Standards of corporate management
Principles of Corporate management Organization for Economic Cooperation and Development cover a number of relationships between the management of corporate management institution, its board, its shareholders and other stakeholders. In this regard, we can say that corporate management implies the processes arising from the management of the economic entities in the implementation of the rights of shareholders (participants), the rules governing thereof, as well as entities and individuals being parties to this process.
Application of the corporate management principles creates the conditions to organize management of economic entities in line with the best practices, as well as improve an efficiency of economic entities.
In this context, in order to introduce an advanced practices of management of economic entities of the Republic of Azerbaijan, the Working Group established under the Ministry of Economic Development of the Republic of Azerbaijan and composed of representatives from relevant governmental agencies, Baku Stock Exchange, International Finance Corporation have prepared corporate management standards for Azerbaijan (hereinafter - "Standards").
Provisions of the standards are not legally binding, they are voluntary.
Thus, the standards include best international practice recommendations. In the future, it would be expedient to apply the provisions of the Standards based on "comply or explain" principle. This means that entities shall comply with the standards, otherwise shall disclose and explain the reasons for non-compliance in the respective reports.
In terms of improving management an application of standards is critical to economic entities of any organizational and legal form. Nevertheless, their importance for the joint stock companies is exceptional. Thus, in such kind of economic entities separation of ownership and control functions manifests itself openly that calls for application of sound practices of corporate management to protect shareholders' interests.
In accordance with best standards, the corporate management practices define the rules to ensure transparency of the entity by creating basis for determining the rights and responsibilities of Management body of Economic Entity, efficient organization of their work and the protection of shareholders' rights. The document also provides for requirements for internal control and risk management in terms of organization of reliable and transparent reporting system.
A purpose of the standards is to assist in application of advanced mechanisms of corporate management across the Economic Entity through harmonization of national and international practices of corporate management. However, the standards are aimed at improving competitiveness and attractiveness of the entity for investors in any economic environment.
Standards are prepared in accordance with the corporate management principles of the Organization for Economic Cooperation and Development.
Some of the issues related to corporate management are reflected in the legislation of the Azerbaijan Republic. However, due to the fact that the legislation sets out general rules (principles) relating to entity management, they cannot adjust peculiarities of each matter relating to their management. In addition, a legislation is also incapable of rapid (dynamic) regulation changes in corporate management . Therefore, you must have management rules based on international practice and standards, taking into account the peculiarities of the structure and activities of the entities, as well as the specifics of processes and operations.
At the same time the standards serves to introduction of best practices in matters that are governed by law in the field of corporate management.
This, in turn helps in identifying and removing obstacles present on the way of implementation of corporate management as a whole, organization of corporate management in Azerbaijan companies in accordance with the corporate management principles of the Organization for Economic Cooperation and Development.
Provisions of the standards will improve through regular review in terms of the development of economic relations, management priorities of economic entities.
CHAPTER I. GENERAL MEETING OF SHAREHOLDERS (PARTICIPANTS)
1. Authorities of the general meeting of shareholders (participants)
1.1. General Meeting of Shareholders (participants) (hereinafter - shareholder) (hereinafter - General Meeting) is the supreme governing body of the entity. Authorities of the General Meeting of Shareholders are a primary model to exercise authorities of shareholders relating to the management.
1.2. General Meeting affords the following opportunities to the shareholders:
- making decisions relating activities of the entity;
- obtaining information on the activities of the entity;
- participating in the entity revenue distribution;
- Supervise closing transactions by the entity within the framework of business activities.
1.3. In terms of a full and comprehensive implementation of ownership function by shareholders in parallel with issues relating to the authorities of the General Meeting, it is advisable to depute the following issues to this governing body and reflect thereof in the Charter:
- Making decisions on issue of securities of the entity;
- Appointment of External auditor of the Entity, execution of contracts in relating hereof or approval of executed contracts;
- organization of evaluation of non-monetary contributions to the Charter capital of the entity;
- Introduction of performance assessment of members of the Supervisory Board;
- Making decisions on participation of the entity in public funds, public associations, legal entities trade unions;
- making decision on establishment of subsidiaries and associated companies;
- adoption of remuneration regulations for members of the Supervisory Board, Internal Audit Service and executive bodies;
- Adoption of rules for closing transactions with related persons of the entity;
- Approval of Regulations of the Supervisory Board.
1.4. To clarify the issues related to the activities of General Meeting and bring these issues to the attention of all shareholders preparation and adoption of the 'Regulations on the General Shareholders' Meeting " by the shareholders in the entity. The above Regulation shall contain list of authorities of the General Meeting, arrangements for the General Meeting, rules for convocation of the General Meeting and decision making.
2. Preparation for general meeting
2.1. A stage of preparation for the General Meeting is critical in terms of holding General Meeting in accordance with legislation and interests of shareholders. To ensure these requirements are met the below matters shall be regarded as important:
- defining exact list of shareholders and nominee shareholders;
- Timely communication shareholders and nominee shareholders;
- enable shareholders to get familiarized with the issues to be discussed at the meeting.
2.2. In this context, the Supervisory Board or the executive body within its authorities shall ensure the following actions are taken:
- Approving an agenda of the General Meeting;
- defining date, time and place of the General Meeting;
- compiling a list of persons entitled to attend the General Meeting of Shareholders based on register data;
- Establishing rules for notification of shareholders on convening the General Meeting;
- Preparing a list of relevant documents and records to be submitted to the shareholders in connection with the items included in the meeting agenda;
- Composing a bulletin containing points on the agenda;
- organizing delivery of notifications, documents and materials to the shareholders and other persons supposed to take part in the meeting.
2.3. Issues to be discussed at the meeting shall be clearly detailed in the agenda. "Other", "etc.", "different" and other words of uncertain nature shall not be used in the agenda
2.4. Shareholders shall be provided with detailed information on the issues to be discussed at the meeting, as well as they shall be enabled to get familiarized with the issues to be discussed. For this purpose, General meeting agenda, relevant documents and materials, issues to be presented to the shareholders in connection with the items included in the agenda, or method using which one can learn the material (e.g. website of the, etc.) shall be added to the notification to be sent to the shareholders.
2.5. Delivery of notifications to the relevant addresses in the shortest possible time enables shareholders to be better prepared for participation in the General Meeting. Therefore, notification can be delivered via registered mail with delivery notification or entity personnel.
2.6. Shareholders holding at least five (5) percent of the voting shares (stakes) in the charter capital of the Entity shall be able to include additional points in the agenda of the General Meeting. Shareholders holding less than five (5) percent of the voting shares (stakes) in the charter capital of the Entity shall be able to submit proposals for the agenda of the General Meeting.
2.7. Closing date for submission of applications, proposals and laws included in the agenda of the General Meeting of the Entity to be determined. In determining the closing date for submission of proposals an opportunity to provide shareholders with time to get familiarized with the final version of the agenda shall be taken into account. At the same time, shareholders shall have an opportunity to get familiarized with a final version of the agenda.
3. Holding meetings of the general meeting
3.1. The General Meeting shall be held at a time and place satisfactory for shareholders. In order to provide on-the job activities of Shareholders it is advisable to hold a general meeting in the holidays.
3.2. It is advisable to hold a meeting of the General Meeting, as a rule, not before 10:00 AM and not later 20:00 pm.
3.3. Organization of the General Meeting is performed by the Supervisory Board or the executive body of the Council (hereinafter - Meeting Organizer) within its competence. Chairman, Secretary, tally commission (tally clerk) of the General Meeting is appointed by the Supervisory Board.
3.4. General Meeting starts with announcement of agenda by the Chairman. Checks participation of shareholders and invitees at the General Meeting, as well as quorum. Then discussion of points on the agenda starts.
3.5. The Chairman shall ensure discipline is observed by the participants of General Meeting, give the floor to speak to all, not interrupt them without obvious reason. At the same time, the Chairman of the General Meeting shall decide on organizational matters arising in the course of the General Meeting.
3.6. Appointed speaker delivers speech on each point included in agenda of the General Meeting. For each point under discussion, shareholders are provided with a time for speeches and questions. After this time, the issues are put to vote.
4. Taking decisions at the general meeting
4.1. Contents of the decision taken shall be clear to shareholders. From such point of view, the problem (issue), put to the vote shall be unique and not cause all kinds of comments and misunderstandings.
4.2. During the voting, shareholders (or their representatives) express attitude towards the issue using words "for", "against" and " abstain ". The voting is done by raising hands or tablets (paper) with the words "for", "against" and " abstain ", written or completing ballots.
4.3. The voting results are determined by the Counting Commission (the counter).
4.4. Each ballot shall contain the following information:
- Name and address of the Entity ;
- Date, time and place of the meeting;
- Agenda of the meeting;
- Voting options expressed by the "for", "against" and "abstain" words for each point on the agenda.
4.5. Shareholder expresses its relevant opinion by crossing out one of "for", "against" and " abstain " words.
4.6. Decisions on points not on the agenda of the General Meeting can not be taken. In order to enable shareholders to express an opinion on each point on the agenda , the Chairman while putting the issue on the agenda to vote, shall ensure their discussion as amended by and in the order specified in the agenda. At the same time, on each point included in the agenda a separate vote shall be put. Vote on two or more points simultaneously is unacceptable.
4.7. Information on the decisions adopted by the General Meeting shall be promptly communicated to all shareholders.
4.8. In the case provided for in the articles of entity, a shareholder may vote in absentia by a written document, by accurately and definitely expressing attitude towards the point (for, against and abstain) on the agenda of the General Meeting of Shareholders and with a signature certified as established by legislation (notary etc.). Regulation of absentee voting can be set by the charter, relevant provisions or other relevant internal documents.
5. Minutes of the general meeting
5.1. No later than within three (3) business days from the date of the General Meeting the minutes of the General Meeting shall be drawn up and be signed and sealed by the Chairman and Secretary of the Meeting.
5.2. A copy of the minutes shall be submitted to the shareholders within five (5) working days from the receipt of the relevant written request.
CHAPTER II. RIGHTS OF SHAREHOLDERS
Notwithstanding the fact that the shareholders generate an charter capital of the entity through their own property, in many cases, they remain out of current management of the Entity .
In this case, shareholders shall have a right to control the activities of Entity and make important decisions, and these rights shall be reflected in the charter. These rights shall cover the following issues:
- take decisions relating activities of the Entity ;
- Obtain information relating activities of the Entity ;
- Participation in the profits of the Entity;
- Control the transactions within the economic activities of the Entity;
- upon liquidation of the Entity, get a share of their property in accordance with the established procedure.
In this regard, the shareholders of the Entity shall have minimum rights as follows.
1. Right to receive dividends
1.1. The Entity shall apply a fair and stable dividend policy for shareholders.
1.2. Transparency of procedures is of great importance to determine fair dividend policy. For this purpose, the Entity shall disclose quarterly and annual financial results for shareholders, and enable them to get familiarized with the relevant financial and accounting documents.
1.3. Dividends shall be paid as soon as possible after the relevant decision (not later than two months).
2. The right to participate in the general meeting
The Supervisory Board (in his absence the executive body) shall be responsible for convening and holding extraordinary general meetings of shareholders as required. It is essential to enable shareholders to affect management of the Entity by participating in the General Meeting and decision-making on important issues related to the activities of the Entity.
3. Right to vote
Entity shall debar any corporate actions that could lead to restrictions on voting rights of shareholders. Holders of preferred shares of the Entity shall be granted with the right to vote on the reorganization or liquidation of the Entity, as well as on amendments and additions to the charter related to restriction of their rights.
4. Electoral law
4.1. The Entity shall ensure transparency of procedures for nomination of candidates and election to governing bodies. Shareholders shall be provided with timely, complete and accurate information about these candidates. Such information shall reflect attitude of candidates to the Entity, its shareholders, members of the Supervisory Board and the Executive Body.
4.2. At the same time, the shareholders shall be also enabled to be elected into the bodies of entity management. Shareholders shall be also sure that if they put forward their personal nominees to the management bodies of the entity, their candidates will be treated respectfully and fairly in the election process.
5. Right to information
5.1. Entity shall ensure that all important issues related to its activities are promptly disclosed to shareholders. Annual reports of the entity, financial state of the Entity and current market conditions shall be disclosed. Disclosure shall contain financial risks, as well as any other issues to be of great value to the entity. This information shall be promptly communicated to the shareholders.
5.2. Executive bodies shall ensure proper maintenance of the shareholders’ register. This inventory shall be sent to the shareholders by the executive bodies, at least once a year.
5.3. In accordance with the laws and customary business practices of the Republic of Azerbaijan entity shall monitor data protection and disclosure of information considered to be confidential.
6. Right of repurchase of shares
6.1. The Entity 's charter shall provide for that the shareholders who voted against the decisions of the General Meeting on issues that may have a significant impact on the Entity can demand the Entity to repurchase their own shares. These issues shall be clearly expressed in the charter of the entity and shall include the following:
- Reorganization (including transformation from open Entity into a closed and vice versa);
- Changes in the main activities of the Entity;
- Limitation of shareholder rights.
6.2. Shares repurchased by the Entity do not provide for the right to vote at the General Meeting unless and until re-purchased by other investors or shareholders as well as the shares do not accrue dividends.
To really guarantee repurchase of shares this procedure shall be set out in the charter or internal documents.
7. Preemption right to purchase of issued additional shares
The charter shall provide for preemption right of shareholders who purchased newly issued shares of the Entity pro rata to their existing shares. In this case, sales price of additional shares for shareholders shall not be more expensive than purchase price being offered to third parties.
8. Right to audit the entity
8.1. Entity shall establish a tool for regular monitoring of their activities.
8.2. Demand of the owners holding at least 10% of the shares of the Entity to audit activities of the Entity 's by the external auditor shall be satisfied.
9. Right to acquire property remained upon liquidation of the entity .
In the process of liquidation of the Entity a fair approach shall be applied towards the shareholders. The Liquidation Commission of the Entity shall ensure that property remained upon performance of all liabilities of the Entity are distributed among the shareholders in a fair manner pro rata to their shares available at the time of liquidation.
CHAPTER III. SUPERVISORY BOARD
1. Role and authorities of the supervisory board
1.1. Supervisory Board shall be established in terms of effective organization of the overall management and control of activities of the Entity .
For the reason that ownership is separated from management in the Entity, in terms of interests of shareholders need for oversight of the executive bodies comes to the fore.
In addition, shareholders may not have sufficient abilities (knowledge, competence, experience) to determine development strategy of the entity and general management of its activities. Therefore, there is a need to establish management institution holding essential knowledge, skills and experience able to perform these operations.
These duties in the Entity are performed by the Supervisory Board.
Establishment of the Supervisory Board is a must in the joint-stock companies with a number of shareholders more than fifty, as well as in the banks and insurers. However, taking into account the above requirements, Establishment of the Supervisory Board is important in the joint stock companies with less than fifty shareholders, as well as limited liability companies.
To organize the Supervisory Board in an efficient manner and to strengthen a role of the governing body in activities of the Entity regulations that define the rules of its operations, authorities, responsibilities, duties of members shall be adopted. In addition, composition of the Supervisory Board, as well as general rules for the organization of work shall be set out in the Entity 's charter.
1.2. The Supervisory Board shall perform duties aimed at making decisions in the interest of the Entity, monitoring of the Entity 's activity and protection of shareholders' investments, increase in profitability of their shares (stock), including determination of strategies and policies. In this connection, the Supervisory Board shall supervise work of the executive bodies, direct issues of internal control and risk management, strategic planning, legislation compliance, as well as guidance on major transactions and bargains, including transactions with related parties.
Corporate management over operation of the Entity starts with planning of their future activities. The Supervisory Board, in accordance with the Entity profile shall define its development strategy. The document to be prepared for this purpose (strategic plan) shall cover strategic goals of the Entity, expected outcomes, management and organizational structure of the Entity, as well as other issues. Economic Development Strategy shall be prepared considering current economic conditions and financial and economic activity of the Entity.
Moreover, if provided for in the Charter the Supervisory Board may approve a municipal budget for the next fiscal year. Relevant structural units and individual employees of the Entity may be involved into the process of preparation of the strategic plan and budget.
In order to ensure compliance with legal requirements and internal regulations by the Entity and its officials (structural units), timely and proper execution of the plan (projects), arising from the Strategic Plan the Supervisory Board oversees activities of the Entity.
Efficient management system is an essential issue for its effective operation. An effective monitoring system requires to focus on issues important to the Entity 's activities to ensure their activities comply with established rules and to avoid unnecessary obstacles to the activities of the Entity . At the same time, an effective control system provides for risk management, measures to mitigate their impact on the activities of the Entity.
To achieve all above, along with issues related to the competence of the Supervisory Board by legislation, the following issues shall be attributed to the scope of authority of the executive body as well:
- Approval of the policies and internal regulations for separate areas of the Entity;
- taking decisions on a preliminary analysis of critical transactions of the Entity , transactions to be concluded with the parties concerned, as well as transactions related to issuance and receipt of loan (for companies that are not financial institutions) and their submission to the General Meeting, as well as their approval when this is within its authorities;
- Establishment of infrastructure required to audit financial and economic activities of the Entity on a regular basis;
- Ensure effective operation of the risk management system. For this purpose the works to identify risks in the normal course of business of the Entity, to mitigate an impact of these risks on the Entity shall be ensured;
- ensuring operation of the internal audit service. For this purpose, necessary conditions to implement commitments of the internal audit service, established by the legislation and best practices shall be created. In addition, independent work of the employees of the internal audit service shall be ensured;
- Supervision over the executive bodies of the Entity. Regular control over performance of the obligations imposed on the executive bodies, demanding their reports, information and explanations in this regard and giving them instructions shall be ensured;
- Appointment and dismissal of the Corporate Management Adviser, adoption of documents governing its activities and control over its activities;
- monitoring of audits conducted by internal and external auditors, taking measures based on the results of such audits.
Activities of the Supervisory Board shall be aimed at execution of shareholder rights , measures aimed at protection of their interests. Therefore, given that the General Meeting of Shareholders constitutes a mode of management functions of Shareholders, establishment of the General Meeting is of special significance.
In this connection, the Supervisory Board shall define a date of the General Meeting to approve the agenda, arrange delivery of notifications to shareholders and provide them with necessary information in accordance with Chapter I of the Standards.
At the same time, the Supervisory Board shall provide necessary conditions to hold the General Meeting. Moreover , holding of the General Meeting and organizing control over discipline rests with the Supervisory Board.
2. Professionalism (competency) and structure of the supervisory board
2.1. The composition of the Supervisory Board shall be formed in a manner to enable effective implementation of overall management and control over the Entity . The Supervisory Board shall be composed of qualified individuals with essential experience, skills and expertise in legal, financial, accounting and auditing, which can assist the entity in, achieve their goals.
2.2. The Supervisory Board shall be composed of an odd number of members. A number of members of the Supervisory Board shall create favorable conditions for effective work of the Supervisory Board, and make better decisions after a fast and comprehensive assessment of situation.
2.3. The Supervisory Board shall be composed of independent members. Member of the Supervisory Board is considered to be an independent in case the following conditions are met:
a) within the last 5 years was not an employee of the Entity or related persons;
b) not a person that renders consulting services to the Entity or their related parties, whether or not associated with a company that rendered consulting services;
c) has no relationship with the contractors of the Entity or its related parties;
d) has no contract with the Entity, its related entities;
e) not related with non-profit organizations funded by the Entity or related parties;
f) does not work in other competing organizations as an officer;
g) is not close relatives of persons from the Supervisory Board, executive bodies of the Entity and external auditor and other related (associated) persons;
h) neither he nor his close relatives are shareholders of the Entity or its related entities.
4. Müşahidə Şurası sədrinin müstəqil üzvlərdən seçilməsi məqsədəuyğundur.
5. Müşahidə Şurasında müstəqil üzvlərin sayının Şuranın bütün üzvlərinin sayına nisbəti elə olmalıdır ki, müstəqil üzvlər qərarların qəbul edilməsinə təsir etmək imkanına malik olsunlar.
6. İdarə Heyətinin keçmiş sədri və üzvləri Müşahidə Şurasının sədri seçilə bilməzlər.
7. Müşahidə Şurası üzvlərinə dair konkret tələblər cəmiyyətin nizamnaməsində və ya Müşahidə Şurasının əsasnaməsində öz əksini tapmalıdır.
3. Functional responsibilities of members of the supervisory board
3.1. Members of the Supervisory Board shall put above all else the interests of shareholders and bear fiduciary obligations such as the protection of their investment and increase in profitability of their shares (stock), be reliable and loyal with respect to them, as well as loyal and responsible to the Entity. In particular, in performing issues referred to the competence of the members of the Supervisory Board they shall be the following fiduciary duties:
a) to perform duties prescribed by law, the charter and other documents of the Entity in good faith and in accordance with the overall interests of the entity ;
b) not to abuse the powers granted to them by legislations, the Charter and other documents of the Entity ;
c) in the course of monitoring the activities of the Entity, take an active part in the discussions of relevant bodies, and make required efforts to obtain information on the issues discussed. Members of the Supervisory Board shall get acquainted with all the materials submitted to them before the meetings of the Board and, in particular, with the financial statements and the issues on which decisions to be taken (reports or recommendations);
d) not satisfied with the information provided by the Entity regarding their activities, search and analyze information sources independently, as well as involve external experts;
e) avoid conflict between personal interests and interests of Entity . In case of conflict between members of the Supervisory Board and public interest, having put the public interest above their own interests they will never use their position in the Entity for personal income and other personal interests or interests of third parties. In addition, members of the Supervisory Board before using any business opportunities suitable for existing or future business activities of the Entity for their own benefit or that of others shall report an official information to the Supervisory Board;
f) maintain confidentiality of any information related to the Entity, unless and until it shall have to be disclosed to the public;
g) display their care and skills in performing their duties.
3.2. Each member of the Supervisory Board shall be promptly provided with the relevant information to be able to make well-grounded decision on any matter to be considered by the Board.
4. Election and dismissal of members of the supervisory board
4.1. Election procedures for the Board members shall be transparent. Shareholders shall be able to nominate candidates for the vacant positions in the Supervisory Board.
4.2. In order to ensure transparency and accountability of members of the Supervisory Board their appointment (election) to the position for a term of three (3) years with reelection right is expedient.
Election procedures for the Supervisory Board members and early termination of his powers, as well as upon termination of term of powers of member of the Supervisory Board, his replacement with a new one ( election for a new term) shall be set out in the charter or internal documents of the Entity .
Election procedures for the Supervisory Board members and early termination of his powers, as well as upon termination of term of powers of member of the Supervisory Board, his replacement with a new one ( election for a new term) shall be transparent. In this regard, shareholders shall be fully informed about the persons whose nominations are put forward by the Supervisory Board member.
At the same time, shareholders shall be able to nominate candidates for the members of the Supervisory Board. During election to the Board member it is expedient to nominate several candidates for one seat. Such a procedure would make it possible to elect the most deserving candidate through opportunity to compare candidates.
In the interests of shareholders a candidate member of the Supervisory Board shall be first nominated by themselves. At this time a volume of stock of shares that grant rights to nominate a candidate for membership in the Board by the Charter and internal documents of the Entity shall be defined.
Supervisory Board may also nominate candidates.
In order to ensure transparency and accountability in operations of the Supervisory Board, it is important that the procedure for recall of member of the Supervisory Board was provided for in the charter or internal documents of the Entity .
5. Board committees
5.1. Committees of the Supervisory Board can be composed to improve efficiency of corporate management in accordance with best international practices. Generally these committees perform assignments of the Supervisory Board and prepare recommendations for action by the Council.
Depending on the specific activity of the Entity other duties may be assigned to these committees.
5.2. To perform their duties Committees of the Supervisory Board shall consist of at least three qualified and experienced members.
It is advisable the following committees shall be established by the Supervisory Board:
- Audit Committee;
- Nominating Committee and Remuneration Committee;
- Risk Management Committee (duties of this Committee may be also entrusted to the audit committee).
Other committees can be established depending on specific activities of the Entity.
5.3. The Entity shall established at least an Audit committee. Audit Committee oversees an operation of the internal control system and internal audit activities. In addition, financial reporting and accounting management in accordance with established regulations as well as control over activities in line with the legislation by the Entity may also be attributed to the powers of the committee.
5.4. It is advisable to elect the heads of the Committee from amongst independent directors.
5.5. Committee members may not be members of the Supervisory Board. In this case, their salaries are set by the Supervisory Board.
6. Awarding of supervisory board members
6.1. Awarding a bonus is an incentive tool give a boost to activity of the Supervisory Board members to make them fulfill their duties faithfully, putting interests of the Entity above all. For financial incentives for members of the Supervisory Board the Entity shall consider means to promote and adopt policies governing bonuses payable to them.
Bonuses, including but not limited to the following can be based on different methods:
- Fixed payment;
- Payment for number of attended meetings;
- Payment for chairmanship of the Committee;
- Payment for chairmanship of the Supervisory Board;
- Lump-sum payment (bonus) is based on the annual performance of the Entity ;
- Payment for the work in the Supervisory Board Committee.
Moreover, other criteria may be taken as a basis for granting bonuses depending on performance of the Entity and other key factors.
6.2. General Meeting shall determine assessment system of the Supervisory Board.
7. Conflicts of interest between the supervisory board members and transactions with related party
7.1. The Entity shall have an adequate policy on conflicts of interest between the Supervisory Board members and transactions with related parties. In addition, it is desirable that the Code of Ethics is adopted by the Supervisory Board members.
7.2. Conflict of interest arises when personal or financial interests of the Supervisory Board member contravenes his duties and responsibilities to act in the public interest, position, or might cause such conflict. Such interest or relationship can prevent that person from perform his duties in good faith.
7.3. Supervisory Board Member involved in existing or potential conflicts of interest, or deal with any related parties shall inform the Chairman of the Supervisory Board prior to meeting and in making decision on the deal shall not participate in the vote, and shall not in any way influence other members. Significant conflicts of interest and transactions with related parties, supported by the Supervisory Board shall be disclosed to shareholders and public.
CHAPTER IV. EXECUTIVE BODY
1. Powers of the executive body
1.1. Executive Body shall oversee operations of the Entity. To govern of the Entity 's activities in a full and comprehensive manner it is advisable to organize the Management Board being a collegial executive body.
Executive bodies of the Entity are a critical part of corporate management. Executive authority shall oversee ongoing operations of the Entity, enforce a strategic plan and budget implementation.
In accordance with the legislation the executive body of the Entity may be collegial and sole. Specifically, selection of the of Entity form depends on the tasks of the executive body, scope of activities, amount of assets etc. factors.
Members of the collegial executive body shall be composed in such a manner to enable the Entity to effectively implement ongoing management of the Entity . Executive body in the field of management and qualified persons shall be composed of joint-stock companies.
Selection of the executive body and early termination of his powers, organization of its work, requirements to its members, as well as the composition of the executive body shall be governed by the charter or internal documents.
Member of the executive body shall possess the necessary knowledge and skills, as well as professional experience in operations and management of the Entity and be a person without a criminal record for serious and economic crimes.
1.2. Except for matters within the competence of the General Meeting and the Supervisory Board all issues related to the management of current operations of the Entity may be included to the powers of the Board. Powers of the Board shall be determined by the Entity 's charter and regulations of the Board.
Activities of the Executive bodies shall meet the public interest, focused on development and increase in revenue of the Entity.
In carrying out their activities the Executive bodies of the Entity represent the Entity in relations with third parties, conduct transactions with its movable and immovable assets, financial assets. From this point of view, the persons that gained confidence of shareholders shall be represented in the executive bodies. These people shall not abuse a trust of shareholders, and in performing their duties in the public interest shall act in good faith and professional manner.
Those represented in the executive bodies shall adhere to the interests of the Entity and its shareholders, in the event of a conflict of interest shall put public interest above their own interests.
Management of current activities of the Entity requires implementation of a variety of legal actions. In this regard, the executive bodies may be entrusted with the following powers:
- ensure continuous operation of the internal control structure and risk management system of the Entity ;
- Report to the General Meeting and the Supervisory Board;
- Prepare and submit to the Supervisory Board annual and quarterly reports, income and expenses information, information on risks confronted by the Entity and factors that may affect operations;
- develop a strategy of the Entity and submit to the Supervisory Board for approval;
- Ensure implementation of strategic plan of the Entity;
- approve regulations of internal divisions of Entity (divisions, departments), and job descriptions for the heads of these divisions, except for branches, representative offices and internal audit service;
- set tariffs on goods (works done, services rendered), presented by the Entity within legislation;
- close transactions within its powers;
- make decisions with regard to recruitment to the Entity, dismissal and other labor matters except for employees of the internal audit service;
- Prepare the documents required for meetings of the General Meeting and Supervisory Board;
- Take decisions on all other issues to manage the current activities of the Entity .
2. Awarding members of the executive body
2.1. Type, amount and vehicle of payment received by the Management Board members for their work shall allow to involve and retain the Entity of professional managers. Moreover, in paying of labor interests of the Board shall conform with those of shareholders. The Entity shall introduce the system to assess performance and remuneration of the Board.
2.2. Remuneration system of the Board - (recruitment, bonuses, promotions) shall be designed as to promote long-term strategic views (approach). This system shall be set out in internal documents of the Entity.
2.3. The Supervisory Board shall implement performance assessment system of the Managing Board.
Bonuses can be based on one of the following principles:
- setting a certain amount;
- setting percent of the Entity’s net income;
- Combined method.
Setting premiums depending on the Entity 's income is more expedient in terms of increasing motivation of the Executive Body for the Entity’s benefit. In addition, depending on working peculiarities of the Entity and other factors, while awarding other criteria can be taken as a basis as well.
3. Conflicts of interest of the executive body members and transactions with related parties
3.1. As in the case of the Supervisory Board, in the event of potential conflict of interest with any member of the executive body involved, such member shall disclose such cases to the General Meeting and the Supervisory Board and not participate in the discussions of relevant issues and vote in respect thereof.
3.2 A member of the executive body involved in the existing or potential conflicts of interest or any kind of transaction with related parties shall inform the head of the executive body and in making decision on the matter shall not participate in vote and not influence other members.
3.3. General Meeting shall adopt internal document that governs the list of transactions that resulted in conflict of interest of the Management Board members, as well as a decision on these transactions and disclosure (Code of Conduct for the Executive Body Members).
CHAPTER V. FINANCIAL ACCOUNTABILITY, TRANSPARENCY AND DISCLOSURE
1. Financial accountability
A main objective of financial accountability is to ensure control over financial and economic activities of the Entity, thereby enhancing investor confidence to their governing bodies.
In order to create an improved financial reporting system in line with modern standards, it would be advisable to establish accounting in the Entity in accordance with International Financial Reporting Standards.
In the meantime, to create a robust financial accountability system the Entity shall meet the following conditions:
- adoption and implementation of legal documents governing financial and economic activities;
- organization of internal control system;
- organization of risk management system in the Entity ;
- Prevention of illegal actions of the Entity’s officials;
- Ensure accuracy of the information disclosed on activities of the Entity .
2. External audit
2.1. External Auditor of the Entity shall be an independent highly qualified person able to perform his duties and free from conflict of interest.
2.2. External auditor shall only give an audit conclusion, and refrain from providing any other non-audit services to the Entity. It is advisable that the external audit will be conducted in accordance with International Audit Standards.
2.3. External auditor is elected by the General Meeting. The Entity shall adopt an internal document governing election of the external auditor.
2.4. Corresponding staff member (or audit partner) of external auditor that conducts an audit of the Entity shall be replaced every three (3) years and audit of the Entity shall be entrusted to another person (or audit partner) of the Entity.
3.1. Supervisory Board shall adopt rules to ensure correct, full and timely disclosure of information relating activities of the Entity in accordance with the legislation.
3.2. In addition to complying with the legislative requirements the Entity shall prepare the annual reports containing information subject to disclosure in accordance with the best international practices, such as business description, financial analysis, and financial performance information, changes in equity and cash flows, as well as any significant risks and risk factors.
3.3. The Entity shall disclose the interim results and important facts (events) related to its activities. Entity shall actively introduce disclosure via Internet, including posting their annual financial statements on its official website.
3.4. Policy posts information of the Entity to be determined and communicated to the public.
Disclosure of financial statements and information regarding activities of the Entity is particularly important in terms of informing shareholders and potential investors. Full and accurate view on the Entity may be generated only by disclosing the financial statements.
Financial reporting and disclosure enables the Entity to exercise control over shareholders. However, the Entity performance assessment contributes to determination of their future priorities.
On the other hand, financial reporting and disclosure shall comply with the laws, good business practices and ethical requirements and prevent from distortion, goodwill breakdown.
Financial reporting and disclosure shall be based on sustainability and efficiency. To ensure management efficiency interim reports shall be used.
In addition, disclosure of information related to activities of the Entity and transparency guarantee shall be consistent with trade secrets protection.
At the same time, in terms of execution of shareholders' rights established by legislation and charter of the Entity disclosure of the following information is critical:
- Financial performance of the Entity during reporting period;
- Significant transactions entered into with related parties of the Entity ;
- funds raised by the Entity ;
- Governing bodies and officers of the Entity ;
- Shareholders of the Entity , including information about the persons holding 10% or more of shares (stock).
Information may be disclosed in various ways: via Internet media etc..
CHAPTER VI. INTERNAL CONTROL SYSTEM, INTERNAL AUDIT FUNCTIONS AND RISK MANAGEMENT
1. internal control system and internal audit functions
1.1 The Entity shall establish internal control system that ensures effective reporting and disclosure. To ensure operational and financial goals the Entity 's are achieved Supervisory Board is to provide establishment of reliable internal control system.
1.2. Internal control system shall be established and operate to raise effectiveness of the Entity 's management and development of their activities, their performance assessment as a whole, as well as work of individual executive bodies (structural units). Internal control includes as follows:
- Generation of control environment (facilities), including identification of relevant areas related to information system and financial reporting;
- risk assessment process of the Entity ;
- implementation of control measures;
- Control and monitoring facilities.
1.3. As a part of the internal control system internal audit service shall be organized in the Entity .
In its activities Internal Audit Service is guided by the principles as follows:
- Reliability and integrity of financial reporting;
- Effectiveness and efficiency of operations;
- Asset protection;
- Compliance with applicable laws and internal rules and procedures of the Entity .
1.4. Internal Audit Service shall have a wide range of activities to audit all operational aspects of Entity as a whole and be fully independent from the executive body.
1.5. Internal Audit Service shall be established and act in accordance with standards established by the legislation of the Republic of Azerbaijan and Institute of Internal Auditors.
2. Risk management
2.1. The Supervisory Board is responsible for risk management process, provides an assessment and adequate management of the risks related to significant internal and external risks, including financial, compliance and other risks through stable built-in mechanisms to enable the Entity to achieve their goals. Supervisory Board decides what risks to be accepted. Supervisory Board shall ensure the processes to identify and evaluate potential risks in the Entity, measure their impact and take measures to mitigate the risks.
2.2. The Board shall undertake preparation, implementation and monitoring of risk management regulations, and be accountable to the Supervisory Board for their use in the daily activities of the Entity.
Main objective of risk management is to predict potential problems the Entity might confront with and take action and prevent from negative impacts of these problems on the activities of the Entity. Risk management includes analysis and risk assessment, including risk indicators level analysis, study of financial statements review procedures, hearing and inspection of reports of the officers responsible for various areas of the Entity.
To achieve these objectives a risk assessment and management system shall be established in the Entity. In this connection, the Supervisory Board shall undertake the measures as follows:
- Adopt policies that govern risk management system;
- Monitor and control the risk management system;
- -analyze, assess effectiveness of the risk management procedures on a regular basis and take measures to improve them;
- Members of the Entity to promote the risk management procedures;
- Identify risk management techniques;
- determine the persons responsible for risk management;
- Disclose information related to risk management.
In fact, the risks arising or which may arise in the course of the Entity’s activities may be related to funding of various projects, closing of transactions and management. It is exactly the nature of these risks due to which the control tool shall be defined. Establishment of effective risk management system in the Entity to meet interests of all stakeholders is an important step to ensure its effectiveness.
CHAPTER VII. CORPORATE MANAGEMENT ADVISOR
1. Role of corporate management advisor
A Corporate Management Advisor position shall be established in the Entity (hereinafter called Corporate Advisor). It is expedient that establishment of Corporate Management advisor position, as well as exercise of powers on appointment and dismissal of the person concerned is implemented by the Supervisory Board.
The Entity 's compliance of existing rules and procedures of corporate management, building activities based on the transparency and accountability principles is one of the main factors that affect successful operation of the Entity, their ability to attract complementary investments.
Monitoring of compliance with these requirements is particularly important. In this regard, availability of officer responsible for dealing with relevant issues in the Entity is important.
Main duties of the Corporate Advisor include: ensure the officers to follow procedures aimed at ensuring the rights and legitimate interests of shareholders, help organize a work of the executive bodies, establish regular and effective communication between the shareholders and between them and the governing bodies and officials of the Entity and mediation to prevent from potential disputes.
2. Duties of the corporate management advisor
2.0. Performance of the following duties by the Corporate Advisor is expedient:
2.0.1. Ensure organizing and holding of meetings of the General Meeting, the Supervisory Board and Management Board in accordance with the legislation and internal documents. For that purpose, Corporate Advisor shall :
- Take the necessary measures in accordance with the legislation and internal documents of the Entity ;
- Ensures compliance with the procedures set on the meetings of the General Meeting, Supervisory Board and Management Board;
- Compile a list of persons entitled to attend the meeting, send relevant notices and agendas to them, ensure they are got familiarized with the necessary documents;
- Keeps records of persons participating at the meeting;
- Provides training materials on the issues included in the agenda of the meeting, relevant information and recommendations, as well as voting ballots;
- Keeps minutes of the meeting;
- Monitors process of implementation of decisions taken at the meeting of the Entity to enforce these decisions together with the relevant authorities;
- Gives explanations with regard to organization and holding of meetings, implementation of decisions taken and;
- Advise the Chairman of the Supervisory Board on the work.
2.0.2. provide necessary assistance to the shareholders, members of the Supervisory Board and the Management Board in exercise of their powers. For that purpose, Corporate Advisor:
- Provides shareholders, members of the Supervisory Board and the Management Board with documents necessary for their work;
- Explain provisions of the legislation and internal documents of the Entity to the shareholders, members of the Supervisory Board and the Management Board;
- Provides shareholders, the newly elected members of the Supervisory Board and the Management Board with an information related to structure, officials of the Entity and their powers, introduces the documents adopted in the Entity and existing documents;
- Arrange training for newly elected members of the Supervisory Board and the Management Board, as well as officers of the Entity as required, consults officers of the Entity on corporate management matters.
2.0.3. Ensures disclosure of information about the Entity and custody of documents of the Entity. For that purpose, Corporate Advisor:
- monitors disclosure of information about the Entity in accordance with the legislations and requirements of the Entity, takes necessary measures in this regard;
- Ensures compliance with requirements for custody of documents.
2.0.4. Mediates to resolve disputes concerned with violation of shareholder rights, as well as those of arising between officers of the Entity. For that purpose, Corporate Advisor:
- considers applications of the shareholders;
- ensures delivery of requests submitted by the shareholders, relevant authorities and departments of the Entity, monitors timely response to these requests;
- investigates disputes between the executive bodies and officers of the Entity , submits proposals to address them, and provides advice to settle such disputes within the framework of corporate law;
- having generalized practices of violations of shareholder rights, as well as settlement of disputes between the officers of the Entity, prepares proposals related to amendments and additions to the Charter and other internal documents (rules, regulations) of the Entity ;
- Prepares a report on violations of shareholder rights and consideration of disputes between officials of the Entity and Chairman of the Supervisory Board.
3. Organizing the work of corporate advisor
3.1. Corporate Advisor is appointed and dismissed by decision of the Supervisory Board. Agreement is made between Chairman of Supervisory Board and Corporate Advisor.
3.2. Supervisory Board shall approve Regulations on Corporate Advisor. Regulations shall cover the rights and responsibilities, scope of powers of the Corporate Advisor etc. issues.
3.3. Wage of Corporate Advisor is set by the Supervisory Board and paid by the Entity.
3.4. In order to ensure more efficient operation of the Corporate Advisor in the Entity Corporate Management Service under the guidance of the Corporate Advisor can be established as well. Employees of Corporate Management are appointed by the Supervisory Board based on submission of the Corporate Advisor. Corporate Advisor carries out an allocation of duties among the staff of the Corporate Management Service.
CHAPTER VIII. STAKEHOLDERS.
- The Entity shall respect the rights and interests of all stakeholders, including their creditors, employees, customers, suppliers, local communities and great masses of population. When making decisions, the Entity shall consider the interests of employees, creditors, customers, suppliers, local communities; these decisions shall be usable and comply with reality, as well as Entity shall think about how their decisions affect stakeholders.
- Stakeholders shall be able to find information about the Entity and their plans and reports.
- The Entity shall comply with the commitments made in respect of the stakeholders, ensure proper fulfillment of their obligations and shall not act in violation of the rights and legitimate interests of stakeholders.
- The Entity shall support active participation of stakeholders to disclose non-financial information in accordance with international best practices and legislation and create favorable conditions for that.
- The Entity shall disclose their information regarding their economic, social and environmental areas (e.g. anti-corruption policy, recruitment policy, policy on building relationships with customers, suppliers and Entity, corporate social responsibility policy, environmental protection and natural resources conservation policy) to stakeholders.