Number of companies under CFS to be reduced: Razi for balance in listed entities' boards

Securities and Exchange Commission of Pakistan (SECP) Chairman Raziur Rehman has said that the number of scrips eligible for funding under 'Continuous Funding System' (CFS) would be reduced.
Talking to newsmen after the inaugural session of the Board Development Series organised by Pakistan Institute of Corporate Governance (PICG) in collaboration with International Finance Corporation (IFC) here on Wednesday the SECP Chairman ruled out any enhancement in the upper cap of CFS saying that the regulator would not consider this suggestion until the fulfilment of the criteria set by the SECP for the scrips.
"Personally, I am not in favour of upper cap in CFS funding. However, there are so many things which should be considered to avoid any risk for the investors", he said, adding that "we have asked the Karachi Stock Exchange (KSE) to review the eligibility of CFS scrips after three months to make this mode of financing more transparent and to ensure all risk management measures."
Regarding CFS Mk-II, he said that a committee, headed by KSE Chairman Shaukat Tareen, was working on this project and the committee would submit its paper to SECP for approval for implementation of this mode of financing. In CFS Mk-II, there would be unlimited funding, without any upper cap. However, he pointed out that there would be limited number of scrips for CFS Mk-II.
He said criteria would be set for eligibility of scrips for funding under CFS Mk-II and any scrip which would fulfil those criteria would be eligible for funding under this mode of financing.
The SECP Chairman said that at the time of March 2005 market crisis there was no client code nor was there any UIN (unique identification number) and, for this reason, "it is very difficult" to sort out the involvement of any person in this regard.
He said that the National Assembly standing committee on finance has formed a committee to dig out reasons regarding KSE March 2005 crisis. This committee would submit its report to the NA standing committee and after that the report would be presented before the National Assembly for debate, he added.
Regarding visit of FBI team in Pakistan, he said that SECP had not been informed about it officially. "We are not aware about the arrival of such team in the country. However, if we receive any information about its arrival officially we will cooperate with the team."
Earlier, at the inaugural session of the workshop he highlighted the importance of good governance in the country. He emphasised on proper training of human resource so that good corporate governance could be promoted in the country. He appreciated the efforts of Pakistan Institute of Corporate Governance and assured the audience of his full support and co-operation.
Zahid Zaheer, CEO of PICG, said that the workshop was Part-II of Board Development Series and more than 40 participants, mostly CEOs and directors of major companies, were attending the session. Previously, the first session of this programme was attended by 21 participants.
He said that the BDS is a training programme aimed at developing professional skills of CEOs, CFOs, directors and senior executives of companies to improve good corporate governance practices of the Boards of Pakistani companies.
AGENCIES ADD: The SECP Chairman underlined the need for balance in the boards of listed corporate entities to ensure that interests of all stakeholders were protected, including minority shareholders.
He said that the code of corporate governance was drafted in 2002 and was confined to the listed companies. He said it was open to suggestions and feedback, and that he wanted owners' points of view also to be included in it.
He said that most of the Directors, especially those who are taken on board for the first time hardly knew their duties, obligations and responsibilities. He said it was important that the directors and Board members should be told about their obligations and responsibilities. "They are on the board to protect the institution/company as well as the interests of minority shareholders, as the majority shareholders already have their say in the boards.
He said that the task of independent boards was more serious in this regard as they have the trust of the shareholders which they should discharge with due diligence and integrity. He said it was important to build a pool of independent, qualified and trained directors from where independent directors could be appointed, or recommended on different listed companies and corporate entities. He said that Board members usually keep silent in the meeting, and sign whatever is presented to them, and the Chairman keeps on with the proceedings in his own way and wishes. He said such attitude does not help in achieving the objective of appointing the Board members or inducting independent members.
About malpractice's in companies, he said the shareholders of 25 percent can call in Special Audit but the general minority shareholders have no way to check such malpractice's. However, he was informed that the minority shareholders can contact the independent board members in this regard.
In question-answer session, the participants pointed out that there should be two or three independent directors on each board, and the appointment committee should have a big pool of independent directors with due knowledge of the sector (in which they are going to be nominated) and they should be persons of integrity. It was also pointed out that they should work as a team as their role as policeman won't contribute much in the board.
Another member pointed out that the whistle-blower is not protected in the code, due to which the outsiders (independent members) in the Board can't prove any allegation as they are away from the processes and general management. However, Razi said that such a provision would create problems. Therefore, it is necessary that suitable penalties be in place for wrong whistle-blowing. "We now are going to have enough manpower to act upon whistle-blowing which we used to ignore in the past due to lack of adequately skilled manpower for the job."