The small and medium enterprises (SMEs) owners and representatives of business chambers, consultants and other key stakeholders have supported the Securities and Exchange Commission of Pakistan's (SECP) initiative to issue a voluntary set of corporate governance guidelines for non-listed companies.
According to a report of International Finance Corporation (IFC)-World Bank Group issued here on Saturday, the SECP held roundtable on review of the Corporate Governance Principles for non-listed companies in collaboration with IFC and CIPE Pakistan. The majority of the roundtables' participants supported the SECP's initiative to issue a voluntary set of corporate governance guidelines for non-listed companies. At the same time, the participants discussed the need to encourage the widespread adoption of good governance practices by businesses, as set out in the CG Principles. Suggestions ranged from SECP holding awareness workshops to showcasing companies with good CG practices. One participant suggested SECP launch an annual award to recognise non-listed companies with exceptional achievements in corporate governance.
Some participants were concerned with the cost associated with the implementation of the CG Principles - even if the compliance is left to the discretion of non-listed companies. It said that IFC in collaboration with SECP and CIPE Pakistan held three roundtables on the Draft Principles of Corporate Governance for Non-Listed Companies (CG Principles) in Karachi, Lahore, and Islamabad. One 105 participants representing SMEs owners, business chambers, consultants and other key stakeholders attended and provided valuable feedback.
The summary of the feedback to the key aspects of the CG Principles is as follows:Board of Directors: The majority of participants were convinced that board effectiveness is crucial to improving CG practices of non-listed companies. Key recommendations included: holding regular board meetings, strengthening the role of the Chairman, ensuring adequate information for board decisions, including a board evaluation template, and establishing a new HR committee of the Board. Some participants argued that non-listed companies may find it challenging to identify independent directors, with relevant skills, who are willing to serve on their boards. One participant even suggested that SECP allow non-listed companies the option of appointing board advisors as opposed to hiring independent directors. There was also a suggestion to limit the presence of independent directors to the boards of large non-listed companies. To ensure proper skill mix, one participant advocated the need for the SECP to develop criteria for qualification as board members, it said.
Gender Diversity: Participants recommended that SECP include guidance to ensure gender diversity at boards of non-listed companies and encourage female participation among senior managers in these companies, report said.
Shareholders' Rights: The participants were unanimous in their recognition of the influence of the business owners/controlling shareholder on the business practices. The participants suggested that SECP aim to change the mindset of the business owners so they value good corporate governance practices. A participant suggested that SECP encourage non-listed companies to document ownership and develop relevant shareholders' policies. Another participant emphasised the shareholders' right to approve board's remuneration to avoid exorbitant directors' fees to safeguard company's assets. Given that family businesses are particularly vulnerable to internal conflicts, it was further suggested that SECP include a mechanism for resolving such disputes. It was also suggested that the minority shareholders' interests should be adequately protected by clearly articulating their rights, it said.
Scope of the CG Principles: The participants discussed and offered suggestions about the scope of the CG Principles. One participant was of the view that the CG Principles should not be applicable to companies incorporated under Section 42 of the Companies Ordinance, 1984. Such companies are subject to SECP's licensing regime that includes specific corporate governance requirements. Participants also emphasised that there is a need to improve CG practices of partnerships-one of the dominant forms of business ownership in Pakistan. They also highlighted the need to encourage good CG practices among the not-for-profit sector, the report added.
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