Challenges and Issues in

Corporate Governance

Scope of Corporate Governance

Corporate Governance is concerned with holding the
balance between economic and social goals and
between individual and communal goals. The
governance framework is there to encourage the efficient
use of resources and equally to require accountability for
the stewardship of those resources. The aim is to align
as nearly as possible the interest of individuals,
corporations and society.
The foundation of any structure of corporate governance
is disclosure. Openness is the basis of public confidence
in the corporate system and funds will flow to centers of
economic activity that inspire trust.
-Sir Adrian Cadbury.

 Shareholders role in governance is to appoint

the directors and the auditors. Poor corporate
governance has ruined companies, sent
directors to jail, and destroyed a global
accounting firm and threatened economies and
governments.
e.g., Taj Company
Cooperatives scandal
Mohib Textile Mills Ltd

Cadbury Report (1992)

Wider use of INDEPENDENT DIRECTOR
Introduction of AUDIT COMMITTEE

Separation between CHAIRMAN and CEO

Adherence to detailed code of BEST
PRACTICES.

OECD Principles of Corporate

Governance, (1999)
Protect rights of SHAREHOLDERS
Recognize the rights of STAKEHOLDERS

Timely and accurate DISCLOSURE

Responsibility of the BOARD

Scope of Code of Corporate

Governance, 2002

The code provides a framework for efficient

and transparent running of listed
companies to enhance shareholder value.
The regulators need to be vigilant to
enforce the code in its true spirit.

The Code of Corporate Governance

(2002)

Non Executive Director

Qualification of a Director
Tenure of Director
Governance Policies of the Directors
Information to Directors
Orientation Courses
CFO/ Co. Sec
Corporate and Financial Reporting
Audit Committees

BOARD OF DIRECTORS
Encourage effective representation of independent non-executive
directors, including those representing minority interests.
a. minority shareholders as a class are facilitated to contest.
(through the use of proxy)
b. At least one independent director representing institutional
equity interest of financial institution. (a director nominated as a
director under section 182 and 183 not be taken as independent
directors)
c. Executive directors not more than75% of the elected directors.
(Voluntary provision)

The directors to give consent that they are aware of their duties
and powers

QUALIFICATION AND ELIGIBILITY TO

ACT AS A DIRECTOR

Director, not to be a director in more than ten other listed

companies.

ii. Director needs:

a. to be registered as a National Tax Payer ; and
b. Not to a defaulter as convicted by court of a banking
company, development financial institution, or a non-banking
financial institution or as a member by the Stock Exchange.

iii Not to be director if spouse is engaged in the business of

Stock
Brokerage (voluntary)

TENURE OF OFFICE OF DIRECTOR

iv. Three years, vacancy to be filled in 30 days

RESPONSIBILITIES, POWERS AND

FUNCTIONS OF BOARD OF DIRECTORS
Every listed company shall ensure
a. Statement of Ethics and Business practices is prepared
b. Board of directors to adopt vision statement, and overall
corporate strategy; formulate significant policies (for the
purpose of risk management, marketing, etc.)
c. Establish internal control
d. Documentation by resolutions passed in meetings on all
serious issues. i.e. investment and dis-investment of funds,
loans, write-off of bad debts etc.

RESPONSIBILITIES, POWERS AND

FUNCTIONS OF BOARD OF DIRECTORS
e. Appointment etc. of Chief Executive to be determined by the
board.

f. Investment policy of modaraba institution to be approved and

reported in annual report.

Significant issues to be placed for decision by the board of

directors (i.e. annual business plan, budgets, joint ventures
etc.)

Orientation courses for directors.

QUALIFICATION OF CFO AND CS

CFO has to be:
a. professional accountant ;
or
b. graduate with 5 yrs experience in handling financial
affairs in a listed company or a bank.
CS has to be:
a. professional accountant ;
or
b. member of a recognized body of corporate/chartered
secretaries or
c. lawyer ;
or
d. a graduate with 5 yrs experience of handling corporate
affairs.

FINANCIAL REPORTING
CORPORATE AND FINANCIAL REPORTING
FRAMEWORK
Directors report to shareholders. Give complete and candid
position of the company.

i.
ii.

RESPONSIBILITY FOR FINANCIAL REPORTING

Financial statements to be duly endorsed by CEO and CFO
Secretarial compliance certificate required with annual
returns

DISCLOSURE OF INTEREST BY A DIRECTOR.

AUDITORS
AUDITORS NOT TO HOLD SHARES

External Auditors and their spouse restricted to purchase shares

in the company they are auditing.

AUDIT COMMITTEE
i.

not less than three member committee preferably from nonexecutive directors.

ii. Committee to meet at least once every quarter.

iii. CFO to attend meetings of Audit committee.

Enforcement issues of the Code

INTERNAL DISCIPLINE
Restricted to listed companies
Regulation under section 34(4) of the
Securities Exchange Ordinance, 1969 structurally flawed
Penalty- section 9(4) of the S.E. Ord, 1969
Soft law
Voluntary in nature

Based on self regulation

Drivers:
Incentive for better performance
higher profits for the shareholders
attracts more investment
Shareholders (minority rights under the
Companies Ordinance, 1984 - sections
263, 265, 290, 305)
Institutional investors- eg. Mutual funds,
financial institutions, insurance companies
(Calpers, etc)

EXTERNAL DISCIPLINE

Drivers
Stakeholders (financial and community)
Regulators (SECP Act, 1997/ CO Ord, 1984)
Institutional shareholders
environmental law
labour and taxation laws.
Stock exchanges
International credit rating firms
Media
NGOs

Areas to consider:
Shareholders rights
Stakeholders rights (financial institutions, employees,
Community)
Corporate Social Responsibility (CSR)

Union Carbide- Bhopal.

Exxon Oil Spills in Alsaka
Cement factories in Kahoon
Leather Factories of Kasur

corporate governance: not limited to

companies
Public sector corporations new
legislations provide better governance
structure.
Other corporate vehicles: cooperative
societies ?
Other vehicles of business: Partnerships
no mention doing big business

Thank You!