BR Research: Which areas have you worked in besides Corporate Governance?
Sadia Khan: I was the financial analyst at the Asian Development Bank (ADB) which meant projects on the finance side. This ranged from pension reforms to the reforms of the banking sector, reforms of the capital markets and the corporate governance came a bit later with the Asian financial crisis enterprises in 1997.
Tajikistan had just become the member and we were the first economic team to go out there and give them the first economic report we had produced on the country.
BRR: How did you develop interest in Corporate Governance?
SK: I was working with the ADB when the Asian financial crisis emerged, and all the reports that we had prepared for the South Asian countries had a very important component of corporate governance as the people realised its importance. And that initiated my interest in corporate governance. It had not been given that much importance. When I came to Pakistan, I was asked to finalise and implement the first code of corporate governance. The basic ground work had been done so our job really was to get feedback from the public, and devise an implementation strategy for it.
BRR: Most of the businesses in Pakistan are family owned. Why is there so much resistance to bring the corporate culture in the business when it is essential for survival in the long run?
SK: I believe this is because the business side of corporate governance has not been properly taught. There is a failure in the system because it lacks understanding and the importance of appreciation.
There are many in the field that do not appreciate the importance of CG and realise if it happened to somebody else it could also happen to them.
I think there is still a lot of hope for awareness creation and giving the business sense of Corporate Governance such that they realise that the absence of Corporate Governance and business failure are linked together.
BRR: How have you tried to inculcate the culture of Corporate Governance in the family businesses? What challenges did you face?
SK: In 2002 when we were going around for the public feedback, we faced every kind of criticism.
The core issue is with the requirement of independent directors. This requirement is now made mandatory, with the independent directors joining the board. But, you have to see whether they have been able to perform their roles there. If you are truly independent of the mind, it doesn't really matter how you are elected because you will exercise your independent judgement irrespectively.
There has been criticism that how can they work and take decisions that the stakeholders would make. My answer is that I am one of the independent board members of three businesses and also in my family owned business. I end up spending more time on the independent board as there is a greater set of responsibilities. I have been elected based on my market reputation and I have to maintain that.
More importantly, we need to see the board membership as a profession in its own right. And not to base it on the concept of gray hair-someone has retired-so he should be made board member. This is no longer the case. If you want professionalism, you need to hire professionals with the right ethics. You pay them and they will deliver like any other profession.
BRR: What is the incentive of the independent director? Why would he put effort into someone else's business?
SK: One reason to put in an effort into someone else's business is professional commitment. When you have spent time enough in the filed, you want to learn more about the business.
BRR: What is to be the incentive of the independent director, if you are on the board of so many companies, how can you do justice to your work?
SK: In the second round of the revision of CG, we have set a bar that one person cannot be on the board of more than seven companies at the same time and this handles the time management and allocation issue.
Personally I manage time so that I don't compromise on any company. I take responsibility only if I am able to deliver. And in this vicious circle: if I were unable to deliver I would not be given these important roles. So time management, prioritisation and multi-tasking all come into it.
Many companies have their board meetings at the same time. So, there have to be very set procedures for everything. I make sure they adhere to the timeline, all the required materials are completed before time and the minutes of the meeting are prepared. I think the written procedure of CG is very important, otherwise if the paper and minutes are given at the time of the meeting, I won't be in a position to contribute effectively to the meeting.
BRR: Independence of the independent director is very important. How does one monitor the independence and ensure this is not the case and the board is indeed independent?
SK: In written form, we have put in sufficient guidelines in the CG regulations to ensure that at least there is a process in place for selecting the independent directors.
There are certain points that need to be fulfilled for the director. For example, he should not be an employee of the company for three years, if he was an auditor or in any capacity some joint interest in the company, no close relatives, management sponsors.
Having said this, even if you put the best procedure in place for this you cannot ensure independence of the directors and the reason for that is that it is really people selection. Corporate Governance, at the end of the day, is a board and the board is a set of PEOPLE so the best way to ensure CG is to have the best people on the board.
The stakeholders should ensure that the board consists of people of character who will not come under any influence while making decisions.
BRR: How does one check if the independent director certainly works in the best interest of the company?
SK: To ensure that your opinion is heard and transferred is an important part of the CG features. It is essential to make yourself important in the board room and to ensure that you are heard. There are options; if you are not being heard you can, as a last resort, report it to the regulator.
BRR: Why are companies reluctant to list themselves? Is it because of the incentive of tax evasion?
SK: A company lists itself for the need of capital. If it can manage the capital, then what is the need? Listing a company requires more accountability, more reporting. And I think there has always been an issue of documentation in our country.
BRR: Tell us about your experience at the State Bank.
SK: I worked at the State Bank for a short period. My role was as head of strategic manager, a newly created thing at that time. We were to come up with a 5-year strategic plan for which we took the bottom up approach. Mapping all the departments separately, giving them their own vision mission and objective, and then we told them how to go about it.
Emanating from this we had had a separate HR plan and IT plan, to make sure that all the operational requirements were met. In the end we pooled it all together and we had a change management system where all the senior management was together.
BRR: Why do you want to focus on women entrepreneurs?
SK: There is a personal reason for that: Having gone through experiences I would like to share them with the other females in the field.
But, from a business point of view, it makes perfect business sense. More than 20 percent of the SMEs are women held; women always control the extending powers in most parts of the world. So from a personal perspective as well as in pure business sense, I think this is the right market to try and find a niche here.
Our pitch is very basic: if you have a business idea and don't know how to make it a reality, come to us. If you want to write a formal business proposal to present it to the creditors or sponsors, we are there to help you; it is about trying to find a comfort level with women and talking to them at the level they understand and appreciate.