Why the concept was being
opposed by certain quarters?
From: SHAMIM AHMED RIZVI
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.