Welcome to the 3 rd Session on Corporate Governance: Responsibility of the Board

1. Welcometo the 3rd Session on Corporate Governance:Responsibility of the Board Thanks for joining us. We will be starting the session shortly.

2. Corporate Governance:Responsibility of the Board Presenter: Altaf Noor Ali Chartered Accountant

3. 3rd Session: 2.30-5 pm=150 min • Recap of earlier Sessions. • Corporate Governance in action at Engro • Statement of Directors’ Responsibility • Statement of Compliance with the Code of Corporate Governance (clauses relevant to the Board of Directors) • Remuneration of Chief Executive, Directors and Executives • Conclusion

4. RECAP 2nd Session

5. Tell me: What is ‘Board of Directors’?

6. Board of DirectorsThe collective group of individuals appointed or elected by the shareholders of a corporation to oversee the management of the corporation on their behalf.

7. Tell me: Who are‘Independent Directors’?

8. Independent DirectorA director who is not connected with the listed company or it promoters or directors on the basis of family relationship and who does not have any other relationship whether pecuniary or otherwise with the listed company, its associated companies, directors, executives or related parties.

9. Tell me: What is the meaning of term ‘Fudiciary’?

10. Fiduciary  One who owes to another the duties of good faith, trust, confidence, and candor (Blacks Law Dictionary).  

11. Corporate Governance in ActionLet us study ‘Engro’.Lets have a look at its….

12. Board of Directors:Statement of Directors’ Responsibilities

13. Statement of Directors’ Responsibilities Tell me: Where do you think this statement is located in the Annual Report? Part of Corporate Governance Part of Directors’ Report Part of Financial Statements

14. Statement of Directors’ Responsibilities:Preamble The Directors confirm compliance with the Corporate and Financial Reporting Framework of the SECP Code of Governance for the following:

15. Statement of Directors’ Responsibilities:1 >>> The financial statements, prepared by the management of the company, present fairly its state of affairs, the result of its operations, cashflows and changes in equity.

16. Statement of Directors’ Responsibilities:2 >>> Proper books of accounts of the company have been maintained.

17. Statement of Directors’ Responsibilities:3 >>> Appropriate accounting policies have been consistently applied in the preparation of financial statements and accounting estimates are based on reasonable and prudent judgement.

18. Statement of Directors’ Responsibilities:4 >>> International Accounting Standards, as applicable in Pakistan have been followed in preparation of financial statements and any departure therefrom has been adequately disclosed.

19. Statement of Directors’ Responsibilities:5 >>> The system of internal control is sound in design and has been effectively implemented and monitored.

20. SDR 5Tell me: What is a system of‘Internal Control’?

21. SDR 5Internal ControlA system to safeguard company assets and accurate and timely reporting of financial information.

22. SDR 5 Engro Corporate GovernanceInternal Control Framework: Responsibility: The Board is ultimately responsible for the Engro’s system of internal control and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatements or loss.

23. SDR 5 Engro Corporate GovernanceInternal Control Framework Responsibility Contd: The Board whilst maintaining its overall responsibility for managing risk within the company, has delegated the detailed design and operation of the system of internal controls to the chief executive.

24. Statement of Directors’ Responsibilities:6 >>> There are no significant doubts upon the company’s ability to continue as a going concern.

25. Statement of Directors’ Responsibilities:7 >>> There is no material departure from the best practices of corporate governance, as detailed in the listing regulations.

26. ‘Statement of Compliance with the Code of Corporate Governance’Clauses Relevant to Board of Directors

27. Engro - Preamble This statement is being presented to comply with the Code of Corporate Governance contained in the listing regulations of Karachi, Lahore and Islamabad Stock Exchanges for the purpose of establishing a framework of good governance, whereby a listed company is managed in compliance with the best practices of corporate governance.

28. Engro - 1 The Company encourages representation of independent non-executive directors and directors representing minority interests on its Board of Directors. At present, the Board includes six independent non-executive directors and of the remaining four, who are all executives of the Company, two have been appointed as chief executives of Engro Asahi Ploymer & Chemicals Limited and Engro Vopak Terminal Limited and do not therefore devote their full time to the business of the Company. Due to the diversified nature of the shareholding structure of the Company, there is no majority shareholder as such.

29. Engro 1: During 2004, the Board comprised of four executives and six non-executive Directors who had the collective responsibility for ensuring that the affairs of Engro are managed competently and with integrity. The non-executive directors are independent of management and free from any business or other relationships that could materially interfere in the exercise of their judgement. Corporate Governance, Directors, p. 125

30. Engro 1 Key Shareholding: FactTell Me:How would you distinguish between Executive and Non-Executive Directors? Name No. of Shares held S. Naseem Ahmad, Chairman 174 Asad Umar, President & CEO 171,949 Javed Akbar 49,429 Muhammad Ali 3,300 Hussain Dawood 3,162 Shahzada Dawood 3,162 Parvez Ghias 14,580 Parvez Ghias/Zeba Ghias 142,200 Zaffar A. Khan 583,827 Arshad Nasar 110 Asif Qadir 306,564

31. Engro 1Key Shareholding: FactTell Me:How would you distinguish between Executive and Non-Executive Directors? The Code does not requires each director to be identified as Executive or Non-executive. For Engro, one can guess, but the disclosure is not there.

32. Engro - 2 The directors have confirmed that none of them is serving as a director in more than ten listed companies, including this Company.

33. Engro 2Key Shareholding: ImprovementTell Me:Does the Code requires the disclosure of name of other companies in which director holds directorship?

34. Engro 2Key Shareholding: ImprovementTell Me:Does the Code requires the disclosure of name of other companies in which director holds directorship? No. The Code does not requires disclosure of companies in which Director holds directorship.

35. Engro - 3 All the directors of the Company are registered taxpayers and none of them has defaulted in the payment of any loan to a banking company, a DFI or an NBFI or, being a member of the stock exchange, has been declared as a defaulter by that stock exchange.

36. Engro - 4 No casual vacancy arose in the Board during the year.

37. Engro - 5 The Company has prepared a ‘Statement of Ethics and Business Practices’, which has been signed by all the directors and employees of the Company.

38. Engro 5Tell me: Where is the ‘Statement of Ethics and Business Practices’, which has been signed by all the directors and employees of the Company?

39. Engro - 6 The Board has developed a vision/mission statement, overall corporate strategy and significant policies of the Company. A complete record of particulars of significant policies along with the dates on which they have been approved or amended has been maintained.

40. Engro 6: Vision Statement ‘To be the premier Pakistani enterprise with a global reach, passionately pursuing value creation for all stakeholders’.

41. Engro 6: Mission Statement ‘Our mission is two fold: To help farmers maximise produce by providing quality plant nutrients and technical services upon which they are depended To create wealth by building new businesses based on company and country strengths in Petrochemicals, Information Technology, Infrastructure and other Agricultural sectors. In pursuing the mission we shall at all times be guided in our conduct and decision making by our Core Values’.

42. Engro - 7 All the powers of the Board have been duly exercised and decisions on material transactions, including appointment and determination of remuneration and terms and conditions of employment of CEO and other executive directors, have been taken by the Board.

43. Engro - 8 The meetings of the Board were presided over by the Chairman and the Board met atleast once in every quarter. Written notices of the Board meetings, alongwith agenda, were circulated atleast seven days before the meetings.

44. Engro 8Board of Directors:Board Meetings and Attendance

45. Engro 8Board Meetings & Attendance:Preamble In 2004, the Board of Directors held six meetings to cover the complete cycle of activities. The attendance record of the directors is as follows:

46. Engro 8Board Meetings & Attendance: Director’s Name Meetings attended S. Naseem Ahmad, Chairman 6 Asad Umar, President & CEO 5 Javed Akbar 6 Muhammad Ali 6 Hussain Dawood 5 Shahzada Dawood 6 Parvez Ghias 6 Zaffar A. Khan 5 Arshad Nasar 5 Asif Qadir 5

47. Engro - 9 The Board arranged an orientation course for its directors to apprise them of their duties and responsibilities.

48. Engro - 10 The Board has approved appointment of CFO, Company Secretary and Head of Internal Audit, including their remuneration and terms and conditions of employment, as determined by the CEO.

49. Engro - 11 The Directors’ Report for this year has been prepared in compliance with the requirements of the Code and fully describes the salient matters required to be disclosed.

50. Engro 11: Directors’ Report Headlines • Principal Activities • Business Review (Urea, NPK, Purchased Fertilizers, Bemisal Seeds) • Financial Review (Results for the year, Dividends, Cashflow and Capital Investments) • Major Judgement Areas (Credit Rating, Corporate Award, Accounting Standards, Treasury management, Interest Rate Management, Liquidity Risk, Foreign Currency Risk, Management Information Systems, Pension Gratuity and Provident Fund) • Safety & Environment