The SOE Act 2023

The recent revelation that a CEO of a state-owned enterprise (SOE) amassed a staggering Rs355 million in salary, bonuses, and benefits has ignited a firestorm of public outrage. This outrage is not only understandable but necessary.

The stewardship of public funds is a sacred trust, and when that trust is violated, the public has every right to demand answers and accountability.

In response, Prime Minister Shehbaz Sharif’s constitution of a high-level committee to review the governance of all SOEs is a commendable and decisive step. However, in the fervent search for culprits, a dangerous and factually inaccurate narrative has emerged—one that mistakenly vilifies the State-Owned Enterprises (Governance and Operations) Act, 2023 (SOE Act) as the enabler of this excess.

This misdiagnosis is a critical error that, if left unchallenged, risks sabotaging Pakistan’s most significant governance reform in decades, allowing the true culprits — the opaque and antiquated systems of the past — to escape scrutiny.

The entire debate must be anchored by one incontrovertible fact: the CEO in question was appointed in 2022. The SOE Act, however, came into full force on February 2, 2023. To attribute the governance failures that led to this appointment, the negotiation of its terms, and the subsequent approval of its extravagant perks directly to the SOE Act is not a matter of differing opinions; it is a fundamental chronological error.

This case is not a failure of the new law; it is a stark and painful exhibit of the very culture of impunity and weak oversight the Act was meticulously drafted to dismantle. It is a ghost from the past, haunting the present just as reforms begin to take hold.

To fully appreciate why blaming the Act is misguided, one must understand the governance environment it was designed to replace. Prior to 2023, the landscape of Pakistan’s SOEs was fundamentally different. The appointment of CEOs was predominantly the direct prerogative of the Federal Government.

The boards of these enterprises were not independent strategic bodies but were often composed primarily of ex-officio directors — government officials nominated by their respective divisions and ministries. These directors, while undoubtedly skilled in public administration, often acted as extensions of their ministries rather than as independent stewards charged with the commercial viability and public service mandate of the enterprise.

This structure centralized power, blurred lines of accountability, and created an environment where negotiations over compensation packages could occur with minimal transparency.

The responsibility for the appointment and the attendant issues that have now surfaced rests squarely with the government machinery and the governance model of that time. To lay these historical failures at the door of the current SOE Act or the boards now being constituted under its new, rigorous rules is to mistakenly attack the cure for the disease.

The emerging narrative suggesting the SOE Act creates “unchecked authority” for the managements and boards of directors is a profound misreading of the legislation. A thorough examination of its provisions reveals a framework engineered not for anarchy, but for accountability, transparency, and collective responsibility.

The Act introduces a revolutionary change in board composition and decision-making. It mandates that boards must consist mostly of independent directors, bringing diverse expertise from the private sector, finance, and law, alongside ex-officio members. This design ensures that no single perspective, particularly a purely governmental one, can dominate.

Most critically, Section 21(2)(a) of the Act stipulates that significant decisions, including the appointment or removal of a CEO, must be passed by a supermajority—a three-fourth majority of the board, a threshold that explicitly includes its ex-officio members. This is a deliberate and powerful check on power. It architecturally ensures that no single entity — not the government, not the chairman, not a bloc of private directors — can unilaterally push through a decision. Accountability, post-enactment, is by design, collective.

Furthermore, the Act directly tackles the very issues at the heart of the current scandal. Section 18 legally mandates that CEOs must be appointed on performance-based contracts with clearly defined Key Performance Indicators (KPIs), fixed terms, and objective measurement criteria. The board’s duty to continuously monitor this performance is not a suggestion but a statutory obligation.

The law also enforces rigorous “fit and proper” criteria (Schedule IV) to be applied to all directors and senior management, ensuring that only qualified, competent, and ethically sound individuals serve in these roles.

Schedule V requires each SOE to adopt a comprehensive Code of Conduct, covering ethical behavior, conflict of interest management, and anti-corruption strategies, with any breaches required to be disclosed annually under Schedule VI.

Finally, the requirements under Sections 8 and 9 for the preparation and publication of detailed Business Plans and Statements of Corporate Intent (SCI) significantly boost regulatory and public oversight, making it far more difficult for such excessive spending to remain hidden.

This raises the pivotal question: if the law is so robust, where does the problem lie? The committee’s mandate to review “legal gaps” is prudent, but its primary focus must be on implementation, not the legislation itself.

The SOE Act provides the powerful tools for reform, but a tool is only as effective as the hand that wields it. The transition from the old, centralized system to the new, board-led model is complex. There are some legitimate challenges: delays in government approval of essential guidelines for director selection and performance evaluation, potential resistance from entrenched interests accustomed to the old ways, and a learning curve for all stakeholders in adapting to their new roles and responsibilities.

Any observed weaknesses in recent appointments or oversight highlight gaps in the execution of these provisions, not deficiencies in the law’s design. The challenge is one of faithful and swift execution.

Therefore, if there are governance issues around a CEO’s remuneration, contract, or performance under the new regime, these issues must be seen as the responsibility of the entire board, inclusive of both independent and ex-officio directors. The Act makes them collectively accountable. The solution is not to dismantle the framework but to empower it and hold every member of the board to the high standards it sets.

In conclusion, the Rs355 million package is a symptom of a bygone era — an era of opaque, government-centric governance that the SOE Act 2023 was explicitly created to end. The Act is not the villain in this story; it is the legislative antidote. It represents a paradigm shift towards collective accountability, performance-based leadership, and radical transparency.

The high-level committee’s energy would be most productively directed toward identifying and dismantling the bottlenecks to the Act’s full implementation, empowering boards to fulfill their mandated oversight roles without delay or interference, and ensuring that all directors—both independent and ex-officio—are held accountable for their collective decisions.

We must not allow a vital reform, a hard-won step toward better governance, to be undermined by a chronological error and a mis-assignment of blame. The goal must be to enforce this transformative law with vigor and conviction, not to blame it for the problems it was created to solve. The future of Pakistan’s public enterprises depends on getting this right.

Copyright Business Recorder, 2025