Conference on role of independent directors held

Pakistan Institute of Corporate Governance (PICG) in collaboration with Pakistan Business Council (PBC) organised a conference on "Role of Independent Directors" at a local hotel here on Wednesday.
Head of CFA Institute for Asia Pacific, Lee Kha Loon and Ken Rushton, fellow of Chartered Institute of Secretaries and Administrators presided over the conference while other speakers were Faud A. Hashimi, President PICG, Shahid Aziz Siddiqui, Chairman of State Life Insurance Corporation, Towfiq Chinoy, Chairman of Pakistan Cables, Ehsan Malik, Chairman of Unilever and Kamran Y. Mirza, chief executive of PBC. In his opening address, Faud A. Hashimi highlighted the compensation policies for directors of companies in Pakistan.
Lee Kha Loon through his electronic presentation threw light on the rights of minority shareholders in Asia. He said the minority shareholders were presently weak in Asia. He said the minority shareholders are facing several challenges including bailouts, usurpation of corporate opportunity, fighting for corporate control, dilution through share issuance, REITs - conflicts of interest, abusive related party transactions, injection of assets and privatisation, cross guarantees and loans to associates and recurring RPTs.
Later, Ken Rushton shared his views on the appointment and qualities of Non-Executive Directors (NEDs). He said the NEDs should not only be constructive to evolve development strategy but also monitor the performance of the management in meeting goals and objectives.
While other speakers said that although the family businesses create an estimated 80 percent of global GDP annually and return on assets has in general proven to be greater in family businesses than non-family firms, it has also been established that the environment for innovation in family businesses improves only when more generations of the owning family are actively involved in it.
Over time however, the needs of the family diverge for example:
-- Too many family members are expecting salaries or distributions, which may contain the financial growth of the company itself.
-- When the paternal figure of the family expires or has to retire, there may be a vacuum of leadership due to lack of succession planning.
-- Lack of diversified opinions, talent and skills among family members.
-- High turnover amongst non-family member employees etc.
-- Sudden parting of ways with established key customers.
They said the statistics revealed that the disconnection between the optimistic belief of today's family business owners and the reality of the massive failure of family companies to survive through the generations. Globally, only about 30 percent of family and businesses survive into the second generation, 12 percent are still viable into the third generation, and only about 3 percent of all family businesses operate into the fourth generation or beyond.
As time passes on and the family business grows, one aspect, which is ignored is that the number of owners is also growing and perhaps the number of potential owners would multiply the existing ones. Hence, as a family business evolves with the passage of time the Board of Directors' responsibilities and requirements change, it becomes imperative to recognise the need for Independent Directors - the necessity to take in fresh air and new perspectives with an open mind.
They further said independent directors are sought with a view to capitalise on their unique business experiences and skill sets, and to broaden the experience on the board. Family owned businesses however turn first towards any family members whose skill sets and experience could possibly be capitalised and this in turn more often than not can lead to a compromise on quality for family.
Moreover, they said independent directors are the ambassadors of highest order of corporate governance in the company especially in succession policies and hiring both of which pose a threat to the sustainability of any business. They help the family owners get beyond the personalities and practices of the founder/majority owner and related family dynamics that may impede successful business management in future.