ISLAMABAD: Three years after its enactment, amendments are being made to the Public Sector Companies (Corporate Governance) Rules 2013 as the government functionaries have been facing issues in implementing existing rules.

The Securities and Exchange Commission of Pakistan (SECP) on Saturday issued the draft of amendments in the Rules and floated the document on its website to obtain feedback from all stakeholders including the public.

The need for amendments in the Public Sector Companies (Corporate Governance) Rules, 2013, has mainly been pushed by the Economic Reforms Units of the Ministry of Finance.

“Some concerns regarding implementation of the Rules have been forwarded by the concerned line Ministries of concerned Public Sector Enterprises (PSEs),” said an official of the SECP.

After consultations with the government, mainly finance ministry officials, the SECP has decided to introduce amendments to the Rules to ensure proper compliance and implement good corporate governance principles in the state owned companies.

“The state owned companies are failing to perform as per their potential and this issue has not been addressed properly in the past three years despite the introduction of the Rules,” the SECP official said.

“Though the public sector companies (PSCs) are significant economic players delivering critical services in important economic sectors but a large number of them are making losses and depend on government financial support,” he added.

The Rules were introduced in 2013 with the approval of federal government, aimed at improving the governance of PSCs through a range of measures, including empowering the board of directors, facilitating the government to exercise its ownership function, strengthening the internal control mechanism, etc.

However the amendments being introduced includes introduction of criteria for sound and prudent management of PSEs.

But at the same time the amendments suggest that the proportion of independent directors in the Boards be reduced from a majority to a minimum of one-third level.

Incidentally, an official of the Finance Ministry said the number of independent directors was being reduced only because the PSEs were facing difficulties in finding qualified persons from the private sector.

“Due to many reasons including court hearings – the qualified person who fulfill the criteria do not wish to become Board members of any government commercial entity – as a result many Boards remains either incomplete or have been filled by persons who did not meet the relevant criteria,” the finance ministry official said.

“But in both the scenarios cases have been filed against the government, which eventually further deteriorated the performance of the PSE and the ministry too,” he added.

The amendments have also made it stringent to remove non-performing directors while the criteria for appointment of chairman and chief executive of PSEs have been revised too.

However, the draft has also suggested that the government should enter into performance contracts with directors at the time of their appointment.

The SECP maintains the proposed amendments will improve standards of good corporate governance in public sector companies by facilitating them in improving their performance and minimise political interference in the management, and maintaining a balance between public service delivery and profitability.

Published in Dawn, August 28th, 2016