Come April companies listed at the Tehran Stock Exchange and Iran Fara Bourse will be rated in terms of their adaptability to corporate governance, the TSE' chief said.
"Companies must uphold corporate governance rules. Deficiencies in respecting the rights of shareholders is seen as a major challenge in Iran's capital market," Mahmoud Goudarzi was quoted as saying on Sunday.
He provided no details about the TSE plan of action ostensibly slated for the coming Iranian new year that begins in late March.
"Our aim is delegate more authority to regional stock exchanges, as they only offer primary services to investors," Goudarzi said.
He stressed the significant role of and the need to improve the digital economy infrastructure and human resources. "Needless to say, the TSE will not endure with the current traditional structure."
Corporate governance is the system of rules, practices and processes by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a company's many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community.
Since corporate governance also provides the framework for attaining a company's objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.
A corporate governance rating refers to the status of a company with respect to the adoption of corporate governance practices. This rating is the final opinion regarding the importance a corporation attached to corporate governance by looking at the information they provide to stakeholders, relationship with financiers, customers, suppliers, the community and others.
Key Requirement
Proper functioning of corporate governance is a key issue in international financial markets. With the development of economic entities and giant firms entering the investment markets in recent years, the necessity of executing corporate strategic principles is now markedly taken into account.
The Securities and Exchange Organization (SEO) of Iran first introduced corporate governance regulations in 2012, but the scope was limited and practitioners argued that technically they had a long way to go to conform to international common practices.
A modified version came into effect in July 2019 line with Articles 8, 11 and 18 of Securities Market Act, which stipulates that the SEO should take effective measures to protect investors’ rights and ensure material information disclosure.
The regulations require listed and registered companies to modify their articles of association accordingly. The key focus areas was combination and selection of members of board, holding of annual general meetings, appointment of independent board members plus disclosure of information and companies’ responsiveness.
Rules also stipulate that the executive board of a company will not join another company as a CEO or non-executive board member. In addition, each board member, as an individual or a representative of an institution, can be a non-executive member in no more than three companies. Board members must provide their firm with a letter acknowledging their adherence to the criteria.
Other arrangements include the minimum number of board members, which has been set by SEO to be seven, with a flexible number of independent members. A non-executive member with financial-related education in the combination of any board is necessary.
Non-executive criteria are detailed in the regulations, requiring interested parties to register their names 15 days before the annual general meeting of companies, accompanied by their managerial background and resume.
The companies are also supposed to declare the names and eligibility of the candidates to SEO five days prior to their AGM.
