good governance of corporations. In the last decade corporate governance has been adominant policy issue in developed and developing world alike. The issues that ensuetoday relate to how these corporations ought to be governed, who should govern themand how best to strike a balance between laissez faire and monitoring.There are countries that have pioneered in developing various legal frameworks, andare actively involved formulating an assortment of codes and statues that governthem. These countries are called the
of such codes and laws. Then there arecountries and territories that receive the laws and codes, which originated in someother country, and adopt them. These are referred to as
in the literature. Itis imperative to consider that the origins have developed these laws and codes in their unique social, political, economic and cultural context. A number of studies (Pistor etal. 2001, 2003; La Porta et. al. 1999, 2000; Branson 2000; Roe 2003; Lincht etal.2004) suggest that a simple adoption cannot be beneficial to the transplantingcountry until and unless it is well understood and is meaningful to the users in thecountry of transplant. This is because unless the regulations are relevant to the peopleand their implementation holds benefits for the masses, there will be no motivation for the recipients of the legal system to accept it and implement it. Secondly, due to theuniqueness of each country, any law irrespective of which family it has been takenfrom would need to be adapted to the transplant country. This requires institutions andlegal intermediaries, which understand the law and can make changes, therebymaking the law more pertinent to their own country, as suggested by Pistor et al.(Pistor, 2001).To be able to make meaningful policy recommendations, the meaning of corporategovernance needs to be understood and defined in a country with regard to its prevailing institutions. The source of differences in countries may be entrenched inthe uniqueness of social culture, political aspects, history, structure of ownership of
Corporate Governance in Pakistan -
Adopt or Adapt?
2companies, level of socio-economic development, institutional and regulatorycapacity, and legality to name a few. It needs to be appreciated that the corporategovernance problems in a developing or transition economy country are likely to bedifferent than those of a developed market economy. This is why the solutions thathelp solve the governance problems in the developed economies may not do the samein developing countries. Developing countries need to study the unique issues theyhave at hand, and then implant the relevant solutions from other countries, rather thanexpecting economic turnarounds by adopting solutions of corporate governance lock,stock and barrel.
1.2 Purpose and Significance of the Study
As the global debate on corporate governance heats, the importance of this topic toany country—particularly any developing country—cannot be ignored. Being one of the important countries of South Asia, with immense trading potential and ideal geopoliticallocation, Pakistan has proactively pursued various policy reforms tostimulate its economic activity, in recent years. The Securities and ExchangeCommission of Pakistan (SECP) issued the Code of Corporate Governance (referredto hereinafter as the Code), in order to establish a framework for good governance of companies listed on Pakistan’s stock exchanges. This Code drew upon policies of good governance adhered to by the U.K. and U.S. models of corporate governance(the anglo-saxon model). It was assumed that since the origins of Pakistan’s corporate