Actualidad Ethiopia

Ethiopia updates corporate governance in banks and insurance companies

Corporate Governance Directives SBB/62/2015 and SIB/42/2015, National Bank of Ethiopia

The National Bank of Ethiopia, aware of the fundamental role of corporate governance in maintaining the solvency and security of the financial system, has published two practically identical directives: the first is applicable to the banking industry (SBB/62/2015) and the second to the insurance industry (SIB/42/2015). Their goal is to ensure that Ethiopian companies increasingly apply best practices in corporate governance.

The documents include the rules that should govern the way the corporate bodies operate and work. There are four appendices covering the following: (i) key aspects in the supervision of senior management performance; (ii) the minimum content of the company's Code of Conduct; (iii) the composition, operation and powers of the Board committees; and (iv) the policies, manuals and minimum guidelines that must exist in every company.

Shareholders Meeting and Appointments Committee

Among the powers that the provisions give to the General Meeting is that of constituting an Appointments Committee, which must propose candidates for seats on the board of directors.

Unlike the usual corporate governance structure, this committee will report directly to the shareholders at the General Meeting rather than to the board. It will comprise a minimum of five shareholders, of whom at least two, in the case of banks, must be minority shareholders.

Board of Directors: composition and organisation

The Directives determine that the companies' board of directors must comprise a minimum of nine directors, with a variety of profiles to respond to the requirements of gender diversity and varied experience in finance, banking, accounting, legal matters, administration, audit and technology. Minority shareholders must unfailingly be duly represented on the board.

The directors will receive at least one training session a year on financial, legal, regulatory and corporate governance matters, risk control and internal control.

They will perform their duties for a maximum of six consecutive years, although they may be re-elected after six months have elapsed. However, such re-election may be extended to one further year at the most. The number of directors that may be re-elected may not be more than one third of the total number of board members in the company.

The board meetings must be held at least once a month and must be convened by the chairman or the secretary of the board in a formal call, to which the meeting agenda must be attached, at least three days prior to the date scheduled for the meeting. The directors must attend a minimum of 75% of the meetings every year in person, and will be remunerated as a function of their attendance.

Information for stakeholders

The directives list the responsibilities of the members of the board of directors and of the chief executive, and the duty of transparency in their activities, in order to protect the interests of shareholders, investors and other stakeholders. In addition, they provide a breakdown of the minimum financial and non-financial content that must be published on the company website and must be disclosed in the reports sent to the National Bank of Ethiopia.

Board Committees

The appendices deal with important details relating to the committees that support the work done by the board of directors. Banks and insurance companies must have, at the very least, an audit committee, a risks & compliance committee and a human resources committee. Each of these must comprise a minimum of three directors, meet at least once a month, and have the duty to report on their business to the board of directors.

Implementation of the Directives

The directives become law on the date they are published. However, there are some exceptions:

Banks have 60 days in which to prepare an action plan developing, approving and applying the policies, strategies, codes and requirements contained in the directive, and send this to the National Bank. This action plan must be rolled out within one year from publication (ie, before September 2016).

In the case of insurance companies, the policies, strategies and other matters contained in the directive should be applied from the date of publication (October 2015) and they will have to prepare and submit their action plan to the National Bank of Ethiopia in 60 days. Nevertheless, certain matters (such as appointment of directors, constitution of committees, approval of policies and specific strategies) have a deadline of a year after publication of the directive, to give the companies time to adapt.