Paving way for corporate governance

In March 2002, SECP issued a Code of Corporate Governance as guidance for companies listed on Pakistans stock exchanges to practice good governance within their domains. However, it seems like the SECP was not too content with merely issuing a code of corporate governance.
Recently, according to the amendments made to the KSE Listing Regulations on June 22, the SECP has made it mandatory for directors of all listed companies to obtain a certification of the "Board Development Programme" offered by the Pakistan Institute of Corporate Governance (PICG).
Yet as said by Competition Commission of Pakistan, SECPs move is retarding incentives for quality improvement by inherently restricting other training institutes to compete with PICG. Though, such bodies are imperative for improving governance amongst corporate entities, there has to be some inherent check on the watch dog.
The salient features of the certification include 24 modules 2 hours each, conducted in four parts with each part lasting two days, and claims to encourage directors to follow best practices within their companies.
Though this looks like a positive stride ahead for corporate governance in Pakistan, one wonders to what extent further steps should be taken to bring about compliance of corporate governance in Pakistan.
According to a study conducted by the United Nations Conference on Trade and Development (UNCTAD) with the Institute of Chartered Accountants of Pakistan in October 2009, an average company listed on the KSE-30 discloses only about half of the 52 items listed on the International Standards of Accounting and Reporting (ISAR).
Where financial transparency is concerned, only four of 30 companies disclosed rules and procedures concerning "extraordinary transactions", while a negligible number of companies disclosed the processes of interacting with external auditors, appointing internal auditors, rotating auditors and exercising internal control.
Similarly, none of the companies reported on their whistle blowing policies, as required under corporate responsibility and compliance, while several requirements of the board and management structure, such as the performance evaluation process, compensation policy for senior executives departing after a merger or acquisition, and check and balance mechanisms.
These are some basic parameters for ensuring transparency within companies. If the top-notch companies in Pakistans capital market have been faring shabbily as far as disclosure requirements are concerned, there is a question mark on compliance with corporate governance practiced by other companies.
A major reason for low corporate governance compliance observed in Pakistan is the lack of awareness and a lack of trained people. Even the above mentioned report of UNCTAD cites training and capacity building of directors as a major need of the day, besides increasing the number of explicit disclosure items.
Mr Tariq Hasan, Ex-Chairman of the SECP sees the certification requirement from the PICG as a positive step. "Unless resources are allocated for training personnel in compliance of corporate governance, it cannot be effectively enforced in Pakistan. Its not merely about making rules and regulations, but also about training the man-power in the right direction," he says.
While its true that directors and personnel, particularly in public listed companies, need to be trained in corporate governance, further steps also need to be taken to ensure greater compliance. This not only means enhancing training initiatives for personnel in the companies, but also keeping a tab on the extent of post-training compliance of corporate governance requirements.
This is important because corporate governance also involves an aspect of ethics and responsibility, which have to be kept in check by also bringing in an element of accountability and keeping a greater check on compliance by companies.
Though yet a long way to go, small and steady steps can help Pakistan inch forward on corporate governance, provided they are adequately followed and rightfully checked by regulators.