Management ruckus at KSE

The benchmark KSE index may have achieved some of its lost milestones in 2010; but inside the KSE, a storm has been brewing - one that appears to be a tussle between the member and non-member directors, yet, one that just might be a result of basic business motive: profits.
It so happened that a KSE board meeting was convened on December 21, following which three of KSEs top management staff, namely Fiyaz Ahmed Longi (GM - Internal Audit & Compliance), Jawad Bin Shabbir (GM - HR & Administration), and Junaid Mirza (GM - Market Control & Surveillance) were asked to resign or they were to be terminated on account of being "redundant", and not because of wanting performance.
Reportedly, Mirza chose to resign, Shabbir decided to go on a leave for a couple of weeks, while Longi was terminated. Sources say that Longi accepted the termination letter, but with an attached note, highlighting the allegedly unlawful nature of the action taken by the KSE board.
According to sources, Longis termination wasn made through the formal process - where all major matters pertaining to the incumbent of the office of GM Internal Audit are supposed to be routed through the HR committee and the audit committee of the board of directors (BoD).
And since the non-member directors weren present in the KSE BoD meeting on December 21, Longis termination is allegedly questionable.
Zubyr Soomro, KSEs current non-member chairman, who has been facing ousting challenges by the member-directors for long, confirms that a KSE BoD meeting was held on December 21, but "no independent directors were present". "I have not seen the minutes yet," he said on Friday evening.
Why didn the non-member directors attend the meeting on December 21 is another boiling matter.
"The nominee directors were properly notified about the meeting," says Yasin Lakhani, a senior well-respected KSE member-director, but the irony is that "these directors have consistently been absent from BoD meetings lately". Lakhani adds that the nominee directors have been asking to meet outside KSE premises, or often excuse themselves on account of their other personal or professional commitments.
Based on this, one can surely hold the nominee director accountable, for if they cannot perform their duties, they should perhaps leave the office to somebody who can. Though, market sources reveal that some nominee-directors had requested to postpone the meeting for two days (a request that was not granted), there is devil in the details.
The reason why KSEs non-members directors have been shying away from the meetings, since October 28, is because of an untoward incident that happened on that day.
Reportedly, the member-directors misbehaved with their non-member counterparts on October 28 - almost to the point of physical manhandling. The non-members directors, officially supported by the then SECP Chairman, Salman Shaikh, asked for an apology, which has not been rendered to date.
The jury is still out on who-is-who in the blame game, and perhaps the alleged manhandling does not provide non-member directors a legal justification to avoid the board meeting. But the fact that KSEs member-directors chose to axe the three GMs in question - regardless of the reason why non-members weren present - smells fishy. Albeit, it can be said with surety at the moment, that the fish is actually stale or rotten.
KSEs members argue that over the years, the expenses of the exchange rose substantially where just salaries expense increased from Rs160 million to around Rs340 million in the last three years, according to Lakhani.
Cognizant of this, Adnan Afridi, KSEs former MD who resigned two months ago, had presented a restructuring proposal before he left his office, which mainly pertained to the "non-management unionised staff".
Lakhani says that the members didn give their consent to the proposal, however, on account of humanistic considerations. Instead, they decided to rationalise the management slots, which could help cut costs by 10-15 percent, according to Lakhani.
But here is a thing. "When an exchange looks at its costs in difficult times, it can just look at itself simply as an exchange; it also has to look at its role as a frontline regulator, and therefore avoid cost cutting in areas that may comprise its function of front line regulation," says Soomro.
So if its really a matter of cost-cutting, then perhaps it wouldn be ludicrous to re-explore other ways of ensuring smooth revenues in lean times. Things like the under-pricing of services and facilities that the exchange provides to its members, or the reversal of certain types of fees being levied for a couple of years may be re-assessed.
Then again, the million-dollar question is: that why are profits so important, if the exchange is a non-profit Section-43 entity, and if the costs being incurred only ensure its proper non-partisan functioning as a frontline regulator. The answer to that might just be linked to the profits of some interested stakeholders. But nothing can be said with certainty on that front.
Knowing that it normally takes two to tango, the situation at hand appears very knotty. Whether the newly appointed SECP chairman, Muhammad Ali Ghulam Muhammad, will be able to resolve this situation requires perhaps another round of discussion; be rest assured it ain over till its over.