This article is not about sovereign states, political parties, celebrities and other boring stuff. It’s about corporate turnaround. It is relevant to Pakistan because almost 70% of the state-owned enterprises (SOEs) are underperforming.

In the private sector, the ‘sick ratio’ is not that high, but prominent enough to cause concern. The most relevant quote on the academic subject is by the famous Choudhry of Gujrat “Mitti pauw, agea chalo” — “bury the issue — move forward”.

Totally inappropriate for the corporate sector. Early on in my career, when I worked for ICI, one afternoon as my car was entering the main gate a gust of wind blew the gate to bang against the rear.

Not much damage. Nevertheless, a detailed report had to be filed. The story has it that in 1974 the prime minister, Zulfikar Ali Bhutto (ZAB), signed off on a report regarding the crash/write-off, of an F-86 Sabre jet of PAF.

As per SOPs, the report was 20 pages. The PM had to read and sign every page. It took him 45 minutes. Now, if a PIA plane crashes in Shah Faisal Colony, Karachi, the matter is quietly buried. The fact that many people died is not a big deal. R.I.P. Off late, many people claim to be ‘turnaround’ professionals. Not true.

This is a rare expertise. Institutionally, the only organisation that acquired this technical expertise was NDFC (National Development Finance Corporation) via interaction with IBRD (International Bank for Reconstruction and Development), ADB (Asian Development Bank), IFC (International Financial Corporation), etc. Even the two main regulators, the State Bank of Pakistan (SBP) and SECP (Securities and Exchange Commission of Pakistan) are lacking. Hence the mess.

‘Corporate failure’ is a rather democratic malaise. It can attack any industry in any country. Like Covid, it goes for the vulnerable spots. Once any ‘corporate revival’ is under way, whether an SOE (state-owned enterprise), private, or MNC (multination corporation), many disciplines come into play — finance, legal, HR/staffing, technology, local laws, etc.

In the US, the home of many Fortune 500 companies, there is a continuous flux. Right/downsizing, creative destruction, startups, unicorns, M&As (mergers and acquisitions), spin-offs. Not for the faint-hearted. Activist investors like Carl Icahn, and Boone Pickens, can give sleepless nights. The iconic company, Kodak, is no more. Remember the ‘Kodak moment’.

Monsanto, originally a chemical company, has evolved into one of the most powerful companies in the world — it now influences the world food supply via GM seeds. The advisory and consulting work generated by all this activity is a huge, huge industry.

McKinsey & Co is a powerhouse. It’s considered a steppingstone to top CEO jobs. They also manage an ultra-secret investment fund that is not open to ordinary investors. The Japanese corporate culture is different. Corporate failure is considered a national calamity. To be avoided at all costs. The cross-shareholdings discourage any type of ‘Anglo-saxons’ speed change.

The Japanese corporate class disliked Ghosn of the combined Renault/Nissan/Mitsubishi group. Ghosn met the fate of a samurai. Europe is more relaxed than USA about corporate turnaround.

In the Catholic south SOEs can drift along for decades, no questions asked. Greece is an example. As long as they (southern Europe) get their coffee breaks and vacations, they don’t want change. The Ukraine-Russia conflict will stir things up.

Globally speaking, but particularly in Pakistan, a corporate failure can have the following repercussions:

• Banks take a hit — NPLs mount

• National security can be compromised.

• Job losses.

• FDI and local investments can decline.

In Pakistan, the following have emerged as the leading cause of corporate failure (no detailed analysis has ever been undertaken)

1) Pakistan is without a Development Financial Institution (DFI). NDFC, PICIC (Pakistan Industrial Credit and Investment Corporation), and BEL have vanished. IDBP (Industrial Development Bank of Pakistan) is awaiting legal justification for the closure. In their heydays, these DFIs were the focal point for industrial financing. Slowly, mismanagement and corruption overtook them. The scheduled commercial banks fared no better. Huge losses, huge write-offs. The National Bank of Pakistan (NBP) could possibly be classified as the most incompetent bank in history. In spite of some big-name presidents/CEOs.

2) Weak oversight and supervision. The two main regulators, the SBP and the SECP have not played the desired role. Neither has the board of directors of the banks/DFIs. The current failure of Hascol is a case in point. Will any accountability take place, and remedial action taken? Probably not. Have the above two regulators (SBP and SECP) developed any case histories on the failure of Hascol, Mehran Bank, Indus Bank, Summit Bank, Bela Chemicals, Frontier Ceramics and dozens of other industrial and commercial enterprises?

The many business schools of Pakistan, that should welcome such reports/analyses of Industrial failure, are largely ignorant of the subject. I may be amiss, but no business school has a tutorial/course akin to corporate turnaround.

3) Faulty project evaluation. Project feasibility has to be subjected to rigorous analysis — financial, economic, technical, marketing, managerial, etc., in the old days DFIs attempted to do this. Today, only commercial banks are involved in project finance. They do not have the expertise (PC see my article in the newspaper titled “Shehbaz Sharif and 52 companies”).

4) Technological advances. Technology is making industrial segments redundant. At a pace that is unimaginable. Vinyl records to tape recorders to walkmen to CDs to mobile phones to streaming services. Mind-boggling. This is happening in every imaginable industry. Gratefully, Pakistan, at the lower end of the chain, has been spared too much technical disruption. But the impact is prevalent.

5) Labour laws/labour unions. These labour unions are basically against corporate turnaround. Turnaround means job losses — downsizing or rightsizing. The labour laws kick in. And the political parties. There have been 30 years of the rollout on problems that beset PIA. From experts from all walks of life. I can only add that along with the other stakeholders, the Pakistan Airlines Pilots Association (PALPA) is culpable.

As a powerful union, PALPA could have stopped the malaise, but they preferred to go along to protect their privileges. So too with the Pakistan Steel Mills. Some years ago, on a visit to PSM, I walked into one of the large production halls as about 12noon.

Workers were sleeping on the floors. Others reading newspapers, having lunch, playing cards, talking on their cell phones. An exemplary industrial environment. There is no hope for the above two projects, and many other projects. As I wrote much earlier, PIA should be sold off for rupee one only (Re 1), including assets and liabilities.

Copyright Business Recorder, 2022