Promoting corporate governance in Pakistan. (Partnerships).

During the past few years, the financial and corporate world has witnessed significant changes. Following the Asian financial crisis, recent accounting scandals have brought to light the importance of an effective institutional framework that would help corporate management increase shareholder value while protecting the interests of other stakeholders.

To achieve this goal, the Securities and Exchange Commission (SEC) of Pakistan (www.secp.gov.pk), in partnership with the United Nations Development Programme (UNDP) and the Economic Affairs Division of the Government of Pakistan, launched the SEC-UNDP Project on Corporate Governance in August 2002. Under the purview of the Project, UNDP has provided technical and financial assistance to the SEC for developing and implementing good corporate governance practices and establishing a sound regulatory framework for the corporate sector in the country. The work involves implementation of the Code of Corporate Governance, issued by the SEC in March 2002, creating stakeholder awareness, capacity-building and networking with other emerging markets.

In order to attract sustainable capital, it is imperative for economies in transition to focus on evolving a system that ensures good corporate governance. As the dust settles after the Asian financial crisis, most economic and development commentators feel that a major determinant of the relationship between long-term economic growth and poverty reduction is a well-functioning financial and corporate sector. The inflow of foreign capital brings with it a transfer of technology and managerial skills--factors crucial to the developing countries in their economic progress. At the same time, the confidence of local investors also heightens. This increased economic activity improves human welfare in the form of an efficient allocation of resources and more employment. Therefore, implementing good governance practices has a positive impact on economic growth, which creates opportunities and brings people above the poverty line.

The SEC-UNDP Project aims to make a positive contribution towards economic growth in Pakistan by developing a stronger financial and corporate sector. A Corporate Governance Cell has been established at the SEC. which acts as a resource centre and carries out research and awareness campaigns on various issues related to corporate governance.

Guidelines and newsletters are also being distributed to the corporate community for a better understanding of the issue, and research is being carried out for the harmonization of the provisions of the Code with corporate laws and an assessment of the state of corporate governance.

The Cell also aims to prepare groundwork for the establishment of an institute of corporate governance. A monthly briefing series has been initiated to further increase public awareness on various aspects of corporate governance. In order to generate meaningful debate, extensive research work is in progress for a working paper series, the first focusing on the role of institutional shareholders in the promotion of corporate governance in Pakistan. Another major initiative of the Cell is the development of corporate governance index, where work has already started, to indicate assessment of practices and policies and to reflect the relative level to which a company accepts and follows the Code and guidelines of corporate governance.

An important part of the Project is the exchange of contemporary ideas and collaboration on key issues. SEC officials have been participating in study tours to leading international institutions that are involved in the promotion and development of sound governance practices. In order to encourage participation of stakeholders in the system, it is essential to broaden their understanding of the subject. In this regard, the SEC has been conducting several activities, including seminars and workshops, to increase the awareness of the directors and management of listed companies of their statutory and fiduciary duties. The first seminar under the Project--Strengthening Corporate Governance in Pakistan--was held on 28 November 2002 and included local and foreign participants, who gave an international perspective on corporate governance (see photo below).

Three workshops have already been organized--in Islamabad, Karachi and Lahore--on the "Responsibilities of Directors and Management of Listed Companies". An important aspect of these workshops was the utilization of the case study method in order to draw lessons from corporate failures in the country and other parts of the world. Participants lauded the efforts being undertaken by the SEC to improve good governance practices. The SEC is also planning to publish a manual that will highlight the role and responsibilities of directors, keeping in mind the economic and legislative conditions prevailing in Pakistan. In addition, it plans to hold a conference involving key players in the country and abroad.

By complementing resources with UNDP, SEC has managed to act as an agent for bringing positive change in the corporate culture of Pakistan. A more transparent and efficient corporate sector would thus gain investors' confidence and yield positive results towards growth.

Shahnawaz Mahmood of the SEC of Pakistan is working as research officer on the UNDP Project on Corporate Governance.