Assignment Title:

Recommendations on Code of Corporate Governance (Pakistan)

Course Title:
Corporate Governance

Submitted To:
Sir Amjad Iqbal

Submitted By:

Ayesha Bibi (406949)

 Recommendations

Ownership Structure, Civil law and Common law:

Pakistan’s dominant ownership structure similar to entire family structure of ownership. Majority
shareholders not only hold company but also manage it. Pakistan’s common law back ground ,
the company system indicated the Anglo-American model, but Pakistani ownership structure is
opposite to Anglo-American model which means dispersed ownership.

If there will be mechanism which devised disperse ownership structure may not help in resolving
issues caused by family ownership structure. A regulatory response should be informed about the
initiatives taken by East-Asian at civil laws, i.e. In Japan, Hong Kong and South Korea have
regulatory analysis of family ownership structure may provide the insights into similar
governance which arise out from concentrated ownership structure and may helpful in sorting
out the issues and giving better solutions in achieving higher standards of corporate governance.

Board Structure:

The majority of directors should be independent non executive directors. To make decision
efficiently and unbiased there must be majority of independent non executive directors. For this
purpose Boars should assesses regularly whether non executive directors are independent or not?
Furthermore Chair person should be independent because chairperson is the leading person of
board and for the efficient functioning of the organization. The chair’ role is demanding and
should contribute effective relationship between directors , board and management. It should be
mandatory for all listed companies that they have two individuals for CEO and Chair person
post.

Compliance:

As SECP has mentioned in the code of corporate governance that companies should comply with
rules and regulations of SECP, but there is no strict policy for companies if they are unable to
comply. SECP should announce duties to submit solid reasons for such non compliance.
Companies should be highly encouraged to improve their compliance.

Ethical Standards:

There should be uniform ethical value statement for all the listed companies. SECP should
follow on penalty system for those companies who are not taking it seriously. SECP should
provide general statement on achieving highest level of ethical standards.
Nomination Committee:

The SECP should mandate to have a nomination committee in the board. It be should be
mandatory for all listed companies to constitute a nomination committee s it is responsible for
making recommendations to board about committee’s board ,structure, size and composition and
any change needed.

Expansion of Audit Committee _Legal Expertise:

Generally the purpose of internal audit is to assist a company’s Board and the purpose of external
shareholders is to address the concerns of the shareholders at large. In both situation audit
committees can provide financial and accounting expertise as internal and external auditors have
no legal expertise and they cannot ensure that company is managing it affairs with applicable
laws.

The code should require compliance and certification with all applicable laws. It would
discourage the transaction between associated companies. Therefore SECP should expand the
scope of internal and external auditors including legal expertise for evaluating company’s affairs
in legal perspective. The following initiatives should be taken :

One of the independent non executive director should be professional lawyer or one of
member of audit committee should be legal advisor/ professional lawyer.
With the help of lawyer or legal advisor, the audit committee should confirm compliance
with applicable laws.

Performance Evaluation:

For effective working of board, there should be strict evaluation process for directors. It should
be mentioned in code of conduct. The remuneration committee will follow the instructions to
evaluate performance of directors. The SECP should mention the strict clauses for this purpose.

CSR _ Mandatory:

The SECP should implement such laws which could improve CSR activities in companies. The
current situation needs active participations cooperation from companies. The code should be
instrumental in introducing CSR to make companies more active in national and international
investors. The SECP should mandate some basic activities for each company.

Effective remedy for Minority shareholders:

SECP should encourage minority shareholders to report immediately any non compliance to
audit committee and relevant stock exchange. This will help to minority shareholder to establish
monitoring systems. Furthermore SECP should expand judicial functions of stock exchange for
granting minority shareholders court of appeal in front of frontline regulator.