ICMAP: insights on shareholding patterns

On April 21, 1968, then-chief economist of the Planning Commission, Dr. Mahboob-ul-Haq, sent shockwaves through the countrys elite business circles by issuing a list of 22 of the wealthiest families of Pakistan. Dr. Haq highlighted that "these 22 families controlled 66 percent of the business conglomerates and corporations, and owned 87 percent of the share in the banking and insurance sectors" cites a recent publication of the Institute of Cost and Management Accountants of Pakistan (ICMAP). The research department at ICMAP has issued a report entitled "Shareholding Pattern of Corporate Sector in Pakistan", which contends that despite the nationalisation of industries initiated by Zulfiqar Ali Bhutto; business giants and groupings have survived and sustained through the years. "Business groups and families, including trusts and foundations are controlling the major shareholdings of companies in the manufacturing as well as the services sectors", cites the report adding that shareholding patterns provide insights to companies corporate ideology and culture. Researchers considered a group of 44 representative companies; five each from seven manufacturing sectors (sugar, fertilisers, textiles, refineries, pharmaceuticals, cement and automobiles) and two services sectors (banks and insurance companies). They found that associated companies along with promoters and directors together hold close to 50 percent of the shareholdings in the companies under consideration. By comparison, the general public holds an average of 26 percent of the shareholding while institutional investors such as banks, DFIs, modarabas and mutual funds hold 21 percent of the shareholding on average. Sector-wise considerations reveal differing trends. The researchers have stated that 42 percent of shareholding in the textile sector is held by promoters and directors. While in fertiliser and pharmaceuticals sectors; institutional investors appear dominant with 36 percent and 32 percent of the stakes, respectively. The research also highlights that general public hold a major portions of the shareholding in insurance, sugar and cement sectors. Pakistan is not the only country in the world where large business groups and families hold large chunks of public companies; even in advanced economies such as Japan and Germany there are similar trends. However, there are some potential pitfalls for firms that are predominantly controlled by families. The IFC Family Business Governance Handbook contends that family owned firms are particularly vulnerable in terms of governance and that their viability as a going concern may be affected by the rise of new generations. Listed companies are less liable to face such issues since they must comply with regulations by SECP, the stock exchanges and other relevant institutions. However, the independence of the boards of directors at such companies and the appointment of executives based strictly on merit may become questionable due to the overbearing influence of a small group of stakeholders. Corporatisation is the key to sustainability and stability in businesses. Better internal controls and procedures can help ensure that this process of corporatisation yields long lasting results.