THE role of private board members in public sector companies is being reduced with new draft rules being initiated by the Securities and Exchange Commission of Pakistan.

For this, the amendments in the PSC (Corporate Governance) Rules 2013 have been placed on the SECP’s website for inviting the public’s comments and suggestions.

Under the existing rules ‘The Board shall have 40pc of its total members as independent directors within the first two years of this notification, which shall be raised to a majority of independent directors in the next two years, and the majority shall be maintained subsequently.’

“I resigned from both the boards only because the government implementation mechanism has to be more proactive ... People like me do not join the board of any entity because we want to make money from it — since we can make more money by allocating this time to our already established businesses...” — Mirza Ikhtiar Baig

However, the draft amendment says’: ‘The Board shall have at least one —third as independent directors.’

The ministry of industries maintains that the reason for reducing the number of private members is that they are ‘less willing’ to become board members of state-owned entities.

Similar views were also expressed by one well known business person who had been a member of the boards of PSO and Textile City.

“I resigned from both the boards only because the government implementation mechanism has to be more proactive and not like moving a file in the secretariat,” said Mirza Ikhtiar Baig. “People like me do not join the board of any entity because we want to make money from it — since we can make more money by allocating this time to our already established businesses — neither do we see any charm in garnering a name after becoming a board member — as we already known in all segments of society.”

He criticised bureaucracy for its lacklustre interest in doing business competitively.

Salim Mandiwala, the ex-finance minister during whose tenure the PCS Rules were formulated; is currently a member of the Senate and chairman of the Senate Standing Committee of Finance and Revenue. He is opposing the proposed changes.

“The state owned commercial entities are in a desperate condition only because of bureaucratic controls — if the number of independent directors is decreased the decision making will suffer.” Senator Mandviwala said.

On the other hand critics say despite the passage of three years since the enactment of the Public Sector Companies (Corporate Governance) Rules, 2013, there has been no significant change in the financial and management of public sector enterprises.

The majority of amendments in the Corporate Governance Rules 2013 have been forwarded by the Economic Reforms Units of the finance ministry to the SECP.

“Some concerns over the draft rules have been forwarded by the concerned line ministries,” said an official of the Finance Ministry, adding, “The major issue is that persons from the private sector who meet the proper criteria are reluctant to become board members — due to many reasons that include court cases and political involvement in these companies.”

As a result the relevant ministries have been facing problems in completing the boards of state-owned companies, since the Rules also bar any person from becoming a director of more than five listed, public sector companies.

After the approval of the draft Rules, the possibility of an independent member becoming the PSC chairman has become remote.

The existing Rule 4 (4) says that the board will elect its chairman amongst independent directors, while the draft says, ‘chairman of the board shall be elected by the Board of Directors of the PSC.’

The draft amendment has reduced the term of a director to three years.

A new sub-rule with six sub clauses has been introduced in the draft amendment providing a detailed procedure for the removal of nominated directors.

SECP officials say amendments to the Rules will ensure proper compliance of good corporate governance principles in state-owned companies; and the government would enter into performance contracts with directors at the time of their appointment.

Under the draft rules a “Public Sector Company shall not be working in a sound and prudent manner if it fails to conduct its business with due regard to the legitimate policy and development targets of the government.”

Besides there is another key change in the existing rules — ‘Any casual vacancy in the board shall be filled up by the directors at the earliest, but not later than ninety days thereof,’ has been omitted in the draft amendments.

The Economic Reforms Unit of the Finance Ministry has expressed confidence that the proposed amendments will improve standards of good corporate governance in public sector companies, increase their performance and maintain a balance between public service delivery and profitability.

Published in Dawn, Business & Finance weekly, October 3rd, 2016