditors.
International Best Practice: Definition of Independence: A director should be considered independent when he or she has no relationship of any kind whatsoever with the Company, its group or its management of either that is such as to color his or her judgement. To that extent, a Director might be considered independent if he/she: Is not a member of the executive management or of the boards of associated companies (subsidiaries etc.) and has not held any such appointment for the past year; Has no family ties with any of the executive directors which might interfere with the exercise of his/her independent judgement; Is not a member of the executive management or Board of Directors of one of the dominant shareholders and has no business, financial or other relationship with the latter; Is not a supplier of goods or services of a nature which might interfere with the exercise of his/her independent judgement and nor is a member of the firm of which the company's adviser or consultant is part; and Has no other relationship with the company, which, in the opinion of the Board of Directors, is of a nature that might interfere with the exercise of his/her judgement; no such influence is deemed to arise from the remuneration he/ she receives or his/her restricted shareholding in the company. 2.6 Advisory Board (6) Many family businesses recognize the need for an independent board but are also uncomfortable in sharing sensitive company information and decision-making power with a group of outsiders. The Advisory Board is a group of experienced and respected individuals that many family businesses form when their own boards of directors remain composed of family members and company senior managers. The creation of such Advisory Board can provide for the Company outside perspective in certain strategic areas (such as marketing, finance, human resources management or international
(6) Please refer to the IFC Family Business Governance Handbook for further details on Advisory Boards.
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markets etc.) where the Board might lack expertise. The Advisory Board can add value to the family business without diluting family control. The Advisory Board should comprise a number of members ranging from 3 to 7. Keeping the size of this board small will help maintain its effectiveness. Members of such board are usually experts in the family business industry and market or other relevant areas such as mentioned above and will provide expertise and experience to the family business in this respect. The Advisory Board usually meets 3 to 4 times a year, depending on the size of the business and the complexity of operations. The General Manager and other senior managers can be part of such Advisory Board so as to coordinate and orient discussions. 2.7 Board meetings The Board should hold meetings on a regular basis (minimum numbers of meetings are often stipulated in applicable laws and regulations). It is recommended that the Board meets at least quarterly to formally discuss the financial statements and the Companys performance. Yet, more typically, boards in the MENA region meet between 6 to 10 times per year on average (per IFC/Hawkamah Survey, 2008). In general, the -Board should meet as needed to discuss major issues requiring the Boards input in light of specific circumstances arising in connection with the Companys activity. Likewise, sub-committees of the Board of Directors should set regular meetings to address all issues within their purview. For example, the Audit Committee will usually meet at least four times per year. Even though personal presence is preferred, attendance by secured means of telecommunication should be accommodated when possible so as to ensure the widest participation to the Board and sub-committees meetings (7). The agenda should be planned carefully and distributed to each Board member sufficiently
Lebanese law does not expressly address attendance by telecommunication means. However, such attendance is favored even if it would not fall in determining the quorum and majority.
in advance (best practice suggests at least five working days in advance). All information and data important to the Boards understanding must, to the extent practical, be distributed to individual directors sufficiently in advance (also at least five working days). Conversely, directors are bound to request the appropriate information that they consider necessary to perform their duties. The Chairman should be responsible for ensuring that such information has been correctly passed to all individual directors. 2.8 Corporate secretary Ideally, the Board will designate a corporate secretary to facilitate the execution of its activities. The corporate secretary shall be in charge of registering and coordinating the Boards meetings, minutes, records, books and reports submitted by and to the Board and manage the corporate governance efforts of the Board. The corporate secretary shall also be in charge of coordinating among the various Board members, as well as between the Board and other Company constituencies (including Shareholders, management and employees). Minutes should summarize all substantial discussions and specify the decisions made, including questions raised and reservations stated. Minutes should also be used actively to follow up on implementation. Smaller companies may consider a part time corporate secretary, depending on the workload.
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International Best Practice: Corporate Secretary The corporate secretary should not be a Board member, rather an employee of the Company. Best practice defines his key roles as follows: Organize meetings of the Board of Directors and convey information; Advise Directors on their duties and responsibilities; Notify all Directors of Boards meetings and take minutes of such meetings; Ensure corporate governance is documented, communicated and followed in practice; Advise the Board and senior management on legal, regulatory and corporate governance matters as well as procedural requirements contained in the by-laws of the Company; Provide induction training for newly elected Directors; Provide professional and administrative support to the annual Shareholder general assembly and ensure that the Companys legal obligations to its Shareholders are being properly discharged; and Assist in establishing and maintaining clear communication between the various governing bodies of the Company. 2.9 Training for Directors Companies are encouraged to adopt a tailor-made training program for newly elected Directors so as to provide them with the best background before tackling their director duty. The corporate secretary should provide such training. The training could include, for instance, (i) the Company strategy, (ii) business operations, (iii) overview of industry and sector of operations, (iv) key-employee background and skills, (v) internal Company and Board procedures (including corporate governance), (vi) current financial situation, and (vii) fiduciary duties and responsibilities. 2.10 Committees of the Board of Directors The Board should consider the development of specialized committees to provide in-depth focus on particular issues and ensure effective utilization of Board resources. For example, some of the more common committees found on many boards include:
Audit committee: the audit committee shall be responsible for (i) reviewing the Companys financial records and statements, (ii) ensuring that the Company adheres to all appropriate financial accounting and reporting standards, (iii) ensuring the Company has effective frameworks for risk management and control, and (iv) overseeing the work of the internal and external auditors. Human resource and nomination committee: the human resource and nomination committee shall be responsible for making recommendations to the general assembly of Shareholders or to the Board, as applicable, on candidates for the Board and Board committees. This committee is also usually entrusted with overseeing the corporate governance framework for the Company. Compensation committee: the compensation committee shall be responsible for making recommendations on remuneration packages and agreements of any form whatsoever of Board members, management and eventually employees. The composition of the committees should also be carefully considered. Best practice suggests having at least a majority of the committee members be independent. But again this depends on each company and the composition of the board in general. When possible, it is advisable to have a majority be independent or at least non-executive, and be chaired by the same. The members of such committees shall be in charge of discussing issues presented to them by the Chairman and provide recommendations to the Board in this respect, which shall take the final decision and bear full responsibility for such decision. The various reports drafted by the Committees in exercising their functions should be made available to all Shareholders. The corporate secretary ensures that such reports have been communicated to the Shareholders. Specialized committees report to the Board on a routine basis. Please refer to Section 2 for further details in respect to the duties, prerogatives and responsibilities of each specialized committee of the Board of Directors.
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2.11 Quality of information transmitted to Directors Directors should, for the proper discharge of their mandate and duties, receive complete information about the business. This will vary by company but should include reports and briefings on all aspects of the Companys business (not just financial). For example, information regularly provided to the Board might include: Minutes of the meetings of the Board and all committees; Information on recruitment, resignation, service termination and salaries of key employees; Punishments and penalties inflicted within the Company, along with the indication of the causes; Details of any significant risk-management matters (including financial, operational and compliance issues); Details of any judicial actions or court cases; Details of joint venture agreements to which the Company is a party; Payment of material amounts in relation to intellectual property, goodwill and trademark rights; Details of sale of investments and assets outside of the companys ordinary course of business; Routine strategic updates on performance against objectives and targets; Routine financial information; Updates on material management matters of the organization (e.g., HR, IT, Procurement, etc); Compliance updates on both internal and external requirements; and Any other relevant information in relation to agenda of meetings of Board of Directors. Information should at all times be accurate, timely, candid and complete. The Chairman should be responsible for ensuring that information passed to individual directors meets the quality standards stated hereinabove.
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3. Family Governance Considerations (8) Governance in family-owned enterprises drastically differs from the governance of other companies as the family plays a fundamental role in the business. Individuals usually wear different hats, whether Shareholders, managers, Board members or family members, which can lead to different incentives, conflict of opinions and hence, render the management of certain situations quite complex. It is an intricate set of relationships, including both family relationships and business relationships, the first of which can significantly affect the well-being of the Company. Family members often tend to unconsciously bring the family conflicts they have inherited to the business. For this reason, the family should adopt policies and procedures designed to prevent, mitigate and remedy all potential issues which could arise in respect of family considerations. 3.1 Adoption of a Family Constitution The Family Constitution is vital for the proper management of the family with regards to the business. The Family Constitution is a statement of the principles that outlines the family commitment to core values, vision and missions of the business. The Family Constitution defines the relationships among the governance bodies and how family members can meaningfully participate in the governance of their business. In addition, the Family Constitution will often include key governing policies regarding important family issues such as family members employment, transfer of shares, General Manager succession, etc. The purpose is to address all issues that can arise in the course of the business with regards to the family. As a preliminary consideration, it is valuable to identify the family members who are subject to the family constitution (all family members or only those who are shareholders). However, a clear Family Constitution addressing the roles, rights and obligations of all sorts of family members, regardless of whether they are
(8) For further details in respect of family governance considerations, please refer to the IFC Family Business Governance Handbook.
Shareholders or not, could help set the right expectations among all those involved in the family business and avoid potential conflicts. Following is a discussion of some of the key family governance issues and mechanisms. Hence, these are also items that should be ideally documented in the Family Constitution, once they are addressed. Please refer to section 2- How to Draft a Family Constitution for further details in this respect. 3.1.1 Family values and objectives The various co-owners of the business should be clear between themselves about what they want from their business. It is essential in this respect that they all agree on the core principles and beliefs of the family business, which should be consecrated in the Family Constitution. The aim is to bring everyone with a stake in the family business to talk about the important issues. The culture of the Company in terms of values and beliefs should be clearly outlined, both present and future. The familys objectives and core philosophies must be identified before tackling the business plan. Furthermore, the family should evaluate the longterm goals of the business and define the management philosophy applicable to the business. The Family Constitution should state what matters to the family, its culture, its mission and what the family wants to become. There should be an open discussion, along with the help of professional advisors, on the different objectives and needs of individual family members, with a view to building a viable consensus. 3.1.2 Ownership structure, shareholding and relevant provisions of the Shareholders agreement Shareholding and allocation of the shares of the Company between family members is a sensitive issue that should be dealt with appropriately, as exit from or entry into ownership can be difficult to manage and lead to emotional issues. The Family Constitution should identify the issues that the family may face with regards to the shares of the Company and elaborate ways and means to solve or circumvent such issues.
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Family members should agree, with regards to share ownership and management, what is fair for the family and effective for the business. The Constitution should envisage matters relating to ownership and age, such as at what age shares can be acquired or sold by family members. Rules governing the sale of shares should be accurately defined and should provide for a fair price. For instance, the family is encouraged to consecrate the following in the Family Constitution: Who has the right to own the shares in the family (e.g. only descendents, in-laws, relatives, non-family members such as employees, etc.); Right of first refusal (the right of a party to match the terms and conditions of a proposed contract with another party, generally protecting minority shareholders); Conditions relating to issuance of new shares; Conditions of sale (Priorities, pricing, etc.); Pre-emption rights (e.g. priority among members of the family in the event of intended sale of shares of a family member); Approval procedure in the event of transfer of shares ( e.g. approval of a new Shareholder by majority decision of the members of the family); Liens on shares; Dividends and subsidies for family members; and Other relevant provisions of the Shareholders agreement, if any. 3.1.3 Conflict of interest In a family business, there are many sensitive areas where a clear and understandable policy is necessary for an appropriate prevention of conflict of interest. This is why the Family Constitution should contain provisions governing conflict of interest and self-dealing. It is recommended that, whenever applicable, one family member should never report to another family member. The sensitive areas are usually those where the business and family are seen as being in conflict. The Family Constitution should identify, whenever such conflict is deemed to exist (i) which of the business or the family should come first, and (ii) if both must be taken into account, how the conflict shall be resolved.
The Family Constitution should contain provisions relating to the treatment of conflict of interest at least in the following situations. Investment in other parent companies; Transactions entered into between family members and the Company; Benefits granted to members of the family; Related party transactions (e.g. Transactions entered into between related parties of individual Board members and the Company); Other activities giving rise to a conflict of interest in anyway whatsoever with members of the family; and Implementation of procedures for the resolution of such conflict of interest. 3.1.4 Employment policies and procedures Employment of family members and non-family members is a crucial section of the Family Constitution. Best practice suggests adopting policies and procedures with respect to recruitment and employment of family members that are fair and equitable. Indeed, a favoritism policy could undermine the will and motivation of non-family employees. Some companies exclude family members from participation in the workforce while others exclude spouses, daughters, sons, in-laws, cousins etc. (identified members). The belief underlying such policy is that it will eliminate the potential for conflict and enable the business to grow as an asset for the benefit of the whole family. Deciding who from the family should work in the business is a decision to be made by the leaders of the family and will reflect the familys beliefs and interests in these areas. Regardless of what the family decides, employment policies should in all circumstances be fair to all and transparent. The family employment policy should focus on the criteria required for selecting family members for involvement in the business. The talents and abilities required from family members should be explicitly defined. Employment in the business should be made on the strict basis of examination of the sufficiency of the skills and competencies of the family member and should not lead to preferential treatment with regards to who owns shares. The children
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of the owners of the company should be aware of the criteria required for employment at an early age so that those aspiring to join the family business can plan their careers accordingly. The family employment policy should specify the age, education and experience needed by family members before they can apply. For instance, a few years (3 to 5) of outside experience could be required before application for a permanent position can be made. Employment opportunities should only be offered to family members where there is a clear business need and the candidate is adequately qualified for the position. If non-family members are more likely to appropriately fulfill a position, they should be given priority over family members. The family employment policy should provide for a way to evaluate family members currently involved in a key position of the company. The employment policy should insist on the way their performance will be judged and how their remuneration and benefits shall be set. Evaluation of both family and non-family employees in similar positions should follow the same standards. Remuneration of family members should be no more favourable than that of equivalent nonfamily employees. However, it should be borne in mind that remuneration is not to be confused with return on ownership. Once family members are employed in the business, they should be supervised by non-family managers who are secure enough to give an unbiased and objective evaluation on the said family member. Allocation of promotion should be made on the strict basis of merit. Once a family employment policy is developed, it should be made part of the Family Constitution, if one has been developed. 3.1.5 Family training and education Education is crucial for any family member both in the present and the future. Indeed, some of the family members will express differing aspirations than being employed in the family business. Nevertheless, education can always serve to ensure that all family members are informed enough to realize what the values of the Company are and
what the Company expects from family members who are employees or of those who have a stake in the company. The family may wish, therefore, to identify the areas of education and training of family members as well as the family members who should be involved in the educational process. The family may also wish to provide funding or other support mechanisms to offer to family members to pursue such educational activities. 3.2 Succession planning Succession is a common, critical issue for all FOEs and should be planned proactively. Families in small and large businesses should be concerned about issues of selecting, preparing and training a successor or having willing and able successors. Family members should be concerned with change not only from a business perspective but also because of the changing nature of family dynamics. The use of independent nonexecutive Directors should be favored to provide for a more objective view in the planning and decision-making process related to succession planning, and ideally be overseen by an objective nomination committee. Issues relating to succession planning for the General Manager and the senior management staff are of upmost importance. The plan should summarize (i) the future leadership skills and needs of the Company given the strategic direction over the next few years, (ii) the likely candidate for General Manager position, and (iii) steps to be taken to develop successors for these key positions. The succession planning should be prepared sufficiently in advance of the retirement of the concerned people, so that the family and all nonfamily employees can be aware of the succession plan and its intentions from the beginning. All succession options should be examined, including succession from outside sources. The successor should be trained in such a way as to provide for intergenerational teamwork.
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3.3 Family Governance structures (9) Incorporation of family governance structures can enhance the management of family issues and, hence, the family/business dynamic. The relationships existing between family members and the business are realities that should be dealt with cautiously to avoid conflicts and tensions in the family business. Depending on the size of the family, its stage of development and the complexity of the business and family relations, each FOE should select the family structures necessary or advantageous to the Company. These structures, of which the working procedures should be formalized in the Family Constitution, can be identified as follows: 3.3.1 Family Assembly The Family Assembly is a formal forum for discussion for all family members about business and family issues. The Assembly can also allow family members to generate and develop new business ideas, communicate on family values, voice concerns about particular family or business issues, and identify the next generation of leaders. The purpose is to lead thoughts on common professional interests of the family. The Family Assembly is a structure composed of all family members (as mentioned under section 3.1, it is necessary to define who is a family member and who is not, e.g., those who work in the Company, those who have a stake in the share capital or all family members etc). These assemblies help avoid potential conflicts that might arise among family members because of an unequal access to information and other resources. Family Assemblies are usually held about once or twice a year in order to discuss and manage issues of interest to the family. The Family Assembly should (i) invite participation and involvement from the whole family, (ii) make elections for committees where openings have become available in the next cycle,and (iii) proceed to the nomination of the members of the family council and other family committees. Presentations by the General Manager/Chairman
Much of the substance contained in the family governance structures sub-section is derived from the IFC Family Business Governance Handbook. Please refer to such document for further details on this topic.
of the Board of the latest developments that may enhance the familys success in business activities should be done in conformity with the principles of equity, transparency and accountability. 3.3.2 Family Council The Family Council is a working governing body that is elected by the Family Assembly among its members to deliberate on family business issues. The Council is usually established once the family reaches a critical size, i.e. more than 15-20 members. In this situation, it becomes very difficult for the Family Assembly to have meaningful discussions and make prompt and qualified decisions. The Family Council is established at this point as a representative governance body for the Family Assembly in coordinating the interests of the family members in their business. It should represent virtually the whole family, though composed of a narrower number of members, comprised between 5 and 9. The Family Council should manage activities that provide continuity of family values, family identity, family education and socialization, with regards to the business. The Family Council should be focused on the familys monitoring of the business rather than on the business itself. It is the link point of contact between family entities as well as between family entities and corporate organs. The Family Council should (i) discuss names of candidates for Board membership, (ii) draft and revise family position papers on its vision, missions and values, as well as on employment, compensation, and shareholding policies, and (iii) coordinate the works of the family committees. The consultation process should lead to an agreement for the benefit of the business. 3.3.3 Family committees The family should consider appointing committees responsible for covering areas of particular interest to the family. For instance, family committees could be appointed for the purpose of leading brainstorming on education and training of family members, solving issues relating to shares, career planning, contributing to the community, or for establishing family recreational activities.
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4. Control Environment and Processes The global financial crisis along with individual high profile financial scandals around the world have had a profound impact on the way business is done, leading market participants to request some transparency in the management, monitoring, and control of companies. Companies should recognize the importance of having sound risk management and control functions and effective audit functions (internal and external) to constantly monitor the business. These functions are vital for the sustainable and long-lasting implementation of a sound corporate governance system. 4.1 Creation of an executive committee As the Company grows, the formation of a management executive committee can become beneficial to the Company. An executive committee can help monitor corporate performance, decide on key issues, coordinate activities across the company, and facilitate the work of management. It should be noted that the executive committee is a management level committee, not a committee of the Board. The executive committee typically consists of senior executives of the Company (e.g. General Manager, deputy general manager, assistant managers and Chief Financial Officer). The executive committee should meet routinely (on a weekly or monthly basis), provided the agenda is full. The executive committee should also be gathered when specific circumstances arise. Each Company should assess, based on the following, which duties the executive committee should be vested with. Such duties typically comprise: Serving as primary management reporting entity to the Board of Directors; Ensuring sound communication, consistency and coordination of activities across the management group; Formulating overall strategy (for board approval), approving business plans, overseeing risk management and monitoring group performance on a routine basis (against plans); Addressing major business issues that arise (operational and administrative) and taking major business decisions though careful not
to strip the specific business units of decisionmaking autonomy; Reviewing and approving group policies and procedures (e.g., administrative policies, codes of conduct); Meeting on a routine basis (e.g. weekly) and additionally as critical issues arise; Conducting formal proceedings (through minutes) with an agenda that addresses not only ad-hoc issues that have arisen but also routine monitoring activities (e.g., periodic status reports, financial/budget reports, and routine discussions related to strategy, risk, and performance); Formally documenting proceedings and decisions and ensuring effective communication to the Company and Board of Directors; and Forming working groups to address particular issues when necessary and inviting other participants to discuss particular business issues as needed. 4.2 Risk management and internal control Risk management and internal control are key components of any management control environment and hence the bedrock of a companys corporate governance framework. Risk management relates to the processes throughout a company to continuously assess potential risks and take actions accordingly to help manage those risks and achieve defined business objectives. The scope should include any type of risk facing the company both internal and external at all levels of the organization. Internal Control is intricately related to risk management and is focused on the processes, information flows, and activities designed to help the organization mitigate risk and reach specific objectives. Both play a key role in how an organizations resources are directed, monitored and measured, and play a fundamental role in detecting and preventing fraud and protecting such resources. Following is a discussion of each. 4.2.1 Risk Management Directors must be confident that risk assessment and management systems are in place. To that end, they need to set clear objectives and ensure that there is a system for monitoring and reporting risk exposures. An effective risk management framework will consider all types of internal and
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external risks facing an organization including financial, operational, strategic, and compliance risk. Risk management is important for the Board of Directors since it helps them execute their oversight and compliance duties for the organization; and risk management provides comfort to Shareholders and stakeholders that the business is being effectively managed and is in compliance with applicable laws, regulations and corporate governance standards. In the broadest terms, the risk management framework should generate substantial dialogue about risk throughout the organization and help directors and managers routinely assess Given my defined objectives and plans, what risks exist in my business? What is the impact and probability of each risk? What actions can I take to mitigate the risks? Ongoing: How are we performing in mitigating risks and how should we adjust our plans? Ideally, all Directors and managers would follow such a process as part of their routine responsibilities. The process should be well-structured, but also kept simple and flexible to ensure the organization is using it as an effective management tool. The process should also include ongoing monitoring of risks and progress of mitigation strategies by individual managers and also by the senior management team and board of directors for enterprise-level risks. An effective risk management process will also benefit the development of internal controls (discussed below) and provide the basis for the work of the internal auditor. The internal auditor should assess the risk management framework (along with the internal control framework) for effectiveness on a routine basis. 4.2.2 Internal Control The Board must approve internal control policies and review systems. Control procedures need to be defined and documented and there should be regular reporting to the Board in this respect. The Board (through the Internal and External Auditors) should conduct an annual review of effectiveness of internal control and report to the annual assembly of Shareholders on the effectiveness of such control procedures.
Management is vested with the responsibility to implement internal controls in an organization. Management should pay particular attention to procedures dedicated to (i) safeguarding assets against unauthorized use or disposition, (ii) maintaining proper accounting records, (iii) ensuring the reliability of financial information, and (iv) mitigating risk in all operational functions of the organization. The internal control system should promote an accurate segregation of duties so as to identify and minimize areas of potential conflict of interest. The rules and procedures relating to the prevention of conflict of interest are contained in the Companys Code of Conduct. The Company should conduct periodic audits of compliance in all areas of activity with established policies and procedures. The internal audit unit is responsible for evaluating and assessing the adequacy of the Companys system of internal control, but is not responsible for ensuring implementation by the Company of compliance measures with internal or external requirements, the responsibility of which shall belong to the management. The external auditor should also evaluate the effectiveness of key internal controls and report back to the Board or its Audit Committee in conjunction with its annual financial statement audit.
International Best Practice: Internal Control The scope of internal control should mainly cover: Internal operations and procedures; Accounting, statements and financial operations; Identification and evaluation of risks; Monitoring and mitigating risks; Information, whether confidential or not and archiving thereof; Evaluation of the quality of assets and profits; and Ensuring compliance of all these areas with applicable laws and regulations.
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Effectiveness of all control measures can only be reached with the implementation of a framework ensuring: Control procedures are implemented at all management levels; Built-in controls are designed for daily operations (daily monitoring of all potential risks in the business); and Performance by the personnel of their duties is carried out in compliance with applicable laws and regulations on conflict of interest as well as with the Code of Conduct. 4.3 Management of Human Resources A key part of management control environment relates to human-resources (HR) management. An organization can be severely affected by human-resource related risks. Recruitment of unqualified personnel, loss of key employees can significantly affect the corporate well-being and long-term success of the Company. This is why the Board should be concerned, along with the help of the nomination committee, with the necessity to develop a human resource function responsible for overseeing personnel issues at both the Board and management levels. The Company should provide mid-level staff with career opportunities, adopt a policy providing for automatic salary increases for employees who distinguished themselves and educate personnel on their jobs and on the corporate culture of the Company. At a minimum, the staff should be trained on the vision, the mission and the values of the Companys Code of Conduct, the expected conduct and behavior of the staff and the obligations of the personnel with regards to the Whistle-Blowing Procedure. Supervisors should also develop specific trainings for each job appointment. In this logic, the Company should properly define the objectives of its human resource and personnel management function so as to attract and retain highly competent staff for its operations. The human resource and personnel management function should address, among others: Rising of labor costs; Increase of personnel competition; Recruitment in different markets; and Retaining of competent staff.
4.4 Internal audit The Company should have an in-house internal audit function providing critical oversight with respect to key areas of the business and financial processes. The primary role of the Internal Auditor is to routinely assess the effectiveness of the Companys frameworks for (i) internal control, (ii) risk management, and (iii) corporate governance. As such, key roles include: Provide an annual assessment of the adequacy and effectiveness of the Companys policies, processes and procedures for internal control, risk management, and corporate governance; Report regularly on significant issues related to these policies, processes and procedures, and to recommend improvements when appropriate; Recommend remedial action to management to address any weaknesses in internal control and, where agreed action is not implemented in a timely manner, to investigate the reasons and to report its findings to the audit committee; Provide information on performance against the annual audit plan and report on the sufficiency of Internal Audit resources; and Coordinate its activities with other risk management and internal audit functions in the group and with the external auditors. The internal auditor reports directly to the Audit Committee of the Board of Directors and administratively to senior management. It should, at all times, have independent, unfettered access to the Audit Committee. Auditors should request and be allowed to attend the meetings of the Audit Committee and the meetings of the Shareholders whenever relevant and express their opinions as the occasions demand. Internal auditors should at all times, for the proper discharge of their functions, have a permanent and general power of investigation and always have access to all documents they deem relevant in this respect. Internal auditors are forbidden to additionally assume the positions of directors, managers or employees of the Company or of any company or subsidiary within the group of the Company so as to preserve their independence. The internal auditor should be forbidden from receiving, directly or indirectly, any interest whatsoever from the Company in which they are exercising their functions,
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or in any Company within its group which would compromise the objectivity of their judgement. The Board of Directors is bound to communicate promptly to internal auditors all relevant information relating to (i) the Companys performance, (ii) its financial position, (iii) related-party transactions. Internal auditors should be allowed to exchange all relevant data with external auditors for the proper discharge of their respective duties. The internal auditor should summarize key findings of his/her mission in an annual report communicated to the Shareholders assembly and the Board of Directors, containing, among other, all alleged violations or irregularities regarding the companys internal control, risk management, or corporate governance frameworks. 4.5 Audit committee As discussed in section 2.8, the Company should create an audit committee composed of members chosen among the Board. The mission of the audit committee mainly consists of (i) overseeing the audits of the Companys financial statements, (ii) overseeing the Companys accounting and financial reporting processes, (iii) reviewing the systems of internal control and other relevant internal procedures established by the management, (iv) suggesting the appointment and overseeing the performance of the external auditor, (v) overseeing the financial information provided to Shareholders and third-parties, and (vi) other relevant non financial issues. Please refer to section 2 How to Form an Audit Committee for further details in this respect 4.6 External auditor An annual audit should be carried out by an independent, qualified and competent external auditor. The purpose of such audit is to provide objective assurance to the Shareholders, Board of Directors, and other interested stakeholders that the financial statements represent fairly and accurately the financial position and performance of the Company in all material respects. The external auditors should be appointed for a fixed term of (e.g., three years). Best practice suggests rotating the external auditor (or at least the audit
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partner and manager) every three to six years as possible. Shareholders should approve the selection of the auditor and the corresponding scope of services and fees. Representatives of the external auditor should attend the Shareholders annual general assembly and present the auditors annual report. The external auditors should also attend any meeting where their presence might be relevant. The external auditor should have regular contacts with the audit committee of the Board and report to it on a regular basis. International Best Practice suggests limits on non related audit services to the Company. At a minimum, the Company should adopt policies and procedures designed to prevent conflict of interest with the external auditor, designating permissible and non permissible non-audit services to be rendered by the external auditor. Such policies will preserve the independence of the external auditor.
International Best Practice: External Auditor The external auditor should submit a report to the ordinary general assembly of Shareholders concerning: Overview of the Companys quarterly and annual accounts; Overview of the Companys financial statements; Overview of related-party transactions (which must be entered into at arms length); Description of violations and discrepancies with respect to all applicable laws and regulations, if any; Overview of the effectiveness of the Companys system of internal control; and Auditors confirmation that they have verified the validity of all accounts and measures taken by the Company in connection with its balance sheet.
5. Transparency and Disclosure 5.1 Disclosure of information Each Company should assess the level of disclosure it should adopt in terms of materiality and timeliness, while envisaging equally both financial and non financial disclosure. Disclosure of information should occur in the following domains: Financial disclosure: Directors should review their choice of accounting standards by evaluating the characteristics of a sound financial reporting and understanding the impact of accounting policies on financial statements. More generally, financial information should cover (i) balance sheet, (ii) income statement, (iii) statement of changes in owners equity, (iv) cash flow statements, and (v) notes relating to financial statements. Best practice recommends companies to report on the basis of International Financial Reporting Standards (IFRS)(10) norms, since they are internationally accepted. If the Company prepares consolidated accounts, it should opt for a complete disclosure of intra-group relations and transactions, together with financial terms and conditions. Parent company and subsidiaries providing consolidated accounts should follow uniform accounting policies. If this is not the case, the companies involved in the group should justify occurrence of a difference. Non financial disclosure: Directors should review all of their disclosure standards relating non financial information. Non financial information covers several domains. The following is a sample list of such information: (i) compliance with the principles contained in the Code of Corporate Governance and the Code of Conduct, (ii) the Companys values, mission and objectives, (iii) commitment to social responsibility, (iv) shareholding and ownership structure, (v) annual report, (vi) information on directors and key executives, (vii) organizational structure, (vii) insider trading policy, (viii) related-party transactions, (ix) external auditor, (x) material issues regarding employees and stakeholders, and (xi) discussion of recent performance.
Other sources consider that US GAAP are acceptable, even though IFRS norms shall remain the source.
International Best Practice recommends to disclose all information on managers and Directors, both executive, non-executive/independent. Moreover, it encourages each Company to disclose all relevant information in terms of corporate governance and provide relevant explanation in the event a Company does not comply with the principles it is bound by. Confidentiality of information: International Best Practice places an emphasis on confidential information, insisting that companies should be very clear about what constitutes confidential information and what does not. In this logic, it seems necessary to adopt a policy providing for such protection. Deciding on a case-by-case basis what constitutes confidential information would end in withholding relevant information from investors and stakeholders. It is essential to assign a system of responsibility and accountability for all information subject to disclosure. The first step is to establish a written communication policy and assign responsibility for communication. Such responsibilities should be accurately defined in a policy of the Company. The system must stress on the importance of a full, timely, material, accurate, comprehensive and regular disclosure in terms of information flows. Disclosure to Shareholders mainly revolves around the annual report, containing both the achievements and the failures of the ended fiscal year. The management is in charge of drafting the report, subject to review by the Board of Directors. The annual report should be drafted in Arabic and English (or French, if relevant). International Best Practice: Disclosure and Internet It is strongly recommended to use Internet as a tool for constant disclosure by using the corporate website of the Company. The development of investors information pages, major change in the corporate profile of the Company etc are all important modifications that should be disclosed as soon as possible. Putting all internal charters and regulations, together with the annual report on the Companys website is encouraged and considered best corporate governance practice.
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International Best Practice recommends the Company to disclose at least the following items, on the Companys website or in the annual report: Situation of the Company and its subsidiaries; All relevant information on managers and Directors, whether executive, non executive or independent. Such information should include bios, education, qualification, professional background, positions held, potential conflict of interest; Method of allocation of compensation and amount of compensation of Directors and managers, including all benefits, whether in kind or not, awarded to these persons during or upon termination of their functions; International Best Practice suggests that the amount of remuneration(11) of Board members, managers and officers be commensurate with the contribution of such member to the operations of the Company (attendance of directors at meetings of the Board and sub-committees) and linked to the evolution of the value of the Company. In addition, performance incentives of executives should be linked to key performance indicators predefined by the Board of Directors. Performance enhancing-mechanisms for employee participation, along with their terms, conditions and the identity of their beneficiaries; The corporate governance framework of the Company: Companys governance structure, policies and performance (including mandate of the Board, Board structure and structure of specialized committees appointed by the Board); The Companys annual report should clearly show the number and dates of Board meetings held in the ended year and the names of the Board members present or absent (along with reasons justifying their absence) at such meetings; Reporting on the Companys performance; Dividends distributed over the last year; The external audit; and Reporting on the review and effectiveness of internal controls.
(11) Remuneration of non-executive and independent directors should not be linked to the short-term performance of the Company.
The annual report should present all of this information with a balanced view, for the purpose of providing Shareholders with an objective view on the Company. International Best Practice stresses on the importance for the Chairman/General Manager to present a candid and accurate evaluation of the Companys situation at the general assembly of Shareholders. At the end of each financial year, the Chairman, acting on behalf of the Board, should make a public statement relating to compliance with the corporate governance principles set out by the Company. In the event where the Company has failed to comply with part or all of the applicable principles, the Chairman should provide an appropriate explanation as to why such failure to comply occurred. 5.2 Related-party transactions For the purpose of these guidelines, a relatedparty transaction is any transaction entered into between the Company and: Any of the Boards members or a Board members spouse, children, mother or father; Any company or entity in which one of the Companys Board members (including the Board members spouse, children, mother and/or father) has a direct or indirect stake of more than 10%; Any Company or entity that includes on its Board or top management a Board member of the Company (including the Board members spouse, children, mother and/or father); and Any transaction that confers a direct or indirect advantage or benefit onto one of the Board members (including the Board members spouse, children, mother and/or father in a general partnership). For this reason, International Best Practice suggests that upon nomination and in the event of any subsequent modification, all directors and senior executives should disclose all interests they have with other companies, so as to facilitate monitoring. No related-party transaction can be entered into unless duly authorized in advance by an affirmative resolution of the shareholders assembly held in strict compliance with applicable laws
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and regulations and as per the Companys policy on related-party transactions. Related-party transactions concluded must be made at arms length and the Companys policy should focus on the principles of fairness, transparency and disclosure. Lebanese Best Practice: Related-Party Transaction The procedure for the approval of a related-party transaction should be adequately anticipated, in strict compliance with the provisions contained in the Lebanese Code of Commerce. The Company is encouraged to adopt the following principles: The agenda of the meeting where the authorization is to be granted shall clearly state that the proposed transaction is a related-party transaction. It should be noted that the Board shall not propose a related-party transaction to the general assembly unless the Board determines after due deliberation and upon written advice of the auditors (i) that such related-party transaction is beneficial to the Company and its shareholders, and (ii) is in accordance with the principles of fairness and equity whereby any Company value or assets, present or future, which are proposed to be transferred must only be done at market rates, in the best interests of the Company and not with preferential terms, including in the event of pending insolvency; The conflicted Director, if any, must abstain from voting and abstain from influencing in anyway whatsoever the voting; In the case of services proposed to be provided to the Company, the Board must be satisfied that an independent bidding process with potential non-related party service providers would not result in better value for the Company; The Board shall submit a separate report explaining the proposed transaction and the rationale for entering into such transaction with the relevant related party evidencing the relationship between the Company and the concerned related party. Such report must be communicated to the shareholders with the agenda and the call for the meeting; The auditors shall submit a separate report concerning the proposed transaction evidencing the relationship between the Company and the concerned related party. Such report must be communicated to the shareholders with the agenda and the call for the meeting; Shareholders shall have the right to inquire on any other related-party transactions entered with the same person or with any other related party; and The related-party transaction must be approved by a majority vote of the shareholders without the participation of the concerned related party. Related-party transactions should be listed in the annual report for three consecutive years or so long as the transaction represents a material liability for the Company, whichever is higher.
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6. Treatment of Shareholders and Stakeholders 6.1 Rights of Shareholders Shareholders should be informed on their rights, be provided with the Companys articles of association, Code of Conduct, and Code of Corporate Governance, if relevant. Long-term shareholder value should be the primary basis for decision-making. Shareholders should at a minimum have the following basic rights: (i) secure methods of ownership registration, (ii) convey or transfer shares, (iii) obtain relevant and material information on the Company on a regular and timely basis, (iv) participate and vote in general assemblies (including the right to elect and dismiss directors), (v) the right to a share in the profits of the Company, (vi) participate in and be sufficiently informed on certain decisions (e.g., amendments to by-laws, amendments to articles of association, issuance of additional shares or the authorization of extraordinary transactions). It is important that ownership of the shares of the Company should be formally identified. A shareholder registry should be accurately held and disclosed annually. An active Investor Relation program should be encouraged to help ensure many of the provisions described herein are being executed effectively. The corporate secretary can also help in this regard. The corporate secretary is in charge of managing the corporate governance efforts of the Board and the duty to ensure equal treatment of the Shareholders should be part of his/her roles and responsibilities. The development of a dividend policy is recommended so as to ensure there is full transparency to all Shareholders as to the process for declaring and distributing dividends. 6.2 Equal treatment of Shareholders Regardless of how much equity a Shareholder owns, the principle one share, one vote should always be the norm. Voting procedures should be fair and transparent. Any departure from the principle one share, one vote should be disclosed and justified with regards to the Companys interests.
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The Board should ensure that directors represent the interests of all Shareholders. However, representation of minority Shareholders should be accommodated when possible. Equitable treatment implies fair treatment of Shareholders, with equal regard and respect. Pre-emption, preferential subscription and tagalong rights are ways of promoting equitable treatment among Shareholders: Pre-emptive rights allow shareholders to purchase shares when a shareholder sells part or all of his/her shares; Preferential right to subscribe to capital increases allows shareholders to maintain a proportionate share of the ownership of a company, when it issues new shares. Pursuant to Lebanese laws, shareholders have a preferential right to subscribe to capital increases in proportion of the number of shares already owned (12); and Tag-along rights are used when a majority shareholder sells his/her stake to a third-party, minority shareholders have a right to join the transaction and sell their minority stakes in a company to such third-party under the same terms and conditions, particularly with regards to the price. 6.3 Meetings of Shareholders Preparation of the annual general assembly of Shareholders is of fundamental importance and required by law. Notice of the meeting should be distributed sufficiently in advance, together with all relevant documentation for the purpose of making informed decisions. Shareholders participation should be encouraged.
(12) Pursuant to article 112 CC, all shareholders have equal rights to subscribe to any capital increase prorated to their percentage shareholding at the time of such increase. However, the extraordinary assembly may, pursuant to article 113 CC, decide otherwise by resolving that (i) subscription to a specific capital increase shall not be reserved to existing shareholders in full or in part, or that (ii) the right of existing shareholders to subscribe to such capital increase shall not be prorated to their respective percentage shareholdings at the time of the said capital increase. In such case, and subject to declaring the said capital increase null and void, any allocation of newly issued shares to one category of shareholders or to non-shareholders, shall be subject to the verification mechanism applicable to in-kind contributions. This verification mechanism involves appointment by the court of an expert to verify the value of the issuance premium, followed by approval of the report of such court-appointed expert by the extraordinary assembly. Reference Guidebook on the Corporate Governance of Family-Owned Enterprises
The Company must ensure that votes are cast only according to the instructions of the owner or owners agent and that equal effect is given to votes cast in person or in absentia by proxy. International Best Practice strongly encourages companies to facilitate participation by a variety of voting methods, e.g. secured means of telecommunication ensuring proper identification of the person entitled to vote (13). Directors, key executives and auditors should be available and ready to answer all questions emanating from the Shareholders at the assembly. 6.4 Disclosure The Company should disclose in its by-laws the type of information that is made accessible on an on-going basis to individual Shareholders and to Shareholders representing a minimum percentage of the share capital of the Company (including the documents that need to be given to Shareholders pursuant to applicable laws and regulations) (14). Only a legitimate consideration can justify a refusal. 6.5 Treatment of stakeholders The Company should, to the extent practicable, take into consideration the interests of the stakeholders in the elaboration of its corporate governance framework. Stakeholders are individuals and organizations who are actively involved in or of which the interests may be positively or negatively affected by the day-to-day business of the Company. These persons are identified as follows: customers and consumers, creditors, suppliers, furnishers, competitors, the community and the environment. The Company bears a corporate social responsibility in the course of its business with respect to its stakeholders. As mentioned in section 1.3, such corporate social responsibility should be tackled in the Code of Conduct.
(13) Such non-physical presence is not expressly permitted under the Lebanese Code of Commerce which only deals with proxy voting but not presence nor voting by telecom means. (14) Companys Code of Corporate Governance, by-laws, articles of association, code of conduct, balance sheet of the Company, auditors reports, Boards reports, Companys inventory etc.
In defining its corporate social responsibility, the Company should place an emphasis on the nature of its activities and the consequences that such activities might have on third-parties, the public and communities. Corporate social responsibility should be accurately defined according to the Companys profile and its core business. However, corporate social responsibility can include, among others: The ethical behavior of the Company; Environmental issues; The long-term development of the Company; Relationships with stakeholders; and The social policy implemented within the Company. The Directors and managers of the Company should be responsible for implementing and protecting such corporate responsibility by appropriately enforcing the principles contemplated within the Code of Conduct. With the same importance, stakeholders should have access to relevant, sufficient and reliable information on a timely and regular basis. The type of information disclosed to Shareholders will differ depending on the particular stakeholder. Please refer to section 2 How to Draft a Code of Conduct for further details in respect of the stakeholders
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Section 2 Corporate Governance Toolkits
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SECTION 2 corporate governance toolkits

The present section aims at providing FOEs with practical toolkits relating to key aspects of corporate governance within such companies. The following toolkits are contained in section 2: How to Draft a Corporate Governance Code; How to Draft a Family Constitution; How to Draft a Code of Conduct; How to Draft a Whistle-Blowing Procedure; How to Form an Audit Committee; How to Form a Nomination Committee; and How to Form a Compensation Committee.
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How to Draft a Corporate Governance Code

1. Introduction 1.1 Preamble The objective of the Code of Corporate Governance (Code) is to develop and formalize the Companys internal governance structure so as to make it more transparent by committing to the improvement of: A principle based Board and management team that is responsible and accountable; Influential governance bodies which take decisions that are in the best interests of the Company and all Shareholders; Disclosure and transparency, including effective internal control and risk management systems. In order to foster confidence with the Shareholders, employees, investors as well as all stakeholders, the Code is designed to uphold principles which go beyond the legal and regulatory system in Lebanon. The Company advocates for the implementation of corporate governance principles based on national and International Best Practice. By adopting, applying and updating this Code and the Companys by-laws on a regular basis, the Company emphasizes its commitment to actively promote and implement good corporate governance. The governing bodies and employees of the Company should understand the content of the Code and ensure that the spirit and provisions of the Code are respected and applied within the Company and all its subsidiaries (if relevant). 1.2 Background and Profile The Company should describe in the Code its mission as well as its objectives. The Company should also delineate the activities that form part of its core business as well as the geographic implementation and operation of the business.
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If applicable, the Company should list the stock exchange it is listed on. 2. Commitment to Corporate Governance 2.1 Corporate governance principles The Company identifies corporate governance as an ensemble of structures and regulations targeting its whole governance and engaging shareholders, the Board and executive bodies so as to create sustainable shareholder value. The corporate governance system is considered fundamental for the development of the Companys operational effectiveness and aims at attracting investments and strengthening the Companys reputation. By applying corporate governance, the Company endeavors to play a significant role in contributing to modern economy and society. The Companys corporate governance framework is based on applicable Lebanese laws and regulations, as well as international best practices (such as the OECD Principles of Corporate Governance). Such framework is based on the following principles: Accountability: this Code establishes the Companys accountability to all Shareholders and in between various corporate bodies; Fairness: the Company aims at protecting shareholder rights and ensuring the equitable treatment of all Shareholders; Transparency: the Company commits to ensure that timely and accurate disclosure of information is made on all material matters regarding the Company; and Responsibility: the Company encourages close cooperation with the stakeholders. The Company should abide by all applicable laws and regulations, commit to respect the ethical standards as defined by the Code and in the Code of Conduct. 2.2 General governance structure The Company should delineate and describe the various governing bodies composing its structure. These can be identified as follows:
The General Assembly of shareholders: the General Assembly allows shareholders to participate to the governance of the Company by voting on issues reserved to them by applicable laws, regulations, by-laws and corporate governance rules and standards of the Company; The Board of Directors: the Board is responsible for ensuring full and effective control of the management in the best interests of the Company and its Shareholders; The management: the executive management is assigned the day-to-day management of the Company and the carrying-out of the strategy set by the Board; and The internal auditor: the internal auditor is responsible for developing and monitoring internal control procedures for the business operations of the Company. 2.3 Compliance with and adherence to corporate governance policies and practices The corporate secretary of the Company is responsible for ensuring the development of, compliance with and periodic review of corporate governance policies and practices of the Company. 3. Good Board Practices A strong, professional and effective Board of Directors is a pre-requisite for the establishment of a sound corporate governance system. For this reason, the Board should exercise proper control of the management in the best interests of the Company and its Shareholders, while taking into account, to the extent feasible, the interests of the stakeholders. 3.1 Role of the Board The role of the Board is set out in the Companys by-laws. The Board shall have the authority and powers to bind the Company with no limit other than the powers expressly allocated to the shareholders and the management by applicable laws, regulations and by-laws of the Company. It may delegate such powers as it considers convenient, save for those which, pursuant to applicable laws and regulations or the Companys by-laws, may not be delegated.
3.2 Responsibilities of the Board This section is crucial for the establishment of a good equilibrium between the various governing bodies of the Company. Provisions relating to delegation of powers of the Board to management, acts of disposal of the Board as well as prior authorizations or approvals of the Board for certain management decisions should all be specifically defined. 3.3 Composition and size of the Board The Boards composition (competencies, skills and appropriate mix) is adequate for oversight duties and the development of the companys direction and strategy. Each individual member of the board has the experience, knowledge, qualifications, expertise and integrity necessary to effectively discharge board duties and enhance the boards ability to serve the long-term interests of the Company and its shareholders. The Board of Directors shall be composed of a minimum of [-] and a maximum of [-] members elected by the assembly of shareholders. In order to properly discharge the duties, the Company believes that the Board should be chaired by [the Chairman General Manager/a non-executive/independent] director. The appropriate size of the Board should be determined according to particular circumstances and the Board should recommend the appropriate size based on the recommendations of the human resource and nomination committee. The Board should be composed, to the extent practical, of an adequate equilibrium between executive directors, non executive directors and independent directors. Therefore, the Board should be composed of no more than [x%] executive directors, who are defined as employees of the Company. Moreover, the Board should comprise [x%] of non-executive directors, in order to enhance unbiased oversight. To ensure impartiality and objectivity in taking Board decisions, the Company commits to appoint at least [one/two/x%] independent directors. Independent Directors shall be defined as those Directors who have no material relationship with the Company other than that of their directorship.
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3.4 Board Committees The Company should seriously consider implementing specialized committees of the Board. The Company should adapt the election and composition of the committees according to its general framework and best interests. The members of the Committee should be in charge of discussing relevant issues related to their duties presented before them by the Chairman. The Company should delineate the various specialized committees appointed by the Board, which should ideally comprise: Audit committee; Human resource and nomination committee; Compensation committee; and Any other committee deemed necessary by the Board (regulatory, compliance, stakeholders relations etc). All committees appointed by the Board should disclose in a charter or corporate document adopted by the Board their mandate, composition and working procedures. Committees report to the Board on a regular basis. 3.5 Working procedures The Board should meet on a periodic basis and other meetings as deemed necessary. For the purpose of properly discharging its duties, the Board should meet at least [quarterly]. Detailed procedures for convening and holding meeting of the Board are defined in the Companys by-laws. Directors should receive all necessary information so as to make informed decisions. It is the duty of the Chairman, along with the help of the corporate secretary, to ensure that the members of the Board, collectively and individually, have received all adequate and relevant information for the meeting. Detailed minutes signed by Chairman summarizing the discussions of the meetings and all relevant information shall be recorded together with an analysis of the votes cast at the level of the Board. The corporate secretary is in charge of drafting, keeping track, distributing such minutes to the members.
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3.6 Annual evaluation The Board conducts an annual evaluation of its performance and efficiency on an annual basis, along with the help of the human resource and nomination committee. The results of the evaluation should be discussed by the full Board and communicated throughout the organization. 3.7 Training for directors The Company commits to provide to its directors continuous professional education. The Board adopts a tailor-made training program for newly elected directors so as to provide them with the best background before tackling their director duty. The corporate secretary should provide such training. 3.8 Independent counsel The Board and the committees shall have the right to retain independent legal counsel, accounting or other consultants so as to help the Board or the committees, as the case may be, to properly discharge their duties. 3.9 Remuneration The remuneration of (non-executive) Board members is comprised of an annual fee (part of which can be paid in the form of shares in lieu of cash), and an additional fee for the chairmanship of committees or the Board itself. The remuneration package shall, however, not jeopardize a directors independence. Executive directors are not paid beyond their executive remuneration package. The Boards remuneration committee periodically reviews the remuneration paid to directors. All Board members sign a letter of appointment with the Company. The Company publicly discloses the remuneration of each director on an individual basis. The Company will not provide personal loans or credit to its directors. 3.10 Duties and responsibilities Members of the Board shall act in good faith, with loyalty and due care, always acting in the best interests of the Company and its shareholders. Each
Director is required to represent the interests of all shareholders, with no one exerting greater influence than the other. Directors must not consider themselves as representatives of various categories of shareholders. Each Director should apply to his/her duties the necessary time and attention, and should, subject to all applicable laws and regulations, consult the corporate governance and nomination committee before accepting any additional seat on another Board of Directors. However, the Company shall not unreasonably prohibit Directors from serving on other Board. Each Director should attend all meetings of the Board and meetings of the committees on which he/she sits. Each Director must report to the Board any conflict of interests, whether actual or potential and abstain from taking part in voting on the related resolution. 4. Executive Committee 4.1 Authority The Company recognizes that the management of the Company requires valuable leadership from the management, especially the General Manager. The Company considers that working as a team is crucial. For this reason, the Company implements an executive committee, chaired by the General Manager. The General Manager and senior executives carry out the Companys day-to-day management, implementing its goals and objectives and carrying out its strategy. 4.2 Composition and size The General Manager, together with the human resource and nomination committee, proposes to the Board a certain number of executive committee members. The composition is suited to the effective management of the companys day to day activities. The Members of the committee are qualified and have the essential and needed expertise to discharge their duties.
Members of the executive committee should have the professional expertise and education to be an effective manager as well as the business experience, knowledge of national issues and trends and knowledge of the market so as to properly discharge their duties. 4.3 Working procedures The working procedures of the executive committee must be formalized. Regular meetings on a periodic basis (such as weekly) should be adopted and agenda issues should be communicated in advance. 4.4 Remuneration and evaluation The Board sets the amount of remuneration of the General Manager and the members of the executive committee. The remuneration shall have a fix component as well as a changeable component, related to indicators fixed by the board, creation of shareholder value and the companys performance. 4.5 Succession Planning The Board is to adopt a succession plan that deals with either a temporary or permanent loss of the General Manager and key executives. The General Manager, along with the help of the human resource and nomination committee, is to present a list of individuals best qualified to replace the companys key executives, including the General Manager position. 4.6 Interaction between the Board and Executive committee and the role of the company secretary Good Corporate Governance provides for an open dialogue between the companys Board and the executive committee. The Company has consequently developed a system for periodic reports from the General Manager and the executive committee to the Board. The Board has unrestricted access to the Companys management and its employees. The corporate secretary plays an important role in smoothing the process of the periodic reporting.
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The corporate secretary is employed on a full time basis. He has the required qualifications to ensure that the rules and regulations of the Company are being complied with. The corporate secretary facilitates the communication process within the company, and keeps the board and the Companys key officers updated on the latest corporate governance developments. 5. Shareholders Rights All shareholders have the right to participate in the governance of the Company and are entitled to a proportionate share in the profits of the Company. The rights of the shareholders are presented in the Companys by-laws and should at all times be strictly applied and observed. 5.1 General Assembly 5.1.1 The meeting Every shareholder holding voting shares is allowed to attend and vote at the General Assembly. Prior to that and for the purpose of making informed decisions, the shareholders should receive all relevant information regarding the General Assembly (agenda and all accurate information enabling them to make proper decisions) [x] days prior to the meeting. The management is responsible for implementing these procedures and for submitting proposals to the agenda finalized by the Board. The Company should make all efforts to prepare the meeting. The Company should ensure that the preparation of the general Assembly is made in such a way which facilitates shareholders exercise of rights. The location of the General Assembly should be accessible for the majority of the shareholders. The General Assembly should be held in a fair, transparent and professional way. All members of the Board and the external auditor are present during the General Assembly to inform and respond to shareholders relevant questions and more generally to all issues arising out in connection with such assembly. The voting mechanism is conducted by ballots, and the process is established to ensure the equitable treatment of minority shareholders. The
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procedures of counting the votes are conducted in a transparent accountable and ethical manner. 5.1.2 Decisions The voting results, the issues at stake that are discussed as well as the decisions made are distributed to all shareholders in a timely manner and should be accessible to the public. 5.1.3 Minority Shareholders Rights The Company should identify the following rights as measures of protection of the Shareholders and consecrate them in the Code: Related Party Transactions; Pre-emptive rights; Tag-along rights; Cumulative voting; Accurate and reliable methods of share ownership registration; and Takeover Policy. 5.2 Dividend Policy The Company has officially elaborated a dividend policy and commits to abide by it. The mechanism adopted by the company respects other Shareholders rights. The Companys dividend policy and procedure should be transparent and clear. There should be guarantees that the dividend payment mechanism is effective and simple. 6. Control Environment and Processes 6.1 Internal Audit and internal control The Audit committee: The Audit committee is an operating committee of the Board, in charge of oversight of financial reporting, risk management, internal and external audit. The committee is composed of independent, non executive Directors. Risk Management: The Company provides a framework to manage risks and seize opportunities related to the achievement of its objectives. The Board identifies risks, develops strategic planning strategies, approves risk management procedures and recognizes internal control procedures.
The Internal Auditor: The Company has an internal auditor. Its function includes the establishment and monitoring of systems for evaluating and controlling risk management and implementing sound rules of corporate governance. The internal auditor reports to the audit committee, including the assessment of compliance by the company with applicable laws and regulations. 6.2 External Independent Auditors The external auditors provide objective assurance to the Board and Shareholders that the financial statements fairly represent the financial report and performance of the Company in all material respects. The external auditors are fully independent from the Company, and are appointed on a rotational basis, every [x] years. 7. Information Disclosure and Transparency The Company should adopt the highest standards in terms of transparency and disclosure. 7.1 Disclosure The Company presents access to all information, financial situation, and critical details to Shareholders. The Board provides and approves a policy on disclosing information, and makes it public through the Companys website. The Company publishes its annual report, including a detailed section on corporate governance practices. The Company protects its confidential information, for any information obtained can and will not be used for personal benefits. 7.2 Financial situation The Company maintains records and set up financial statements by respecting the International Financial Report Standards. A management discussion and analysis as well as the opinions of the external auditor shall complement the financial report.
7.3 Ownership structure The Company identifies and discloses the identity of all shareholders owning more than a minimal percentage of the share capital of the Company (such as 5%).
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How to Draft a Family Constitution

Based on the guidelines developed in section 1 Part 3, the following is an example of table of contents of a Family Constitution: 1. Values and objectives of the family business What are the values and the culture of the Company? Statement of family values and beliefs; and Outline of family business principles. 2. Family decision-making and institutions How does the family make decisions? Family Assembly Objectives of the Family Assembly; Functions of the Family Assembly. Meetings of the Family Assembly; and Secretary of the Family Assembly. Family Council Objective of the Family Council; Composition of the Family Council; Functions of the Family Council; Decisions of the Family Council; Meetings of the Family Council; and Secretary of the Family Council. Other family functions and committees Family activities Social meetings; Informative meetings; and Communication with the public. In an environment where information is crucial, all data should be stored and protected. Rather than merely collecting the information and filing it, written information should be organized in specific files - ideally, all information should be digitalized and stored. The collection of personal documents, letters etc helps to build up a family archive that reflects the family history.
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3. Shareholding and provisions of the Shareholders Agreement What should the family business do when facing any issue related to the shares of the Company? Rules governing sale/transfer of shares; Dividends and subsidies for family members; Rule governing issuance of shares; Guarantees and liens on shares; and All other relevant provisions contained in the shareholders agreement. 4. Conflict of interest How can the family business appropriately manage and prevent all potential situations giving rise to conflict of interest? 5. Employment of family members What is the Companys policy regarding employment of family and non-family members? Members of the family eligible to join; Criteria for entry; Employment opening; Supervision policy of the family and evaluation process; and This policy should be communicated throughout the firm and consistently applied, for it can have a tremendous psychological effect on the entire workforce and non-related management. Family policy governing employment. This section should address the policy of the family business regarding how to deal with loyal and talented non-family employees as well as the potential necessity of independent/non-executive directors or outside advisors. It should also identify how to professionalize the business and decide if experienced and capable managers with outside experience need to be brought on Board. 6. Succession issues What are the rules applicable to next generation family members willing to work in the business and why is the family committed to next-generation business and ownership? Charter on succession plan to key employments, especially General Manager position.
7. Family Code of Conduct Every family-business should operate on businesssound ethics that imply good employment practices and honest dealing with third-parties, treating them as stakeholders, with respect and involvement. A Code of Conduct should be developed by the Company. However, if the Board considers that such Code should not be developed independently, provisions contained in this document could be inserted in the Family Constitution. 8. Family Training and Education How can the family provide education to all its members on how to tackle all issues contemplated in the Family Constitution? Areas and methods of education and training of family members; and Who should participate in the educational process. 9. Family philanthropy Property constitutes a responsibility. Family members should be responsible towards other family members and express real respect for wealth and the assets of the Company. The Family Constitution should identify how the wealth produced by the business should be used. For instance, it could state whether it intends to inject the whole capital produced in investments or pay large dividends. The wealth may also be invested in education, serve as a fund in case of problems or help financing promising start-ups and other businesses of family members. 10. Revision and overseer of the Family Constitution The family should adopt policies and procedures designed to ensure that proper revision of the principles contained in the Family Constitution is carried out on a regular basis, at least annually. The family should pay a particular attention to the importance of ensuring proper revision of obsolete principles or policies that would no longer be appropriate in light of new circumstances affecting the Company and the family.
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How to Draft a Code of Conduct

1. Preamble The purpose of this Code of Conduct is to (i) ensure that the companys activities are in compliance with applicable laws and regulation, and (ii) articulate a broad set of ethical standards that can be used as a practical guide in the conduct of the employees and the decision-making process, thus improving the long-term performance and reputation of the Company. Codes of Ethics with clearly defined principles are generally better organized and understandable. This is why codes of conduct and ethics should normally contain a preamble delineating the purpose of the Code, the purpose of the Company and as well as the values by which it abides. The purpose of the Company in all its undertakings is to [deliver high quality products and services and maintain a leadership in terms of innovation and customer satisfaction]. The Company is committed to permanently applying the highest degree of ethical standards in its activities and relationships with insiders and outsiders. To that extent, the Company strives to promote in its activities at all times the highest degree of [transparency, integrity and accountability]. The Company should consecrate in this provision the various values it abides by and wishes to disseminate in the course of the business. These core values are defined by reaching consensus. Such values comprise, among others, trustworthiness (honesty, integrity, loyalty, transparency), respect (autonomy, courtesy, dignity, tolerance), responsibility (accountability), caring (compassion, consideration), quality (the pursuit of excellence), justice (equality, equity, due process, fairness, consistency) or civic virtue and citizenship (such as protection of the environment). The Company is sensitive to the concerns expressed by international human rights standards and strives to uphold:
[The United Nations Universal Declaration on Human Rights]; [The United Nations Convention on the Rights of Children]; and [The key conventions of the International Labor Organization]. The Company is committed to growing its business based on share values and common principles that clearly assert its ethical standards and accountability for all its activities. By adopting the present Code of Conduct, the Company wishes to demonstrate that its success, performance and long-term viability depend on such ethical shared values and principles. By associating the employees, the governing bodies, the shareholders, suppliers, furnishers, creditors, competitors and all other stakeholders as well as the public to the values guiding its undertakings, the Company demonstrates its commitment to promote good ethical behavior in all its internal and external relationships. These shared values and principles are crucial in each of the Companys relationships. Therefore, the ethical standards of the Company focus on the following areas: employees and supervisors, shareholders, customers and consumers, business partners and the environment and the communities. Methods of organization of Codes of conduct can differ from one another. Such Codes can be organized either according to (i) a formulation of statements and principles relating to the Company and its insiders (which offers an overview of the major ethical principles of the Company), or (ii) a division of the insiders and outsiders associated to the daily operations of the Company. It is our opinion that the second alternative offers more simplicity and have therefore chosen to draft the code in this way. 2. Employees and supervisors The Company believes in employee dignity and in taking every insiders interest seriously. To that extent, the Company is responsible for promoting a sound working environment, placing a particular emphasis on a segregation of duties and identification of major areas of responsibility. Directors and managers are expected to act in good faith, with due care, competence and
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diligence and without any misrepresentation of material facts or circumstances, while always requesting all applicable laws and regulations. Each of them should take into account the legitimate expectations of all the Companys partners and stakeholders. Directors, managers and officers should apply to their duties the necessary time and attention. The Company is devoted, on a regular basis, to organizing internal checks and controls to ensure that transactions are executed in compliance with applicable laws and regulations and its by-laws, with the authorization of the manager of the concerned business. In particular, related-party transactions should be appropriately dealt with, in accordance with the procedure stated in the Lebanese Code of Commerce. Balance sheet assets and liabilities should be regularly studied along with current asset value and actual or potential liabilities. The Company ensures that working conditions conform to human rights standards and labor legislation, as well as all laws and regulations relating to the health and safety of employees. The Company is particularly committed to respecting its employees private and family life. The Company should have predefined procedures and control systems to make sure that health and safety rules are being complied with on a permanent basis. Any suspected threat to the health and well-being of an employee should be reported immediately. It is also recommended that personnel data be protected and guarantee the individual employees right of control over collection, processing, use or storage of such data. References to freedom of speech, freedom of association and trade union rights belonging to employees are fundamental. The Company commits to respect all personal political, associative, cultural and educational engagements of the employees, provided they do not interfere with the performance of their professional responsibility or affect the reputation of the Company. The Company ensures equal opportunities for all employees, in a fair and sound working environment, with real career prospects. The Company
prohibits all forms of discrimination, whether actual or potential, and undertakes to protect all employees subject to such issues. Furthermore, it is the Companys policy to promote diversity in the working environment, particularly with respect to employment of indigenous people. The consecration of objective criteria focusing on promotion and employment opportunities on the long-term for all categories of employees is a positive approach. The existence of a succession plan within family-owned enterprises can only improve best practice in this respect. Integration of new employees within the work, equal treatment in terms of wages and benefits in kind are fundamental measures. With the same importance, the Company should take appropriate measures and establish procedures to deal with and put an end to all forms of discrimination (based on sex, religion, nationality, sexual orientation, pregnancy, disability etc.), harassments, whether sexual or moral, among employees and between employees and supervisors. The Company must carefully consider both horizontal and vertical discriminations and harassments. The Company encourages information sharing and social dialogue among employees and in their relationships with the management as a way to understand and share all the aspirations and constraints of the employees. The Company is committed to provide employees, directors and managers with information that is full, fair, accurate, complete, objective, timely and understandable. All employees, Directors and managers are bound by confidential information obtained in the course of their functions, except when such information is required to be disclosed either because of a legal obligation or upon voluntary disclosure by the Company. Such information can concern, on a non-limitative basis operating results, pricing, costs and financial data, strategic business plan, clients, company developed software, information on acquisitions, disposals and restructurings, divestures, processes and methods etc. All employees and colleagues must act in the sole interest of the Company and its shareholders,
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refraining from taking advantage of any benefit or personal interest, whether directly or indirectly, for their own account or for others, in their relationships with the Company or third-parties. The Company prohibits its employees, officers and directors from offering or giving illegal bribes, payments or gifts designed to improperly influence the conduct of its recipient. Conversely, employees and colleagues must not accept any advantage or benefit in kind from a third-party that has relationships with the Company. It is not possible to enumerate all situations that constitute conflict of interest. If bribes and payments undeniably constitute cases of corruption pursuant to applicable laws and regulations, the Company should insert in its Code of Conduct a provision dealing with all forms of conflict of interest potentially arising in the course of the business. The facts of each case will determine whether there is actual or potential conflict of interest. The Company is convinced that the WhistleBlowing Procedure is a necessary mean to ensure accurate compliance with the ethical standards governing its activities. Employees should be encouraged and feel free to communicate their concerns about illegal, unethical or questionable practices to the Board, senior management or the ethics representative appointed by the Company for the purpose of ensuring respect of all ethical rules and internal regulations. Such communication is made anonymously, so as to prevent nuisance or negative reaction by other employees or their supervisors. The person who triggered the procedure is entitled to a timely and fair response in all circumstances. Refer to section 2 How to Draft a Whistle-Blowing Procedure for further details in this respect. 3. Shareholders The Company commits to provide shareholders with sincere, accurate, full and timely information. In this respect, the Company commits to comply with all applicable commercial and financial regulations with regards to [bi-annual/] annual information. As owners of the Company, shareholders should be provided at all times with the highest degree
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of ethics and confidence. Such information includes, on a non-limitative basis, annual accounts and other relevant accounting information. The report of the Chairman to the annual assembly of shareholders should contain all relevant information so as to enable shareholders to understand the position of the Company and its activities over the closed the financial year: operating profits and losses, assets and liabilities, margins, annual accounts, employment and personnel situation, investments and divestments, major operations carried out during the closed financial year, environmental considerations. The Company commits to have its financial books, registers, records and accounts conform to accepted accounting principles, which should fully and accurately state what they purport to show. All assets of the Company, whether tangible or intangible, should be used in its sole interest and in the interests of the shareholders. In the course of its activities, the Company commits to respect all applicable laws and regulations relating to ownership rights. 4. Customers and consumers The Company commits to manufacture products or render services that conform to applicable quality and safety standards, while always ensuring strict control of imports and exports. The Company undertakes to respect all applicable laws and regulations in all areas of activity of the Company. Clients are to be treated as informed clients. The Company should provide accurate and reliable information on the products manufactured or the services rendered. Guarantees of quality and safety should be given at all times, in compliance with applicable laws and regulations. Furthermore, the Company should undertake to comply with all specific laws and regulations applicable to its core business: industrial, pharmaceutical, chemical, energy, insurance, construction etc. The Company ensures that information provided to it by customers and consumers is kept strictly confidential at all stages. Collection, protection and use of such information by the Company is governed by applicable laws and regulations, as well
as contractual provisions. The information cannot be communicated to third-parties unless previously authorized by the said customer or consumer. The Company commits to provide customers and consumers with high-quality service, especially through the existence of a customer/aftersales service. In the event of breach of these rules or procedures, customers should be free to contact the ethics representative of the Company. 5. Business Partners The Company believes that it can establish longterm true and fair relationships with its business partners only by respecting all applicable laws and regulations as well as all contractual provisions governing such relationships. Conversely, the Company should ensure that its business partners conform to the same principles. The Company considers that all laws, regulations and contractual provisions governing (i) labor issues (such as child labor), (ii) the cancellation and renewal of contracts, (iii) health and safety rules, (iv) fair competition (such as price dumping and other prohibited pricing strategies, costs, profits, and more generally, any action that limits, restricts or affects competition), and (v) respect of third-party ownership and intellectual property rights are essential to the good development of its business. Concerned parties should not infringe economic, commercial, and social or tax laws applicable in the countries where they operate. Controls should be carried out to make sure that all principles are being complied with. The Company is committed to curbing corruption in dealings with third-parties and business partners and adopting procedures and measures to prevent and remedy conflicts of interest. Payments, benefits in kind and invitations to and from business partners are prohibited unless they conform to recognized commercial practices. Even in these circumstances, decisions should be carefully weighed and all payments made by the Company to a third-party must be made in exchange for fair value in goods and services and for real and legitimate business purpose.
Prevention of corruption in the financing of political parties, trade unions, social and cultural organizations in exchange for material benefits or an advantage, whether directly or indirectly, is a priority. Similarly, all conflict of interest, gifts or other inducements from business partners are forbidden. An employee or a colleague should obtain no benefit from a vendor or a subcontractor, either personally or on behalf of the Company. With the same importance, employees and colleagues should not be allowed to hold shares in a company belonging to a competitor, other than a minority shareholding in a listed company. In addition, they should not trade stock or assets in the market when they have confidential information relating to such stock or assets. The Company is committed to treating business partners fairly, with courtesy, respect and impartiality. In the event where such rules and procedures are not be respected, employees and interested parties should either contact (i) a supervisor, (ii) a representative of the human resources department, (iii) a manager, (iv) a director, or (v) the ethics representative of the Company. In all circumstances, the employee or the person who triggered the claim should be given a timely and confidential reply. 6. Environment and the communities The Company understands that it bears a corporate social responsibility in the course of its business. Corporate social responsibility consists in the integration, by the Company, of all social and ethical issues in respect of its activities and relationships with shareholders and stakeholders (e.g. employees, suppliers, subcontractors, competitors etc). In defining its corporate social responsibility, the Company should place an emphasis on the nature of its activities and the consequences that such activities might have on third-parties, the public and communities. Corporate social responsibility can include, among others, the ethical behavior of the Company, environmental issues, the long-term development of the Company, relationships with stakeholders, and the social policy implemented
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within the Company. The directors and managers of the Company should be responsible for implementing and protecting such corporate responsibility by appropriately enforcing the principles contemplated within the Code of Conduct. Environmental issues are to be at all times appropriately dealt with since they can trigger serious health issues and considerably affect the reputation of the Company. Hence, the Company is dedicated to protecting the environment and respect all laws and regulations applicable in this respect in the course of its business. Furthermore, the Company is devoted to minimizing the environmental impact of its business and ensuring, whenever possible, that the products manufactured and services rendered benefit the environment. The Company is committed to promoting sustainable development in all its activities. Conversely, the Company encourages its business partners to abide by such principles at all times and commits to remedy the environmental liabilities of its subsidiaries. Preservation of natural resources and biodiversity are areas of utmost importance. Companies of which the activities impact the environment (energy and petroleum, chemical, construction, industrial activities etc.) are encouraged to have an environmental management system enabling objectives to be identified and action plans to be implemented. A particular emphasis should be placed on the assessment of risks related to each business. The Company is committed to increasing efforts in terms of research and development as well as innovations so as to permanently respond to new environmental challenges. The Company is dedicated to promoting social solidarity, notably by contributing to society through charity and donations, while respecting the cultures of the countries where it operates. 7. Implementation and revision of the Code of Conduct Managers should explain the philosophy behind the Code of Conduct to all employees within the Company. Waivers granted to directors and managers should be disclosed along with the reasons
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justifying such measures. The Company should seek review from all insiders, in particular employees, once the Code is finalized and before implementation within the Company. The Company is committed to taking seriously into account the expectations and constraints of the employees. Every employee should receive a copy of the Code of Conduct once drafted, whether electronic or not. The Company should make the Code available to the public on the Internet and disclose any amendments or waivers on a regular basis. Management, under the supervision of the Board of Directors, ensures that the personnel is trained on the procedures contained in the Code of Conduct. The Board of Directors should be responsible for approving the Code of Conduct. Both Directors and managers accept accountability for adherence to the present Code of Conduct and should establish procedures and policies to ensure training of the employees in respect with the Code of Conduct. The Company is encouraged to consider the possibility of rewarding employees for compliance with the procedures and regulations of the Code as well as respect of corporate ethical behavior. Such reward should be based on objective criteria. The Company appoints [an ethics representative] to ensure that the Code of Conduct is being properly implemented and that all interested parties are complying with the principles set forth therein. If there are objectively reasonable and specific reasons to believe that the Code of Conduct has been violated, such violation should be promptly reported to an appropriate officer, manager or Director. The Company is encouraged to appoint an Ethics representative to act as a recipient for all information on illegal or unethical practices. Allegations of wrongdoing should be investigated by an appropriate officer or the Ethics representative and always be monitored by the Board of Directors. All communications made in this respect and in good faith should be treated promptly and without risk of any retribution. The Company encourages employees who have questions about the right thing to do or would like to raise ethical considerations, it being specified
that no answer is directly found in the Code of Conduct, to discuss and debate the matter among them first. If the question is too sensitive for an open discussion, the Company encourages the employees to speak to their supervisor, a representative of the human resources department, a manager or anyone within the executive group of the Company. The Company reviews the procedures and policies contemplated within the Code of Conduct at least once a year, under the supervision of the Board of Directors.
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How to Draft a Whistle-Blowing Procedure

Any business faces the risks of things going wrong internally. Where such risks arise, the first people to realize or suspect the wrongdoing will usually be those working with or within the organization. The Whistle-Blowing Procedure is relevant to all organizations and people. It assumes that any employee or insider who has genuine concerns about any aspect of the Companys work will be encouraged to come forward and speak out under the auspices of that policy. The following guidance should assist companies wishing to develop a Whistle-Blowing Procedure. Such procedure should be elaborated while bearing in mind: 1. Purpose of the Whistle-Blowing Procedure The Company must understand the importance of adopting a Whistle-Blowing Procedure. In assessing the purpose of the procedure, the Company should place a particular emphasis on the following purposes: The Company is committed to conducting its business in accordance with the highest standards of business ethics, openness, integrity and accountability. The Company is opposed to any unethical or unlawful conduct by any of its insiders. To that end, any evidence of malpractice should be treated by the Company with the upmost seriousness. The Company is committed to developing a mechanism ensuring that employees feel free to communicate their concerns about illegal, unethical or questionable practices to the Board and to senior management without any fear of reprisal. 2. Wrongdoings covered by the WhistleBlowing Procedure In defining the Whistle-Blowing Procedure, the Company should assess which malpractices or misrepresentations shall constitute good grounds
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for triggering the procedure. The Company should bear in mind that broadening the scope of the wrongdoings subject to the procedure will widen the protection of its interests. The Company, in light of its activities and corporate profile, should seriously assess the various risks that the business faces and cover these with a procedure. The following examples illustrate the various wrongdoings that the Whistle-Blowing Procedure can cover. Any criminal offence; Unethical practices/lack of appropriate professional standards in breach of the Companys Code of Conduct; Financial irregularity or fraud; Corruption; Discrimination; Harassment, whether vertical or horizontal; Abuse of power; Miscarriage of justice; Danger to health and safety of the employees and insiders; Physical abuse of clients and other insiders; Damages to the environment; Failure to comply with a legal obligation; and Deliberate concealment of any of the above. It should be clear that the Whistle-Blowing does not cover any issue arising out of a personal employment situation, nor does it cover mismanagement, which may arise from weak or poor management rather than malpractice. The Company, in light of its corporate profile and activities, should consider whether it wants the Whistle-Blowing Procedure to cover unethical or illegal practices learnt upon execution of functions of employees or if these are allowed to report on a wrongdoing of which they learned the existence outside the scope of work. 3. Persons subject to the Whistle-Blowing Procedure In drafting the policy, it is essential for the Company to decide which insiders (managers, senior management, Directors, employees etc) shall be covered by the policy, e.g. bound by the duty to disclose any wrongdoing they would happen to witness or become aware of. Companies
should bear in mind that the more employees are associated to the Whistle-Blowing and the better the impact of the Whistle-Blowing on the protection of the interests of the Company will be. Therefore, it is recommended that each Company subjects to the procedure (i) full and part time employees, (ii) long and short term employees, (iii) corporate officers, (iv) managers and senior managers, and (v) members of the Board. The Company should also consider whether or not it wants all its employees to be subject to the procedure with regards to the substance of their duties. Indeed, certain companies might consider that all employees who do not have access, in the course of their functions, to resources and data regarding the management and direction should not be subject to the procedure. However, even though this principle is appropriate under specific circumstances, it might not be desirable for the Company to segregate between its employees which shall be subject to the procedure and which shall not, as this might create confusion and resentment in the business. It is strongly recommended to aim at every single insider of the Company, regardless of the nature of his contract, the organization of his work or the substance of his duties. Such insider should have the reasonable belief that the wrongdoing mentioned under section 2 has been committed within the Company by another of its insiders. 4. The Procedure The Whistle-Blowing Procedure is implemented for the purpose of protecting the interests of the Company. However, it is obvious, in light of the impact that the procedure can have, that certain insiders within the Company might become tempted to make wrong or malicious use of the procedure so as to satisfy personal interests. It is therefore crucial to prevent a potential drift that could harm beyond recall privacy matters or even be abused by several employees for personal motivations. For these reasons, the procedure must be very specifically defined and should not be introduced into a Companys repertoire or registered until certain structural preconditions are met. The Company
should develop the procedure and explain how it will respond to the whistle-blower. The Company should focus on the importance of adopting two pre-requisites for a sound and fair procedure: Anonymous report: the possibility to report concerns anonymously should always be offered. The insider triggering the procedure should understand that he will be protected from any possible reprisal. Hence, if such insider is convinced that only an anonymous report can protect him, he should be given the right not to disclose his identity. Confidential report: the procedure should be kept confidential and registered in a Companys repertoire or register. No insider other than those contemplated in the present policy should be able to learn the existence of the wrongdoing or the triggering of the procedure until such wrongdoing has been publicly disclosed pursuant to a decision regarding the denunciation. The Company is encouraged to consider having concerns raised with the ethics representative (appointed for the purpose of monitoring and ensuring compliance with the Code of Conduct) or an independent director. Such ethics representative or independent director shall then be responsible for informing the Chairman of the Company as well as the Chairman of the Audit Committee. The company might consider submitting the investigation to a commission. If the investigation does not lead to any relevant discovery, the ethics representative or the independent director should be allowed to take no further action until or unless other corroborative evidence becomes available. The Company might consider treatment of the information by a third-party organization. The technical means for the transmission of information should be well defined: telephone, postal denunciation, e-mails or even physical presence. In some circumstances, the Company should understand that the only way for certain employees to disclose their problem is to enable them to voice their concerns outside of the Company. The ethics representative should offer such possibility to the whistle-blower at least
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in certain circumstances. All data should be stored and protected as required by the confidentiality of the procedure. Appropriate investigation should be carried out. If the whistle-blower insists on the importance of doing it anonymously and confidentially, such will should be respected. The ethics representative or the independent director should then investigate the matters raised either personally, or with the assistance of other senior independent directors or members of staff, after having informed the Chairman of the Company and the Chairman of the Audit Committee. If the ethics representative or the independent director deems relevant to obtain the help of auditors or other recognized expert for the purpose of investigating the wrongdoing, such authority should be granted. It can also be conferred to the Chair of Audit to investigate the allegation as far as is practicable. A special procedure based on absence of conflict of interest should be developed with regards to Whistle-Blowing triggered against the Chairman of the Company, a senior manager, a member of the Board or the ethics representative himself. If the alleged wrongdoing proves to be a criminal offence, the Company might find it desirable to adopt a procedure providing special recourse to legal advisors or even contact, whenever necessary, the police. Even though every effort should be made to maintain confidentiality, evidence of criminal activity can justify departure from confidentiality. All complaints should be dealt with as speedily as possible. There should be no set timescale for the investigations as a criminal offence, for instance, cannot be dealt with in the same way as an unethical problem. Companies are encouraged to remain flexible in dealing with the investigations they are facing depending on their complexity, while bearing in mind that each situation should be treated quickly and with efficiency. However, the complaint should be acknowledged immediately and a written response should be provided to the whistle-blower within a reasonable period of time. The Company should also consider
sending a progress report should be sent to the complainant to inform him of progress. All correspondence should be sent to the individual address of the whistle-blower. If a member of staff is not satisfied that his concern is being treated properly by the ethics representative or the independent director, he should be allowed to raise the concern with the Chair of the Audit Committee or the Chairman of the Company. 5. Protection of the Whistle-Blower and the accused insider Anonymous complaint is the first mean ensuring protection of the whistle-blower. It is essential for the Company to always enable employees and members of staff to disclose their concerns in an anonymous manner. Insiders should always be confident that they can freely disclose their problems without fear of reprisal. Anonymous allegations can be recorded in the register and consulted internally, by the investigators as well as by the Chairman of the Company and the Chairman of the Audit Committee. The Whistle-Blower is entitled to a timely and fair response and should also be given on a permanent basis access to all relevant and reliable information regarding the alleged wrongdoing and the investigation carried out within the Company. Similarly, the person accused of the wrongdoing under the policy should always be given the right to have access to all relevant data and information stored and recorded by the Company. He should also be able to present his observations. The person should be presumed innocent until the wrongful behavior is proven. 6. Consequences of allegations If the denunciation proves to be accurate after thorough investigation, the Company should assess whether wrongdoings should come under the disciplinary procedure or if it should contact other relevant institutions. Compensation policies should be developed in the event where the whistle-blower has suffered harm. Rewards can also be granted to the whistle-blower if, thanks to his actions. He has brought back money to the Company.
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If the denunciation does not incur any result, the whistle-blower should not be held accountable, except if such denunciation was made in bad faith. Accusations of malpractice that are found to be deliberately false, malicious or for a personal gain will be dealt with under the disciplinary procedure as a matter of serious misconduct. 7. Implementation and revision The system should be implemented after (i) consultation of the representatives of the employees or the trade unions, and (ii) having individually informed each employee that such procedure has been implemented in the Company. The Company should communicate on a regular basis on the procedure, so that all members of the personnel fully understand their role and the importance of the procedure for the business. A report on the number of occasions that the procedures have been applied and the outcome of each investigation shall be presented annually to the Audit Committee, and should be contained in the Companys annual report.
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How to Form an Audit Committee of the Board of Directors

Each Companys Board of Directors should adapt the election and composition of the audit committee (the Committee) according to its general framework and best interests. It is essential to disclose the mandate, composition, remuneration (where applicable) and working-procedures of the audit committee. It should be noted that the audit committees function is one of oversight only and shall not relieve the Companys management of its responsibilities for preparing financial statements which accurately and fairly present the Companys financial results and condition, nor can it relieve independent accountants of their liability relating to audit tasks or review of the accuracy of the financial statements. 1. Role of the audit committee The Committee is appointed by the Board of Directors of the Company to assist the Board in its oversight responsibilities. The Committee is appointed to assist the Board in (i) overseeing the audits of the Companys financial statements, (ii) overseeing the Companys accounting and financial reporting processes, (iii) reviewing the systems of internal control and the system and built-in controls identifying business risks relevant to the Company, (iv) suggesting the appointment and overseeing the performance of the external auditor, (v) overseeing the financial information provided to shareholders and thirdparties, particularly in their qualitative aspects, and (vi) other relevant non financial issues. 2. Membership and composition The Board of Directors appoints the members of the Committee for a fixed term of[two/three] years. The committee is composed of [-] independent non-executive directors and a Chairman of the Committee. Each committee member shall at all times meet the independence requirements as defined by regulations or by-laws of the Company.
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Independence requirements set by the Board should be complied with at all times. As reminded under section 1 part 2.4, a director can be considered independent when he or she has no relationship of any kind whatsoever with the Company, its group or its management of either that is such as to color his or her judgement. What is important, in the eyes of the Board of Directors, is to have members free of any relationship whatsoever that would interfere and compromise the exercise of the members independent judgement. International Best Practice considers that all members of the audit committee should be independent directors. However, it might be complicated for certain smaller companies to find a diversified source of independent Directors both qualified and competent. For this reason, the possibility to have non-executive Directors as members of the audit committee appears as a pragmatic solution. Independence must be understood as independence vis--vis the management and the Company in general. No member of the Committee shall have participated in the preparation of the financial statements of the Company or of any of its subsidiaries at any time during the three preceding years. The audit committee is of a fundamental importance for the establishment of a sound corporate governance system and should be composed of [two to four] independent/non executive directors and an independent Chairman. International Best Practice considers that independent members should account for two-thirds of the Committee while non-executive members should account for one-third. The Chairman General Manager, external auditor, employees or insiders who have a financial interest in an entity related to or serving the Company should be forbidden from serving on the Committee. To help preserve its independence, the audit committee should be positioned between top management and the external auditors and remain independent of both. With this structure, management should not be able to use the audit fee as a means to influence the auditors, and the audit committee will be in an ideal position to evaluate the quality of the auditors performance. Moreover, the internal auditors should be given direct access to the audit committee, preserving their independence and resisting undue influence by management.
Each Committee member shall be subject to annual reconfirmation of independence by the Board of Directors. Even though the Committee is appointed by the Board every two or three years, an annual confirmation of independence by the Board is a way to ensure that no conflict of interest has risen during mandate. Members of the Committee may be reappointed immediately after lapse of their term. The Chairperson of the Committee shall be elected by the full Board. If no Chairperson is designated by the Board of Directors, the members of the Committee shall designate the Chairperson by majority vote of the full committee. The Chairperson shall have adequate expertise for the fulfillment of his functions. The Committee designates its secretary, who shall not necessarily be one of its members. The secretary of the Committee can either be the corporate secretary of the Board or another individual. Upon nomination, induction training for members of the Committee shall take place and the Chairman is responsible for ensuring continuing education. Induction training should be provided either by the corporate secretary or another individual in charge of coordinating Board matters. The Chairperson shall be responsible for presiding over the meetings and reporting to the Board. International Best Practice recommends that the Chairman of the Company be forbidden to serve as Chairperson for Board committees. At least one member of the Committee should have adequate expertise, professional skills and experience to tackle the duties and missions assigned to the Committee. At least one member of the Committee must understand all the technical details that may interfere in the analysis of the financial statements of
the Company. Adequate background, expertise and professional certification in accounting (balance sheet, income statement, cash flow statements etc) should be required from this member. However, International Best Practice insists that a majority of the members of the committee should have such expertise. It considers that if the financial expertise is provided by one member, such individual should serve on the Board. In the event where no member has such expertise (which is not in compliance with International Best Practice), other arrangements should be made with constant recourse to a third-party expert. The Board of Directors may remove, in its sole discretion, any member from the Committee at any time with or without cause, and may fill any vacancy within the Committee. Members of the Committee shall act in good faith, with loyalty and care, respecting at all times confidential information of the Committee. The remuneration of Committee members, in addition to compensation for work as a member of the full Board, should consist in annual Committee fees. The remuneration should be adequate so as to create expectation of responsibility. There should be an additional remuneration per meeting fees and the Chairperson should also perceive additional fees. It is essential that the payments allocated to Committee members do not compromise their independence, such as a salary or consulting fees. 3. Meetings and operational means The Committee meets at least [four times] a year, upon convening of the Chairperson. Additional meetings may occur as the Board of Directors or Chairperson deem appropriate in light of specific circumstances justifying the holding of another meeting or necessary to carry out the Committees responsibilities. Should specific circumstances arise (such as major discrepancies in accounting) for any reason whatsoever, the Committee should gather and hold a meeting. As for its major duties and responsibilities, it is recommended that the Committee
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gathers at least four times a year so as to ensure quarterly monitoring of the financial statements of the Company. The Committee should hold meetings without the Company management being present, while preserving the ability to request from executive managers, officers, employees, agents or auditors of the Company to attend the meetings from time to time. International Best Practice recommends that executive officers, managers, auditors and other officials of the Company may be asked to leave the room during discussions and votes or other decision-making proceedings. For the proper discharge of its functions, the Committee should hold separate meetings with representatives of the independent accountants, management and internal control services of the Company. Specific executive sessions should occur to provide the Committee with relevant information and more insight on accounting practices. The Committee should meet with the General Manager, the Chief Financial Officer, the head of the internal audit unit and eventual outside counsels. The Chairperson shall preside each meeting of the Committee. In consultation with other members of the Committee the Chairperson shall set the frequency and length of each meeting and the agenda of items to be discussed at each meeting. The Chairperson shall ensure that the agenda is distributed to each member of the Committee sufficiently in advance of the meeting. Subject to applicable laws and regulations, it is recommended that the agenda be distributed 15 days in advance along with all relevant information, so as to enable members of the Committee to be adequately prepared for the meeting and eventually deepen certain subjects in need of further analysis. The Chairman of the Board, along with a possible help of the secretary, is usually responsible for communicating such information to Board members and members of the committees. The Chairperson of the Committee communicates the agenda under the supervision of the Chairman
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of the Board of directors. The Chairperson of the Committee also ensures that such information has been passed. The secretary of the Committee shall ensure that adequate minutes of the meetings are kept. The secretary ensures that Committee members and Board members are furnished with copies of the minutes of each meeting and, when relevant, the management. To ensure adequate track of the discussions occurring during the meeting, it is recommended to file the minutes with the Board of Directors upon end of the meeting and distribute these as soon as possible, no later than at the next Committee meeting. The work and the reports on which the audit committee bases its recommendations to the Board should be available to all committee members and referenced to the Minutes. The committee, with input from management and other key committee advisors shall develop an annual plan responsive to the primary responsibilities detailed herein. The annual plan shall be reviewed and approved by the full Board. The Committee shall report on its actions and activities at the next quarterly meeting of the Board of Directors. Subject to applicable laws and regulations, attendance at meetings shall be permitted in person or by any other secured mean of telecommunication allowing members of the Committee to effectively interact with one another while ensuring their proper identification. Physical presence for attendance at committee meetings is always desirable and undeniably constitutes best practice. However, whenever deemed necessary, members of the Committee should be able to participate to meetings through secured means of telecommunication. A secured mean of telecommunication implies that the member of the Committee can be properly identified and interact in the same way as if he was actually physically present at the said meeting. A simple majority of the Committee members shall constitute a sufficient quorum for the Committee in order to deliberate on issues
contained in the agenda. Decisions shall be validly taken on the basis of an affirmative majority vote of the members of the Committee. The meetings shall be of sufficient duration and scheduled at such times as the Committee deems appropriate to properly discharge its responsibilities. Each committee member should dedicate the necessary time and attention to fulfill his obligations with regards to Committee meetings. Each member should carefully fulfill his obligations by dedicating the necessary time and attention to his functions. For that reason, International Best Practice that less than 75% attendance at meetings in one year should be an automatic threshold for non-reappointment. 4. Authority The Committee shall have the resources and authority necessary to discharge its duties and responsibilities. The Board should allocate a budget to the Committee which shall discretionarily decide on the use of the resources contained therein. The Committee should be vested with the power to approve the scope of and the fees charged in connection with the annual audit, quarterly reviews and any non-audit related service being provided to the Committee, without prior approval of the Board of Directors or the management. More specifically, the Company should provide an appropriate funding, as determined by the Committee, covering at least the payment of (i) compensation to independent accountants for services approved by the Company, (ii) compensation to outside advisors retained by the Committee, and (iii) ordinary administrative expenses incurred by the Committee and that are necessary or appropriate in carrying out its duties. The Committee shall be given full and direct access to the Companys internal control department, the Chairman of the Company, the Companys executives, external auditors and more generally all Companys internal resources, without seeking pri-
or approval of the Board or the management, as it deems appropriate to carry out its responsibilities. The Committee shall have the sole authority to retain and terminate outside counsel, consultants or other experts, as it deems appropriate, including the sole authority to approve the fees and other retention terms for such persons. It is recommended that the Committee establishes a policy to pre-approve engaging such experts and discuss whether or not a specific budget should be set. Third-parties, consultants and advisors consulted by the Committee should respect confidential information emanating from the Committee. The Committee may delegate its missions or activities to one or more of its individual members as it deems appropriate. Any director to whom the Committee has delegated authority shall regularly report to the Committee on the grants made. The Committee can revoke at any time, with or without cause, the delegations of authority it has granted to some of its individual members. The Committee shall have a free, full and unrestricted access to any information or document it requires from the management and advisors for the proper discharge of its duties and responsibilities. 5. Duties and responsibilities It is not the Committees duty to prepare financial statements or disclosures, perform audits, design internal control or determine the appropriate level of the Companys exposure to financial or other risks. The members of the Committee are not auditors and do not certify the Companys financial statements. These tasks are performed by the management as well as external auditors. In carrying out the purpose defined in section 1, the Committee shall: Review the significant accounting principles, policies and practices followed by the Company in accounting for and reporting its financial results of operations in accordance with international standards.
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The Committee should review critical accounting policies and envisage alternative treatments, ideally in accordance with IFRS norms. Review with the external auditors, the Chief Financial Officer, controllers and the head of the internal audit unit the scope of the audit to be undertaken. This should cover coordination of all audit efforts and ensure an effective use of the audit resources. Meetings for this purpose should occur with the external audit partner so as to objectively envisage lessons learned from the previous years audits and follow-up on corrective actions. Review the Companys annual audited financial statements and discuss separately with (i) departments in charge of internal control, (ii) the management, and (iii) the external auditor any issue, significant finding or subject encountered during the course of audit and requiring further explanation or action. While reviewing the Companys financial statements, the Committee should stress on the quality and acceptability of accounting principles applied therein and envisage the need for revision or implementation of new accounting policies, along with monitoring and follow-up. The Committee should prepare a plan identifying findings. Management should be available to answer questions. The Committee should also collect the external auditors opinion on the quality of such principles. Hold executive sessions with the management so as to review the financial results of the Company. Review managements analysis of any significant accounting issues (changes, estimates, judgements, unusual items) relating to the financial statements, as well as the selection, application and effects of critical accounting policies applied by the Company and review with both internal and external auditors the reports drafted on such subjects. Review with the management, legal counsel and the head of the internal audit unit all legal and regulatory matters that, in the opinion of management, may have a material impact on the
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financial statements and compliance policies of the Company. The Committee should, in addition to all laws and regulations directly applicable to the business, take into consideration environmental regulations and assess the impact of the business activity on the environment. Ensure there is in place an effective system of internal control designed to (i) safeguard the assets and income of the corporation, (ii) preserve the integrity of the Companys financial statements, and (iii) maintain compliance with the Companys ethical standards, policies and procedures as well as laws and regulations. The Committee should review the financial and risk management policies followed by the Company in operating its business activities. The Committee should review significant risk exposures with management so as to assess the steps that the management should take to remedy the situation and minimize the risks. The Committee should draft documents on the material risks the organization faces and compile its major findings in a risk report submitted to the Board, including mitigating strategies and quantifiable risks. Review the internal control reports prepared by the Companys internal auditor and the control reports prepared by the external auditor and review with the latter the Companys financial internal controls. Financial internal controls include, among others, budget, staffing and responsibilities of the Companys internal control department and functions. Review and suggest the appointment, replacement, reassignment or dismissal of the head of internal audit unit. Special meetings should be held in this respect. In addition, the Committee should meet at least once annually with other members of the executive management and external auditors to discuss the performance of the head of internal audit unit. The Committee should provide full report to the Board on these issues.
Review with management and the head of internal audit unit the budget and staffing of the internal audit unit, its effectiveness and compliance with applicable laws and regulations. Establish and review policies and procedures for the reception, retention and treatment of confidential/anonymous complaints identified by the Committee regarding illegal, unethical or questionable practices. Accounting or internal control issues or unlawful criminal practices are subject to this procedure, which should be reviewed on a regular basis by the Committee. It is necessary to ensure that proper steps are taken to investigate complaints and resolve them in a timely manner. As for the policies relating to the treatment of concerns emanating from employees, the Board should consider having an ethics representative (refer to section 2 How to Draft a Code of Conduct: for further details in this respect) manage these complaints. Conduct appropriate review and oversight of related-party transactions to which the Company is a party. Periodically review the organizations Code of Conduct to ensure that it is adequate, consider any necessary adjustment and report to the Board in this respect. Review any significant pending legal cases to which the Company is a party (or one of its subsidiaries) that may have a material impact on the Companys financial statements. Discuss with management the Companys earning press releases and financial information provided to analysts and the public. Suggest the appointment, determine the compensation (along with the compensation committee of the Board) and oversee the work and retention terms and conditions of the external auditor employed to conduct the audits or provide other services. The external auditor should report directly to the Committee. The external auditors should be given fees for the services rendered to the Company. The determi-
nation of the amount of fees to be allocated to the external auditor should be discussed with the management, the Board and the head of the internal audit unit. The Committee should evaluate the type of professional relationship it wishes to implement with the auditors, in particular with regards to continuity of the partner. The Committee should also, in this respect, proceed to a full review of the scope of services provided by the audit firm for the Company. Adopt and review clear policies providing for a regular rotation of the lead external auditor. Discuss with management the timing and process for implementing the rotation of the lead audit partner. Obtain on an annual basis a written statement from the external auditors delineating all the relationships between such auditors and the Company, and review and discuss with the external auditors any disclosed relationships or services the auditors have with the Company which may affect their independence and objectivity. In the event where such independence or objectivity would be affected, the Committee shall recommend to the Board the appropriate actions to be taken to remedy the situation. Pre-define policies for approval of all audit services and permissible non audit services rendered by the external auditor. International Best Practice considers that the external auditor should be forbidden from rendering non-audit related services to the Company. If the Company seeks such services, it should, to the extent possible, have recourse to another independent accounting firm. Review all material written communication between external auditors and the management and focus on the resolution of issues if any. Review the effectiveness of the external audit function. Review with the external auditor the results of the annual financial statements.
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Review the recruitment policies for any employees or former employees of the external auditor. Annually review and reassess the adequacy of this Charter and recommend relevant changes to the Board. In doing so, the Committee should pay a particular attention to the existence of new laws and regulations having an impact on the charter. The Committee can seek the assistance and advice of the corporate secretary of the Board. In addition, the Committee should also assess its own performance for each point contained in the charter in light of the previous years experience. Report to the Board on a regular basis on the major events covered by the Committee and make subsequent recommendations to the Board and management on such matters. The Committee should establish an annual report for inclusion in the Companys annual report on all the Committees activities. The report should be reviewed and discussed with both internal and external auditors. Perform any other activities consistent with this charter, by-laws or other applicable laws and regulations, as the Board of Directors deems appropriate.
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How to Form a Nomination Committee of the Board of Directors

Each Companys Board of Directors should adapt the election and composition of the nomination committee (the Committee) according to its general framework and best interests. It is essential to disclose the mandate, composition, remuneration (where applicable) and working-procedures of the nomination committee. Considering the wide number of necessary appointments within a listed company, a nomination committee appears as an essential tool for this type of companies. As for small companies, an independent Director vested with the duties of the present committee could suffice. However, a nomination committee could also be an integral contribution for certain smaller size companies presenting the profile of a large company It should be noted that in many companies, the functions of the nomination committee are doubled up with missions relating to corporate governance, to form the Corporate Governance and Nomination Committee of the Company. However, only the competences and mandate of the Nomination Committee will be addressed in this document. 1. Role of the nomination committee The Committee is appointed by the Board of Directors of the Company to assist the Board in its oversight responsibilities. The Committee is appointed by the Board to (i) assist the Board in identifying individuals best qualified to become Board members, (ii) recommend director nominees to the Board for the next annual meeting of the shareholders, (iii) recommend director nominees for each specialized committee appointed by the Board, and (iv) lead and advise the Board in its annual review of the Boards general performance.
2. Membership and composition The Board of Directors appoints the members of the Committee for a fixed term of [two/three] years. The Committee is composed of [-] independent non-executive directors and a Chairperson of the Committee. Each committee member shall at all times meet the independence requirements of applicable regulations or by-laws of the Company. It is our opinion that, whenever established, the nomination committee should be composed of at least two independent/non executive Directors and an independent Chairperson. International Best Practice recommends that all members of the nomination committee should be independent Directors. However, it might be complicated for certain smaller companies to find a diversified source of independent directors both qualified and competent. For this reason, the possibility to have non-executive Directors as members of the Nomination Committee appears as a pragmatic solution. Independence requirements set by the Board should be complied with at all times. As reminded under section 1 part 2.4, a director can be considered independent when he or she has no relationship of any kind whatsoever with the Company, its group or its management of either that is such as to color his or her judgement. In other words, what is important, in the eyes of the Board of Directors, is to have members free of any relationship whatsoever that would interfere and compromise the exercise of the members independent judgement. Independence must be understood as independence vis--vis the management and the Company in general. Hence, the general manager, any other executive as well as auditors, whether internal or external, are forbidden to serve on the Committee. Each Committee member shall be subject to annual reconfirmation of independence by the Board of Directors. Even though the Committee is appointed by the Board every two or three years, an annual confirmation of independence by the Board is a way to ensure that no conflict of interest has risen during mandate.
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Members of the Committee may be reappointed immediately after lapse of their term. The Chairperson of the Committee shall be elected by the full Board. If no Chairperson is designated by the Board of Directors, the members of the Committee shall designate the Chairperson by majority vote of the full committee. The chairman shall have adequate expertise for the fulfillment of his functions. The Committee designates its secretary, who shall not necessarily be one of its members. The secretary of the Committee can either be the corporate secretary of the Board or another individual. Upon nomination, induction training for members of the Committee shall take place and the Chairman of the company is responsible for ensuring continuing education. Induction training should be provided either by the corporate secretary or another individual in charge of coordinating Board matters. The Chairperson shall be responsible for presiding over the meetings and reporting to the Board. International Best Practice recommends that the Chairman of the Company be forbidden to serve as Chairperson for Board committees. The Board of Directors may remove, in its sole discretion, any member from the Committee at any time with or without cause, and may fill any vacancy within the Committee. At least one member of the Committee should have adequate expertise, professional skills and experience to tackle the duties and missions assigned to the Committee. Adequate expertise, professional skills and experience in the field of human resources management is compliant with best practice. Members of the Committee shall act in good faith, with loyalty and care, respecting at all times confidential information of the Committee.
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The remuneration of Committee members, in addition to compensation for work as a member of the full Board, should consist in annual Committee fees. The remuneration should be adequate so as to create expectation of responsibility. There should be an additional remuneration per meeting fees and the Chairperson should also perceive additional fees. It is essential that the payments allocated to Committee members do not compromise their independence, such as a salary or consulting fees. 3. Meetings and operational means The Committee meets at least [twice] a year, upon convening of the Chairperson. Additional meetings may occur as the Board of Directors or Chairperson deem appropriate in light of specific circumstances justifying the holding of another meeting or necessary to carry out the Committees responsibilities. In the event of vacancy of a seat on the Board due to the removal, dismissal or retirement of a Board member for any reason whatsoever, the Committee should gather and hold a meeting. The Committee should hold meetings without the Company management being present, while preserving the ability to request from executive managers, officers, employees or agents of the Company to attend the meetings from time to time. International Best Practice recommends that executive officers and other officials of the Company may be asked to leave the room during discussions and votes or other decisionmaking proceedings. The Chairperson shall preside each meeting of the Committee. In consultation with other members of the Committee, the Chairperson shall set the frequency and length of each meeting and the agenda of items to be discussed at each meeting. The Chairperson shall ensure that the agenda is distributed to each member of the Committee sufficiently in advance of the meeting.
Subject to applicable laws and regulations, it is recommended that the agenda be distributed 15 days in advance, so as to enable members of the Committee to be adequately prepared for the meeting and eventually deepen certain subjects in need of further analysis. The Chairman of the Board, along with a possible help of the secretary, is usually responsible for communicating relevant information to Board members and members of the committees. The Chairperson of the Committee communicates the agenda under the supervision of the Chairman of the Board of Directors. The secretary of the Committee shall ensure that adequate minutes of the meetings are kept. The secretary ensures that Committee members and Board members are furnished with copies of the minutes of each meeting and, when relevant, the management. The Committee shall report on its actions and activities at the next quarterly meeting of the Board of Directors. Subject to applicable laws and regulations, attendance at meetings shall be permitted in person or by any other secured mean of telecommunication allowing members of the Committee to effectively interact with one another while ensuring their proper identification. Physical presence for attendance at Committee meetings is always desirable and constitutes best practice. However, whenever deemed necessary, members of the Committee should be able to participate to meetings through secured means of telecommunication. A secured mean of telecommunication implies that the member of the Committee can be properly identified and interact in the same way as if he was actually physically present at the said meeting. A simple majority of the Committee members shall constitute a sufficient quorum for the Committee in order to deliberate on issues contained in the agenda. Decisions shall be validly taken on the basis of an affirmative majority vote of the members of the Committee. The meetings shall be of sufficient duration and scheduled at such times as the Commit-
tee deems appropriate to properly discharge its responsibilities. Each Committee member should dedicate the necessary time and attention to fulfill his obligations with regards to Committee meetings. Each member should carefully fulfill his obligations by dedicating the necessary time and attention to his functions. For that reason, International Best Practice that less than 75% attendance at meetings in one year should be an automatic threshold for non-reappointment. 4. Authority The Committee shall have the resources and authority necessary to discharge its duties and responsibilities. The Board should allocate a budget to the Committee which shall discretionarily decide on the use of the resources contained therein. In addition to ordinary administrative expenses incurred by the Company, the Board should anticipate for the Committee a budget enabling it to properly discharge its duties. The Committee shall have the sole authority to retain and terminate outside counsel, consultants or other experts, as it deems appropriate, including the sole authority to approve the fees and other retention terms for such persons. The Committee shall cause the Company to pay the fees and expenses of such outside advisors. Consultants and third-party search firms can assist the Committee in identifying and evaluating potential nominees. It is recommended that the Committee establishes a policy to pre-approve engaging such experts and discuss whether or not a specific budget should be set. Third-parties, consultants and advisors consulted by the Committee should respect confidential information emanating from the Committee. The Committee shall have access to all internal resources of the Company and have the authority to access any consultant of the Company or outside of it to help the Committee fulfill its respon63
sibilities, without seeking approval of the Board or the management. The Committee may delegate its missions or activities to one or more of its individual members as it deems appropriate. Any director to whom the Committee has delegated authority shall regularly report to the Committee on the grants made. The Committee can revoke at any time, with or without cause, the delegations of authority it has granted to some of its individual members. The Committee shall have a free, full and unrestricted access to any information or document it requires from the management and advisors for the proper discharge of its duties and responsibilities. 5. Duties and responsibilities Board remuneration is typically part of the competences of the compensation committee. However, in the event where such committee would not be implemented, we suggest that the nomination committee makes recommendations on level of Board remuneration, including Board fees, Chairman stipend, Committee Chairperson stipend, meeting fees; determine policies for expense reimbursement for Board members and monitor remuneration of Board members at peer group of companies. In carrying out the purpose defined in section 1, the Committee shall: Recommend to the full Board the establishment of committees as deemed appropriate, at the annual meeting of the Board of Directors and at other times during the year if necessary. Define and review from time to time, as necessary, the appropriate skills and characteristics required from Board members and Committee members as well as meeting any regulatory and licensing requirements. To carry out its function properly, the Committee needs to define and establish criteria for selection of nominees, conduct searches for prospective Board members whose skills and attributes reflect such desired criteria and who have the
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time and ability to (i) exercise sound and independent judgement, and (ii) perform the Boards oversight function effectively. In doing so, the Committee should evaluate the needs of each individual Board committee in terms of specific qualifications and skill sets and work in close cooperation with the human resources department. Such criteria can include factors such as business experience, academic experience, diversity, personal skills in technology, finance, marketing, international business, insurance, financial reporting, personal qualities like integrity, honesty, adherence to high ethical standards, absence of conflict of interest, gender, age and other areas that are expected to contribute to an effective Board. In the nomination process, International Best Practice recommends that the nomination committee oversees the conduct of any background checks, interviews, references and other relevant procedures. Identify and review candidates for the Board and recommend nominees to the full Board for election (and re-election) to the Board and its committees. The assistance provided to the Board or the General Assembly of shareholders, as applicable, by the Committee shall be of a three-fold purpose: (i) assess membership needs of the Board, (ii) identify individuals best suited to become members of the Board, and (iii) make recommendations regarding director candidates to the Board. To that extent, the Committee should gather information on the candidates, conduct interviews and hold meetings with them. International Best Practice considers that the nomination committee should be entitled to review and suggest appointments to any boards of the Companys subsidiaries. Ensure the existence of and oversee the process of identification by which Board nominees are put forth for election by shareholders, if any. Review the adequacy of Board member and Committee member orientation and review any changes in status or affiliation of current Board members. The Committee should also, in such cases, recommend to the Board any action to be taken.
Identify and review candidates for senior executive positions (including General Manager) and oversee the selection processes for senior management staff. In doing so, the nomination committee should work in close cooperation with the human resources department. Assist the Board of Directors in establishing General Manager annual goals and objectives, along with the assistance of the compensation committee. Oversee the Companys overall human resources policies, including personnel recruitment, retention and career development. Conduct an annual self-evaluation of the work the Committee has performed over the previous years, along with an annual evaluation of the Committees effectiveness, including processes and procedures. A periodic independent evaluation of the Committees effectiveness should be carried out so as to confirm the findings of the Committees evaluation or reflect any discrepancies. Ensure periodic evaluation of the full Board and committees structure, including size, number and functions. The Committee proceeds to an annual evaluation of (i) the full Board, (ii) the committees structure, including size, number and functions, (iii) the Chairman of the Board, and (iv) each individual Director. To that extent, the nomination committee should be authorized to conduct or initiate enquiries or investigations into any matters within the Committees scope of responsibilities and duties and shall have full access to the books, records, facilities and personnel of the Company. The periodic evaluation of each individual Director should be carried out before re-appointment, for each individual sitting on the Board and eventually, on each committee of the Board. The Committee should ensure that the Board is structured in such a way as to allow it to effectively handle any number of complex issues and review annually all Board committee membership (placing an emphasis on actual or potential
conflict of interest) to ensure adequacy of their structure, composition and mandate. Ensure that written reports on evaluation results are submitted to the Board, suggesting any necessary improvements. Sensitive recommendations relating to individual Board members may be verbal rather than in writing. Establish Director retirement policies and procedures. Establish succession planning policies and procedures for senior executives, including General Manager. Review the job performance of officers and executives (including General Manager), monitor the succession plan of the senior executives and the Board Chairman and review the outside activities of the latter. Recommend to the Board removal of Board members or committee members and consider in advance scheduled retirements of Board members, while alerting the Board as to which committees will be affected. Annually report to the entire Board on its findings with regards to the Board, its committees and individual members. Annually review and reassess the adequacy of this charter and recommend relevant changes. The nomination committee should establish an annual report for inclusion in the Companys annual report on all the Committee activities, including evaluations carried out, members, number of meetings and attendance and any proposed changes to its charter. Perform any other activities consistent with this charter, by-laws or other applicable laws and regulations, as the Board of Directors deems appropriate.
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How to Form a Compensation Committee of the Board of Directors

Each Companys Board of Directors wishing to adopt a charter for the creation of a compensation committee (the Committee) of the Board of Directors should adapt the following composition and duties to its general framework and best interests. Traditionally, recourse to a compensation committee is more adapted for companies presenting a profile with an important share capital structure and framework. As for small companies, an independent Director vested with the duties of the present Committee could suffice. It is essential to disclose the mandate, composition, remuneration (where applicable) and working-procedures of the compensation committee. The compensation committee merely has consultative powers and is not vested with the right to take decisions in respect of his competences. The compensation committee makes recommendations to the Board, who shall remain collectively responsible for the decisions of the Committee. 1. Role of the compensation committee The Board of Directors of the Company in its oversight responsibilities appoints the Committee. The Committee is appointed for the purpose of advising and assisting the Board in discharging its responsibilities in respect of the (i) adoption and oversight of policies governing the Companys compensation and benefit programs, (ii) actual compensation of the Companys executive officers, and (iii) oversight and adoption of an executive officers development and succession plan. 2. Membership and composition The members of the Committee are appointed by the Board of Directors for a fixed term of [two/ three] years;
The Committee is composed of [-] independent non-executive directors and a Chairperson of the Committee. Each of the members shall meet the independence requirements established by the Board of Directors and applicable regulations. It is our opinion that, whenever established, the compensation committee should be composed of at least two independent/non executive Directors and an independent Chairman. International Best Practice considers that all members of the compensation committee should be independent Directors. However, it might be complicated for certain smaller companies to find a diversified source of independent Directors both qualified and competent. For this reason, the possibility to have non-executive Directors as members of the compensation committee appears as a pragmatic solution. Independence requirements set by the Board should be complied with at all times. As reminded under section 1 part 2.4, a director can be considered independent when he or she has no relationship of any kind whatsoever with the Company, its group or its management of either that is such as to color his or her judgement. In other words, what is important, in the eyes of the Board of Directors, is to have members free of any relationship whatsoever that would interfere and compromise the exercise of the members independent judgement. Hence, the General Manager or any other executive is forbidden from sitting on the Committee, as well as auditors, whether internal or external. Each Committee member shall be subject to annual reconfirmation of independence by the Board of Directors. Even though the Committee is appointed by the Board every two or three years, an annual confirmation of independence by the Board is a way to ensure that no conflict of interest has risen during mandate. Members of the Committee may be reappointed immediately after lapse of their term. The Chairperson of the Committee shall be elected by the full Board. If no Chairperson is designated by the Board of Directors, the members of the Committee shall designate the Chairperson
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by majority vote of the full committee. The Chairperson shall have adequate expertise for the fulfillment of his functions. The Committee designates its secretary, who shall not necessarily be one of its members. The secretary of the Committee can either be the corporate secretary of the Board or another individual. Upon nomination, induction training for members of the Committee shall take place and the Chairman of the Company is responsible for ensuring continuing education. Induction training should be provided either by the corporate secretary or another individual in charge of coordinating Board matters. The Chairperson shall be responsible for presiding over the meetings and reporting to the Board. International Best Practice recommends that the Chairman of the Board of Directors be forbidden to serve as Chairperson for specialized committees of the Board of Directors to avoid conflict of interest in reporting. The Board of Directors may remove, in its sole discretion, any member from the Committee at any time with or without cause, and may fill any vacancy in the Committee. At least one member of the Committee should have adequate expertise, professional skills and experience to tackle the duties and missions assigned to the Committee. Members of the Committee shall act in good faith, with loyalty and care, respecting at all times confidential information of the Committee. The remuneration of Committee members, in addition to compensation for work as a member of the full Board, should consist in annual Committee fees. The remuneration should be adequate so as to create expectation of responsibility. There should be an additional remuneration per meeting fees and the Chairperson should also perceive additional
fees. It is essential that the payments allocated to Committee members do not compromise their independence, such as a salary or consulting fees. 3. Meetings and operational means The Committee meets at least [twice] a year, upon convening of the Chairperson. Additional meetings may occur as the Board of Directors or the Chairperson deem appropriate in light of specific circumstances justifying the holding of another meeting and necessary to carry out the Committees responsibilities. The Committee should hold meetings without the Company management being present, while preserving the ability to request from executive managers, officers, employees or agents of the Company to attend the meetings from time to time. International Best Practice recommends that executive officers and other officials of the Company may be asked to leave the room during discussions and votes or other decision-making proceedings. The Chairperson shall preside each meeting of the Committee. In consultation with other members of the Committee, the Chairperson shall set the frequency and length of each meeting and the agenda of items to be discussed at each meeting. The Chairperson shall ensure that the agenda is distributed to each member of the Committee sufficiently in advance of the meeting. Subject to applicable laws and regulations, it is recommended that the agenda be distributed 15 days in advance, so as to enable members of the Committee to be adequately prepared for the meeting and eventually deepen certain subjects in need of further analysis. The Chairman of the Board, along with the help of the secretary, is usually responsible for communication of information to Board members and members of the committees. The Chairperson of the nomination committee communicates the agenda under the supervision of the Chairman of the Board of directors. The secretary of the Committee shall ensure that adequate minutes of the meetings are kept. The secretary ensures that Committee members and Board members are furnished with copies of the minutes of each meeting and, when relevant, the management.
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The Committee shall report on its actions and activities at the next quarterly meeting of the Board of Directors. Subject to applicable laws and regulations, attendance at meetings shall be permitted in person or by any other secured mean of telecommunication allowing members of the Committee to effectively interact with one another while ensuring their proper identification. Physical presence for attendance at committee meetings is always desirable and constitutes best practice. However, whenever deemed necessary, members of the Committee should be able to participate to meetings through secured means of telecommunication. A secured mean of telecommunication implies that the member of the Committee can be properly identified and interact in the same way as if he was actually physically present at the said meeting. A majority of the Committee members present at the meeting shall constitute a sufficient quorum in order to deliberate on the issues contained in the agenda. Decisions shall be validly taken on the basis of an affirmative majority vote of the members of the Committee. The meetings shall be of a sufficient duration and scheduled at such times as the Committee deems appropriate to properly discharge its responsibilities. Each Committee member should dedicate the necessary time and attention to fulfill his obligations with regards to Committee meetings. Each member should carefully fulfill his obligations by dedicating the necessary time and attention to his functions. For that reason, International Best Practice that less than 75% attendance at meetings in one year should be an automatic threshold for non-reappointment. 4. Authority The Committee shall have the resources and authority necessary to discharge its duties and responsibilities. The Committee shall have the sole authority to retain and terminate outside counsel, consul68
tants or other experts, as it deems appropriate, including the sole authority to approve the fees and other retention terms for such persons. The Committee shall carry out its responsibilities on the basis of an annual budget granted by the Board of Directors. The Committee shall cause the Company to pay the fees and expenses of such outside advisors. The consultants that the Committee wants to consult should exercise an activity that is relevant with, or compatible with the Committees inquiries. The Committee can seek assistance from both internal and external legal, accounting or other advisors. Third-parties, consultants and advisors consulted by the Committee should respect confidential information emanating from the Committee. The Committee may delegate its missions or activities to one or more of its individual members as it deems appropriate. The Committee may also delegate to executive officers of the Company the authority to make grants of equity basedcompensation to eligible individuals who are not executive officers. The Committee can revoke at any time, with or without cause, the delegations of authority it has granted to some of its individual members or to executive officers within the Company. Any officer or director to whom the Committee delegates authority shall regularly report to the Committee on the grants made. The Committee shall have a free, full and unrestricted access to any information or document it requires from the management and advisors for the proper discharge of its duties and responsibilities. 5. Duties and responsibilities In carrying out the purpose defined in section 1, the Committee shall: Develop internal policies and review the structure and competitiveness of the compensation programs of executive officers of the Company. In doing so, the Committee should place a particular emphasis on the following criteria: (i) ensure
attraction and retention of executive officers, (ii) motivation of executive officers to achieve the Companys objectives, (iii) alignment of the interests of executive officers with the long-term interests of the shareholders, (iv) the Companys performance, (v) the parallel with comparable companies with similar duties (officers positions), (vi) shareowners return, (vii) the companys employment agreements, (viii) general market conditions, and (ix) other factors or criteria as the Committee deems relevant or appropriate. It is necessary to ensure that the compensation programs (including salary, bonuses, incentives and equity-based compensation programs) are designed to enable the Company to recruit, retain and motivate a large number of people of talented and diverse skills, both on domestic and international levels. These programs must be competitive and consistent with the Companys objectives and shareholders interests. Review and approve the compensation packages for new executive officers and employees as well as termination packages. Review and approve the compensation structure for executive managers at the level of senior vice president and above, other than executive officers, as well as termination packages. Recommend to the Board of Directors an adequate remuneration for the General Manager with regards to his corporate goals. Assist the Board in establishing the General Managers annual goals and objectives and consider the results of the General Manager subsequent performance review conducted by the nomination committee. The Committee should meet annually with the General Manager so as to discuss corporate goals and objectives. That performance review of the General Manager must be carried out by both committees in light of the objectives assigned to the General Manager by the Board of Directors. The performance review will be presented to the full Board of Directors, who shall approve the final compensation of the General Manager. The General Manager must not be present during adoption of such deliberation, nor can he be present during adoption of any decision relating to his annual compensation and remuneration. As a consequence, the results
of the annual evaluation of the General Manager will be considered in recommending General Manager salary and other compensation benefits. Periodically review the compensation paid to non-executive Directors and make recommendations to the Board for adjustments. Oversee, together with the nomination committee of the Board, the evaluation of the performance of the Companys executive managers and officers and eventually adjust, in light of that evaluation, the related compensation programs for the coming years. Approve and implement the policies established by the Board to administer the Companys long-term incentive programs (including equity based and employee-benefit plans), and perform the duties of the Committee under those plans, including making grants. The Committee should approve the Companys annual bonus programs and long-term incentive programs, including employees eligible to participate as well as the size, frequency of awards and performance of goals. The Committee should also be entitled to make recommendations on the programs initiated by the subsidiaries of the Company. Any plan or compensation program that provide for payment on the Companys stock or that is based on the value of such stock should be approved by the shareholders. The Committee should also establish criteria for the granting of options to officers and employees and review and approve the granting of options. Obtain or perform an annual evaluation of the Committees performance and make all relevant recommendations. Produce an annual report on executive compensation for inclusion in the Companys annual report. Annually review and reassess the adequacy of the present charter and recommend relevant changes to the Board. Perform any other activities consistent with this charter, by-laws or other applicable laws and regulations, as the Board of Directors deems appropriate.
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Section 3 Case Studies
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SECTION 3 case studies

Several companies in Lebanon have begun to make changes consistent with the recommendations included in this publication. In this section, we present two company-case studies from different sectors of the economy (construction and insurance sectors). The purpose of this section is to discuss with these different actors their efforts in applying corporate governance (CG) within their respective companies.
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BUTEC
Butec, founded in 1963, is a family-owned engineering, procurement and construction company based in Beirut, Lebanon. With operations in Lebanon, Algeria, Qatar and Abu Dhabi, Butecs areas of expertise include design, civil engineering, installation of specialized plant and equipment, public works and building construction. Butec is positioning itself as the preferred local partner for international engineering and contracting companies by teaming up with them on many projects. Currently, Butec is 70% owned by the Younes family, 14% by other shareholders and employees and 16% by the International Finance Corporation (IFC). Butec has enjoyed financial success the past few years with revenues increasing by 144% from 2005 ($24m) to 2006 ($58m) and then increasing by another 54% in 2007 ($88m). Much of Butecs financial success is a result of its market diversification strategy (approximately 73% of Butecs revenues in 2007 came from markets outside Lebanon). Going forward, Butec is expecting sustained growth, including continued expansion into markets outside Lebanon. To support this growth, Butec recognizes the need for a strong corporate infrastructure, including a sound framework for Corporate Governance. Interview with Ms Mona Akl, General Secretary at Butec: 1. Where did the drive to carry out the 2008 Corporate Governance Assessment come from? In the drive to continue growing, we were looking for private equity investors there were several individual investors who were interested in BUTEC, but we were more interested in attracting an institutional investor. We felt that such an investor would provide the drive and incentive to improve internal structures and procedures. It is for this reason that we eventually entered into an agreement with the IFC (as an investor), and the CG Assessment (carried out by IFC and LTA) was part of this agreement. This was important for BUTEC, particularly as this whole process has increased our understanding of Corporate Governance and what it entails. We
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now realise the details of this challenge and the need to introduce new structures and procedures. We are determined to go along this line because it can only help increase the efficiency and effectiveness of the company, and hopefully ensure continued growth for BUTEC. More to the point, we have grown quickly, we have not adapted to this growth as quickly as it occurred. We feel that CG provides BUTEC with the opportunity to institutionalise this growth. 2. Out of the recommendations of the assessment, were some recommendations problematic? Were you faced with any obstacle for their implementation? If yes, how did you overcome it? According to you as Corporate Secretary, what do you think is the most significant achievement in terms of Corporate Governance? From the recommendations we have already acted on, it was not difficult to actually implement them. For example, regarding the nomination of Independent Board Members, it just needed creative thinking. We took into consideration the skill sets we need on board, and we were glad to see that those we approached were interested in joining BUTECs board. In Lebanon, Board members are required to be shareholders by law. For this reason, our 3 new independent Board members were provided with symbolic shares, which will be returned to the previous owner as soon as any of these independent directors leave BUTECs board. The new Board which now consists of 8 members has already met and set the stage for acting on remaining recommendations. It was also important to make sure that the new independent directors were well informed on the companys history, operations and current status. This new Board has already taken the decision to create an Audit Committee, which will be chaired by one of the independent Directors and will consist of 2 other members. The Board has also decided to strengthen the Human Resources function, and is currently looking to recruit a Human Resources expert. The function of Internal Audit had already recently been created, and there are ongoing meetings to determine the scope of internal reporting: in principal the Audi Committee should have access to all company documents, all financial information the internal auditor may request any report related to financial accounts, and we are confident this will increase BUTECs ability to manage its risks.
3. What is the next step for BUTEC when it comes to CG? Any plans to improve CG with suppliers or any other third parties? The next step for us is to strengthen BUTECs Human Resources function. We have reached a level where the number of employees, currently at around 4,000 (both part-time and full-time), can have severe managerial implications on the company if this issue is not managed well. We want our employees to feel that this is a company where they can plan their career, where their insurance and retirement issues are addressed. We feel that this will help BUTEC to retain its employees in the long-term. This priority is in follow-up to recent efforts aimed towards valuing BUTECs workforce more, such as more stringent safety and security measures on project sites which were put in place by a newly-appointed Safety and Security Manager. There are several other recommendations which we plan to act on in the medium-term, such as introducing and applying a company-wide Code of Conduct. Currently, we do not have plans to improve the CG practices of our suppliers or other third parties. 4. When the issue of separation of powers came up, how did Dr. Youness react? Did he feel he would lose control of BUTEC if he was not General Manager? We were glad to see that the CG assessment and accompanying recommendations did not make an issue out of this. While we are aware that one of the principles of CG consists of separating the function of Chairman from the function of General Manager, the team which assessed us also realised that one of the major reasons for BUTECs success is precisely because Dr. Younes is involved in day-to-day operations. Dr. Youness primary job is General Manager, and he is also chairman simply because of the number of shares that he holds. Nonetheless, BUTEC is addressing the issue of Succession Planning, and Dr. Younes coordinates with other managers in the company and delegates much of the work particularly to the Assistant General Manager, who is being groomed to take his place.
5. What do you think other Contracting Companies should do? We are not aware of the status of internal governance in other companies in the industry in Lebanon - and we do not feel that there is any culture of proper reporting, even to the public. I do not have the impression that Corporate Governance will trigger any improvement on the industry level. In our opinion here at BUTEC, CG helps enhance the internal governance, efficiency, and effectiveness of each company alone. As someone who is in the industry, I would like to see more contracting companies provide more information on their operations and activities! What would be more beneficial to look at the industry level is to be able to identify the level of competitiveness of the industry through enhanced reporting system on current projects being done.
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Commercial Insurance Company Sal

Established in 1962 by the late Roger Zaccar, Commercial Insurance Company offers a wide range of insurance services, and has proven its success through a sound financial track record and a visionary marketing approach. The company was the first to implement the 24-hour customer call centre, the Assistance Line Operator (ALO), and continuously updates its services to be ahead of the market. Commercial Insurances core values are to provide personalized services to its clients and maintain high ethical standards which in turn boost morale and encourage a good team spirit and innovation. Commercial Insurance operates from its headquarters in Beirut and is supported by its offices located in Zouk Mikael. It aims to expand regionally in the coming years, provide top quality services, and reach the ambitious zero fault performance. Through its sales force, agents and brokers, Commercial Insurance proposes the most suitable insurance solutions to its clients, with particular emphasis on customer service. Wherever Commercial Insurance operates, it is the standard in servicing, with the support of its experienced and well-trained technical team. Backed by 48 years of experience and by first class reinsurers, Commercial Insurance has become the preferred insurer among those who seek personalized service for themselves and their companies. Interview with Mr. Max Zaccar, Chairman of Commercial Insurance Company Sal: 1. Where did the drive to carry out the 2009 Corporate Governance Assessment come from? For several years now, we have been considering the need for better structures and procedures in our company. We are also conscious that very few family owned companies survive beyond the third generation. I would like this company to survive and grow while remaining in the family, and one way of moving in that direction is to institutionalise the company by adopting better CG practices, such as an internal audit function or the
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application of a Family Constitution. Regarding the application of a Family Constitution, this is something which we can do relatively easily now, for the simple reason that the family owns all the shares at this moment, and that we are relatively few shareholders. My concern is not necessarily with the next generation (I have 4 children), but more importantly with future generations, when there will most likely be many more shareholders. In any case, even if my children get on well together, it would not be wise to bet the companys future on this unofficial approach to institutional/structural issues on which the companys survival could depend. This is the added value of a Family Constitution: while it does not guarantee that all family issues can be solved through its provisions, it does provide the framework for, and spirit of, interaction between the family and the company - to the benefit of both. 2. In applying better CG practices, have you so far faced any obstacles? Quite the opposite actually; for example, by introducing the Internal Audit function a few years ago, we have made our jobs easier in monitoring the operations of the company. The same can be said of the impact of the introduction of job descriptions and an evaluation system for all employees these measures have served greatly to increase accountability and responsibility within the team at Commercial Insurance. Regarding the nomination of independent Directors on the Board, this is something we want to do when it can address the needs of the company as it grows further. When that time comes, we will consider the skill set we need depending on future projects. For example, if we are merging with another company, if we are launching new services with the bank, or if we are looking for partners in Arab countries in each of those cases, the company could benefit from a specific skill set at the Board level to ensure success. 3. What were your objectives in setting up an Internal Audit Function? Due to the growing size of the company, there was an urgent need to introduce an Internal Audit function. The fact of the matter is that, as the company grew, we were no longer able to follow-up on each and every operation, and we needed to trust
each department to carry out their functions. It is within this context that we need the Internal Audit function to check on the performance of all departments in the company it is an ongoing process which two major objectives: (i) to check and follow-up on internal procedures, and (ii) to give recommendations on how to improve the performance of any part of the companys internal procedures. 4. What are your achievements in applying CG so far? To begin with, it is important that there be a strong commitment to CG, and we consider the maintenance of this commitment as an achievement. In more tangible terms, I consider the following as achievements: 1) Developing job descriptions and evaluation procedures for employees in 2002; 2) Introducing an Internal Audit function in 2004; and 3) Recognising the need for, and beginning to work on, a Family Constitution and succession planning in 2009. 5. What do you think other Insurance Companies in Lebanon should do? While regulations for the insurance sector do exist in Lebanon; they are not applied in the same way by all insurance companies and there is no regulatory body to enforce these regulations. There is no doubt that insurance companies in Lebanon would benefit from better structures and procedures. It is also evident that not enough information on the different insurance companies is shared, particularly the kind of information that should be published annually. There are currently about 60 insurance companies in Lebanon (due to the fact that each minister distributed licenses during the Civil War), and it is inevitable that this number will decrease over time either through mergers or through survival of the fittest. It should be pointed out that we have reached a point here in Lebanon where some hospitals no longer accept the signature of some insurance companies. To conclude, there is a deficit of good CG practices in the Lebanese insurance sector.
6. How would you measure the impact of better CG practices on the risk management of the company? Managing the companys risks in a better way is one of the major reasons we felt the need for better CG practices. As the company continues to grow, and as we increase our efforts to institutionalize it, the challenge is to become more efficient, and this is an exercise that starts slowly but builds up into an internal culture. While the tools we have already introduced have enormously improved our ability to monitor the risk that the company is exposed to, we also realise that it is an ongoing process which can be further improved and enhanced. As Chairman, the way I see it is that the less involvement I have in small details at the senior level, the more I feel the impact of these CG tools and practices.
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Notes
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design | match
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Reference Guidebook on the Corporate Governance of Family-Owned Enterprises This Reference Guidebook on the Corporate Governance of FamilyOwned Enterprises (FOEs), symbolizes the multiple efforts by the Lebanese Transparency Association and its partners - whether local, regional or international to promote the culture and practice of Corporate Governance (CG) in Lebanon and the MENA region. The Guidelines embodied in this Reference Guidebook are inspired by various national and international sources of good governance, such as the Organization for Economic Cooperation and Development (OECD). This Reference Guidebook focuses on the CG of FOEs, and aims to provide such companies with (i) Guidelines on the implementation of CG principles, (ii) toolkits on practical aspects of CG and best practice, and (iii) actual case studies within Lebanon. Indeed, developing reliable CG Guidelines for FOEs will help lead to sustained market growth over the long-term - in Lebanon and the Middle-East.

Family-Owned Enterprises: Reference Guidebook On The Corporate Governance of

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FAMILY-OWNED ENTERPRISES

REFERENCE GUIDEBOOK ON THE CORPORATE GOVERNANCE OF

REFERENCE GUIDEBOOK ON THE CORPORATE GOVERNANCE OF FAMILY-OWNED ENTERPRISES

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

Meetings And Operational Means 67 Authority 68 Duties And Responsibilities 68

SECTION 3 CASE STUDIES 71 Butec 72 Commercial Insurance Company Sal 74

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

Section 1 Recommendations for the Implementation of Corporate Governance Principles

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

SECTION 1 guidelines for the implementation of corporate governance principles

Section 1 Recommendations for the Implementation of Corporate Governance Principles

Encourage the company to undertake a self-assessment

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

Implement the corporate governance plan

Review the results of the plan on a periodic basis

Section 1 Recommendations for the Implementation of Corporate Governance Principles

Section 1 Recommendations for the Implementation of Corporate Governance Principles

Section 1 Recommendations for the Implementation of Corporate Governance Principles

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

Section 1 Recommendations for the Implementation of Corporate Governance Principles

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

Section 1 Recommendations for the Implementation of Corporate Governance Principles

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

Section 1 Recommendations for the Implementation of Corporate Governance Principles

Section 1 Recommendations for the Implementation of Corporate Governance Principles

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

Section 1 Recommendations for the Implementation of Corporate Governance Principles

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

Section 1 Recommendations for the Implementation of Corporate Governance Principles

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

Section 1 Recommendations for the Implementation of Corporate Governance Principles

Section 1 Recommendations for the Implementation of Corporate Governance Principles

Section 2 Corporate Governance Toolkits

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

SECTION 2 corporate governance toolkits

Section 2 Corporate Governance Toolkits

How to Draft a Corporate Governance Code

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

Section 2 Corporate Governance Toolkits

Section 2 Corporate Governance Toolkits

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

Section 2 Corporate Governance Toolkits

How to Draft a Family Constitution

Section 2 Corporate Governance Toolkits

How to Draft a Code of Conduct

Section 2 Corporate Governance Toolkits

Section 2 Corporate Governance Toolkits

Section 2 Corporate Governance Toolkits

How to Draft a Whistle-Blowing Procedure

Section 2 Corporate Governance Toolkits

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

Section 2 Corporate Governance Toolkits

How to Form an Audit Committee of the Board of Directors

Section 2 Corporate Governance Toolkits

Section 2 Corporate Governance Toolkits

Section 2 Corporate Governance Toolkits

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

How to Form a Nomination Committee of the Board of Directors

Section 2 Corporate Governance Toolkits

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises

Section 2 Corporate Governance Toolkits

Reference Guidebook on the Corporate Governance of Family-Owned Enterprises