ISLAMABAD, Jan 7: The International Finance Corporation (IFC) — a private sector arm of the World Bank — has urged the Securities and Exchange Commission of Pakistan (SECP) to protect the shareholders’ rights by ensuring transparency in the governance of companies across Pakistan.

In its latest report — A survey of Corporate Governance Practices in Pakistan — made available to Dawn on Monday, the IFC also did not see sufficient comprehension on the part of the companies about building and enhancing the company’s / bank’s reputation, improving strategic decision making, gaining better access to external capital or to foreign institutional investment, or to international markets and effective risk management.

The IFC wanted the SECP to issue guidance notes for companies on preparation of statement of ethics and business practices in the revised code of corporate governance.

It asked the SECP to consider developing a guidance note for companies on how to prepare a statement of ethics and business practices, or it could include a template statement of ethics and business practices in the revised code of corporate governance.Pakistan’s resource of competence in corporate governance should be developed.

Lack of qualified staff to implement corporate governance practices and lack of information / knowhow about corporate governance were identified as main barriers to the implementation of corporate governance practices.

The IFC suggested that corporate governance as a subject should be taught at universities to develop qualified staff able to implement corporate governance practices effectively.

There is also a need to further strengthen the Pakistan Institute of Corporate Governance (PICG) so that it becomes a centre of excellence in terms of corporate governance research and professional development programmes.

“The roles of regulators, stock exchanges and courts need to be strengthened”, the IFC added.

It is of the view that in order to ensure effective implementation of corporate governance practices in Pakistan, along with the SECP, the stock exchanges and the courts have to play a critical and more active role.

“The stock exchanges have to be stricter in enforcing the listing rules relating to corporate governance. The courts also have to play a key role in enforcement of corporate governance practices. There may also be a need for refreshing skills and knowledge of regulators, courts and stock exchanges personnel so that they may effectively monitor the implementation of the code of corporate governance.

In this context, the chambers of commerce, trade associations, PICG, IFC and other professional bodies need to make companies aware of the business case for corporate governance by making them appreciate the advantages beyond compliance with legal and regulatory requirements. These advantages include improving access to external capital, making possible sustainable business growth, protecting shareholders’ rights, building reputation, achieving improved transparency in the governance of a business, and attracting investment by institutional investors, such as Hermes and CalPERS.

“At present, Pakistan has none of the three-trillion-dollar investment by Hermes and CalPERS in Asia. This business case should be promoted by conducting awareness-raising seminars.”

The review of the Code of Corporate Governance should emphasise principles that underpin the specific mandatory requirements already included within the code so as to make companies appreciate the rationale for implementing corporate governance improvements.

The IFC observed that even though respondents were implementing corporate governance improvements required by the code of corporate governance, such as establishing audit committees and a corporate secretary position, and producing a statement of compliance with the code and statements of ethics and business practices, their approach was one of box ticking.

A revised code, the IFC believed, should focus on underlying principles and explaining the rationale for corporate governance.

This may help develop a business case for corporate governance and implementing the true spirit of corporate governance practices, rather than the current, narrower, application.

The spirit of corporate governance itself has to be understood by companies in Pakistan before they will implement fully committed corporate governance practices.

There should be a sharpening up of the current statement of compliance with the code of corporate governance so that the narrative statement provides sufficient explanation to

enable shareholders to evaluate how the principles of corporate governance have been applied.

A task force should be established to review the code of corporate governance. Over the last five years, the Code of corporate governance, built upon a sound framework of company law, has developed a culture of compliance with corporate governance practices. The government has already set up a task force to look into these issues.

“Our overall recommendation is thus that even though Pakistan must continue to press forward with the enhancement of its corporate governance — while taking care not to stifle the nation’s entrepreneurial flair with a burgeoning volume of counterproductive regulation — the country should nevertheless follow the practice elsewhere across the world.”

This may be necessary so that the code more effectively represents some of the emerging corporate governance practice issues, such as independent non-executive directors, whistle-blowing procedures and remuneration committees, as well as to ensure that the code is in line with international changes in corporate governance codes and principles.

The IFC called for creating awareness and commitment to good corporate governance practices and compliance with the code of corporate governance.