Government takes unconventional initiative through revised CCG

The government has taken unconventional initiative through the revised Code of Corporate Governance (CCG), as non-executive has now been empowered to head the board of directors and its committees as chairman, market experts said.
Talking to Business Recorder on Friday they said the revised CCG, which was launched by Finance Minister Abdul Hafeez Sheikh on April 10, 2012, has amended the composition and functioning of board of directors and its committees, whereby the board will now be headed by a non-executive, as its chairman.
They said the revised Code has superseded the Code issued in the year 2002. Upon promulgation by the Securities and Exchange Commission of Pakistan, the listing regulations of all the three stock exchanges get amended and the Code immediately becomes applicable on all entities listed on the stock exchanges, including listed modarabas and mutual funds.
They are of the view that the changes have mostly been made in the composition and functioning of board of directors and its committees, saying that the number of executives of a company, forming part of the board, has been capped at one-third of its size and the inclusion of an independent member on the board has also been made mandatory.
The experts said that the revised CCG had also restricted an individual not to be board member of more than seven listed companies simultaneously to ensure devotion and quality time to the company and the Board is now expected to get its members trained in governance, as well as evaluate its own performance. When contacted, corporate counsel Jawwad Shekha FCA, Partner, Shekha & Mufti - Chartered Accountants said that key changes had been brought in the revised Code.
On the focal role of the audit committee, Shekha said that the Code had also made the audit committee more effective. He said the audit committee would now be headed by an independent member and comprise non-executive directors only. Moreover, he said, after the launch of revised CCG, the formation of human resource and remuneration committee of the board has also become mandatory. "This committee will advise the board on human resource matters in general and specifically on the selection, evaluation and contractual arrangements with chief executive, chief operating officer, chief financial officer, company secretary and head of internal audit.
Jawwad further said the internal audit function and head of internal audit have been granted the desired independence and strength, respectively. To a question, he showed optimism that the code came out as a result of broad consultative process and hopefully should be acceptable to the stakeholders in its current shape, though companies mostly owned by families that may have reservations on sharing the board room with independent director.
He apprehended that a few number of companies may also have to reduce the number of executives on their board or increase its size to accommodate them. Needless to mention, the listed companies of relatively smaller size would be concerned with the probable increase in the cost of compliance with the code.