June 23, 2002	Sunday	Rabi-us-Sani 11, 1423

KARACHI, June 22: More shareholders are jostling for a place on company boards then any time before. Unlike the past when the number of contestants matched the number of vacant seats and all who stood were declared elected, increasing number of corporates are now having to go through the process of voting, counting and announcing the names of successful candidates.

As many as 25 persons stood up on June 1, to fight for 15 seats on the board of directors of Pakistan Industrial Credit & Investment Corporation Limited (PICIC); nine directors would be elected from 12 at the extraordinary general meeting of Ferozsons Laboratories Limited to be held on July 4 and even Lever Brothers Pakistan Limited (now Unilever Pakistan) went through the process of voting to elect nine of the ten who filed nominations for elections at the company’s annual general meeting on June 17.

Does all this signal the resurgence of shareholder activism?

Most lone contestants are unlikely to make to the company boards unless backed by majority shareholders. But isolated attempts have continued to be made — sometimes with success — as a couple of independents could elbow into company boardrooms of some textile mills back in the eighties. Even Highnoon Laboratories, a few years ago, collected enough shares and proxies to be able to place at least two nominees on the board of unlisted-Pfizer Laboratories Limited.

The recent flare up in shareholders’ interest for membership of board of directors that draws up company policies, could have to do, in part, with the recently promulgated ‘code of corporate governance’. The code has given teeth to the board. The ‘powers of directors’ were listed under section 196 of the Companies Ordinance, 1984—which by the way, some people consider a near replica of the repealed Companies Act, 1913. Because the law was so ancient, some of the powers such as “to make calls on shareholders in respect of money unpaid on their shares and to issue debentures” hardly have relevance with the modern times.

As for the ‘code of corporate governance’, its first and foremost clause relate to Board of directors. “(i) All listed companies shall encourage effective representation of independent non executive directors, including those representing minority interests, on their Board of Directors. For the purpose, listed companies may take necessary steps such that: (a) minority shareholders as a class are facilitated to contest elections of directors by proxy solicitation”. For this purpose, the code suggests a list of steps that quoted companies might take. Also part (b) of the clause require: “The Board of directors of each listed company include at least one independent director representing institutional equity interest of a banking company, DFI, NBFI (including a modaraba, leasing company or investment bank), mutual fund or insurance company”.

At least four of the fifteen directors elected to the Board of PICIC early this month, are stock brokers by profession. Clause (v) of the ‘code of corporate governance’ stipulates: “A listed company shall endeavour that no person is elected or nominated as a director if he or his spouse is engaged in the business of stock brokerage (unless specifically exempted by the Securities and Exchange Commission of Pakistan)”.

Although the ‘code’ has been incorporated by the stock exchanges in their listing regulations, it does not necessarily mean that stock brokers are disqualified from sitting on the company boards, for while enforcement of the remaining 45 of the 47 clauses of the ‘code of corporate governance’ have been marked as “mandatory” on companies, clause (i) relating to representation of independent non-executive directors, including those representing minority interests on the Boards and clause (v) about stock brokers as company directors, have been left as “voluntary”. The Regulator obviously sees no conflict of interest, which might warrant the stipulation of clause (v) also as “mandatory”; the Regulator must also be abundantly confident that possibilities of insider trading are none.

As for the revolutionary step of empowering minority shareholders to occupy places on company boards, there must understandably have been enormous resistance from powerful sponsoring directors, but it would be naive to believe that the more powerful Regulator might have succumbed under such pressure!