Corporate Governance-The Biology of Incorporated Businesses

Table of contents
Executive Summary.............................................................................................................1 Corporate Governance.........................................................................................................2 Components of corporate governance.................................................................................3 The Board of Directors B!D"........................................................................................# The CE!$ Company Secretary and C%!.........................................................................& 'eporting and (eetings...................................................................................................) The System of good corporate governance....................................................................11 ............................................................................................................................................12 Corporate governance in *a+istan.....................................................................................12 *,CG at *resent..............................................................................................................1# *,CG Code of Corporate governance............................................................................1& Corporate Governance Case studies..................................................................................2The .u/ri0o1 Corporation..............................................................................................2Cairo and 21exandria stoc+ exchange C2SE"..............................................................21 Cases in *a+istan............................................................................................................2& Conc1usion.........................................................................................................................23 Bi/1iography......................................................................................................................24

Executive Summary
Corporate governance is the set of policies, people, laws, regulations and reporting of corporate business entities. It is a primary focus of regulators in todays world. Sound corporate governance brings prosperity to the masses in the economy by raising investor confidence and proper management of the investments. Good corporate governance is vital for organisations to survive.

Institute of Business Management, Karachi Spring !!"

Corporate Governance-The Biology of Incorporated Businesses The major components of corporate government are the !oard of "irectors, the #$ecutive %ffices, &egulators, &eports, 'pper (anagement, and Company )olicies. The flow of corporate governance comes from the top through the board, it is moulded into the organisation through the C#% and reflected in the reporting process with transparency. The over all flow is influenced by e$ternal sta*eholders. Corporate governance in )a*istan is still at the developing stage. The regulators mainly the Securities and #$change Commission of )a*istan and the State !an* of )a*istan, are constantly engaged in developing corporate governance in the country. The government has formed an institute of corporate governance which promotes good corporate practices through various means. Cases of poor corporate governance can be found around the world. They are mostly connected to fraudulent practices. The other major malpractices were irregularities in accounts, non+compliance with law, nepotism, and e$ploitation of minority share holders.

Corporate Governance
The term corporate governance refers to all the activities, policies, personnel, regulations and reporting which is related to the control of the companys actions. Corporate governance is done through all those individuals who have a controlling influence in a corporation such as creditors or stoc* holders. It focuses on reducing principal+agent problems and undermines sta*eholders view in company operations.

Institute of Business Management, Karachi Spring !!"

Corporate Governance-The Biology of Incorporated Businesses Corporate governance is at the centre of attention in todays business world. This is greatly due to the large number of sta*eholders whose wealth and interests are at sta*e in the business. ,hat has further highlighted corporate governance today has been the increasing influence and awareness of these sta*e holders. ,ith out sound corporate governance a business cannot survive. Corporate governance is not just related to core business activities. Good corporate governance caters to various other issues present in the society. Corporations today have developed a concept of corporate social responsibility. The major components of corporate governance comprise of company policies, !oard of "irectors, the role of the C#%, creditors, Stoc*holders, regulators, reporting and maintaining overall transparency about the business operations. Corporate governance can be both good and bad. The Securities and #$change Commission trys to ensure that sound corporate governance is maintained in all businesses by regulating corporations. -urther business e$pansion is also dependent on sound corporate governance.

Components of corporate governance

Corporate governance is not just related to human elements. .s mentioned earlier, it comprises of all the policies, practices, activities, individuals and sta*eholders of the business. The (ajor components of corporate governance could be stated as/ The !oard of "irectors 3

Institute of Business Management, Karachi Spring !!"

Corporate Governance-The Biology of Incorporated Businesses The 'pper (anagement The Stoc* holders The &egulators and other Sta*eholder institutions &eporting Company )olicy Company .ctivity The C#%, Company Secretary, and C-% (eetings

The Board of Directors (BOD) Good corporate governance is always tric*led down from the top of the organi0ation. Therefore the role of the board of directors plays a significant role in the overall corporate governance of any organi0ation. The !%" is responsible for developing policies and communicating the company objectives to the operational levels. These objectives must be developed in line with the regulations and demands of the various sta*e holders. The !%" appoints a chief e$ecutive officer 1C#%2 to play an intermediary role between the principal 1%wners2 and the .gents 1(anagement and #mployees2 in order to achieve company goals.

The !%" must be of sufficient si0e and must be fully aware of shareholder and other sta*eholder objectives apart from the business environment. The !%" primarily is consisting of individuals who have a significant share of ownership in the entity. 3owever other directors maybe hired if felt necessary. Those members of the !%" who are also shareholders are termed on!Executive Directors", whereas the directors who are specifically hired on the basis of need and are not

Institute of Business Management, Karachi Spring !!"

Corporate Governance-The Biology of Incorporated Businesses shareholders to the business are called Executive directors". There is no specified mi$ of the number of e$ecutive and non+e$ecutive directors in the board. 3owever the regulators have assigned the minimum number of directors to a specified number which varies from country to country. The selection of the "irectors is done through elections at company meetings on defined time intervals.

The CEO# Company Secretary and C$O Three of the most crucial e$ecutive offices are Chief #$ecutive, Chief -inancial %fficer 1C-%2, and the Company secretary. These offices are run through high ran*ed personalities who posses sound *nowledge of running corporations. The regulators *eep close chec*s on these officers and their selection process is the outcome of several scrutini0ing procedures. The selection of these individuals is done through an election process and the final approval is given by the regulators after assessing the various eligibility re4uirements such as 4ualification and e$perience. .ll of these individuals have tremendous responsibility and are to be held accountable for appro$imately all of the company activities. They are also given the highest remunerations and authority.

They must be well aware of all the rules and regulations defined in the countrys corporate law. The CEO plays the most significant role in managing the organisation and the principal+agency relationship. The C#% is the highest paid individual and is responsible and accountable for all business activities and performance. . good C#% is pivotal for the prosperous functioning

Institute of Business Management, Karachi Spring !!"

&

Corporate Governance-The Biology of Incorporated Businesses of the organisation. .n effective C#% must possess sufficient 4ualification and s*ill to communicate !oard objectives to the lower layers of the hierarchy and to e$ecute them in to performance. The appointment of the C#% is done by the !%", however once the !%" has selected a C#% he is finally approved by the relevant regulatory body. (uch scrutiny is done on the character, s*ills and abilities, 4ualification and e$perience of the C#% before he is appointed. The C#% is accountable to the directors and should be held responsible for all performances of his subordinates. The Company Secretary is another *ey figure in the corporate governance structure of an organisation. The company secretary is primarily responsible for ensuring that shareholder interaction with the regulator and company offices are in line with the rules and regulations laid out in the corporate law. The company secretary is also responsible for maintaining interaction with shareholders and regulators, the CS must communicate to the relevant members the schedules of meetings, elections, results and other announcements.

The regulators have defined certain 4ualifications for a person to be legible as a candidate for Company secretary. The Chief $inancia% Officer is perhaps the most important post after the C#%. The C-% has a significant amount of power and say in the company and is in charge, accountable and in control of all the companys financial activities. The C-% must also be approved by the Securities and #$change Commission, and is also re4uired to possess suitable financial 4ualifications in order to hold the office of C-%. C-%s

Institute of Business Management, Karachi Spring !!"

Corporate Governance-The Biology of Incorporated Businesses are usually the second highest ran*ed officers in organisations and receive a healthy remuneration.

The &egu%ators The regulators are usually comprised of a number of government institutions which try to ensure that the best methods of corporate governance are being practiced in an organisation. The &egulators are of two types 52 )rimary &egulatory !odies, 62 Secondary &egulatory !odies. )rimary &egulatory !odies are those regulators that are the same for all businesses regardless of the industry. The securities and e$change commission of )a*istan 1S#C)2 is one such e$ample. The S#C) is the primary regulator for limited liability companies. #ach corporation must register itself with the S#C) in )a*istan. The companies are also obliged to provide a number of documents and information to the S#C).

Secondary regulators are those regulators which are industry specific. -or e$ample the State !an* of )a*istan for the !an*ing industry. These regulators are responsible for developing rules and regulations in order to maintain best practices in the respective industry. e.g. the 7 -ood and "rug administration is the regulator for the companies in the food and drug industry of the 'nited States, or the 8arachi )ort Trust as a regulator for all shipping lines calling the 8arachi )ort. The primary tas* of all regulators is to monitor, generate and enforce laws, and to Institute of Business Management, Karachi Spring !!" 3

Corporate Governance-The Biology of Incorporated Businesses ta*e suitable action for any deviations from the defined laws and codes of governance. Other Externa% Sta'e (o%ders .part from the !%", #$ecutives, &egulators and upper (anagement there are various other elements which play a *ey role in a companys corporate governance. The e$tent of their role is defined by the influence or controlling interest they hold in the organi0ation. Some of the major indirect corporate governors are/ Creditors Customers Society (edia The general public %ther rights groups

(any provisions are provided in the corporate law to increase in the influence of these sta*e holders in the corporate governance of the company. The provisions are based on the magnitude of the sta*e these parties possess. e.g. the creditors are given a right to assign their candidate on the !%" just to ensure that the money of the creditors is being utili0ed properly. Similarly, minority shareholders are also allowed to nominate their candidate for a !oard Seat.

Institute of Business Management, Karachi Spring !!"

Corporate Governance-The Biology of Incorporated Businesses

&eporting and )eetings &eporting company performance is an essential element for good corporate governance. The best corporate governance practices re4uire a comprehensive and transparent reporting system. There are some conflicts in this regard occurring between the various components of the corporate governance. The cost of mailing reports to each and every shareholder is seen at times burdensome, especially when it is of reporting to a small shareholder. &eporting nonetheless is considered as a very important part of corporate governance. The companies have to report about company performance not only to shareholders, but to almost all the relevant sta*e holders. e.g. the &egulators, Creditors, general public and other rights groups. The regulators have made certain reports mandatory to be published and delivered to concerned individuals and institutions on specified time intervals.

Some of the major reports that are published are/ .nnual &eports 9uarterly reports &eports for the regulators &eports for the stoc* e$changes CS& &eports (ar*eting &eports

Institute of Business Management, Karachi Spring !!"

Corporate Governance-The Biology of Incorporated Businesses Investment &eports )erformance evaluation &eports The .nnual report and 4uarterly reports are considered to be the most significant reports for all sta*e holders. They provide a thorough financial analysis, performance analysis and information that is vital for investors, regulators and the general public. Contents of the annual and 4uarterly reports are/ -inancial statement .uditors report "irectors, C#% and C-%s &eport Statement of ownership e4uity "ividend )olicy disclosures .ny other reports considered to be necessary for the sta*e holders

The C-% plays a crucial role in the reporting process. The financial statement are the major part of the report and consist of the !alance Sheet, the Income Statement, statement of cash flows, statement of owners e4uity, financial derivatives and notes attached to the report which assist in comprehending the report, the dividend policy must also be elaborated in the report. These statements have to be approved by both the C-% and C#%, however they are more relevant to the C-%. Institute of Business Management, Karachi Spring !!" 1-

Corporate Governance-The Biology of Incorporated Businesses

(aintaining transparency and integrity in the reports is what is considered as the *ey feature for good corporate governance practices. Timely publication delivery to the relevant institutions and individuals, and report presentation are vital elements for good reporting. There is increasing debate on the e$tent to which the reports are window dressed and influenced by biasness.

The System of good corporate governance

Board of directors deve%op po%icies and direct management *ith primary focus on Shareho%der +enefit and Sta'eho%der vie*

Institute of Business Management, Karachi Spring !!"

11

Corporate Governance-The Biology of Incorporated Businesses

CEO acts as a +ridge +et*een BOD and )anagement in imp%ementation of po%icies &egu%ators inf%uence governance in order to provide +enefit to the masses

)anagement performs activities *ith good +usiness savvy# o+-ectivity and integrity

Good Corporate governance

Corporate governance in ,a'istan

Corporate governance is rapidly developing in )a*istan. In 6::6 the state ban* of )a*istan launched a project for developing the )a*istan institute of corporate governance. The idea was to encourage sound and strong corporate governance in the )a*istani corporate sector. The motive behind the project was based on the fact that investor Institute of Business Management, Karachi Spring !!" 12

Corporate Governance-The Biology of Incorporated Businesses confidence in the economy is dependent on the 4uality of corporate governance of institutions. It was felt that the e$isting business schools were not providing sufficient focus on developing strong corporate governance. The institute of corporate governance would focus on/ Training of S#C)s own staff Staff of the stoc* e$changes To impart training to the directors .nd promote awareness about good corporate governance

The project was e$ecuted in collaboration with the ';"). The )ICG was developed to form a bridge between two prominent sta*e holders in the corporate world, namely 52 The &egulators, 62 The Corporations.

#$perts suggested that the )ICGs role could be further facilitated by the following aspects/ Training of Corporate Secretaries, the C#%s and possibly the C-%s )reparation of research reports on corporate issues and matters

Institute of Business Management, Karachi Spring !!"

13

Corporate Governance-The Biology of Incorporated Businesses The )ICG maga0ine to contain articles, guidelines and reviews on various corporate matters )ICG to develop e$pertise to mediate in conflicts resolution in corporate matters To )rovide other resource material for promoting sound corporate governance

,.CG at ,resent The )ICG at present is operating as a not+for profit organi0ation, limited by guarantee and without share capital. Its setup has been structured through a public+private partnership, the shareholders include, in addition to the Securities and #$change Commission of )a*istan 1 S#C)2, the State !an* of )a*istan 1 S!)2, the three Stoc* #$changes in )a*istan, the !an*ing, Insurance .ssociations and .pe$ bodies of the chambers and ;!-Is, )rofessional bodies of .ccountants < Company Secretaries, .cademia, and the Corporate Sector.

The )ICG offers a membership program. (embers obtain facilities

such as/

!eing associated with high level corporate networ*ing. .ccess to the latest thin*ing and best practices in )a*istan, Commonwealth countries and elsewhere in the world.

Source# $$$%picg%org%p&

Institute of Business Management, Karachi Spring !!"

1#

Corporate Governance-The Biology of Incorporated Businesses The opportunity to help influence and improve Corporate Governance standards in )a*istan.

)em+ers of the .nstitute are a+%e to/ )lay a part in achieving the Institute=s mission )articipate in and vote at the annual meeting !e eligible for election to the )ICG !oard and wor*ing committees .ttend meetings, roundtable discussions, wor*shops, programs and other )ICG activities, at concession rates #nlist your name and biographical details on the )ICG website )articipate in wor*shops on developing guidelines. )articipate in ,or*shops to focus on issues and develop positions )articipate in ,or*shops for e$perience sharing .vail opportunities for delivery of a tal* on a relevant subject .vail opportunities for authoring a paper on a relevant subject .vail opportunities for organi0ing and designing a forum or an event or a project.

,.CG Code of Corporate governance The )ICG has developed a code of corporate governance. The code is available on the )ICG website and is e$pected to be adopted by all

Institute of Business Management, Karachi Spring !!"

1&

Corporate Governance-The Biology of Incorporated Businesses corporations. The code of governance is a 56 page document and can be summarised as follows/
5

.ccording to Sec >? of S#C), all listed Companies should comply with the Code of Corporate Governance. .ll listed Companies should encourage effective representation of independent non+e$ecutive directors including those who represent minority interests. 'nder this they may see* that minorities have rights in electing the directors. The Corporate may also publish the notice of general meetings. . statement from minority candidate must be submitted which includes the profile of the minority candidate. The information may also be provided regarding shareholding structure and copies of registered members. The !oard should also include at least one independent director representing the e4uity interest of !an*ing Company, "evelopment -inancial Institutions, ;on+!an*ing -inancial Institutions 1including (odarba, @easing Company or Investment !an*2, (utual -und or Insurance Company.

That #$ecutive directors i.e. wor*ing or is a whole time director, should not be more than ?AB of the elected directors including the Chief #$ecutive. #lected directors are also responsible to give them consent
1

Source# 'ICG Code of Corporate Governance

Institute of Business Management, Karachi Spring !!"

15

Corporate Governance-The Biology of Incorporated Businesses of the act performed in aligned to their duties and power under relevant @aws, C(emorandum of .ssociationC, and regulations of Stoc* #$change in )a*istan. 0ua%ification and E%igi+i%ity to 1ct on a Direction/ . person who is serving as a director of a listed company should be registered as national ta$ payer other than if he is a non+resident. 3e has not been convicted as a defaulter or in any ban*ing company or stoc* e$change. .nd that no person is elected or nominated as a director if he or his spouse is engaged in business of stoc* bro*erage. Tenure of Office of Director The tenure of office for the elected director is three years. . casual vacancy shall be filled up within thirty days. &esponsi+i%ity# ,o*ers and $unctions of Board of Directors %bjective judgment should be there in every action of the directors for the best interest of the company. . statement of ethics < !usiness practices should be prepared, signed by all directors and ac*nowledged by all employees.

!oard of directors should formulate a Dision statement incorporating corporation=s strategy and objective. They are responsible for a system of sound internal control at each hierarchy level. .ppointment, remuneration and terms and conditions of employment of Chief #$ecutive and other #$ecutive directors are determined and approved by board of directors. The chairman of listed company is elected from Institute of Business Management, Karachi Spring !!" 13

Corporate Governance-The Biology of Incorporated Businesses non+e$ecutive director for whom the board of directors clearly defines the roles and responsibility.

)eeting of the Board/ The chief e$ecutive officer is liable to conduct and preside over meetings of the board of directors and that all directors should meet at least once in every 4uarter of the financial year. .genda of meeting should be circulated not less than seven days, e$cept in case of emergency meetings. The chairman is responsible that the minutes of meetings are satisfactorily recorded and the director has power to append the notes to the minutes, which if not given his rights may approach S#C).

Orientation Courses/ .n orientation course is conducted for directors to ac4uaint them with their duties and responsibilities.

Chief $inancia% Officer (C$O) and Company Secretary/ C#% is responsible for appointments, remuneration and terms and conditions of employment of C-%, company secretary and head of internal audit with the approval of board of directors and that these shall not be removed e$cept by C#% with approval of !%".

Institute of Business Management, Karachi Spring !!"

14

Corporate Governance-The Biology of Incorporated Businesses 0ua%ification of C$O and Company Secretary/ . C-% is appointed if he is a member of recogni0ed body of )rofessional .ccountants and that he is a graduate from &ecogni0ed 'niversity having at least A years of e$perience in handling Corporate and -inancial affairs in @isted Companies, or !an*s or -inancial Institutions. . Company secretary shall also be a member of a recogni0ed !ody of professional .ccountants, a member of recogni0ed !ody of Corporate E Chartered Secretaries, a person holding (asters "egree in !usiness .dministration, or Commerce or being a @aw graduate recogni0ed by 3#C and having 6 years of e$perience.

Corporate and $inancia% &eporting $rame*or'/ It should include director=s report to shareholders, including -inancial Statements, proper !oo*s of .ccounts, appropriate .ccounting policies, International .ccounting Standards, a system of Internal Control, significant evidence that the business is a Going Concern, summari0ed *ey operating and -inancial dates of last si$ years, significant plans and decisions, "ividends paid, and if not then a Institute of Business Management, Karachi Spring !!" 1)

Corporate Governance-The Biology of Incorporated Businesses reason should also be furnished, number of !oard (eetings held during year including attendance of each director. Disc%osure of .nterest +y a Director (o%ding Company2s Shares/ . director having any relationship of another listed Company shares should notify in writing to the Company=s secretary of his intentions. 1uditors not to ho%d Shares/ .uditors should not involve in buying of Company=s shares or may not as* their spouse or any other relatives to buy Company=s Shares.

Corporate Governance Case studies

The 3u+ri4o% Corporation The @ubri0ol Corporation has a history of maintaining good corporate governance practices. Some e$amples of @ubri0ol history of good practices include/ -or more than 6: years, @ubri0ols !oard has consisted of at least ?AB non+employee directors and only non+employee directors have been members of the *ey !oard Committees. -or more than 5: years, @ubri0ols outside !oard members have met regularly without

Institute of Business Management, Karachi Spring !!"

2-

Corporate Governance-The Biology of Incorporated Businesses management present and the Chair of the %rgani0ation and Compensation Committee has acted as the lead director. -or more than 5A years, @ubri0ol has had written !oard of "irectors Governance Guidelines, and in 6::: the company first published them verbatim in @ubri0ol pro$y statement, long before the law re4uired their publication. Since the founding of the Company, ethics has been a cornerstone for @ubri0ol success. @ubri0ol current #thics program has been in e$istence since 5FFG and @ubri0ol Chief #thics %fficer regularly has provided reports to the .udit Committee. In recent days, the company has been as*ed to ma*e presentations to numerous entities including public companies and educational and governmental institutions on @ubri0ol #thics program. The company is proud of its history of good corporate governance practices and considers these practices not only good for @ubri0ol shareholders, but also for @ubri0ol employees, customers and suppliers.

Cairo and 1%exandria stoc' exchange (C1SE) In 6::G and 6::A, the Cairo and .le$andria Stoc* #$change 1C.S#2 was the worlds best performing emerging mar*ets e$change, driven by #gypts impressive economic growth. ;ewswee* maga0ine named it one of the worlds ten best stoc* mar*ets for 6::A. !ooming capitali0ation and good li4uidity were the reward for the e$changes tough decision to demand more disclosure from listed companies and to weed out those companies not considered investor grade. Tellingly, after the C.S# instituted new disclosure rules, about one third of companies de+listed from the e$change. Institute of Business Management, Karachi Spring !!" 21

Corporate Governance-The Biology of Incorporated Businesses

!ut the first to gain from increased transparency are the companies themselves, stresses C.S# management. HThis is for the benefit of the company, not of the e$change. ,e tell our members that if you do this, investors will reward you. They will hold your shares even in the bad moments. This rang a bell with them,I says Shahira .bdel Shahid, advisor to the C.S# chairman. (s .bdel Shahid points to %rascom Telecom, Commercial International !an* and %rascom Construction Industries as e$amples of companies that have gained from better disclosure.

In mid+6::6, the C.S# implemented new rules that set the minimum standard of transparency, focused mainly on reporting re4uirements. H!efore this, there was no emphasis on disclosure in e$change rules,I she e$plains. HThere is more understanding by the new regulator that transparency is important J the case was different in the past.I H,e inherited a lot of companies that were listed simply for ta$ benefits. So we set about to weed these companies out,I says (s .bdel Shahid. The e$change bac*ed up the new rules with aggressive fines and suspensions from trading, encouraging many illi4uid companies to de+list. ;ew rules this year will set the corporate ta$ rate at 6: per cent for all companies, eliminating any ta$ brea*s for listed companies. H,e e$pect a lot of voluntary delisting as a result. !ut we

Institute of Business Management, Karachi Spring !!"

22

Corporate Governance-The Biology of Incorporated Businesses are happy with this. ,e will have fewer but better capitali0ed companies,I she says. .t the end of September 6::A, there were ?KA C.S#+listed companies, down from 5,5A5 at the end of 6::6. !ut during the same period, mar*et capitali0ation more than tripled to 'SL K? billion, from 'SL 65 billion. (ost of the e$changes efforts to promote transparency have been aimed at the top companies that ma*e up the C.S# A:, which account for M: per cent of trading volume. Some of these initiatives have subse4uently been e$tended to the C.S# 5:: companies, which account for nearly all of the e$changes trading. Some of the steps ta*en have made disclosure easier for companies. -or instance, a web+based filing system for C.S# >: companies has replaced paper forms and fa$es. !ut most of the C.S#s efforts are focused on

#ducation and training. In 6::>, the e$change appointed a head of disclosure. To encourage compliance, the C.S# designated an analyst for each industry sector to meet with listed companies and e$plain the new rules and their benefits. H%ur main message is that investors see* information,I says (s .bdel Shahid. Today, nearly all C.S# A: companies have an investor relations officer 1I&%2. )erhaps the most important initiative has been the e$changes Investor &elations and Corporate Governance Committee, which is made up of representatives from ten C.S#+listed companies. HThese are the companies best in disclosure. They act as the blue chip Institute of Business Management, Karachi Spring !!" 23

Corporate Governance-The Biology of Incorporated Businesses companies to their peers,I says (s .bdel Shahid. The committee plays a communications and advisory role, and also sponsors events and publications. (embership involves both company chairmen and their I&%s, and (s .bdel Shahid characteri0es participation as Hvery active.I Separately, the C.S# audit committee has met with all of the C.S# A: companies to e$plain the role of audit committees in good corporate governance. !esides contributing to good mar*et performance, the C.S#s push to increase member 4uality has recently earned it full membership in the ,orld -ederation of #$changes, alongside mar*ets such as ;NS#, ;asda4 and @S#. HThis is an upgrade for us, and we are the only .rab stoc* mar*et to be a member,I says (s .bdel Shahid.

It has also encouraged a broader investor culture in #gypt HThere is now more space dedicated in local newspapers to the stoc* e$change, and a class of financial journalists has emerged,I she says. .long side the C.S#s efforts to improve transparency other #gyptian initiatives are also focused on promoting good corporate governance. The #gyptian Institute of "irectors, with support from the ,orld !an* and the International -inance Corporation, has created a voluntary code of corporate governance and runs training courses for directors of listed and unlisted companies. HThis shows that #gypt is on the right trac*,I says (s .bdel Shahid.

Institute of Business Management, Karachi Spring !!"

2#

Corporate Governance-The Biology of Incorporated Businesses -uture C.S# initiatives will li*ely include an annual disclosure award, similar to one given by the (alaysian stoc* e$change. The e$change would also li*e to dedicate more attention to fighting insider trading through changes in trading rules and courses for company directors

Cases in ,a'istan The Ta- Company was involved in poor corporate governance practices. The company was running a pon0i scheme through which it was able to receive huge amounts of deposits illegally. ,hat was far more disappointing was the religious affiliation the company had attached with its name. #ven 5A years after their fraudulent practices have been stopped the company still owes heavy liabilities to over 6A::: people.

Crescent Ban' $raud

Institute of Business Management, Karachi Spring !!"

2&

Corporate Governance-The Biology of Incorporated Businesses The entire board of directors and C#% .njum Saleem of Crescent Standard investment ban* were legally stopped from running their offices on evidences of suspected fraud and irregular accounting. #$ternal .uditors had predicted a missing amount of over &s.K !illion, apart from illegal maintenance of parallel accounts, concealment of ban* assets, un+authori0ed massive funding of group companies, unlawful investments in real estate and stoc* mar*et, etc. the S#C) too* legal action against the companies officers, although much of the actions ta*en were critici0ed as insufficient.

E G&O Group of Companies S#C) was at the receiving end of immense criticism once it had allowed -ertili0er giant #;G&% to establish its subsidiary #;G&% -oods. Critics believed that the company was associated with the urea business and were tremendously concerned about the e$tent to which hygiene re4uirements for the industry would be met by #;G&% foods. 3owever S#C) counter argument was based on the fact that #;G&% has had a rich history of sound corporate governance which satisfied S#C) that #;G&% will be responsible in regards to hygiene issues associated with #;G&% foods. Time proved that #ngros corporate governance was in good practice and has led to the success of #;G&% foods with products such as %lpers (il*. Institute of Business Management, Karachi Spring !!" 25

Corporate Governance-The Biology of Incorporated Businesses

Conc%usion
Corporate governance is an inevitable phenomenon of corporate businesses. ,hether it is good or bad is determined by the performance of the components. Good corporate governance is being promoted in almost all parts of the world. The benefits sound corporate governance brings are/

o Increase in investor confidence o #conomic prosperity o Transparency in business activities o !etter management of investment of the masses

Institute of Business Management, Karachi Spring !!"

23

Corporate Governance-The Biology of Incorporated Businesses

Corporate governance is at the evolutionary stage in developing countries. 3owever that does not mean that poor corporate governance is not present in the developed world. ,ith cases such as the #nron ban*ruptcy, it is 4uite evident that corporate governance mal+practices are present everywhere. (ajor issues in corporate governance are #thical dilemmas, ,indow "ressing, !oard Composition, and interaction with minority shareholders.

Bi+%iography

o www.wi*ipedia.com o )a*istan Institute of Corporate Governance 1www.picg.org.p*2 o IC.) Corporate @aw Te$t !oo* o )a*istan !usiness &eview article+ changing role of the board of directors

Institute of Business Management, Karachi Spring !!"

24

Corporate Governance-The Biology of Incorporated Businesses Special than*s to/ (r.3umayun Oafar Disiting faculty Io!( for his precious inputs.

Institute of Business Management, Karachi Spring !!"

2)