PEOPLE are neither aware of the performance of private companies nor do they celebrate their success. The firms, on their part, distrust the public. Also, their philanthropic activities remain opaque.
The big firms maintain account books fairly well, and try to help vulnerable segments as part of corporate social responsibility (CSR). However, when it comes to being accessible and open to the public about their business operations, they also shut themselves up and withdraw. The multinationals observe transparency to meet disclosure standards of parent companies, but they do not offer much information accessibility.
It is forgotten that for markets to function well, stakeholders have to take informed decisions. Corporate governance lacks shareholders democracy and is not shaped by a democratic process.
The local companies—mostly family-owned—, seem more inclined to keep out of capital market as listing mandates regular disclosure of much more information and accounts. In most cases, they lack professionalism and their primary focus is on high profit margins.
Corporates generally are risk averse and bank on borrowed money, and look to the government to rescue them, if they come under stress.
An environment of mutual mistrust plays itself in a one-sided relationship of the corporate sector with the media. It is believed to have blunted the sharp edges of the emerging independent media through advertisement support.
“The attitude of self-righteousness is all-pervasive in the conduct of the private sector as well. For them, media coverage means company projection. Any independent comment is unwelcome”, grumbles an economic journalist.
Syed Adil Gilani, Chairman, Transparency International Pakistan, expresses his dissatisfaction over the state of disclosure and transparency in the private sector. He was critical of the media that, he felt, focuses on the affairs of state and its enterprisesbut spares private companies from public scrutiny.
“When did you last saw an investigative story exposing any digression by telecom giants?” he asked this scribe implying willful oversight because of their huge advertisement budgets.
“Yes, the private companies are secretive that cast doubts over business practices in those outfits”, he told Dawn. He was critical of Security and Exchange Commission of Pakistan (SECP), the key regulator of the private companies, that he felt was not vigilant enough to ensure ethical conduct of the companies that the relevant laws dictate. He did appreciate Competition Commission that proceeded against some powerful entities to enforce market discipline.
Mohammad Ali, Chairman, SECP, did not find situation alarming though he admitted that the private sector is shy and prefers to limit its interaction with media. He blamed the corporate culture for the trend. Besides, he felt, the media has yet to mature to be able to understand intricacies and cover business effectively.
Khalid Mirza who earned himself a reputation for integrity and efficiency when he headed Karachi Stock Exchange and later the Competition Commission of Pakistan, felt that a clear distinction needs to be made between public and private limited companies. “Yes, the regulators should be efficient but the aim should be to encourage healthy market practices without scaring good entrepreneurs and foreign investors”, he told Dawn.
“For market efficiency and competitiveness, it is absolutely necessary that corporate citizens function responsibly”, he added.
Farhat Ali, former president of Overseas Chamber of Commerce and Industry agreed that a majority of local companies do not follow disclosure guidelines set in the Company’s Act and other relevant laws.
“It is a common knowledge that substandard disclosures by local companies create asymmetry in the market which, in the end, affects productivity, creates distortions in the market and leads to misallocation of assets.”
Farhat, on the other hand, defended multinationals. “I headed a company myself and know for a fact that standards of disclosure and transparency in multinationals are higher than what the local legal framework demands. I can say withconfidence that they are fully compliant.”
“It is hard for me to buy the argument of full compliance. Most companies I know keep three books of account. One for regulators, one for banks and one for their own record. If this is the level of compliance on audit and accounts it would benaïve to expect firms to adhere to other social standards”, said an outspoken businessman with interests in the pharma sector.
Responding to the question regarding reasons behind the mindset, Qaisar Waheed, the former president Pakistan Pharmaceutical Manufacturer Association blamed the taxation regime and the country’s administrative machinery thatpunishes honest enterprising businessmen and rewards corrupt and irresponsible elements.
“The fact is that business has neither forgotten nor forgiven nationalisation of 1970s that destroyed some business houses and robbed the entire community of the confidence required to perform and share fearlessly. Here flourishing businessmen keeplow not to attract attention for fear of persecution by tax men, extortionists or terrorists”, Waheed told Dawn over phone.It is an undisputed fact that transparency serves to improve efficiency and productivity. The studies on the subject indicateinverse relationship of good governance with the cost of capital, and a positive impact on confidence of decision makers, shareholders, investors and lenders. It helps public understanding of a company with regard to ethical standards and its impact on the community where it is located. It acts as a deterrent to fraud and corruption.