Corporate Governance Report

Corporate Governance 2013
Pak Brunei Investment Company

Corporate Governance
Term Report



LETTER OF TRANSMITTAL

April 19, 2013

Mr. Humayun Zafar Choudhry
Assistant Professor
Institute of Business Management
Karachi.

Dear Mr. Choudhry,

Attached please find our term report titled Corporate Governance in Pak Brunei Investment
Company Limited.

This report revolves around various aspects of the Code of Corporate Governance practiced at Pak
Brunei Investment Company Limited. Also discussed are the role and responsibilities of the BOD,
Various Committees, Company Secretary, and other such related matters.

We hope you find this report satisfactory.

Sincerely yours,

Iqbal Lalani Std Id: 11041
Saad Mateen Std Id: 10998
Talha Hassan Std Id: 11520
Valencia Pinto Std Id: 11075
Zoya Hafeez Ahmed Std Id: 13863



Table of Contents
Definition of Corporate Governance ............................................................................................................ 4
Corporate Governance in Pakistan ............................................................................................................... 4
Introduction of the Company ....................................................................................................................... 4
Responsibility of the Board: .......................................................................................................................... 5
Performance Measurement Review ............................................................................................................. 6
Composition of the Board ............................................................................................................................. 7
Board and Senior Management Remuneration ............................................................................................ 9
Compensation of Directors and Executives for the year ended 2011 .............................................. 9
Meetings ..................................................................................................................................................... 10
Board meetings: .............................................................................................................................. 10
Audit Committee: ............................................................................................................................ 10
Human Resource Committee: ......................................................................................................... 11
Management Committees .............................................................................................................. 11
Role of Company Secretary ......................................................................................................................... 12
Information ................................................................................................................................................. 12
Register of Interest ..................................................................................................................................... 13
Voting at Share Holders Meetings .............................................................................................................. 13
Financial Statements ................................................................................................................................... 13
Board Appointments ................................................................................................................................... 14
Audit ............................................................................................................................................................ 14
Environmental Concerns ............................................................................................................................. 14
Succession Planning .................................................................................................................................... 15
Conclusion ................................................................................................................................................... 16
References .................................................................................................................................................. 17



Definition of Corporate Governance

"Corporate governance is the system by which companies are directed and controlled. The boards of directors are responsible for the
governance of their companies. The shareholders role in governance is to appoint the directors and the auditors to satisfy
themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the companys
strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to
shareholders on their stewardship. The boards actions are subject to laws, regulations and the shareholders in general meeting."
Cadbury Report Definition of Corporate Governance
Corporate Governance in Pakistan

The Securities and Exchange Commission of Pakistan (SECP) endeavored to raise the corporate
governance standards in the country. The first major effort was made in March 2002, when the
Code of Corporate Governance (Code) was issued by SECP under the chairmanship of Khalid
Mirza. It was subsequently made part of the listing regulations of the three stock exchanges and
became applicable to all public listed companies. The Code is a first step in the systematic
implementation of principles of good corporate governance in Pakistan.

Furthermore, in order to keep pace with the constantly evolving corporate sector and financial
markets and the resultant governance benchmarks, the process of revising the Code was initiated
which resulted in the revised Code of Corporate Governance, 2012 which the Federal Minister for
Finance Dr. Abdul Hafeez Shaikh launched at a formal ceremony organized by the Securities and
Exchange Commission of Pakistan (SECP), on April 10, 2012.

Introduction of the Company

Pak Brunei Investment Company is an Investment Finance Company established as a joint venture
between Government of Pakistan and Brunei Investment Agency (BIA). The Company commenced
operations in August 2007 after its notification as a Development Finance Institution.

Pak Brunei defines itself as a full service Merchant Bank which includes all Investment Banking
activities such as Project Finance, Corporate Finance & Advisory Services, Treasury/ Trading and
Distribution as well as Capital Market operations. Since commencement, the Company has


successfully closed a number of Advisory mandates including arrangement of financing through
syndications of almost PKR 35 billion for a diverse client pool. Deal credentials include financing
Greenfield and BMR projects, Rehabilitation mandates, Mergers, Acquisitions and Strategic
Advisory transactions.

It is relevant to mention here that the Code was made applicable to the Company through regulation
G-1 of the Prudential Regulations for Corporate / Commercial Banking issued by the State Bank of
Pakistan. Though PBICL is not a listed company, it follows the Code of Corporate Governance as a
GOOD GOVERNANCE practice, to the maximum of its abilities.

Organogram

Responsibility of the Board:

The Board assumes its role independent of the influence of the management. It knows its
responsibilities and powers in clear terms. The Board is accountable for overall supervision of the
risk management process. They also meet every quarter to consider the following:
Approval of quarterly results
Approval of Budget, Business plans
Approval of the Annual Report and Accounts
Approval of overall policies, supervising and ensuring their proper implementation
Approval and monitoring of corporate strategy and objectives to achieve Company mission
under the overall vision provided to management
Board of Directors
Company Secretary /
Chief Financial
Officer
Managing Director
Group Head
Operations
Chief Information
Officer
Senior Manager,
Capital Markets
Head of Compliance Head of Credit Risk
Group Head,
Corporate and SME
Banking Group
Group Head
Advisory & Strategic
Investment Group
Head Administration
& HR
---------------------------- Head of Internal
Audit
Board Audit
Committee


Ensuring that systems and controls are in place in the Company so that transactions that
take place are within company policy and regulatory requirements
Defines the authorities and responsibilities of the senior management
Regular, periodic and independent contact with Internal audit

As mentioned in the responsibilities above, the board of directors focuses on approval of policies,
general direction, oversight and supervision of the affairs and business and does not play any role in
the day to day operations, as that is the role of the management.

The Board is the ultimate governance body of the Company. The Board attends to all matters which
are not reserved to the General Meeting or another governance body of the Company by law, the
Articles of Association or these Regulations.

Performance Measurement Review

Meetings are held at regular intervals in which the Company reviews the terms of reference of Board
and subcommittees when needed. Reports are produced on a yearly basis detailing the boards
objectives for that year and progress against these objectives. However, no third party evaluation of
the Board, such as by an external auditor takes place at Pak Brunei.

PBICL has an audit committee as mentioned below, with its meetings being conducted quarterly. At
each of these meetings, Internal Auditor presents all outstanding Audit findings to the Board Audit
Committee, ranking these in terms of critical impact on the Company. The Quarterly results are
reviewed by the internal auditors, while the half yearly and annual results are reviewed by both the
internal and external auditors.

The Boards Audit Committee recommends decisions to be taken by the Board of Directors. The
Audit Committee does not include the CEO. There is an independent internal audit function within
the company who reports to the Audit Committee.



The external auditors are rotated after 05(five) years as per requirements of the Code of Corporate
Governance and it is mandatory to produce an internal audit plan which is reviewed annually.

Composition of the Board

Member of the Board of Directors of the Company are appointed by the Government of Islamic
Republic of Pakistan (GoP), represented by Ministry of Finance, and the Brunei Investment Agency
(BIA). The GoP and the BIA both appoint two directors on their behalf who are nominated
directors. There are therefore 4 (four) directors serving on the board of PBICL.

At present three (03) directors are Non Executive directors and one (01) director is an executive
director. Out of which the Pakistani nominated directors are Certified Directors through Pakistan
Institute of Corporate Governance. One of the weaknesses of the Corporate Structure of the
Company is that there are only four directors on the Board and the Managing Director is always the
nominee of one shareholder. This means that the full Board has no real authority in appointment of
the Managing Director.

The Board members are nominated for a three year term that can be renewed by the nominating
shareholder. In this Company, the positive aspect is that directors are all highly qualified and
experienced. Directors from Brunei are on the Boards of companies around the world and bring an
international perspective to the Board.

In the past also, Board members have included CFAs and Chartered Accountants. A negative
however is that the Board size is too small and there are no independent members.

Present Board includes:

Hjh Hartini binti Haji Abdullah Chairperson (Non Executive)
Appointed in 2010 as Chairperson of Pak Brunei Investment Company, Hjh Hartini is
currently the Managing Director of Brunei Investment Agency. Prior to holding this
position, she was Assistant Managing Director responsible for the Agency's global exposures


in publicly listed equity and fixed income markets. Hjh Hartini obtained her BSc and MBA
from the UK.

Ms. Sumaira K. Aslam (Non Executive Director)
Ms. Aslam brings over twenty five years of experience in Public Finance, Commerce and
Trade issues relating to Government, Multinationals and International agencies. She has
worked in the Ministry of Finance, Pakistan in various positions and has previously also held
the position of Commercial Counselor and Alternate Permanent Representative to
UNESCAP for Pakistan in Bangkok.

Ms. Aslam holds finance degrees from LSE and Georgetown University. She has also
attended numerous training programs of the World Bank and IMF. She has been on teaching
faculty of UMASS, Amherst; Williams College, USA.

Mr.Junaidi bin Haji Masri (Non Executive Director)
Mr. Masri joined the Brunei Investment Agency in 1991. As Assistant Managing Director, he
heads Venture Capital and Strategic Investments, managing the Agency's investments across
several countries. He has a deep understanding of international markets and asset classes.

Mr. Masri holds a B.Sc Degree in Computer and Management Sciences from Keele
University, United Kingdom.

Ms. Ayesha Aziz - Managing Director (Executive)
Ms. Aziz was responsible for setting up Pak Brunei Investment Company and succeeded in
positioning it at the forefront amongst its larger and more established peers, in terms of size
and profitability.

Ms. Aziz has rich and diverse experience in investment banking, asset management, treasury,
and portfolio management. Subsequently, Ms. Aziz was involved in establishing and
managing business operations and subsidiaries of Pak Oman Investment Company,
including a Microfinance bank and an Asset Management company, where she acted as a


member on the board and CEO, respectively. She was also responsible for developing a
regional investor base comprising private and public sector institutions, successfully raising
equity for telecom, energy and financial sector transactions in Pakistan.

Ms. Aziz is an MBA from the Institute of Business Administration and a CFA
Charterholder.

Board and Senior Management Remuneration

PBICL has a Human Resource Committee of the Board as mentioned below. There is also a written
remuneration policy of Company, but they do not disclose the policy in the annual report. However,
the company does disclose the remuneration given to the board members and the senior
management of PBICL in their annual reports.

Compensation

Compensation of Directors and Executives for the year ended 2011
(Rupees in 000)
*Chief Executive Directors **Executives
Fees - - -
Managerial Remuneration 21,200 - 67,406
Contribution to defined contribution plan 1,055 - 3,430
Utilities 303 - 14,460
Medical 341 - 2,153
Travelling Allowances 228 3,234 302
23,127 3,234 87,751
*The Chief Executive is also provided with a Company maintained car.
**Executives mean employees other than the Managing Director and Directors, whose basic salary
exceeds five hundred thousand rupees in a financial year.



Meetings
Board meetings:

The Board meetings are conducted quarterly.
Composition

Names Directorship
Hjh Hartini binti Haji Abdullah Chairperson Non Executive
Mr. Junaidi bin Haji Masri Director Non Executive
Ms. Sumaira Aslam Director Non Executive
Ms. Ayesha Aziz Managing Director Executive

Since the Board is quite small, the quorum of the board meeting is that all directors of the
board committee should attend the meeting. The minimum time required to circulate the
minutes to other directors / board members is 02 (two) weeks.

Audit Committee:

The Audit Committee meetings are also conducted quarterly.

Composition

Names Directorship
Hjh Hartini binti Haji Abdullah Chairperson Non Executive
Mr. Junaidi bin Haji Masri Member Non Executive
Ms. Sumaira Aslam Member Non Executive

The quorum required is full attendance. The minimum time required to circulate the minutes
to other directors / board members is 02 (two) weeks.



Human Resource Committee:

The Human Resource Committee meetings are also conducted quarterly.

Composition

Names Directorship
Mr. Junaidi bin Haji Masri Chairman Non Executive
Ms. Sumaira Aslam Member Non Executive
Ms. Ayesha Aziz Member Executive

The quorum requirement of the meeting is that all members should attend the meeting. The
minimum time required to circulate the minutes to other directors / board members is 02
(two) weeks.

Management Committees

Different Committees have been set up to review different kinds of risks. The meetings of
these committees are conducted monthly and the minutes of the Risk Management
Committee is reviewed quarterly by the BOD. They are as follows:

Risk Management Committee
Assets and Liabilities Committee
Credit Committee
IT Steering Committee
Purchase Committee
Equity Investment Committee
Strategic Investment Committee



Role of Company Secretary

The minimum criteria for the appointment of company secretary within the Company is that he /
she should have a Masters Degree from a recognized university having at least 5 (five) years
experience of handling corporate affairs of a company, along with being conversant with all the
regulatory framework and should meet the fit and proper criteria of its regulator, the State Bank of
Pakistan.

The tenure of the company secretary is determined by the board. Responsibilities of the company
secretary include calling board meetings, recording minutes of meetings, keeping statutory record
books, proper payment of dividend, interest payments (if any).

The company secretary reports to the Board of Directors, and is also a certified director from PICG.
In this Company, the Co Secretary is also the CFO, for which a special relaxation has been taken
from the State Bank of Pakistan. For all Company secretarial functions, his reporting line is to the
Board.

Information

The information disclosed in the Annual Report is as per the Guidelines given by the State Bank of
Pakistan and the Accounting Standards. All the information required for the meeting, such as the
agenda items etc.

Approval of annual financial statement, appointment of external auditors, declaration of Dividend
(if any), and nomination of director is revealed to the shareholders in advance of the Annual General
Meeting. The minutes of the previous meeting are read and approved in the following meeting, in
which the responsibility of action (if any) is also clearly defined. After which the organization
undertakes a review to ensure that actions decided have been taken.

All related party transactions are reviewed and approved by the board on quarterly basis and are
disclosed in the annual report of the company.


Register of Interest

All Directors are required to disclose their personal interest in the Company such as Ownership of
shares of the Company and Subsidiary Companies. The company however, does not maintain a
register of interest. This is because the Company is not a listed entity and 100% shareholding rests
with two shareholders.

Voting at Share Holders Meetings

The shareholders send their nominees to shareholder meetings. Since there are only two
shareholders, there are two nominees. The Company Secretary is present in shareholder meetings as
is the CEO. Hence there is no need for proxy voting guidelines in this case.

PBICL follows the guidelines of the Companies Ordinance in this regard. The resolutions are
circulated in the working papers of the meeting, which are separate for separate matters
(appointment of external auditor, dividend declaration, change in articles/memorandum of the
company etc)

Financial Statements

IFRS and IAS are followed in preparation of financial statements which are reviewed and duly
signed by the Board of Directors.

SQL based financial system for accounting records
Daily backups are kept in hard room. A separate server is maintained at data recovery centre
where a back up is maintained at all times through satellite link. Also, backups are taken
physically and maintained in a secure location by Group Head Operations
BCP Site for the retrieval and access of Financial Information is located in a safe location in
Clifton. Drills are conducted regularly to check effectiveness.



Board Appointments

The Shareholders themselves recommend candidates for the appointment of board of directors. The
Company Secretary plays a vital role in spelling out the boards responsibilities respectively and also
informs them of any trainings that might be suitable and effective for the company and for the
directors

Audit

Audit being the backbone of CG in a financial services company is treated accordingly in the
companys Corporate Governance framework.

A report on the Internal Audit function is produced by the Audit Committee
Appointment of external auditor of repute.
Internal Audit plan is also mandatory.
Internal Audit plan is reviewed periodically.
Independent internal audit function.

Environmental Concerns

While the Company is still very new, it has done some work on the CSR side. However, there is no
clear policy or guidelines in this area.

The Company so far, has gone about it in a relatively disorganized manner. Recommendations are
made to the Board by the MD and every year the Company makes donation based on these
recommendations. The minimum requirement is that five years audited statements of the don ne
should be in place. Contributions so far include Citizens Foundation and IBA (Center for
Entrepreneurship)etc.



The company ensures that all projects that are funded by it have a NoC on environmental safeties
that apply. Also, the Company has advised clients on carbon credits (such as those available in bio
gas projects).

There is a steering committee comprising of the senior most female employee (other than MD) who
is the chairperson of the committee , the CFO as well as Head of HR that monitors and takes action
for any type of harassment reported to it through a proper complaint process. This process ensures
complete confidentiality. This committee looks into complains such as verbal or physical harassment
including sexual harassment and all decisions made are reported for final approval by MD. There is
also a disciplinary process outlined in the policy.

The Company does follow the equal employment opportunities policy. In fact there is a strong
culture of not tolerating any type of prejudice and cases of sectarianism are also dealt with quite
harshly under special direction of the board. Also women make up almost 35% of the total
workforce and these are equally distributed at all levels of the Company.

There is a Chief Compliance Officer (CCO) whose role is defined by the regulatory body, in this
case State Bank of Pakistan (SBP). He ensures all transactions fall within legal/regulatory parameters
as well as internal policy and any exception is reported by him to senior management and also
separately to the board in a compliance report. Any complaint made that goes unaddressed by
management, whether from a client, a regulator, or an employee is also communicated to the Board.
The Company has two reputable law firms on its panel. These firms both qualify on the SBP panel
of lawyers as well.

No advisors except external auditors who point out any exception to the code in their report.

Succession Planning

PBICL has a succession planning policy. The departing CEO recommends the succession plan to
the Board and in fact this plan comes into action even when the CEO is on leave/absent for more
than three days.


The role of the Board is quite active as succession plan is reviewed on a biannual basis and
justification for each position has to be given. As the CEO position is filled by a nominee of any one
shareholder (alternating every three years), therefore the succession plan for CEO position is always
a senior resource from within the Company as this is a temporary vacancy.

All other senior management positions succession is mostly through internal resources. These
internal resources are identified in advance and are selected through rigorous performance
evaluations. Only in rare cases are external resources taken on board to fill vacancies.

This is a critical exercise because in financial markets, there is quite a lot of turnover. Many people
move to bigger banks for better salaries etc. A financial institution cannot afford to have critical
positions lying vacant or filled in by inexperienced resources for too long.

The Company has a policy of focusing strongly on external and internal training programs for its
employees at each level to have a strong low and middle management resources who are upwardly
mobile.

Conclusion

Despite being a new institution which is only five years old, Pak Brunei is recognized as a market
leader amongst its peers in terms of profitability, size, external credit ratings (AA+), quality of
human resources and product range. Management attributes this to its culture of merit and integrity
and therefore the code is an integral part of the systems followed in the Company.

However, there is always room for improvement and we have made some recommendations here.
Some of the issues relate to the way the Company is structured, as a joint venture between two
countries where the requirements of the code are overlooked. To change this would need a basic
amendment in the original agreement which may at some point be necessary.



Recommendations:

Increase in the size of the board
Nomination of independent directors on the board
Appointment of CEO through transparent head hunting process instead of appointment by
the board of the nominee of one shareholder
Separation of the office of CFO and Co Secretary
Listing on the stock exchange to widen shareholder base, further enhance transparency and
inculcate accountability to the market
System to evaluate performance of the board of directors by third party

References

1. http://www.corpgov.deloitte.com/site/CzEng/corporate-governance/
2. http://www.dailytimes.com.pk/default.asp?page=2012%5C04%5C11%5Cstory_11-4-
2012_pg5_7
3. http://en.wikipedia.org/wiki/Development_finance_institution
4. http://www.pakbrunei.com.pk/
5. Interview with Company Secretary/ CFO, Internal Auditor and CEO

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