Capital markets, the world over, perform an extremely important function in mobilising savings of the economy in the form of equity for channellising them into productive activities. Their smooth and efficient functioning can, however, be guaranteed only through a properly equipped watch-dog, established to look after their affairs in every aspect and punish the transgressors promptly in order to ensure that rules of the game are observed strictly.
In Pakistan, this important task has been assigned to the Securities and Exchange Commission of Pakistan (SECP) which, like similar institutions in other countries, has attracted various kinds of comments, both positive and negative, at different times.
Yusuf Shirazi, Chairman of the Honda Group of Companies, while giving a presentation on "Code of corporate law and business ethics" last Friday was highly critical of the role of SECP, suggesting that its enforcement of corporate governance was not up to the mark as it had failed to check corporate irregularities.
He expressed concern over existing standards of evaluation, monitoring and implementation of corporate governance and was of the view that prescribed sanctions against transgression and their imposition were not well defined.
The SECP definition of corporate governance was not only vague but also not applicable to government organisations.
Substantiating has arguments, Shirazi referred to prolonged defaults by listed companies in dealings with the financial institutions and other shortcomings.
Irregularities committed by most of the corporate entities, according to Shirazi, remain generally unnoticed or are overlooked. In most of the cases, CFOs, CS and heads of internal audit are mainly responsible for corporate irregularities but the regulators are incapable of managing these high profile people.
Judiciary is hardly helpful in implementing the rule of law in the country and sometimes courts invalidate their own judgements with change in political, economic and social scenarios. In this backdrop of ad-hocism, foreign and local investors are shying away.
We believe that the SECP, of late, has been trying in earnest to improve its image by working in association with other stake-holders in the system, but the criticism by Shirazi, in our view, needs to be thought through properly in order to improve the regulatory framework of the capital market in the country.
He is not only one of the most senior and respected industrialists of Pakistan, well-versed in all the aspects of the business, but has always been keen to give practical suggestions to the government authorities to improve the working of public institutions to uplift the economy.
The irregularities in the corporate sector and the weaknesses of the SECP to deal with them as identified by him are not a figment of imagination but very much prevalent in the system and their removal could go a long way in promoting better business ethics in the stock market and in helping corporate sector in the general.
We are stressing the need to improve the functioning and the writ of SECP also because of certain other reasons. In our country, the level of investment which is the key to growth and increased employment can only be enhanced if working in the bourses is transparent and well regulated for which the role of the SECP is very crucial.
Also, ordinary people would be attracted to the bourses only if they are sure that they would not be defrauded and this shift in attitude would inculcate saving habit and to a certain extent lead to wider dispersal of income and wealth in the society. Besides, investment in equity market is nearer to the concept of Islamic financing than bank credit, which is usually negotiated on a fixed rate of interest.
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