CORPORATE GOVERNANCE IN PAKISTANINTRODUCTION
In March 2002, the Securities and Exchange Commission of Pakistan issued the Code of CorporateGovernance to establish 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 issued directions to the Karachi, Lahore and Islamabad stock exchanges to incorporate theprovisions of the Code in their respective listing regulations. As a result, the listing regulations weresuitably modified by the stock exchanges.
The Code is a compilation of “best practices”, designed to provide a framework by which
companieslisted on Pakistan's stock exchanges are to be directed and controlled with the objective of safeguardingthe interests of stakeholders and promoting market confidence; in other words to enhance the performanceand ensure conformance of companies. In doing this, the Code draws upon the experience of othercountries in structuring corporate governance models, in particular the experience of those countries witha common law tradition similar to Pakistan's. The Code of Best Practice of the Cadbury Committee on theFinancial Aspects of Corporate Governance published in December 1992 (U.K.), the Report of theHampel Committee on Corporate Governance published in January 1998 (U.K.), the Recommendationsof the King's Report (South Africa), and the Principles of Corporate Governance published by theOrganization for Economic Cooperation and Development in 1999 have been important documents in thisregard. The Code is a first step in the systematic implementation of principles of The Code is a first stepin the systematic implementation of principles of good corporate governance in Pakistan. Furthermeasures will be required, and are contemplated by the SEC, to refine and consolidate the principles andto educate stakeholders of the advantages of strict compliance.
WHAT IS CORPORATE GOVERNANCE?THE BACKGROUND
Corporate governance is a relatively new term used to describe a process, which has been practiced for aslong as there have been corporate entities. This process seeks to ensure that the business and managementof corporate entities is carried on in accordance with the highest prevailing standards of ethics andefficacy upon assumption that it is the best way to safeguard and promote the interests of all corporatestakeholders.