Iran Corporate Governance Regulations Amended

EghtesadOnline: Securities and Exchange Organization's deputy for supervision on exchanges and issuers, Hassan Amiri, recently announced the finalization of a modified version of corporate governance regulations and their notification to issuers in Tehran Stock Exchange and Iran Fara Bourse.

News ID: ۷۴۶۲۴۹

20 November 2018

The Securities and Exchange Organization of Iran first introduced the regulations in 2012, but their scope was limited and practitioners argued that technically, they had a long way to go to conform to international common practices.

The modified version is in line with articles 8, 11 and 18 of Securities Market Act, which stipulates that 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 governing a company's management and operation. It essentially aims to balance the interests of all beneficiaries in a company, including shareholders, management, customers, suppliers and financiers, according to Financial Tribune.

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.

Regulatory Requirements

The regulations require listed and registered companies to modify their articles of association accordingly, for which SEO will provide a proper template 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 the disclosure of information and companies’ responsiveness.

Amiri said the corporate governance banishes autocracy and promotes the role of internal and external auditors in firms.

The official noted that by the end of the next Iranian year (March 20, 2019), a 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 are detailed in the regulations, requiring interested parties to register their names 15 days before the AGM 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.

The board members will be required to put up collateral equal to 0.1% of the company’s shares or a minimum of 5 billion rials (over $36,700) as qualification shares. The figures shall be adjusted every other year based on the inflation 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 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.

Amiri concluded 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 grievances, remuneration, risk, nomination and ethics committees.