Academic journal article IUP Journal of Corporate Governance

Corporate Governance in Pakistan: From the Perspective of Securities and Exchange Commission of Pakistan

Academic journal article IUP Journal of Corporate Governance

Corporate Governance in Pakistan: From the Perspective of Securities and Exchange Commission of Pakistan

Article excerpt


The objective of the study is to understand the issues in corporate governance in Pakistan. It starts with a brief explanation of the basic concepts of corporate governance, followed by the evolution of corporate governance in Pakistan covering the role of regulatory bodies in enforcing it in Pakistan.


This article is based on an interview (held on October 21,2011 ) with Etrat Hussain Rizvi, Former Commissioner, Securities and Exchange Commission of Pakistan (SECP). With his in-depth exposure to financial institutions, he has always been a part of the key team framing prudential regulations for banks and Non-Bank Financial Companies (NBFCs). Later on, after joining SECP as the Commissioner, he also took initiative in the development of the code of corporate governance at SECP and State Bank of Pakistan (SBP). Although single source data or interview may raise a question about the reliability and validity of the findings, yet the credibility of the source may be considered as a tool in enhancing the quality of the research, particularly reliability.


Corporate Governance Practices in Pakistan

Corporate governance initiative started after much groundwork. A seminar was held in Sheraton in 1998 by the Institute of Chartered Accountants. However, at that time, efforts for preparing a code of governance were a mere paper work. Gradually, the task of formulating corporate governance principles was assigned to the SECP, which was formed in 1999. Before SECP, the Corporate Law Authority existed to provide a regulatory framework.

Reasons for Enforcing Corporate Governance

It was needed for transparency and proper disclosure. After the formulation of SECP, many changes took place in the corporate sector like: (a) Reconstitution of the stock exchange; (b) Establishment of Central Depository Company; and (c) Nomination of private sector in stock exchange. The basic thrust was implementation of disclosures, dissemination of information on timely basis, and transparency. Until the code was framed, all wrongdoings were pardonable; but after it was framed, all wrongdoings of people as well as regulators were unpardonable.

Evolution of Corporate Governance

The evolution of corporate governance took place in three phases. The first phase (1999-2002) was the phase of structural formation. The salient features of the phase are: (a) Conversion of Corporate Law Authority (CLA) into SECP; and (b) Board reformation. The first draft of the code was developed in 1999. It had participation from the public sector and also involved various stakeholders like Institute of Cost and Management Accountants of Pakistan (ICMA), Institute of Chartered Secretaries, academicians and listed companies. During the first phase, one option was to bring a law and implement it. However, there was a financial obstacle to receiving tranche from donors such as Asian Development Bank. In the same phase, listing regulations were promulgated, and under Section 34 of listing regulations, all companies listed on Karachi Stock Exchange (KSE) required fulfillment of corporate governance practices and inclusion of non-member directors. The second phase (2002-2006) was about creating awareness and acceptability of the code. The Institute of Corporate Governance was formally established. The law required the implementation of the code in public sector enterprises and in banking sector. The third phase (2006-till date) is the phase when the code of corporate governance was implemented in the non-listed companies. However, this phase is still incomplete as the principles of corporate governance are not enforced in true spirit and meaning.

Role of Regulatory Bodies

The regulatory bodies played a very positive role. They helped in developing the program and in educating and creating awareness about the code of corporate governance. These regulatory bodies directed the stock exchange. …

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