January 07, 2008	Monday	Zilhaj 27, 1428

THE code of corporate governance, prepared by the Security and Exchange Commission of Pakistan (SECP) in 2002, is being reviewed for an improved version and its strict compliance. A task force of the Pakistan Institute of Corporate Governance (ICGP) is currently formulating recommendations for further improving corporate governance.

‘‘We are proposing a systematic approach to improve corporate governance in 600 listed companies and their directors will have to observe the improved code of conduct and this is how we can protect the interests of shareholders”, Mr Fawad Azam Hashmi, the director of ICGP told Dawn. Besides, 50,000 registered companies will also be required to adhere to the revised code of corporate governance.

“The new code will be applicable to all private companies”, including family -owned, in letter and spirit. It envisages that no single person should have his or her control over the entire business. This will be good for the shareholders. After a lapse of five years with experiences gained, the ICGP is of the view that there was a need for certain improvement in the existing code of corporate governance.

‘‘We are not regulators to get things done by force but invite the directors of the companies and other concerned people to attend our various training programmes and workshops”, Mr Hashmi said. Last year, he said, 29 directors of the companies were given certificates in different modules. Now the plan is to offer training programmes to 100 company directors every year.

According to the existing code, all listed companies are expected to encourage effective representation of independent non-executive directors, including those representing minority interests, on their boards of directors so that the board as a group includes core competencies.

There are many things which at present are not being implemented by the directors which invite the intervention of the ICGP”, Mr Hashmi said.

The non -implementation of a code of conduct for ensuring good corporate governance is culminating in violations by auditors.

Similarly, failure in enforcing competition laws is causing problems in tracking down illegal cartels dealing in important commodities like sugar, cement and wheat.

In 2002-2003, the SECP had suspended licenses of many auditors for violating rules. But then former Commerce Minister Razak Dawood had asked the SECP to “go slow”. It was reportedly done on the pressure of the textile lobby who did not want any effective SECP.

“We even took action against directors who violated company laws but then things had died down and the commission once again became ineffective”, a concerned official admitted. When questioned, officials gave five reasons for not being able to deliver, which are: political instability, security concerns, weak writ of the government, dysfunctional judicial system incapable of enforcement of rights and obligations in a fair manner and all-pervasive corruption; and the lack of business ethics and sense of responsibility to look after the interests of all stockholders in accordance with the recognised principles of good corporate governance.

When approached, Secretary Finance Ahmad Waqar told Dawn that issues concerning corporate governance were being handled by the SECP policy board and that if anyone had any complaint, he or she should approach it. “There was one issue relating to de-mutualisation which was being resolved by the board”, the secretary finance said. The government was committed to ensuring good corporate governance and that anybody who would violate the rules will be taken to task.

He said the SECP had been directed to take notice of violation of rules by the listed companies. “We are not siding with anyone and will certainly ensure good corporate governance,” the secretary finance added.

To another question, he said that illegal cartels in cement, sugar, wheat sectors will be effectively monitored by the Competition Commission. This commission, he said, was set up by converting the defunct Monopoly Control Authority (MCA) which, he added, was a toothless organisation. He has just approved Rs50 million seed money for running the affairs of the commission. The issue, he admitted, had been delayed for want of certain clarifications. The salary structure of the new members of the commission will also be decided soon by the government.

When approached Mr Khalid Mirza, the head of the Competition Commission, said corporate governance depends on the effectiveness of the regulator in enforcing established norms as well as sincerity of purpose on the part of the companies. In the final analysis, the ultimate, underlying aim of capital market regulators is to create an environment that is attractive for capital.

Attracting capital, Mr Mirza said, is by no means an easy task. Capital seeks the best risk-adjusted returns in stable, hospitable and uncertainty-free law-abiding environments. Of course, globalisation and the IT revolution have greatly increased mobility of capital and integrated markets that are more contagious and sensitive than ever before.

‘‘This poses a huge challenge for regulators and economic managers. In fact, despite whatever we may do, capital knows no barriers and often, even a slight change in circumstances can cause billions of dollars to move from one end of the globe to another — at the press of a few buttons”.

Mr Mirza said the rationale for a competition agency, by whatever name called, rests in the belief that the government’s market-based policies relying on private sector as the engine for growth actually do very little to promote economic growth and efficiency if market abuse by dominant firms and unfair trade practices are allowed to flourish.

For a market economy to cater to efficient use of resources, competitive forces must be able to operate freely and on a level playing field. The new competition law that has recently been introduced in Pakistan through the promulgation of the Competition Ordinance, 2007 is inspired by the principles embodied in the Treaty of Rome and global best practices.

However, the chairman of the Competition Commission regretted that he has not been provided with seed money to run the organisation. At the same time, he said, no source of funding for the commission was identified and the salary structure of new members of the commission was not approved by the government.

‘‘I do not know under these circumstances I could deliver against cartels or ensure best business practices”, Mr Mirza said. He was expecting funding from the World Bank for the capacity building of the Competition Commission.