THERE is little doubt that the Companies Ordinance of 1984 was in dire need of an overhaul. The main corporate regulator, the Securities and Exchange Commission, needed to be strengthened significantly to be able to tackle the growing power of private capital in the economy, and disclosure requirements also had to be updated in a world where ownership patterns of companies can be concealed easily using offshore jurisdictions. The government appears to have made an attempt to do something along these lines with the new Companies Ordinance, but in bypassing parliament it has made a tactical error. Legislation of such importance, with many detailed clauses that have great impact on the conduct of business in the country, ought to have clearly been presented before parliament and debated in detail, with comments and feedback from the corporate sector, before being passed into law. Parliamentarians who are objecting to the ordinance have a point, and the government should find a way to work with them to navigate this legislation further.

A closer examination of the legislation also shows some troubling signs. The devil, it would appear, is in the details. For example, whereas the powers of the SECP are being augmented, as well as its autonomy, the discretion to exercise these powers will lie with the “minister in charge”, according to the legislation. This means the government will in effect exercise these powers as per its own discretion. As a rule, regulators can only be expected to discharge their obligations properly if they are empowered to act independently of the government, and their staff is protected from government interference through fixed terms of service. The legislation appears to be carrying out a bit of a sleight of hand on this important issue, by first empowering the SECP, and then making the augmented powers subordinate to the government itself. This is a risky configuration of power since it can potentially politicise the regulator, and open its actions up to allegations of being politically motivated. There are other examples of clauses that leave one wondering as to their intent. For this reason, considering how ambitious the scope of the legislation is, and the immense impact it can have on investment in the country, it should have been debated in parliament in close detail and scrutinised carefully before being allowed to become a law. The government should move to build a larger consensus.

Published in Dawn, December 2nd, 2016