ISLAMABAD – Finance Minister Asad Umar on Monday applauded the World Bank’srecognition of Pakistan’s enhanced implementation of corporate governanceprinciples in its Pakistan Report on Observance of Standards and Codes(ROSC) on Corporate Governance.
The outcomes of the World bank assessment would contribute to thegovernment reform agenda to improve the investment climate, theattractiveness of the capital market, and public sector company (PSC)reforms, the minister said according to an SECP press release.The Report on the Observance of Standards and Codes (ROSC) is a prominentcomponent of global efforts to strengthen the international financialarchitecture and aims at promoting greater financial stability, bothdomestically and internationally, through the development, dissemination,adoption and implementation of international standards and codes.
The ROSC corporate governance initiative is administered by the World Bankthat assesses the degree to which a country observes the G20/ organizationof Economic Cooperation and Development (OECD) Principles of CorporateGovernance (OECD Principles) the international reference point for goodcorporate governance and develop a series of recommendations to reduce orclose identified gaps.The report assessed that OECD 20 principles fully implemented, 33 broadlyimplemented, 16 principles partially implemented and three not applicable.A comparison with the 2005 Corporate Governance ROSC shows the level ofimprovement in the corporate governance framework; in 2005 out of a totalof 32 applicable principles, only 4 were fully implemented, 17 were broadlyimplemented, 10 were partially implemented and 1 was reported as notimplemented.The assessment noted considerable improvement in compliance from 66 percentin 2005 to 77 percent in 2018 and has assessed Pakistan as “broadlyimplemented” against the OECD Principles of Corporate Governance.The report also assessed compliance in five areas including; the commitmentof the public and private sectors to reform; Shareholder rights; Disclosureand transparency; Boards of directors and Public sector companies.It noted that the government took many important steps to improve theregulation of corporate governance reform in Pakistan, including theupdates to the Companies Act, the issuance of the Listed Companies (Code ofCorporate Governance) Regulations (“LCR”) and updates to the Public SectorCompanies (Corporate Governance) Rules 2013.
The report said,”The private sector has been a strong supporter of improvedgovernance and has supported many initiatives. Many key institutions are inplace, including the Pakistan Institute of Corporate Governance. LCR issuedby the SECP in 2017 set detailed corporate governance requirements.
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Listed companies are required to include statements of compliance with theLCR in their annual reports. The LCR has had great impact on the adoptionof good corporate governance by companies and shall facilitateimplementation of structured legislative reforms.”Basic shareholder rights, it noted, were protected in Pakistan and wereimproved by the enactment of the Companies Act 2017. Similarly, fiduciaryduties of board of directors were codified in the new Companies Act andwere one of its most important reforms.”However, the fact that many boards are dominated by the controlling family/ parent / Ministry makes it a challenge for board members to be trulyaccountable to all shareholders. Most elements of international goodpractice w.r.t responsibilities of the board are addressed through LCR,” itadded.The ROSC also examined the governance challenges in a key set of publicinterest entities – Pakistan’s Public Sector Companies (PSCs). The 169 PSCsin the government’s portfolio represent a sizable part of Pakistan’seconomy.
The Public Sector Companies (Corporate Governance) Rules 2013 are a recentaddition to the legal and regulatory framework and represent an importanteffort by the Government to improve the governance of the PSCs.The Rules and their enforcement by SECP have begun to put positive gravityon the PSCs which appear to be moving towards better overall governancepractices.
