SECP Commissioner Etrat Hussain Rizvi said here on Friday that the Code of Corporate Governance had proved useful in improving the transparency and was also beneficial in establishing best practices internationally acknowledged over the last two years at the corporate sector.
Addressing the nominee directors of National Investment Trust (NIT) at a workshop on Corporate Governance issues organised by NIT, he said that there was still room for improvement as it would remain in a state of evolution for some time. He said that proper and continuous feedback was required from all stakeholders to further enhance and improve its canvas in accordance with the best international practices.
Emphasising his point regarding improvement in the Code, the SECP Commissioner cited Clause 14 of the Code which requires the companies to arrange orientation courses for their non-executive directors. He welcomed 'the lead' taken by NIT by holding first-ever educational workshop for its nominee directors.
"NIT is complying with the requirement of Clause 14 by holding this workshop," he said, and urged nominee directors present to make the companies they represented to hold such orientation courses on regular basis.
NIT, which announced its results for the financial year ended on June 30 declaring highest dividend of Rs 2.55 per unit, has organised the workshop to seek its nominee directors' critical points of view on the Trust's performance under the management of Tariq Iqbal Khan in presence of the regulator--SECP.
Etrat said that SECP has developed the code of corporate governance by bringing together the provisions of company laws, Articles of Associations, Prudential Regulations, banking laws and NBFC rules.
"This code primarily aims to establish a system whereby a company is directed and controlled by its directors in accordance with the best practices so as to safeguard the interests of diversified stakeholders," he said. "The code emphasises openness and transparency in corporate affairs, including the decision-making process," he added.
The code attempts to helps the directors in discharging their responsibilities in the larger interest of all stakeholders in transparent, well-informed and diligent manner with the association and help of professional managers, he emphasised.
The non-executive or independent directors, being representatives of shareholders, on the boards have significant role to play in monitoring of a company's managers and as such should make sure that they (managers) adhere to the rules, he added.
Citing a number of studies in USA and UK where the percentage of non-executive directors on boards have grown by over 20 percent in the last decade, Rizvi said that SECP did consider this point in the development of Code of Corporate Governance 2002, in which over 17 clauses were indirectly related to independent non-executive directors.
Inviting direct input of independent/non-executive directors present at the workshop, he praised NIT for arranging the workshop which he said would greatly help in bringing improvements in the Code as per international practices. He urged other companies to follow NIT to hold such orientation workshops for their non-executive directors regularly.
Etrat expressed satisfaction over the performance of NIT under the management of Tariq Iqbal Khan, saying that record dividend of Rs 2.55 per unit in 2004, the highest sales of Rs 11 billion, huge redemption of Rs 9 billion without any delay and hassle, and disbursement of over 97 percent of its profits against the requirement of 90 percent under law reflected effectiveness of management and board of directors. Such impressive results from a public sector fund was of great significance, he remarked.
Earlier, Tariq Iqbal Khan, Chairman, NIT, said the orientation workshop was not only in compliance with the law but was part of efforts which the Trust has been making to improve governance at different levels, after creation of an independent Corporate Governance Department in 1997.
To promote the corporate governance in line with internationally acceptable standards, he said, NIT had adopted three-pronged strategy: to work with regulators in close liaison; creating enabling environment, and strengthening boards by giving greater role to independent non-executive directors. "We have decided to co-operate and work closely with the regulator instead of shying away," he said. SECP--the regulator--too has extended all the needed support in implementation of Code of Corporate Governance, he remarked.
Tariq said that NIT had completely changed the criteria for selection of directors on its boards and without 'any regret' it put emphasis on their ability, skills and reputation etc before selecting them. NIT changed 70 percent directors of its directorships, he added. This has paid NIT a great dividend, which is reflected in its record-breaking results for the year 2004.
"NIT management holds its nominee directors on about 250 boards of directors in great esteem, and as such has always appreciated the role played by them, the NIT Chairman said.
As other measures1 he said NIT created a database within the Trust, with sector-wise profile of its companies. This helps NIT to take strategic decisions as regard to investment and giving the highest possible return to its unit holders. NIT three years ago had over 40 sick units in its portfolio which have now been replaced by profit making units.
The workshop had an hour-long question and answer session. Tariq Iqbal Khan and Etrat Hussain Rizvi responded to the queries of the nominee directors.