Pakistan was one of the few countries that had adopted a Code of Corporate Governance in 2002. As president of the Management Association of Pakistan and the Overseas Investors Chamber of Commerce & Industry, I was extensively involved in its development. The code was enforced through the stock exchange listing rules when I became managing director of the Karachi Stock Exchange in August 2002.
The inclusion of adherence to the code in the listing standards had the unintended consequence of causing companies to de-list from the stock exchanges, rather than comply with good governance structures. The code looked good on paper – but the companies didn’t understand why or how good governance could affect their business. So instead of making changes that could improve investment and increase profits, the companies chose to remove themselves from the stock exchange.
When I began working with CIPE in late 2005, we decided this was an important element of Pakistan’s market economic situation that needed to be addressed. In January 2006, CIPE organized a seminar on corporate governance to ascertain if listed companies actually understood and applied the basic principles of corporate governance and if necessary re-visit the code and suggest amendments.
The new chairman of the Securities and Exchange Commission of Pakistan took note of the recommendations generated at our roundtable, and in early 2007, SECP, the Pakistan Institute of Corporate Governance (PICG), and the International Finance Corporation (IFC) commissioned a survey of corporate governance practices in Pakistan. The draft survey report is available at www.accaglobal.com/pakistan/publicinterest/CG_report.
Astonishingly, about 82% respondents were unaware of the benefits of corporate governance, such as protection of shareholder’s rights, improving strategic decision making, access to external capital, and transparency. Respondents viewed the most important benefit of adopting good governance practices as compliance with legal and regulatory requirements.
The draft report and the current situation in terms of corporate governance adherence was discussed at a recent roundtable, and participants agreed that the balance sheets of listed companies now give much more information and their financial performance is more transparent than before the code was adopted. However, with only 22% of respondents understanding the importance of good governance, it seems evident that Pakistan’s business community has not fully grasped the importance of best practices for improving performance in a competitive global market or for forging business relationships with foreign peers. Clearly, more efforts at education need to be taken to ensure that corporate governance is fully understood by companies.
Published Date: September 04, 2007