Corporate Governance 2022 Comparisons

Egypt law distinguishes between capital corporations and partnerships. This chapter will mainly focus on capital corporations, as these are the most important and regulated forms of companies in Egypt.

Capital Corporations

Capital corporations are legal entities where the liability of the partners/shareholders is limited to the assets of the company – ie, the shareholders’ liability is limited to what they have invested in the company. The most common legal forms of capital companies are the joint stock company (JSC), the limited liability company (LLC) and the one-person company (OPC).

Mixed Companies

There are other forms of mixed companies, where the liability can be limited to the invested money in the company or unlimited liability, where it extends to the private money. The most common forms of those mixed companies are the company limited by shares (CLS) and the limited partnership company (LPC). The partners′ liability in such companies is typically based on whether the partner is a general/active partner or limited/dormant partner. 

Regulatory Body

The General Authority for Investment and Free Zones (GAFI) is the main regulatory body responsible for establishing the most common types of companies in Egypt. 

Generally, the main sources of corporate governance requirements for capital companies in Egypt are:

• the Egyptian Companies’ Law and its Executive Regulations (ECL); and
• the Capital Market Law and its Executive Regulations (CML).

Furthermore, listed companies are subject to further regulation, such as listing rules issued by the Financial Regulator Authority (FRA) applicable to the listed companies. Also, additional governance rules issued by the FRA apply to all non-banking financial services companies. 

Specific industry sectors (eg, banks) are subject to further regulations with respect to, inter alia, their corporate governance issued by the Central Bank of Egypt.

The main source for corporate governance requirements regarding the listed companies can be found under the CML as well as the regulations issued by the FRA (eg, listing rules). In this respect, such regulations provide for certain requirements in relation to, among other things, the following: 

• general assembly; 
• board of directors; 
• audit committee; 
• transparency and disclosure; and
• rules for avoiding conflict of interest. 

The governance rules stipulated under the CML and regulations issued by the FRA are mandatory. 

Generally, the Egyptian market is carefully scrutinised by the relevant governmental bodies. As such, regulations, circulars, and instructions are issued regularly, emphasising transparency, efficiency, fairness, clearance of conflict of interest, accountability, and anti-money laundering.

It is worth highlighting that the Financial Regulatory Authority, in 2016, issued the Egyptian Guidelines for Corporate Governance, which further sets corporate governance rules applicable to all companies operating in Egypt, regardless of their size and nature of the activity, whether they are family or publicly owned companies. Thus, said guidelines are applicable to:

• listed and unlisted companies; 
• banking and non-banking financial services institutions; and
• industrial, commercial, and services companies.

Moreover, GAFI has issued a circular in relation to the fundamental standards for corporate governance rules, which are applicable to the companies subject to the ECL and the Egyptian Investment Law. 

The companies whose activities have an impact on the environment are subject to the rules and regulations imposed by Egyptian Environment Law as well as other relevant laws on environment protection and are required to adhere to the relevant regulations and environmental standards issued by the Egyptian Environmental Affairs Agency, which monitors and supervise the compliance with the said law. For example, the company is required to retain an environmental register where the impact of the company’s operation on the environment must be recorded. Furthermore, whenever a company launches a project that impacts the environment (eg, industrial projects), such a company must prepare an ecological study to identify the impact of the operation on the environment to be submitted to the said agency. 

The management role in a company varies depending on the legal form of such company, as follows: 

• for the JSC, the board of directors, including the committees that emerged from the said board, has a wide role in the management of the company;
• with respect to the LLC, the manager(s) has the powers to run the day-to-day business of the company within the authority given to the manager(s) under the constitutional documents of the company; 
• the ECL provide the general meeting of the shareholders/partners (ordinary and extraordinary) with the broadest powers in relation to the management of the company (whether a JSC or an LLC). 

According to ECL, if an LLC has more than one manager (eg, five managers), the company is allowed to form a board of managers who must be in charge of running the company’s business and representing the company before third parties and the governmental authorities. Further, the powers of the managers in relation to the representation of the company are usually incorporated under the company’s constitutional documents (eg, commercial registry accessible to the public). 

For the JSC, the board of directors of have the power to run the management of the company subject to certain restrictions that specifically require the approval of the general meeting of the shareholders.

Moreover, for the listed JSC and non-banking financial services companies supervised by the FRA, the board of directors are required to form, eg, an audit committee.

The board forms the audit committee of at least three independent members, and one of them should be a financial and accounting expert. The committee can comprise non-executive members if there is not a sufficient number of independent members. One or more members could be appointed from outside the company where the committee’s chairman has to be independent, and the majority of its members are independent or non-executives.

The audit committee should be responsible for reviewing the audit, accounting and financial practices of the company and the extent of compliance with the provisions of the law. For an effective role, the audit committee should have access to all company’s records, documents and information and submit a report of its work in the annual report to the board of directors.

The audit committee has several tasks to perform in light of the applicable laws and regulations, such as: 

• assess the competence of the financial manager and the rest of the finance department staff;
• examine the internal control system and prepare a report with opinions and recommendations;
• examine the financial statements before they are presented to the board and provide its opinions and recommendations about them; 
• examine the company’s accounting policies and provide its opinions and recommendations about them; 
• review the auditing plan with the external auditors and provide suggestions about it;
• review the external auditor’s comments on the financial statements and monitor the progress of those comments;
• assess the qualifications, performance and independence of the external auditor and propose its appointment, fees, and dismissal;
• approve the additional non-audit services to be performed by the external auditor, and prior agreement about the fees for those services needs to be obtained;
• review and discuss the internal audit department’s plan and its efficiency;
• review the internal audit reports and their corrective actions;
• review and assess the early warning system in the company and propose what it needs for further improvement and application; and
• any other duties assigned by the board of directors.

Further, the committee should periodically meet according to a specified programme, at least once every three months.

The company should provide adequate facilities to the committee to help it perform its duties, including hiring external experts when necessary.

It is preferable that the audit committee’s chairman provides a separate report and reads it in the company’s annual general assembly.

According to the ECL, the board of directors in a JSC is vested with the broadest powers and authorities to take all actions necessary for the management of the company. To this end, a JSC’s board of directors plays a crucial role in setting its strategic objectives and endorsing its general policies and strategies that dominate its workflow. Accordingly, the board’s decisions considerably affect the company’s performance. The corporate governance regulations strongly focus on a number of issues related to the board’s formation, how it runs the company and protects its assets, and how it maximises the shareholders’ wealth.

The company’s board is in charge of managing the company based on the general assembly’s authorisation. Therefore, the company’s ultimate responsibility rests with its board, whether it formed committees or authorised other parties or individuals to undertake any of its duties.

Even though the board comprises representatives who have been selected from various groups of shareholders, the board member should consider himself a representative of all shareholders whenever he is appointed. The member should also commit to working in the best interests of the company, in any event, not just only for the group whom he represents or those who voted for him.

The shareholders participate in the management of the company through general meetings, whether ordinary or extraordinary meetings. 

JSC’s Board of Directors

According to the ECL, the board of directors is required to meet, when necessary, via an invitation extended by the company’s chairman or at least one-third of the board of directors. Although the ECL is silent on the minimum number of board meetings, a minimum number of board meetings should be incorporated under the constitutional documents of the company. 

The board of directors must be composed of at least three directors. However, no maximum number is set out by the ECL. For state-owned companies, the minimum number of board directors must be five, while the maximum number of directors on the board must be seven. The composition of directors on the board varies from one company to another depending on the type of the company (ie, non-banking financial services company or state-owned company, etc). 

A quorum of a board meeting is valid if attended by the simple majority of the directors, including the chairman, vice chairman, or a managing director, but in no case shall be less than three directors attending the meeting. It is worth highlighting that the shareholders can agree, under the constitutional documents of the company, to a higher number of directors to attend for a board meeting to be valid. 

Attendance via proxy is permissible under the ECL. However, the minimum quorum of three directors who attend a board meeting in person must always be sustained. To this end, the meetings of the board may convene via video or teleconference so long as the same is provided for under the constitutional documents of the company. However, as an exception from the foregoing rule, GAFI has issued a circular in response to the COVID-19 pandemic allowing the companies whose connotational documents do not provide such an option to convene the board and general assembly meeting via video and teleconference. Such circular is still effective to date.

A director of the board must not be absent from any scheduled board meeting unless a reasonable excuse is communicated to the board. 

The board resolutions must be passed by the simple majority of votes of the directors attending the meeting unless a higher ratio is incorporated under the constitutional documents of the company. Further, the board resolutions may be issued by circulation.

The board meetings and relevant resolutions must be recorded/drafted in a special ledger prepared for this purpose. Also, any objections raised by a director to an item/resolution of the meeting agenda must be recorded in the minutes. The minutes of the meeting shall be ratified by GAFI to take effect vis-à-vis third party, when relevant. 

Shareholders

According to the ECL, the shareholders are required to convene an ordinary general assembly meeting at least once a year (and within three months from the end of the fiscal year of the company) to deliberate and resolve on the financial statements of the company. As for the extraordinary general assembly meeting, the ECL does not require a minimum number of meetings as the same may convene whenever needed. The shareholders’ minutes of the meeting must be inscribed in a specific ledger to be ratified by GAFI to be enforceable vis-à-vis a third party. 

Limited Liability Company

The LLC may be managed by one or more manager(s) or a board of managers appointed by the partners. 

As an additional layer of management, the ECL allows the formation of a supervisory board if the number of partners exceeds ten. The formation of the supervisory board and the relevant powers and authorities must be set out under the constitutional documents of the company. 

Privately Held Joint Stock

A JSC must be managed by a minimum number of three directors. Although the ECL is silent on the maximum number of directors on the board, a maximum number must be set out under the constitutional documents of the company upon its incorporation. The regular term of the board of directors under the ECL is three years renewable upon a general assembly’s resolution, except for the first board of directors formed at incorporation, which may be valid for up to five years. 

As part of the mandatory governance rules applicable to the listed and non-banking financial services companies, the board must include independent, non-executive and female directors. The FRA frequently monitors the best governance practice worldwide and may issue decisions to include more categories of such companies bound by the FRA’s requirements in relation to the formation of a board of directors and further governance rules to apply. 

State-Owned Joint Stock Company

A state-owned JSC must be managed by a board of directors composed of a minimum of five directors and a maximum of seven directors. The term of the board is three years renewable upon a resolution of the general assembly of the company. The board of directors must be headed by a non-executive director and representative of the Ministry of Finance, while the constitutional documents may provide for the inclusion of up to two independent directors.

As a general rule applicable to all JSC, and upon the approval of the general assembly on the board structure, the board of directors must choose a chairman and vice chairman among its members by way of a secret ballot. 

As for banks’ board of directors, the CBE has recently announced an amendment to the bank governance rules issued in 2011, where the CBE instructed all banks operating in Egypt and subject to the supervision of the CBE to restructure their board of directors in accordance with the following rules: 

• a shareholder of at least 5% must be represented on the board; 
• the board must include at least two female directors; 
• the separation between the chairman and managing director positions, taking into account that the chairman must be non-executive position; 
• the board of directors must include a maximum of two executive directors; and

• the board of directors must include at least two independent non-executive directors who can be elected for two terms of three years each.

Said terms may be renewed for additional three years upon valid reasons and the CBE’s approval.

Chairman

The primary role of the chairman is provided for under the ECL, which mainly is to head the board and represent the company before governmental authorities, the judiciary and call for board meetings and ordinary general assembly meetings. Governance guidelines further illustrate the role of the chairman as follows: 

• The chairman is responsible for managing the board of directors and achieving its goals, whereas the managing director on his own is in charge of managing the company and regularly reporting to the board. Neither the board nor its chairman should interfere with the day-to-day management of the company, except if the managing director fails to carry out his duties until the appointment of a new managing director.
• The chairman should make sure that the members of the board and its various committees are familiar with the Egyptian Corporate Governance Regulations and the methods of their application.
• The chairman is responsible for the performance evaluation of the board members, whether by himself or using specialised bodies. The evaluation is never disclosed to a third party; however, it is used to improve the board’s performance, identify the training needs for board members, or render recommendations to restructure the board.

Vice Chairman

As per the ECL, the vice chairman must replace the chairman in his/her absence, especially when attending the general assembly meetings. As such, the vice chairman role is not of an executive nature under the law.

Directors

Generally, the directors must jointly take the role of the management of the company. In essence, each director must ensure that they work in the company's best interest and make the decisions and actions required to serve that interest. Pursuant to the ECL, the directors are allowed to divide the tasks and roles or management among each other, where each director can be responsible for a specific aspect of management to take care in the interest of the company. 

As illustrated, the composition of the board of directors varies depending on the type of the company (eg, privately held JSC or state-owned JSC). One of the common requirements for composition in the non-banking financial services companies, listed companies and banks is the inclusion of independent, non-executive and female board members. Also, the separation of the chairman position and managing director position became a mandatory governance rule. 

In principle, the directors are nominated for election and approval by the general assembly of the company. Thus, the shareholders must approve the appointment of the directors and their relevant authorities. Also, the director representing a juristic person may be replaced by a letter of alternation/nomination, subject to the approval of the shareholders in the next general assembly meeting. The shareholders are also allowed under the ECL to dismiss a director under certain circumstances (eg, the constant absence of the director from the general assembly meetings).

Pursuant to the ECL, any shareholder owning at least 10% of the capital of the company has the right to appoint a director, subject to the size of the board and the requirements of directorship and approval.

The ECL now allows the shareholders who are not eligible to appoint or those who do not choose to appoint a director to use their percentage to elect directors by cumulative voting, provided that such cumulative voting is incorporated under the constitutional documents of the company.

The Egyptian Guidelines for Corporate Governance established several definitions of categories for directors to classify and differentiate among the directors and their roles on the board, as follows: 

• Independent director: A person who is a non-executive member of the board of directors and is not a shareholder in the company. They are appointed as an experienced member whose relationship with the company is limited to their membership on its board of directors. They do not represent the owners or have substantial dealings with the company and do not receive remuneration from it or commissions or fees, except for what they receive in return for their membership on the board of directors. They have no vested interest in the company and are not related to any of its shareholders or members of its board of directors, or executive leadership up to the second degree. They are also not a senior employee or advisor to the company or its auditors during the three years preceding their appointment to the board and must not exceed the term of their membership as an independent member of the board, which is a maximum of six consecutive years, otherwise, they will become a non-independent member.
• Non-executive director: A person who is a member of the board of directors and does not hold an executive position in the company does not receive a monthly or annual salary from it other than what they receive for their membership in the board management and may not provide any consultancy or paid services, whether to the company or its companies affiliate or associated parties.

The legal duties of directors of a company may be summarised as follows:

• participation in the management of the company in a diligent, skilful efficient manner in accordance with the applicable laws, regulations and the constitutional documents of the company;
• serving the company as a representative of the interests of all the shareholders, and not one or a specific group of shareholders; and
• disclosing any personal interest they may have in any of the issues discussed at the board or general meetings and refrain from voting in respect of any of these issues.

As soon as a director is appointed to the board, they have a fiduciary duty towards the company and its shareholders, and the interest of all shareholders must be considered. Thus, any stakeholder who is negatively affected by any decision of the board or director has the right to file a claim in court in accordance with the ECL. 

The consequence of a breach of directors’ duties includes dismissal from the board and possibly filing a claim against such director. To this extent, any director who receives unjust amounts must reimburse the same to the company in accordance with provisions of the ECL.       

In principle, the directors are not liable to the company so long as they are acting within their powers and authorities as granted by the general assembly and the constitutional documents of the company. However, as a general rule, no limitation of liability if the act committed by a director implies fraud. Thus, a director may be held personally liable without limitation.

The ECL, together with the constitutional documents of the company, set out certain requirements in connection with the determination of the directors’ remuneration. The ECL grants the remuneration decision to the shareholders who may approve the remuneration of the directors up to 5% of the net profits for the holding companies and 10% for subsidiaries, taking into account all other statutory deductions before distribution. 

Pursuant to the ECL, a detailed report must be submitted by the board of directors to the shareholders containing the following information:

• all amounts in any kind whatsoever received by the chairman, directors, managers or partners (as the case may be);
• in-kind allowances for the chairman, directors, manager or partners (as the case may be) within the fiscal year;
• any amounts allocated to any current or former director, manager or partner (as the case may be) such as pension, reserve or end of service; and
• remuneration or profit share suggested by the board to be distributed to the chairman, directors, managers or partners (as the case may be).

The ECL, together with the constitutional documents of a company, constitute the relationship between the shareholders and the company. The articles of association, being a part of the constitutional documents and drafted in compliance with ECL, describe the rights and obligations of the shareholders towards the company.

The constitutional documents of the company grant the shareholders various rights and impose a number of obligations, as follows. 

Rights

• The attendance and voting rights are granted to every shareholder regardless of their shareholding percentage, and a shareholder’s attendance can be in person or via proxy. However, the attendance via proxy shall not be admissible if the shareholder owns more than 10% of the total nominal shares.
• Receiving profit or dividends decided for the shareholders.
• Receiving a share of the company′s total property upon liquidation.
• Participating in the company′s management, whether through the general assemblies or as a member of the board of directors, according to the company′s constitutional documents.
• Obtaining a printed booklet comprising the company′s balance sheet for the past fiscal year, the profit and loss account and the reports of the board of directors and the auditor.
• Shareholder who holds 5% of a company’s capital to request the chairman to invite to ordinary general assembly meeting, upon the satisfaction of certain conditions stipulated under said law. Further, if a shareholder owns at least 10% of a company’s capital, they are entitled to said request as to extraordinary general assembly invitation upon satisfaction of certain conditions stipulated under the law. In all cases, such minority shareholders are entitled to resort to the administrative authority if the chairman denies their request to call for the general assembly meeting.
• Upon a request of a shareholder owning at least 5% of a company’s shares, GAFI and FRA have the right to suspend the general assembly’s resolutions issued in favour of a certain class of the shareholders, a board member or unfavourable to the company’s interest.
• Filing lawsuits to nullify any decision issued by the general meeting or by the board of directors in violation of the law, the public order, or the constitutional documents of the company.

Obligations

• Payment of the relevant share in the capital of the company;
• refraining from any action intended to cause harm to the company; and
• execution of any decision legally passed by the general meeting.

The general meeting of the shareholders is the ultimate decision-making authority in the company.

The company's constitutional documents specify the extent of the board of directors' powers in the company. Some decisions require the approval of the general assembly.

The ordinary general assembly is held to:

• approve the appointment and removal of the board member(s), supervise and release the board member(s) from liability;
• approve the financial statements;
• approve the board of director's report regarding the company′s activity;
• approve the distribution of dividends; and
• decide on the matters proposed by any of the board members, GAFI or shareholders holding 5% of the capital of the JSC.

The extraordinary general assembly is held to:

• decide on any amendment of the articles of association of the company, taking into consideration the restrictions provided under the ECL;
• consider the dissolution or continuation of the company in case its losses amounted to half the value of the shareholders' rights according to the recent financial statements; and
• issue preferential shares and increase the company’s authorised capital.

The involvement of shareholders in the company′s management and participation in controlling the activities of the directors is through their involvement in the general meetings and decisions made therein.

There are two types of general meetings of the shareholders of a company, an ordinary general meeting and an extraordinary general meeting, each with a different scope of power. To ensure that all shareholders are allowed the same opportunity to participate in the meetings, there are specific provisions.

Ordinary General Meeting

The ordinary general meeting of shareholders convenes at the invitation of the chairman of the board of directors at the time and venue specified in the company's constitutional documents. The meeting must convene at least once per year during the three months following the end of the company′s fiscal year. 

The minimum notice period is 21 days, excluding the invitation day and the meeting day, and the notice of the meeting must include the agenda of the meeting. Copies of the invitation documents must also be forwarded to certain governmental bodies such as GAFI and/or FRA. The ordinary general meeting is presided over by the chairman of the board of directors or the vice chairman in their absence, and the meeting must be attended by at least three directors, including the chairman or vice chairman.

Validity

The ordinary general meeting shall not be valid unless attended by a number of shareholders who represent at least 25% of the company’s capital and votes. If this quorum is not attained, an invitation must be sent for a second meeting to be held with the same agenda. The second meeting can be validly attended by any number of votes or capital. 

Delegates and Representatives

Any shareholder may delegate a person from among the shareholders or third parties to attend the ordinary general meeting on their behalf.

Extraordinary General Meeting

The extraordinary general meeting convenes at the invitation of the board of directors or by virtue of a written request addressed to the board of directors by a number of shareholders representing at least 10% of the company’s capital.

Validity

The extraordinary general meeting shall not be valid unless attended by shareholders representing at least 50% of the company's capital. If this quorum is not present, a second meeting shall be invited within the next 30 days following the first meeting. The second meeting shall be valid if attended by shareholders representing at least 25% of the company’s capital.

Decisions

The decision of the extraordinary general meeting shall be passed by a two-thirds majority of the shares represented at the meeting unless the decision relates to the increase or decrease of the company′s capital, the extension of the company′s term, dissolution, conversion or merging thereof with another company, in which case it shall not be valid unless passed by a three-fourths majority of the shareholders present at the meeting and with whose attendance the meeting is considered valid. 

The basis of claims for shareholders against the company, its board of directors or other shareholders is granted under the ECL. Although the ECL does not provide an exhaustive list of grounds, we can summarise such grounds, eg, where a shareholder may file a claim:

• seeking to nullify a decision by the general meeting if such decision is not issued in accordance with the ECL and the constitutional documents of the company;
• if the company’s business is being conducted in a manner that unfairly causes damage to the shareholders or a group of shareholders, or if the company intends to take any action that causes damage to the shareholders or a group of shareholders; 
• providing incorrect information about the company’s capital in any document likely to affect the company’s financial standing;
• using the company’s fund for fraudulent or illegal purposes;
• embezzlement from the company’s assets and funds;
• making decisions or taking actions that encumber the company with obligations knowing that the company cannot fulfil, or if the company is unable to fulfil its obligations as a result of an officer, director, or shareholder’s gross negligence; and 
• violation of the provisions of the law or the company’s constitutional documents.

The disclosure and reporting requirements are quite extensive under the CML. See 6.2 Disclosure of Corporate Governance Arrangements concerning the disclosure requirement that mainly examines the ownership in a listed company.

Any corporate entity established in Egypt and any investment project carried out in Egypt involving a minimum of (10%) foreign shareholding for non-listed companies or (2.5%) for listed companies (excluding any company operating locally by virtue of a concession agreement) are now required to submit disclosure/reporting forms to GAFI on a quarterly and annual basis, or if certain articles of a company’s statutes are amended. Furthermore, according to the FRA’s listing rules, shareholders are obliged to notify the FRA if their shareholding, voting rights and subscription percentage (directly or indirectly) reach or fall below 5% and multiples of 5%. This also applies to employees, board members and their related parties, whose respective shareholding, voting rights and subscription percentage (directly or indirectly) reaches or falls below 3% and multiples of 3%.   

Under the ECL and the CML, all companies in Egypt (listed and unlisted) must prepare financial statements in accordance with Egyptian Accounting Standards, and those financial statements must be audited by a Certified Public Accountant according to the Egyptian Auditing Standards. Joint audits are required for banks and other financial institutions.

The listed companies must provide FRA with a copy of their audited financial statements at least one month before the annual general assembly meeting.

FRA will inspect the financial statements and notify the company of its observations, if any. The company will be required to adjust the financial statement as per FRA observations and publish the adjusted one together with FRA reservations on its website and the Egyptian Stock Exchange (EGX) screen. Such publication shall be at least 21 days prior to the date of the general assembly meeting.

In the event that the general assembly makes any further amendments to the financial statements, the company shall publish these amendments within one week from when the general assembly will approve the financial statements.

Listed companies are required to publish a summary report of their annual financial statement with the auditor’s report in one of the widely spread newspapers in Egypt in the Arabic language according to the template prepared by FRA for this purpose. The listed companies are also required to publish on the EGX screen and their websites the periodical financial statements and the related board of directors’ reports if they are distributing periodical dividends.

For the unlisted companies, there is no specific requirement to disclose their corporate governance arrangements.

For the listed companies, the board shall establish a corporate governance committee to be responsible for the following:

• periodic evaluation of the company′s corporate governance system and the formulation of manuals, charters and internal policies on how to implement corporate governance rules within the company;
• preparing an annual report on the company′s compliance with the rules of corporate governance, with the development of appropriate procedures to complete the implementation of those rules;
• reviewing the company′s annual report and the board of directors′ report, especially with regard to disclosure and other items related to corporate governance;
• keeping, documenting and following up the reports on evaluating the performance of the board; and
• studying the observations of the supervisory authorities on the application of corporate governance, taking them into consideration, and following up on what has been done in their regard.

In general, all companies (listed or unlisted) have a commercial registry accessible to the public. Such a commercial registry contains all significant corporate data needed about the company, including the management structure of the company, together with the relevant signatory powers and authorities in relation to the representation of the company before governmental authorities, third parties and banks.

The external auditor must be appointed by the general assembly in its annual meeting. The decision to re-appoint the external auditor and his fees is the responsibility of the annual general assembly only. The company’s founders appoint the first external auditor as an exception, where his appointment is subject to the approval of the first following general assembly.

From a proper governance perspective, the board should nominate an external auditor based on the audit committee’s recommendation who meets the conditions stipulated in the law of practising the accounting and auditing profession, including competence, reputation and adequate experience. The external auditor’s experience, competence and capabilities should be relevant to the size and nature of the company’s objectives and its clientele.

The external auditor should be totally independent of the company and its board. For example, he should not be the company’s shareholder, a member of its board, or employed full-time for any technical, administrative or consulting work for the company. The general assembly should not authorise the board to appoint the external auditor or determine his annual fees without specifying a maximum value.

The company’s external auditor should adhere to the Egyptian Auditing Standards and the professional code of ethics in terms of content.

The external auditor or his representative should be invited to the company’s general assembly meetings. 

The board should not assign additional non-audit services to the company’s external auditor, whether directly or indirectly unless the board consults with the audit committee. This is according to the capital market law, stock exchange, taxation laws, as well as other laws. Additional non-audit services should not be among those prohibited from being done by the external auditors. Fees for any additional services should be relevant to their nature and size. The audit committee should take into account the lack of influence on the external auditor’s independence while considering approval of the external auditor’s additional services.

The external auditor must be independent and neutral in all his opinions, and his duties protected against any interference from the board. 

Considering the banking laws and the instructions issued by the CBE, the external auditor should not be appointed as a natural person for more than five years and should not be re-appointed except after two years from ending his work as the company’s external auditor.

With respect to the risk management, the non-banking financial services companies, listed companies and banks are required to have a risk committee, where the latter must be responsible for:

• establishing the executive frameworks, procedures and rules adopted by the Board, necessary to deal with all kinds of risks that the Company may face, such as strategic risks, operating risks, market risks, credit risks, reputational risks, information systems risks and data protection, and any risk that will affect the company′s activity and sustainability;
• assist the board of directors in determining and evaluating the level of risk that the company can accept and ensure that the company does not exceed this risk limit;
• supervise and verify the effectiveness of the company′s risk management in carrying out its mandated work, ensure that it does its work adequately within its mandated terms of reference, as well as ensure the independence of risk management staff from the company's executive management; and
• prepare a periodic report on the results and recommendations of its work to be submitted to the board of directors for necessary action.