The Corporate Governance Code Of Bahrain

Copyright 2012, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Gulf Practice, February 2012

The corporate governance code of Bahrain (the Code) aims to bring international corporate governance standards to public companies, and in particular financial institutions, incorporated under the Bahrain Commercial Companies Law (the Companies Law). The Code came into effect on January 1, 2011, with full compliance required by public companies by the end of 2011. Subject to the appropriate modifications being made, it is expected that application of the Code will eventually also extend to non-public companies in Bahrain.

The Companies Law already implements several corporate governance standards that the Code seeks to supplement and expand on. In this regard, it should be noted that the Code is not a stand-alone law and should be read in conjunction with the Companies Law.

Among the eight corporate governance principles addressed in the Code are those relating to board and director duties, remuneration for directors and officers, internal financial controls, management structure of the board and the board's communication with shareholders.

All eight principles, outlined briefly below, contain requirements for bringing listed companies into compliance with the Code. The Code further contains a few recommendations that, although not required by law, are reflective of best governance practices and strongly encouraged.

In addition to the requirements imposed by the Companies Law, the rules imposed by the Code stipulate for the following, without limitation.

Collaborative decision-making, achieved through open communication and frequent board meetings. The Code recommends that board size be reviewed to ensure efficient decision-making and that potential non-executive directors be adequately informed as to the time commitments required in connection with membership on the board. The purpose of this measure is to ensure that individuals do not commit to more than three directorships in public companies. Independence of director judgment so that no individual or group of directors dominates the decision-making. The Code recommends that at least half of the board be composed of non-executive directors, three of which shall be independent, and that the chairman of the board be an independent director, with a different individual filling the chief executive officer role, so as to ensure appropriate balance of power. The Code further...