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Corporate Governance Regulations Amended

The SEO announced the finalization of a modified version for corporate governance, and its communication to issuers in Tehran Stock Exchange and Iran Fara Bourse. It is in line with Articles 8, 11, and 18 of Securities Market Act, which stipulate that the SEO shall take measures to protect investors’ rights and ensure material information disclosure. The regulations come into force as of July 2019.

Corporate governance is a set of practices and processes by which a company is run and directed. It essentially takes into consideration to balance the interests of all beneficiaries in a company including shareholders, management, customers, suppliers, financiers. Grasping its importance, Iranian regulators put the corresponding regulations in place long ago. Nonetheless, they have yet to be pragmatically implemented in Iran’s corporate environment.

 The SEO of Iran first introduced the regulations in 2012, but its scope was limited, and practitioners argued that, technically, it had a long way to be congruent with international common practices. Financialtribune reported.

Deputy for Supervision on Exchanges and Issuers at the Securities and Exchange Organization, Hassan Amiri, announced the finalization of a modified version for corporate governance, and its communication to issuers in the Tehran Stock Exchange and Iran Fara Bourse. It is in line with Articles 8, 11, and 18 of Securities Market Act, which stipulate that the SEO shall take measures to protect investors’ rights and ensure material information disclosure. The regulations come into force as of July 2019.

The regulations require listed and registered companies to modify their articles of association accordingly, for which SEO will provide a proper sample soon enough. They focus on areas such as combination and selection of members of board, holding of annual general meetings, the appointment of independent board members, as well as disclosure of information and companies’ responsiveness. “The corporate governance banishes autocracy and promotes the role of internal and external auditors in firms,” said Amiri.

The official went on to say that by the end of the next Iranian year (March 20), the majority of board members of listed companies will be non-executive, and the number of independent members will not be less than 20% of the whole board. The non-executive criteria is detailed in the regulations, requiring interested parties to register their names 15 days prior to AGM of the companies, accompanied by their managerial background and resume. The companies are also supposed to declare the names and eligibility of the candidates to the SEO five days prior to their AGMs.

Moreover, the board members will be required to put up collateral equal to 0.1% of the company’s shares or a minimum of five billion rials (over $36,700) as qualification shares. The figures shall be adjusted every other year based on the inflations rate and consumer price index.

The regulations also stipulate that the executive board members of a company are not allowed to 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 least number of board members, which is set by SEO to be seven members, with a flexible number of independent members. A non-executive member with financial-related education in the combination of any board is necessary.

To conclude, Amiri noted that like the previously mandated internal audit committee, an appointment committee must also be formed in each firm. Other committees in international practices include shareholders grievance, remuneration, risk, nomination, and ethics committees.