CORPORATE governance is about promoting corporate fairness, transparency and accountability. It is the system by which companies are directed and controlled. In Pakistan, the code of corporate governance was introduced by the Securities and Exchange Commission (SECP) in mid-2002.

In the initial stages this code only applies to listed companies and is enforced through the stock exchanges as a requirement for listing. The idea is that if a company wants to access capital from the market, it needs to have sound governance practices in place, which have to be transparent and need to be disclosed. This disclosure, in turn, provides one of the many necessary tools to an investor to make an informed decision on whether to invest in a particular company or not.

It is widely thought that after the passage of more than three years, the Code is being followed by companies more in letter than in spirit.

However, it is also believed that over a period of time, as more and more companies begin to understand the benefits of implementing good governance practices, both external and internal factors will demand that they inculcate these practices in their company operations.

Not only does good governance provide companies with better access to finance, it also improves internal efficiencies by improving the decision-making process, streamlining operations, enhancing reputations. All this, in turn means better performance and improved profitability.

The World Bank and the International Finance Corporation (IFC) recently undertook a study on Pakistan’s corporate governance framework to assess how it compares to similar frameworks in other emerging economies. Not surprisingly, the country has fared favourably well over other countries.

The study concludes that although there are several areas, especially in the state- owned sectors, which require improvement, much has been achieved in improving corporate governance in the country over the past few years. It recommends that the reform process should continue and more awareness amongst the various stakeholders needs to be created. The recently established Pakistan Institute of Corporate Governance will assume this role.

At a recent roundtable event held in Karachi to disseminate the findings of the study (‘Report on Observance of Standards and Codes’ (ROSC), the IFC unveiled its programme to assist in improving corporate governance practices. The IFC strategy was outlined by the manager of this project, Kaiser Naseem.

Through the incorporation of good governance, companies will be able to attract much needed investment, improve the way they do business and address the needs and demands of various stakeholders.

And through its corporate governance project, the IFC will work directly with private companies and financial institutions, regulatory bodies like the SECP and State Bank and educational institutions. But the main focus of IFC will be to assist in building the capacity of the Pakistan Institute of Corporate Governance (PICG) through transfer of technology and know-how in corporate governance.

The IFC corporate governance project will focus on the following areas:

* Helping the Institute of Corporate Governance to set up training and certificate programmes on corporate governance for company directors, managers, and secretaries;

* Helping the institute to build a capacity for research and development to conduct surveys, issue publications, and produce best practice manuals and guidelines;

* Developing and provide consulting and advisory services on corporate governance to Pakistan’s banks and corporations;

* Providing policy advice to the government on legal and regulatory reforms relating to corporate governance to ensure that any regulation that is enforced is in line with market needs and that is well understood by the corporate sector.

Good corporate governance makes good business sense. It is hoped that the larger, listed companies will take the lead and provide the much needed leadership role so that other smaller, family-owned operated companies could follow suit.