January 2018 has brought about a host changes in how corporations are governed in Pakistan, courtesy the SECP’s newest Code of Corporate Governance Regulations 2017. For those who haven’t been following the development, here is a quick summary of some of the key takeaways based on the brief compiled by KPMG Pakistan, whereas a backgrounder on that can also be read in BR Research column ‘Improving corporate governance rules’ published October 3rd, 2017.
The first observation is the improvement in directorships: its number, composition, and their responsibilities. The SECP has placed various caps on the number of directorships an individual can hold. This is a significant development as it can potentially pave way for a new breed of corporate leaders. The time is right for directorship hopefuls to perhaps get trainings in directorships by the likes of ICAP and ICMAP and polish their CVs.
One important development is the regulation that enforces the presence of at least one female director on board. This is also a significant step forward, and it is hoped that the companies will not merely get the immediate women family members on the board. Instead, a culture of truly independent female directors ought to be developed.
On that note, it would have been prudent if the SECP had pushed publicly listed corporates to report on gender balance in their balance sheets. If public listed firms report the number and percentage of women on their board and employed across various tiers of management and blue-collar workforce in their audited annual reports, it would be an important first step towards reducing the gender gap.
In another interesting development, the new code states that the board of directors is responsible for the governance of risk and for determining the company’s level of risk tolerance by establishing risk management policies. Previous wordings required the board to ensure that the Company has such policies.
“The new code also requires that the board shall undertake at least annually, an overall review of business risks to ensure that the management maintains a sound system of risk identification, risk management and related systemic and internal controls to safeguard assets, resources, reputation and interest of the company and shareholders,” says KPMG.
While that is a good development, BR Research contends that the analysis of risk and its mitigation policies ought to be reflected in the annual reports of the public listed firms. It is time to do away with simplistic directors’ reports of public listed companies, many of which simply copy paste run-of-the-mill ‘challenging external factors’ that ‘your company’ had to face from one annual report to another.
On that note, the next round of corporate governance framework should also push public listed companies to ensure analyst briefings after at least every half year results and after product launch or any other key development beyond a certain threshold of materiality. This would not only be in line with best international practices in the interest of the investors, but also be a good PR activity for the companies as the PR guru Zohare Ali Shariff told BR Research in an interview (See Brief Recording section: Analyst briefings by listed companies can be good PR’ December 6, 2018).
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