SECP plans to introduce long-term reforms in the corporate sector, with prime focus on corporate governance


By Muhammad Bashir Chaudhry
Oct 21 - 27, 2002

The Securities and Exchange Commission of Pakistan (SECP) will be establishing an Institute of Corporate Governance. According to the press reports, the SECP Chairman, at a press conference on 2nd October 2002, explained the salient features of the project being launched in collaboration with the UNDP. The Resident Representative of UNDP was also present on the occasion. UNDP has reportedly committed $100,000 for the project that aims at developing a sound corporate governance framework in Pakistan. The SECP Chairman, appreciating the UNDP for its support for the project, said that the joint programme would lead to making Pakistan an attractive destination for domestic and foreign investors. The aims of the Institute, as gathered from the press reports, largely are: to train SECP's own staff and that of stock exchanges in managing the equities market in conformity with the best practices; to impart training to the directors; and to create awareness about principles of good corporate governance.

Speaking on the occasion the Resident Representative said that the cooperation between UNDP and SECP is a modest example of what the UN Secretary General appealed for under the UN global pact inviting the business community to take more responsibility particularly the social responsibility. The code of corporate governance he hoped would help strengthen investors' confidence and investment environment. He assured to support the SECP's efforts to revive investors' confidence, alleviate poverty and enforce code of corporate governance.

The SECP Chairman said that it had taken several steps to improve governance structure of the three stock exchanges and to infuse discipline in the capital market. While acknowledging the role of the brokers, he was of the view that only those markets had developed where exchanges were run independently of the brokers. According to him, the reforms were devised by the SECP carefully by reviewing the situation prevailing in the country and only those measures were to be enforced that could be absorbed by the market. He said that SECP plans to introduce long-term reforms in the corporate sector, with prime focus on corporate governance. He said that through this ICG initiative, the SECP would further its objective of enforcing the code of corporate governance and that it is looking for assistance in order to build up the capacity, train the staff, create awareness about what good norms of good corporate are and how they should be implemented in letter and spirit.

The SECP reforms are building investors' confidence. More reforms are still needed in many areas and we should all be supporting the reform efforts. Encouraged by the SECP Chairman who is looking for assistance in order to build up the capacity, I thought of sharing my views on ICG with him and other stakeholders, through this article.

JUSTIFICATION OF A NEW INSTITUTION: The SECP is embarking on training in an area for which there has presumably not been much activity in the past. The setting up of ICG will certainly help in many ways. ICG will be catering to the needs of diverse groups. One group is the Regulator while other groups are the Regulated. Close liaison is expected to help better appreciate the matters. However, the question that comes to mind is why but could we not get all such training done through the existing institutes such as ICAP, ICMAP, NIPA, IBA, LUMS or the SBP Institute at Islamabad, to name a few. These institutions have lot of experience in business and management areas and surely each one could contribute much if specialized courses were required to be developed for the benefit of SECP professionals / employees, stock exchange officers and the directors on the boards of different listed or other public / private companies in Pakistan. The CBR has very recently signed an MOU with the IBA to start an " MBA-tax management degree programme", the objective of which is to equip all grade-17 officers of the CBR (income tax and customs groups) with business and management education (daily DAWN - 6th October). This will reportedly be a two-year programme culminating in an MBA degree Tax Management). Each year approximately 40 to 50 officers of the CBR will undergo this mandatory programme.

SPECIALIZED ACTIVITIES AND AFFILIATION: It has been said that the ICG activities aim at training SECP officials, the officials of the stock exchanges and the Board of Directors. It is felt that the SECP purpose will be served better if the list of ICG activities is expanded to also include more topics such as: (1) training of Corporate Secretaries, the CEOs and possibly the CFOs, (2) preparation of research reports on corporate issues and matters, (3) the ICG magazine to contain articles, guidelines and reviews on various corporate matters (4) ICG to develop expertise to mediate in conflicts resolution in corporate matters. The list can be further improved in consultation with the FPCCI and the business / corporate sector. Initially the institute can be affiliated with the Karachi University or other appropriate universities, and at a later stage the institute may seek approval for authority for awarding degrees.

PUBLIC-PRIVATE PARTNERSHIP: ICG can be sponsored and nurtured by the SECP. However, with a view to make it an independent and credible institute, it is considered appropriate that it is sponsored, owned and implemented jointly with FPCCI, various CCIs, prominent business houses and industrialists. The SECP Chairman may consider taking up the matter with the FPCCI and the stock exchanges for collaboration. ICG should be formed as an educational trust. From government side SBP, MOF, CBR, SMEDA, BOI may join hands with the SECP. The board of governors may have the Chairman from the government but the Chief Executive should be from the private sector. Equal number of governors may be from private and public sectors. In addition there should be minimum two governors who are independent professionals or retired educationists of repute. ADB and IFC may perhaps agree to participate in various ways. The UNDP and other such agencies may be approached to provide technical know-how and material support to make the institute operational before the start of next financial year. The Government has been encouraging public-private partnership and it is felt that the ICG is a fit case for such cooperation.

CAPITALIZATION AND ENDOWMENT FUND: ICG may be capitalized well and should start with large endow fund to meet future financial needs. The capital may be raised in phases over about three years time. Loans may not be considered as an option for meeting part of the cost. To start with the Endowment Fund as a minimum should be equal to the capital budget for the construction and implementation of the institute. A system may be introduced for future so that the Fund continues growing with the training of officers and the publication of the research studies. This way the institute will not be relying on continued government or private contributions and is expected to be able to maintain its independence.

LOCATION OF THE MAIN CAMPUS: ICG may be located preferably at or around Karachi. Karachi has the largest stock exchange of the country and also has perhaps the headquarters of the largest number of listed companies. Most of the trainees might be from Karachi and so shall be the opportunities of writing research reports by the ICG faculty and other staff. Later zonal offices of ICG may be set up at other appropriate locations. Karachi may also be the best place to provide accommodation to the ICG if it is decided to make the institute operational before the start of next financial year.

START OF ACTIVITIES: ICG initially can start in a make shift building taken on rent or acquired otherwise from the government until the purpose-built campus is developed and becomes functional. This approach will help maintain momentum in the corporate reforms and help develop a healthy corporate culture. For the training of directors initially topics such as preparation of mission statements and objectives; preparation of strategy and policies coupled with detailed procedures and processes; devising and implementing internal controls and avoidance of conflicts of interest; etc. may be given priority.

THE TEACHING FACULTY: Good faculty and an experienced Executive Director are a pre-requisite for starting well any training institute. Initially work can be started with core faculty. However, more reliance shall be on visiting faculty drawn from the SECP, CBR, existing institutes providing specialized financial courses, retired government officers and experienced officers from stock exchanges, trade and industry. As more experienced is gained, the number of regular faculty and other staff can be increased later.

LIBRARY FACILITIES: There is immense importance of a proper and well-stocked library for any training institute. For ICG it is more so, as it is an institution that has been sponsored by the regulator of corporate entities, NBFIs, insurance companies, etc. and there the library must be the repository of all the relevant material and reports.

STUDIES ON CORPORATE ISSUES AND RESEARCH REPORTS: SECP may prepare tentative list of issues on which research reports need to be developed. The topics might appear far-fetched but as long as these relate to corporate matters, may be included in the probable list of the research reports. For setting the ball rolling, some of the topics for research reports or studies are: (1) a Director should not act as the Company Secretary as well; (2) Executive Directors not to have a vote when the Board is reviewing company performance; (3) should there be a list of authorities / powers that the Board can never delegate to the CEO or the Chairman, or ant other office; (4) policy for making public the minutes of the Board meetings, after two weeks; (5) separation of the position of the CEO and the Chairman; and (6) paying handsome salary or compensation to the independent directors.

USE OF CONSULTANTS: It might not be possible for the ICG staff to carry out on timely basis all the desired or priority research reports. Possibly outside consultants may have to be associated. Rules and procedures for hiring such consultants and getting useful work out of them may be got developed. The international financial institutions use the consultants very often and so have developed requisite guidelines. These guidelines might be modified to suit ICG needs.

TASK FORCE FOR IMPLEMENTATION: The Board of Governors of ICG might consider constituting a task force to take actions for implementation. This task force to have two sets of responsibilities. One set shall pertain to immediate start of training and research reports activities. The other shall pertain to the implementation of the ICG on proper lines, encompassing activities such as be the selection of the land for the permanent campus, development of the building plans, preparation of the cost estimates and the award of construction contract and the monitoring of quality of work and physical progress. The task force should submit monthly progress reports to the BOG. Two different task forces may not achieve the results as each team will be acting to prolong its existence and there may be in fighting as well.


The reforms initiated by the SECP for bringing Pakistani corporate sector at or near par with the corporate sector in the developed countries in the next few years would benefit the whole country and therefore must be wholeheartedly supported. The SECP alone may not be able to handle the job in the reasonable time frame. Private corporate sector as well as the public sector corporations must join hands and collaborate with the SECP in this bold endeavour.