KARACHI, April 5: The Iraq war is a reminder and a wake-up call for the corporate Pakistan to focus on crisis management in turbulent times and in the realm of political economy, much beyond the mandate for financial risks.

Businesses have to survive and prosper by coming to grips with the fast changing economic and political scenario. In Pakistan a whole range of entrepreneurial risks has followed in the aftermath of 9/11: the armed conflict in Afghanistan and now in Iraq, the uncertain economic recovery of industrialized states, the local constitutional quagmire, the weak rule of law and the favourable “shock” of massive capital inflows and excess liquidity.

Added to these are the cyclic, regional and the country economic crises with growing frequency, from whose impact it is difficult for any country to escape in the globalization tide.

Finally, there is the regional tension that brought Indian troops on our borders, despite growing poverty in South Asia and its implications for social explosion.

In this context of a volatile world, the Management Association of Pakistan (MAP) is trying to redefine the risk management to extend its scope from financial perils to crisis management as an appraisal criteria for the best state-of-the-art practices, says Mumtaz Saeed, chairman of the MAP corporate excellence award sub-committee. A task force has been set up to review the criteria and appraisal procedure.

Uncertainties tend to impede investment. Emerging markets suffer more from uncertainties than the sophisticated developed economies. Before stock trading begins in the US and Europe every morning, the market sentiments are known, but not in local bourses, says Abdul Hameed Aslam of City Securities.

In their research reports, brokerage houses do deal with the political and sovereign risks, that are taken into account in trading and capital spending. But as is the practice in developed markets, the local firms have not evolved a crisis management manual designed for automatic triggering of steps required to overcome exogenous shocks, says management guru Mumtaz Saeed, and adds: “It is a specialized area.” Multinationals look at sovereign, political and financial risks before making investment in any country.

There is so much diversity in the local corporate culture, from not so modern family managed businesses to concerns following updated corporate management practices. The local professional managers now enjoy the trust of multinationals and have replaced foreigners in managing MNCs. In fact, the four companies with majority stakes held by foreign investors, which received last week’s corporate excellence awards and certificates 2001, are run by the local country heads.

In the current environment, foreigners prefer to set up joint ventures and local managers to run them. And the MAP task force is now mulling over a proposal whether the corporate excellence awards should be split into two categories, local firms and foreign companies. Multinationals operate on systems and style of management as handed over by their parents. Local corporates have developed their own indigenous systems. The two cannot be compared. It is like comparing an apple with an orange, says Mumtaz Saeed.

Yet, national companies are competing successfully with multinationals for corporate excellence awards. The number of awards and certificates 2001 clinched by locally owned firms is equal to those secured by companies with major foreign stakes.

Currently, the companies competing for the MAP awards have to respond to 92 questions, up from 68, on corporate governance (carrying weightage of 15 per cent) strategic direction and leadership (20 per cent) customer and market focus (17.5 per cent), human resources focus (17.5 per cent), operations management (10 per cent), information management (10 per cent) and risk management (10 per cent). Only 30 per cent of the marks are attributed to the financial performance and the rest 70 per cent go for good management practices.

Addressing the Corporate Excellence Award 2001, MAP president Syed Masoud Ali Naqvi said the MAP was also looking at the option of outsourcing the appraisal job to an independent body, like the Institute of Business Administration.