Corporate Governance in Pakistan

CORPORATE GOVERNANCE IN

PAKISTAN

ICAP constituted a Committee comprising its elected past Presidents, Presidents of the three Stock Exchanges in Pakistan, President of Institute of Cost and Management Accountants of Pakistan and a nominee of the Securities and Exchange Commission of Pakistan (SECP). The Committee’s Terms of Reference are set out in the exhibit. A sub-committee was formed to undertake the task of formulating recommendations for the Code.

THE NEED OF CORPORATE GOVERNANCE

While the world was witnessed a major stride forward and a growing interest for good corporate governance, the need to have a Code responsive to our objective circumstances is being increasingly felt as an imperative which is demonstrated by all concerned with the corporate sector including the investors, the financial services community, regulators and the accounting profession. Therefore, the need to have a framework of good corporate governance has never been so impelling as it is today. It is, therefore, pertinent to briefly highlight what is contemplated in the context of good corporate governance and what is sought to be achieved as the primary objectives of the endeavour.

OBJECTIVES OF CORPORATE GOVERNANCE

The corporate governance framework aims to establish a system whereby a company is enabled to be directed and controlled by its directors having due regard to compliance with the best practices enunciated by the Code for carrying out the conduct and affairs of a company. In the context of Pakistan, the need for good corporate governance assumes a more significant dimension given the corporate culture and infact the overwhelming number of companies which are closely held.

In particular, therefore, the recommendation of the Code to restructure composition of Board of Directors allowing for a broad-based representation by executive and non-executive directors is central to the recommended scheme of good corporate governance by emphasizing openness and transparency in corporate affairs and decision making process. This would, thus, tend to reinforce the trust of the investors and other stakeholders in a corporate setup.

The Code may help to achieve is to subject such corporate control and decision making process to a more formal and effective degree of discipline and diligence on the part of those in whom the stakeholders have vested their affairs and have reposed their confidence.

It is only the first ever institutional effort of its kind in Pakistan towards a corporate reform agenda which, if initiated in its right spirit and perspective with commitment on the part of all concerned, is expected to facilitate the continuing process of elevating standards of corporate compliance, disclosure and accountability.

In achieving the above objectives, the Committee has benefited immensely from, and would like to place on record its deep sense of appreciation of.

The Management Association of Pakistan and the like to issue from time to time guidance materials and best practice aids to facilitate managements to emulate the same with suitable adaptation as may be relevant in the specific circumstances. These Guidelines may include subjects such as:

• Statement of Compliance with the Code

• Statement of Ethics and Business Practices

• Framework of Internal Control

• Reporting on Internal Control by Directors

• Financial and Accounting responsibilities of Directors

• Responsibilities of a Corporate Secretary

• Responsibilities of a Chief Financial Officer

• Policy Statement on Materiality

• Directors’ Report

• Pattern of Shareholding Disclosure

• Secretarial Compliance Certificate

• Scope of Internal Audit

• Charter of Audit Committee

• Value Added Statement

• Scope of agreed upon audit procedures for review of half-yearly financial statements

• Guidelines for audit of “Statement of Compliance with the Code”.

The Code shall be applicable to all Listed Public Companies, Unit Trusts, Asset Management Companies, Development Finance Institutions, Non-Banking Financial Institutions (including