Codes of Good Corporate Governance in Pakistan

2017 Codes of GCG

The Code 2017 applies to all listed companies or companies that must comply

with the Code through their constitutions or licensing requirements. Moreover, this

Code added some new ideas to the Code 2012 instead of presenting a whole new

regulation. The Code 2017 is divided into fourteen chapters establishing rules mainly

related to the board of directors, their responsibilities, functioning and committees.

Furthermore, emphasis is given to the role and responsibilities of directors along with

their capabilities and professional development. The Code also outlined the rules

regarding main executive offices like Chief Financial officer, Chief Executive Officer

and the Company Secretary.

2019 Codes of GCG

This Corporate Governance Code defines the 'comply or explain' concept

except for some mandatory provisions. The obligatory conditions include the need for

independent directors to be appointed, consistent directorship of no more than seven

firms, presence of woman directors, maximization of executive directors, the

appointment of auditors who are registered with the audit board, formation of an audit

committee, the rotation of auditors to financial sector companies, publication by

external auditors of the declaration of compliance with the Code and their review.

The major non-obligatory provisions are based on compliance or explained

principle. This Code includes the annual examination of the board, its Members and

committees, the division of office of Chairman and chief executive officer, the

training of directors, qualifications of the chief financial officer, the placing of the

related party transactions with a board of auditors, internal audits and internal auditing

boards, the internal auditor and corporate secretary, etc.

 This Code also includes the mandatory establishment of an audit committee.

However, the practical aspects of the listed company activities may consist of a

separate committee of audit committee, internal control committee and business and

strategic analysis committee to provide concentrated functional attention to each

issue.

Comply or Explain Approach

The idea that the 2019 Code is not a static set of rules is primarily based upon

the 'comply or explain' strategy. It contains such non-obligatory clauses, and thus the

listed companies are required to disclose whether the non-obligatory conditions have

been met in a declaration of compliance; and if it is not, it shall include an adequate

description as to any impediment. We believe that the non-mandatory clauses are at

the heart of the Code of 2019 and should be a critical issue for the board of directors

in their application.

By this 'comply or justify' strategy, an alternative means of complying with a

non-obligatory rule is recognized if good governance is to be accomplished. It is a

requirement for this to be explicitly and attentively stated in the statement of

conformity. To clarify how the actual actions relate to good governance should be

communicated to the listed