The Securities and Exchange Commission of Pakistan (SECP) has proposed that the owners of Non-Listed Companies (NLCs) may establish a basic framework of corporate governance through the company's constitutive documents (eg Articles of Associations). The SECP has circulated the principles of Corporate Governance for Non-Listed Companies to the stakeholders for comments.
According to the SECP, principles are applicable to all NLCs except Small Sized Companies (SSCs), Not for Profit Companies having annual gross revenue (grants/subsidies/donations) not exceeding Rs 100 million and Public Sector Companies. Shareholders may establish an appropriate governance framework for the company, which may preferably be contained in the company's constitutive document.
Key points revealed that the owners may establish a basic framework of corporate governance through the company's constitutive documents (eg articles of associations). There may be a formal schedule which states which matters are specifically reserved for the owners' decision and which are to be delegated to the board. · In the same time, owners may minimize the extent to which the basic framework of corporate governance constrains the ability of the board to shape the detailed governance framework.
The SECP said that the commission offers a corporate governance agenda for Non-Listed Companies (NLCs) in Pakistan. NLCs make a major contribution to economic growth and employment in all over Pakistan. However, Code of Corporate Governance ("CCG") relates to listed rather than NLCs. Many NLCs are owned and controlled by single individuals or families. Good corporate governance in this context is not primarily concerned with the relationship between boards and external shareholders (as in listed companies) nor with a focus on compliance with formal rules and regulations. Rather, it is about establishing a framework of company processes and attitudes that add value to the business, help build its reputation and ensure its long-term continuity and success.
Good corporate governance is particularly important to the shareholders of NLCs. In most cases, such shareholders have limited ability to sell their ownership stakes, and are therefore committed to staying with the company for the medium to long term. This increases their dependence on good governance. In an environment of mounting societal scrutiny towards the business world, even NLCs will have to devote attention to fulfilling their corporate responsibilities towards their stakeholders. An effective governance framework defines roles, responsibilities and an agreed distribution of power amongst shareholders, the board, management and other stakeholders. Especially in medium sized companies, it is important to recognize that the company is not an extension of the personal property of the owner. This document provides principles for NLCs on the issues involved in designing an appropriate corporate governance framework. This set of governance principles may be followed or not remains a voluntary decision of each individual company. Thirteen principles of good governance are presented on the basis of a dynamic phased approach, which takes into account the size of individual company.
A key step in the development of governance of NLCs is the decision to invite external directors onto the board for public interest and large sized companies/companies formed for not for profit having gross revenues exceeding Rs 500 million (excluding companies on which Public Sector Companies (Corporate Governance) Rules, 2013 are applicable) and its effect on behaviour of the board of directors. The principles provide a governance roadmap for NLCs. These principles may be relevant for subsidiary companies, companies formed and licensed for not for profit and joint ventures as well, the SECP added.