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  1. 1. PERFORMANCE BASED CORPORATIZATION OF PUBLIC SECTOR Business Professional Conference Corporate Pakistan 2013 Institute of Cost and Management Accountants of Pakistan Mohammad Iqbal Ghori FCMA
  2. 2. Corporatization  Transformation of state owned enterprises, local, provincial, and federal organization into autonomous corporation.  Process to make over the state owned organization and business interest into commercial oriented companies to introduce corporate governance to safeguard the interest of all stakeholders.    Corporatization is a precursor to partial or full privitization, which involves a process where formerly public functions and public enterprises are sold to private business entities.
  3. 3. ROLE OF GOVERNMENT Building “Firewall” between the Government's policy making role and ownership role. GoP BoD Management Professional and commercially oriented management selected by the BoDs Strengthening of BoDs as envisioned under the Companies’ Ordinance
  4. 4. Corporatization  Corporatization results improved transparency and accountability.  Proper records of operations and business affairs.  Disclosure requirements.  Corporate entities gives rise to a well-regulated and well-documented economic sector.
  5. 5. Corporatization in Pakistan  Corporatization was started on 8 October 1984 in a vision to promote corporate sector.  The program was integrated in Privatization program of Prime minister Nawaz Shairf.
  6. 6. DIFFICULTIES IN CORPORATIZATION Political intervention.  Powerful Trade unions.  Political CEOs.  Uninformed Boards lacking competencies and required experties.  Personal or political interest of BoD.  Immature and stubborn regulators. 
  7. 7. Rubber Stamp Board Operational Board Symbolic Board Approves without contest or consideration Board makes operational decisions Circumvented and powerless Board has dedicated offices in the PSE Not consulted on decisions by either management or owners Does not consider alternatives Limited role of nonexecutive board members Dominated by executives Relies on information fed by executives Does not see its role as adding value Board functions as an extension of a governmental department Focus on state expectations versus needs of the PSE Limited strategic focus Limited role of nonexecutive board members Not privy to key discussions between owners and management with all decisions taken by owners Often de-motivated for lack of recognition, influence and impact Source: Internet
  8. 8. DIFFICULTIES IN CORPORATIZATION BOD is devastating organizational hierarchy  BoD is unaccustomed with PSE’s rules of business  Unwarranted discussion in BoD meeting  Short term view  Conflict of interest  BoD compromises the opinion of professionals  Undue dependency on consultants  Uninformed BoD even ignorant of good practice of Board room. 
  9. 9. Expected Role of PSE’s Board          Responsibility for the organizational performance. Elimination of lethargic and bureaucratic behavior in the organization. Regulatory Compliance Articulation of Business plan Performance monitoring system Performance based compensation in lieu of national BPS. Hunting and retention of Professionals Succession Planning Inculcation of transparency and accountability
  10. 10. Role of PSE’s Board Cont…..          Finalization of Vision and Mission statement. Manages potential conflicts of interest. Avoid involvement in operational activities. Formulation of policies. Preparation of Financial Statement as IFRS. Ensures financial statements are prepared. Commercial oriented decision making process. Corporate Social Responsibility. Engagement of Stakeholders.
  11. 11. RECOMMENDATIONS      Political orientation toward the role of board and its best practice. Training of line Ministries officers i.e. Secretaries, Additional Secretaries. Orientation session by SECP before nomination. Excellent communication between bureaucracy and Politician. Recruitment of effective boards to attracts leadership.
  12. 12. RECOMENDATIONS  Performance Contract between BoD and GoP.  Implementation of Integrated Reporting in Public Sector Entities.  Mandatory Third Party Corporate Governance Audit.  Establishment of Holding Company to formulate Policy and monitor Performance.  Help construct talent pool for all sector  Public Transparency thru disclosure of results.  Articulation of Business plan and approval after negotiation
  13. 13. RECOMENDATIONS  Transparent and merit based selection and appointment of Board of Directors.  Skilled Based Nomination Process.  Sector Specialist instead of Generalist.  Professional from at least Accounts/Audit, Law and H.R Discipline .  Independent performance evaluation to eliminate conflicts of interest.
  14. 14. Great governance is a journey, Not a destination. Past performance is, as the saying goes, No guarantee of future success. The board that becomes self‐ satisfied Is a board that may underperform Its full potential And the organization’s needs. Barry S. Bader
  15. 15. Thank You