In a developing country like Pakistan, policymakers try to adopt ‘the best international practices’ often with total disregard to the differing company and national cultures.

They forget that even the best of universally applicable practices have to be adapted with appropriate timing and sequence of ‘reforms.’ Here China has a lesson to offer. Policymakers in Peking say they have developed successfully ‘capitalism with Chinese characteristics.’

Similarly, quite often mergers of companies do not prove so successful because of conflicting company cultures with the buyer calling the shot. One cannot ignore the fact that much of the best international corporate or banking practices over the past few decades were more of a myth rather than a reality as proved by the US and European fiscal crisis and the Great Recession of 2008-09.

In Pakistan, the Security Exchange Commission of Pakistan wants to promote the ‘best international practices’ to protect investors, ‘mitigate systemic risk’, spur growth of corporate sector and develop broad-based capital market. In principle all these objectives would appear to be laudable. The problem lies in how to go about it, assuming that the regulatory framework can only mitigate the systemic risk by adopting practices best suited to the country’s soil while drawing upon the experiences of other countries particularly in similar stages of development.

In the current investment environment, as reported in this newspaper earlier, private companies are reluctant to go for listing. “If there is no need for money from the capital market” , says a businessman, “why should one go for listing.” Managements of some listed firms complain that ‘ the cost of hassles do not justify the gains from listing.’ And a textile industrialist , frustrated with the problems he is facing, says “sorry, I am in no mood to be lectured on the virtues of corporate governance.”

Instead of opting for listing to raise money for new projects, some the capital spending is currently going into industrial consolidation through equity investment, encouraged by tax incentives, and some into inter-corporate financing and outsourcing of non-core business by big companies. In fact anecdotal evidence indicates that at least for the time being listed public companies are no longer in ‘fashion.’

With networking of value-chains helped by the Information Technology replacing production under one roof, production facilities are being dispersed widely. This is so visible in textiles and auto industry.

Conventional trends in investment are changing whether it is equity/debt ratios or sectors. Companies providing farm inputs are prospering. Apparently, the food sector is attracting quite a bit of investment. And the informal sector seems to be doing better than the formal segment.

As current trends indicate an improved corporate culture can come about when the private sector itself realises that modern corporate code leads to what is described as ‘a smart operation for businesses’. Meanwhile, in the current phase of sluggish investment and rising unemployment, it would be in the fitness of things to encourage capital spending rather than stifle the growth process through over-regulation.

Well over 60,000 non-listed companies are registered with the SECP with more than half ‘inactive’. The SECP plans to focus on them next year. In times of multiple crisis, rules need to be relaxed rather than tightened. Administrative compliance does not work.

It is an era of voluntary compliance. In Pakistan as well as worldwide, rules and regulations are being observed more by violation than compliance. The writ of the state has everywhere weakened with the sway of the market forces. There is no social force strong enough to counter developing fault lines in corporate governance. Regulators have been proved incompetent in a complex and fast changing world.

The market has to be encouraged to observe voluntary self-discipline which would not be difficult to achieve if ‘perverse subsidy’ or ‘bailout’ is denied to companies in case of self-created crisis.

The withdrawal of ‘perverse subsidy’ would end ‘rent-seeking’ and encourage organic corporate development. American corporate executives were tempted to take huge risks as they know that were ‘too big to fail’ and would ultimately be bailed out by tax payers’ money. Regulations or no regulations, this way corporate culture cannot improve.