National Bank of Ethiopia is proposing sweeping changes to insurance company governance, including stricter board composition rules and enhanced whistleblower protections. Regulators have released a draft directive aimed at strengthening corporate governance within the insurance sector, prioritising financial stability and clear delineation of responsibilities between boards and management.

Central to the mandate is board composition of insurance companies, requiring that one-third of all board members be independent, non-executive directors with no familial ties or potential for undue influence, ensuring impartial judgment. It also stipulates that boards must include at least two women representatives to promote gender diversity, and allows for employee participation with a minimum of two staff members, though they are prohibited from serving as board chair.

The bill fundamentally alters the process for nominating and electing insurance company board members. Previously, the most influential shareholders, representing at least 30pc of the company's shares, nominated and elected one-third of the board. Non-influential shareholders elected one-fourth, and the remaining members were chosen by all shareholders.

Now, there is a shift away from this power concentration. The bill mandates that one-third of directors be nominated by non-influential shareholders, one-third by all shareholders, and the final third by the existing board, ensuring that all directors are independent.

Prior to the general shareholder assembly, the company secretary is obligated to publish criteria for board membership in the media. The draft streamlines the election process by requiring elections to occur on the day of the general assembly, eliminating the previous system of elections a year prior to board resignations.

The draft directive significantly expands and clarifies the board of directors' responsibilities, mandating strategic oversight through the approval of company strategy, budgets, and policies, as well as rigorous risk management by establishing frameworks, monitoring controls, and defining risk appetite. The board is tasked with selecting and overseeing senior executives, ensuring effective audits and compliance, and actively engaging with stakeholders while addressing sustainability risks.

It ensures the impartiality of internal audit by requiring the board to appoint and remove the head of internal audit based on audit committee recommendations and to set independent remuneration. A Nomination and Remuneration Committee is to be established to manage executive compensation and benefits, reinforcing robust governance within insurance companies.

A whistleblower policy has also been introduced with the goal of maintaining transparency within companies and safeguarding whistleblowers. Senior management will need to implement this policy and process, overseen by the board, enabling employees to report unethical or illegal activities confidentially and without fear of repercussions.

This policy will enable employees to confidentially report unethical or illegal activities without fear of reprisal. By ensuring thorough investigation of material concerns, the policy aims to promote integrity and encourage employees to report potential misconduct, knowing their concerns will be taken seriously.

Central bank regulators opted not to comment on the directive, citing a desire to avoid influencing its ratification.