Corporate governance is about promoting corporate fairness transparency and accountability. It is the system by which companies are directed and controlled.
In Pakistan the code of corporate governance was introduced by the Securities and Exchange Commission (SECP) in mid-2002. In the initial stages this code only applied to listed companies and was enforced through the stock exchanges as a requirement for listing.
The idea was that if a company wanted to access capital from the market, it need to have sound governance practices in place, which had to be transparent and needed to be disclosed.
This disclosure, in turn, provided one of the many necessary tools to an investor to make an informed decision on whether to invest in a particular company or not.
It is widely thought that after the passage of more than three years, the code is being followed by companies more in letter than in spirit. However, it is also believed that over a period of time, as more and more companies begin to understand the benefits of implementing good governance practices, both external and internal factors will demand that they inculcate these practices in their company operations.
Not only does good governance provide companies with better access to finance, it also improves internal efficiencies by improving the decision-making process, streamlining operations, enhancing reputations. All this, in turn means better operations and improved profitability.
The World Bank and the International Finance Corporation (IFC) recently undertook a study on Pakistan's Corporate Governance Framework to assess how it compares with similar frameworks in other emerging economies. Not surprisingly, the country has fared favourably well over other countries.
The study concludes that although there are several areas, especially in the State- owned sectors, which require improvement, much has been achieved in improving corporate governance in the country over the past few years.
It recommends that the reform process should continue without any let and more and more awareness amongst the various stakeholders needs to be created. The recently-established Pakistan Institute of Corporate Governance will be instrumental in undertaking this role.
At a recent roundtable function held in Karachi to disseminate the findings of the study (called ROSC - Report on Observance of Standards and Codes), the IFC unveiled its ambitious programme to assist in improving corporate governance practices in Pakistan.
The Manager of this project, Kaiser Naseem outlined IFC's strategy for this. He mentioned that IFC takes a keen interest in inculcating good governance practices in private enterprises, as it enhances the chances for their development.
Through the incorporation of good governance, companies are able to attract the much needed investment, improve the way they do business and address the needs and demands of various stakeholders.
Through its Corporate Governance Project, IFC will work directly with the private companies and financial institutions, regulatory bodies like the SECP and State Bank and educational institutions.
The main focus of IFC will be to assist in building the capacity of the Pakistan Institute of Corporate Governance. As explained by Kaiser Naseem, IFC wants to ensure that any intervention that is made remains sustainable even after IFC's exit.
Moreover, it is essential that technology and know-how in corporate governance is transferred to a credible local institution.
THE IFC CORPORATE GOVERNANCE PROJECT WILL FOCUS ON THE FOLLOWING AREAS:
-- Help the Institute of Corporate Governance to set up training and certificate programs on corporate governance for company directors, managers, and secretaries;
-- Help the institute to build a capacity for research and development to conduct surveys, issue publications, and produce best practice manuals and guidlines;
-- Develop and provide consulting and advisory services on corporate governance to Pakistan's banks and corporations;
-- Raise awareness of corporate governance practices via conferences, seminars, roundtables and workshops, similar to the one in Karachi;
-- Providing policy advice to the government on legal and regulatory reforms relating to corporate governance. This will ensure that any regulation that is enforced is in line with market needs and that it is well understood by the corporate sector.
We may remember that earlier in the 1990s, the IFC was very instrumental in developing Pakistan's financial sector. At that time it was because of IFC assistance that the newly-formed leasing companies, investment banks, commercial banks and modarabas were able to consolidate and play their role in economic growth.
IFC's timely intervention ensured that these institutions were well funded and had the requisite capacity to deliver good services. That set the stage for the development of the country's financial sector, which has never looked back since.
It is now hoped that IFC's assistance in firstly creating an awareness and advocating that good corporate governance makes good business sense, and, secondly, providing the necessary assistance (in the form of skills and know-how) to enable companies to practise good governance will go a long way in improving the way companies are managed and in the way they conduct their operations.
It is hoped that the larger listed companies will take the lead and provide the much needed leadership role so that other smaller, family-owned and operated companies could follow suit.
(Saquib Mohyuddin is a former Head of Pakistan's National Productivity Organisation (NPO.)
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