SECP Amends Regulations for Election of Independent Directors and Female Directors

To address practical difficulties faced by the listed companies in election of directors, and to promote diversity in boards of the companies, the Securities and Exchange Commission of Pakistan (SECP) has introduced amendments in the Listed Companies (Code of Corporate Governance) Regulations, 2019 and the Companies (Postal Ballot) Regulations, 2018. The notified amendments aim to facilitate listed companies in meeting their regulatory requirements relating to the election of independent and female directors on their boards. The new regulations will also strengthen corporate governance framework by introducing the concept of voting in categories on proportionate basis. Under the category voting, a three-tier voting structure for listed companies is being prescribed whereby votes shall be cast separately for the three categories of directors i.e. female, independent and others. The division of maximum votes available to each member for a category shall be in proportion to the number of seats of directors under such category. Furthermore, the number of votes for each category shall be counted separately. For the female director, the seat shall be fixed to one; and for the independent director it shall be two or one-third, whichever is higher. However, there will be no restriction in the total number of female and independent directors that can be elected on the board of the company in all categories combined. It is pertinent to mention that the role of independent directors is globally recognized in bringing specialized expertise to the board and contributing to conflict resolution. The subject reform will also promote women inclusion and is part of SECP’s integrated approach to strengthening corporate governance in listed companies. These reforms will further improve the corporate governance framework and also play an important role in protecting minority interest by ensuring election of independent directors in an efficient and transparent manner.