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Why the concept was being opposed by certain quarters?

From: SHAMIM AHMED RIZVI
Islamabad

May 13 -19, 2002

The Securities and Exchange Commission of Pakistan (SECP) has completed its consultative process regarding implementation of its code of governance for the corporate sector and now intends to strengthen its Enforcement Wing aimed at ensuring that listed companies where public money was involved comply fully with the Code.

Good corporate governance has assumed critical importance for all businesses be they in public sector or private sector. It helps organizations to perpetrate their operations profitably and enable them to discharge their responsibility towards the society with a sense of purpose and dignity. In order to promote good corporate governance in the country, SECP with the help of ICAP has recently drafted a "Code of Corporate Governance" which will be applicable to all the listed companies in Pakistan.

The 3rd and final round of the consultative process culminated with a one day workshop at LUMS Lahore on Thursday last. The earlier two workshops were held at Karachi and Islamabad. The programme was designed in collaboration with LUMS and Association of Chartered Certified Accountants (ACCA) to provide an opportunity to senior management such as Chairmen, Managing Directors, Executive Directors, Members of Top Management Teams, Auditors of Public Limited Companies, and senior officials of regulatory bodies, who are involved in providing vision and direction to their organizations. They discussed various issues and guidelines pertaining to corporate governance in the global as well as local context so as to enable all the stakeholders of the organizations to fully comprehend the concept.

Speaking as Chief Guest at the Lahore seminar, Chairman SECP Mr. Khalid Mirza expressed surprise as to why the concept of good corporate governance was being opposed by certain quarters, while, in the ultimate analysis, it would prove beneficial for all stakeholders. Sounding determined to implement the Code, Mr. Mirza said that it will not be an end to our endeavors to introduce good corporate practices in Pakistan. It is the first step towards building good corporate governance into organizations.

Summing up the efforts made in this direction at different levels, Mr. Shahid Ghafar, Commissioner Securities Market told this correspondent that SECP has decided to strengthen its Enforcement Wing aimed at ensuring that listed companies comply fully with the Code of Corporate Governance and function in such a way that the interests of all the stakeholders are safeguarded. As such, the relevant staff would closely scrutinize the annual reports of the companies with a special eye on disclosure of all the facts and data therein.

Justifying the SEC's emphasis on implementation of the Code, he said its principal and ultimate objective was economic development through the development of capital market. Unless, the people had confidence in the stock exchange and listed companies, they would not entrust their savings in them. "This is what the SECP is striving for". In this respect, he observed, the situation was dismal as market capitalization here was only 10 per cent of the GDP. Out of total GDP of Rs. 60 billion, the proportion invested in market was only Rs. 6 to 6.5 billion. In many countries of the world, the ratio of market capitalization to GDP was double.

Another area where Pakistan was very weak was related to the role of institutions. In this country, their role was almost zero, Mr. Ghafar pointed out. This was evident from the bleak state of the mutual funds. This was symptomised by the fact that most of the savings of the people were deposited in banks. A very small proportion of these was available for the stock market, unlike the developed countries where bank deposits constituted a very small percentage of the public savings invested in mutual funds and pension funds which, in their turn, invest in the stock market. If, however, the people has sufficient reason to believe that their savings in listed companies would be safe and that they would receive fair return thereon, market capitalization would improve thus leading to economic uplift of the country, he added.

When his attention was drawn to a recent report which stated that the Karachi Stock Exchange had delisted companies without safeguarding the interests of small shareholders. The SECP Commissioner said that section 305 of the Companies Ordinance, 1984, provided for liquidation of companies found guilty of depriving shareholders of their due return, mismanagement of embezzlement of public funds invited in a listed company, etc. When a company is proceeded against for any of these reasons, the Stock Exchange should initiate liquidation proceedings at the same time as it moves to delist it under the powers available to it under the said provision. Once the market started moving in this way, other listed companies would become very cautious and might make serious endeavours to improve their affairs, Mr. Ghafar remarked.