Globally, over the years, high profile corporate failures brought the importance of bringing best practices of corporate governance in order to ensure long-term stability, profitability and sustainability of the companies. Similarly in Pakistan, corporate sector had reasonable share of corporate failures. Nationalised banks written-off billions of rupees by the way of bad loans and fragile performance of public sector companies (PSCs) deteriorated the country's fiscal balances and forced the federal government to borrow huge amount from the IMF on which most of the money was spent to cover the losses incurred by PSCs in the form of equity injections, subsidies, grants, loans and loan guarantees.
Over the years, financial experts and key Pakistani institutions are formulating strategies to regulate companies. The corporate sector in Pakistan is regulated by Securities and Exchange Commission of Pakistan (SECP) primarily through Companies Ordinance, 1984. It is evident that laws have tendency to change over certain period of time, therefore over the years, Pakistan has developed codes and rules for corporate governance to give better control and directions to corporate sector. Specific laws were developed to regulate specific companies, the first "Code" on corporate governance was notified in 2002 to address the listed companies, which was revised in 2012, the "Rules" on corporate governance was notified in 2013 to address public sector companies and the latest Code of Corporate Governance for listed insurance companies is notified in 2015. These laws producing tendency indicates that in future, every sector of the industry will have a specific code of corporate governance and it also magnifies that regulatory authority (SECP) is highly keen on ensuring good governance practices in Pakistan's corporate sector. Nevertheless, compositions of these codes and rules are made in such a way that they do not overlap the premise of corporate governance with different sectors and also that they comply completely with the Companies Ordinance 1984. The codes and rules, at large, signify different provisions that include ensuring a balanced composition of board of directors through induction of independent non-executive directors, separation of the offices of the chairman and chief executive, formulation of significant policies of the companies, performance evaluation, formation of specialised board committees, enhanced transparency and disclosure requirements, etc. Therefore, there is no confusion at all, when a public company falls under both listed 'code' as well as 'rules', it is required to comply with the rules which shall have an overriding effect on the countervailing provisions contained in the code.
The 2013 Corporate Governance Rules for PSCs inculcate direction and control to the board with minimum government interference in the company's operations and allowing the PSC to take necessary steps to cut losses and become profitable. The significance of these rules is in its implementation under which SECP developed "Public Sector Companies (Corporate Governance Compliance) Guidelines, 2013" so that compliance with the rules can be ensured in an efficient and effective manner. Under these rules, all PSCs are required to submit a statement of compliance along with their annual reports. According to SECP, public sector companies (PSCs) compliance with the Public Sector Companies (Corporate Governance) Rules 2013 for the year ended June 30, 2015 has improved to 37% as of now up from 14% the stipulated period for filing the statement for the said year expired, based on consistent follow-up with the defaulter companies. The statistics for the year ended June 30, 2015 are awaited. This improvement in the percentage trend of compliance signifies that rules have certainly started to control various PSCs, subject obviously to the condition that these are applied in letter and in spirit. However, the distinct goal is to stop contingent liabilities on loss-making PSCs which will take more time.
Besides this gradual reform, privatisation is another recipe opted by the government to stop the bleeding of major PSCs. However, the process is too slow to get over with these transactions, beside that since June 2014, Privatisation Commission of Pakistan (PC) has completed five successful transactions and earned $1.7 billion of revenue and has publicised the improvement in service delivery of these privatised units that is indeed slow but sure PSCs reform. Recently, the PC concluded first strategic sale of National Power Construction Company (NPCC) and has earned $25 million. Since 1974, NPCC was operational by the government of Pakistan under the federal Ministry of Water and Power with an objective of executing power engineering projects swiftly and economically, now being a private sector entity, will NPCC execute power projects effectively vis-a-vis with its objective's passion? Again this revert us back to how well NPCC apply the principles of corporate governance that will ensure attaining its objective without compromising on fairness, ethics, transparency and accountability.
(The writer is the SOE Corporate Governance Consultant)
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