. Findings
Before describing corporate governance of Iranian banks,
it should be noted that CBIRI, as a banking supervisor,
often provides Iranian public and private banks with
guidance of Basel Committee on Banking Supervision and
requires them to use instructions of Committee as a
reference point to consider suitable corporate governance
mechanisms. CBIRI, also, always attempts to necessitate
relevant instructions to reform the state of Banks' corporate
governance. But the problems are:
1. According to investigation of the existent state of
corporate governance of Iranian banks in this research, we
find out there are some inconsistencies between CBIRI
requirements and what banks implemented;
2. CBIRIB overlooks some substantial practices adopted
by prosperous international banks.
So in this section, rather than describe total practices of
corporate governance in banks, we try to present those
main points which lead to malfunctions.
4.1. Board of Directors
4.1.1. Board of Directors Membership
According to the Bylaws the range of five to nine
directors for the Board is appropriate and they are elected
at the annual meeting of stockholders. Election of members
and extension of their tenure are subject to the approval of
their professional qualifications by CBIRI. It is notable that
candidates can be recommended by directors, management,
and stockholders.
4.1.2. Limits on Board and Audit Committee
Memberships
The term limits for director tenure is 2 years. There is no
limitation for the age of directors. Each director is
permitted to serve on the numerous boards of other publicly
owned corporations (without any limitations).
4.1.3. Performance Evaluation
Board performance is evaluated periodically while there
is no necessarily coherent and pre-determined plan.
4.2. Committee Matters
4.2.1. Board Committees
The primary Board committees include audit committee
and risk management committee. The Board may establish
additional committees such as compliance committee, as it
consistent with the bank’s Bylaws and applicable laws or
regulations.
4.2.2. Assignment and Rotation of Committee
Membership
All members of Board committees are not necessarily
independent and non-executive. Committee membership is
reviewed by the Board and it has no strict committee
rotation policy. Committee chair positions are approved by
the Board.
4.3. Duality
In fact, in public banks CEO can simultaneously hold the
position of chairman of the Board. However, based on
CBIRI instruction, private banks are forbidden to assign the
position of the Board to the CEO.
4.4. Audit Committee
4.4.1. Membership
The following items are provided in connection with the
characteristics of the members of audit committee which
are not necessarily complied by all banks:
1. The committee shall consist of 3 members out of
the Board;
2. All committee members shall be financially literate;
3. At least one member of the Committee shall be
deemed an “audit committee financial expert”.
4.4.2. Duties and Responsibilities
According to the collected data, following items are
presenting the committee duties and responsibilities, but it
should be clarified that all of them are not necessarily
observed in all banks:
· Review measures taken by management in order to
resolve any material malfunctions and weaknesses
reported in external audit report;
· Review and discuss with management, internal and
external auditor audited consolidated financial
statements and the results of annual auditing;
· Discuss with management, internal and external
auditor effectiveness of internal controls;
· Discuss with management, internal and external
auditor new or proposed accounting standards;
· While consolidated financial statements are of the
ultimate management responsibility, committee are
responsible of planning and coordinating of annual
auditing;
· Receive and approve the annual internal auditing plan;
· Receive and review periodic internal auditing reports
from management;
· Review with management, internal and external
auditor any correspondence with legislators and
governmental agencies;
· Discuss with management and corporate legal lawyers
the nature and state of material legal and regulatory
matters;
· Supervise implementation of code of ethic by
management and all personnel.
4.4.3. Committee Authorities
With management coordination, the Committee shall
have full access to any relevant records and documents of
the Company. The members also don't have any limitation
for membership to audit committees of other companies.
4.4.4. External Auditor
Based on Bylaws, external auditor is selected at the
annual meeting of stockholders; audit committee doesn't
112 Bita Mashayekhi et al.: Toward an Appropriate Model for Corporate Governance in Banking Industry- Case Study of Iran
have any contribution in this regard. It should be noted that
external auditing of public banks are done by Auditing
Organization of Iran; however, an institution, the member
of Iranian Institute Certified Public Accountants, does
external auditing for private banks.
4.4.5. Audit Fee
According to the Bylaws the Board shall approve
retention of the external auditor as well as type and
estimated fees of the audit and non-audit services.