Critical review of corporate governance code of Pakistan
Submitted to: Mr. Awais Alam
Submitted by: Miss Manahil
Evolution of corporate governance in Pakistan
Corporate governance is at the main body of an organization in today’s business world. This is because of greatly increase in stallholders whose wealth and interests are at stake in the business. Another main reason is corporate governance is providing awareness to the stalk holders. Today’s business cannot survive without corporate governance. Corporate governance is not just concern to business activities, but also concern with different issues facing the society. concept of Corporate social responsibility is also evaluating by corporate governance. The main bodies of corporate governance hold policies of company, Board of Directors, the role of the CEO, creditors, Stockholders, regulators, report and maintain check and balances about the business operations. the Securities and Exchange Commission of Pakistan issued the Code of Corporate Governance in March 2002 which build up a framework for good governance of companies listed on Pakistan’s stock exchanges. In exercise of its powers under Section 34(4) of the Securities and Exchange Ordinance, 1969, the SEC delivered instructions to the Karachi, Lahore and Islamabad stock exchanges to incorporate the provisions of the Code in their respective listing regulations. As a result, the listing regulations were suitably modified by the stock exchanges. The Code is a compiling of best practices´, planned to offer a framework by which companies listed on Pakistan’s stock exchanges are to be directed and controlled with the objective of securing the interests of stakeholders and encouraging market confidence; in other words, to increase the performance and ensure conformance of companies. In doing this, the Code draws upon the experience of other countries in structuring corporate governance models, the experience of those countries with a common law tradition like Pakistan’s. The Code of good Practice of the Cadbury Committee on the Financial Aspects of Corporate Governance issued in December 1992 (U.K.), the Report of the Hampel Committee on Corporate Governance issued in January 1998 (U.K.), the Recommendations of the King’s Report (South Africa), and the Principles of Corporate Governance published by the .Organization for Economic Cooperation and Development in 1999 have been important documents in this regard. The Code is a first step in the systematic implementation of principles of The Code is a first step in the systematic implementation of principles of good corporate governance in Pakistan. Additional procedures will be required, and are expected by the SEC, to improve and merge the principles and to provide information to stakeholders about the advantages of strict agreement. Corporate governance is something new to describe a process, which has been practiced for long but did not given proper name, it has been practicing for long to run corporate entities. This process seeks out to guarantee that the business and management of corporate entities is carried on in agreement with the highest usual standards of ethics and competence upon assumption that it is the best way to secure and motivate the interests of all corporate stakeholders
Need for corporate governance
Suitable corporate governance is considered overbearing for the establishment of a Competitive market. The research suggested that those countries who applied corporate governance have generally experienced healthy growth in business sectors and higher capability to attract capital than those which have not. The positive impact of good corporate governance on different stakeholders eventually is a supported economy, and hence good corporate governance can help in socio-economic development. After collapse of east Asian economy president of world bank conclude that there must be need of good corporate governance in an organization and bearable development need good corporate governance. Health of nation’s economy depend upon complete and moral business, Pakistan took this act from Indian company consolidation act. In 1949, this Act was revised in certain respects, including its name, where after it was referred to as the Companies Act, 1913. Until 1984, when the Companies Ordinance, 1984 (the Companies Ordinance) was promulgated, following lengthy debate, Pakistani companies were established and governed in accordance with the provisions of the Companies Act, 1913. SEC run corporate entities in Pakistan, under the Companies Ordinance, the Securities and Exchange Ordinance, 1969, the Securities and Exchange Commission of Pakistan Act, 1997, and the various rules and regulations made there under. In addition, to the SEC. hence, stock exchange at which they are listed are regulates listed companies; State Bank of Pakistan regulate banking companies; companies engaged in the generation, National Electric Power Regulatory Authority regulates transmission and distribution of electric power; Pakistan Telecommunication Authority reregulate companies engaged in providing telecommunication services; Oil and Gas Regulatory Authority regulates oil and gas companies.
Corporate governance in Pakistan
In 1999 SEC started taking authorities if corporate governance, and still there to analyze changes occur in international business platform to provide guidelines to local business because changes effect indirect or direct change in local business market. Corporate governance provide multi-national strategies which help Pakistan corporate sector to face challenges and accept the change occur in global business sectors. SEC also motivate business to adopt goo corporate practices. This would provide check and balance in the corporate sector and provide safety to the interests of stakeholders, including defense of minority shareholders’ rights and strict audit compliance. Parties include regulatory body of corporate governance (e.g. the Chief Executive Officer, the board of directors, management and shareholders). suppliers, employees, creditors, customers and the community at large are also apart of organization as stalk holders. In corporations, the shareholder representative’s decision rights to the manager to act in the principal’s best interests. This separation of ownership from control implies a loss of active control by shareholders over managerial decisions. The separation between two parties, by this system of corporate governance have control over setting incentives of managers of concern shareholders. With the significant increase in equity holdings of investors, there has been an opportunity for a reversal of the separation of ownership and control problems because ownership is not so diffuse.
A board of directors often plays a significant role in corporate governance. It is their responsibility to make strategy for organization, to make policy which can direct the organization, appoint, supervise and remunerate senior executives and to ensure accountability of the organization to its owners and authorities. All parties to corporate governance have an interest, whether direct or indirect, in the effective performance of the organization. Directors, workers and management receive salaries, benefits and reputation, while shareholders receive capital return. Customers receive goods and services; suppliers receive compensation for their goods or services. In return these individuals provide value in the form of natural, human, social and other forms of capital. A key factor in an individual’s decision to participate in an organization e.g. through providing financial capital and trust that they will receive a fair share of the organizational returns. If some parties are receiving more than their fair return, then participants may choose to not continue participating leading to organizational collapse.