with the development of technology and globalisation of the corporate the challenges are increasing very fast

1. Challenges and Issues in Corporate
Governance

2. Scope of Corporate Governance
“Corporate Governance is concerned with holding the balance
between economic and social goals and between individual and
communal goals. The governance framework is there to
encourage the efficient use of resources and equally to require
accountability for the stewardship of those resources. The aim is
to align as nearly as possible the interest of individuals,
corporations and society.
The foundation of any structure of corporate governance is
disclosure. Openness is the basis of public confidence in the
corporate system and funds will flow to centers of economic
activity that inspire trust.”
-Sir Adrian Cadbury.

3. “Shareholders role in governance is to appoint the
directors and the auditors. Poor corporate governance
has ruined companies, sent directors to jail, and
destroyed a global accounting firm and threatened
economies and governments.”
e.g., Taj Company
Cooperatives scandal
Mohib Textile Mills Ltd

4. Cadbury Report (1992)
Wider use of INDEPENDENT DIRECTOR
Introduction of AUDIT COMMITTEE
Separation between CHAIRMAN and CEO
Adherence to detailed code of BEST PRACTICES.

5. OECD Principles of Corporate Governance,
(1999)
Protect rights of SHAREHOLDERS
Recognize the rights of STAKEHOLDERS
Timely and accurate DISCLOSURE
Responsibility of the BOARD

6. Scope of Code of Corporate Governance, 2002
The code provides a framework for efficient and transparent running of
listed companies to enhance shareholder value. The regulators need to
be vigilant to enforce the code in its true spirit.

7. The Code of Corporate Governance (2002)
Non Executive Director
Qualification of a Director
Tenure of Director
Governance Policies of the Directors
Information to Directors
Orientation Courses
CFO/ Co. Sec
Corporate and Financial Reporting
Audit Committees

8. BOARD OF DIRECTORS
Encourage effective representation of independent non-executive directors,
including those representing minority interests.
a. minority shareholders as a class are facilitated to contest. (through the use of
proxy)
b. At least one independent director representing institutional equity interest of
financial institution. (a director nominated as a director under section 182 and 183
not be taken as independent directors)
c. Executive directors not more than75% of the elected directors.
(Voluntary provision)
The directors to give consent that they are aware of their duties and powers

9. QUALIFICATION AND ELIGIBILITY TO ACT AS A
DIRECTOR
Director, not to be a director in more than ten other listed companies.
ii. Director needs:
a. to be registered as a National Tax Payer ; and
b. Not to a defaulter as convicted by court of a banking
company, development financial institution, or a non-banking
financial institution or as a member by the Stock Exchange.
iii Not to be director if spouse is engaged in the business of Stock Brokerage
(voluntary)
TENURE OF OFFICE OF DIRECTOR
iv. Three years, vacancy to be filled in 30 days

10. RESPONSIBILITIES, POWERS AND FUNCTIONS
OF BOARD OF DIRECTORS
Every listed company shall ensure
a. Statement of Ethics and Business practices is prepared
b. Board of directors to adopt vision statement, and overall corporate strategy; formulate significant
policies (for the purpose of risk management, marketing, etc.)
c. Establish internal control
d. Documentation by resolutions passed in meetings on all serious issues. i.e. investment and dis-
investment of funds, loans, write-off of bad debts etc.

11. RESPONSIBILITIES, POWERS AND FUNCTIONS
OF BOARD OF DIRECTORS
e. Appointment etc. of Chief Executive to be determined by the
board.
f. Investment policy of modaraba institution to be approved and
reported in annual report.
Significant issues to be placed for decision by the board of
directors (i.e. annual business plan, budgets, joint ventures etc.)
Orientation courses for directors.

12. QUALIFICATION OF CFO AND CS
CFO has to be:
a. professional accountant ; or
b. graduate with 5 yrs experience in handling financial affairs in a listed
company or a bank.
CS has to be:
a. professional accountant ; or
b. member of a recognized body of corporate/chartered
secretaries or
c. lawyer ; or
d. a graduate with 5 yrs experience of handling corporate
affairs.

13. FINANCIAL REPORTING
CORPORATE AND FINANCIAL REPORTING
FRAMEWORK
Directors report to shareholders. Give complete and candid position
of the company.
RESPONSIBILITY FOR FINANCIAL REPORTING
i. Financial statements to be duly endorsed by CEO and CFO
ii. Secretarial compliance certificate required with annual returns
DISCLOSURE OF INTEREST BY A DIRECTOR.

14. AUDITORS
AUDITORS NOT TO HOLD SHARES
External Auditors and their spouse restricted to purchase shares in the company
they are auditing.
AUDIT COMMITTEE
i. not less than three member committee preferably from non-executive directors.
ii. Committee to meet at least once every quarter.
iii. CFO to attend meetings of Audit committee.

15. Enforcement issues of the Code
INTERNAL DISCIPLINE
Restricted to listed companies
Regulation under section 34(4) of the Securities
Exchange Ordinance, 1969 - structurally flawed
Penalty- section 9(4) of the S.E. Ord, 1969
Soft law
Voluntary in nature

16. Based on self regulation
Drivers:
Incentive for better performance
higher profits for the shareholders
attracts more investment
Shareholders (minority rights under the Companies Ordinance, 1984 -
sections 263, 265, 290, 305)
Institutional investors- eg. Mutual funds, financial institutions, insurance
companies (Calpers, etc)

17. EXTERNAL DISCIPLINE
Drivers
Stakeholders (financial and community)
Regulators (SECP Act, 1997/ CO Ord, 1984)
Institutional shareholders
environmental law
labour and taxation laws.
Stock exchanges
International credit rating firms
Media
NGOs

18. Areas to consider:
Shareholders rights
Stakeholders rights (financial institutions, employees, Community)
Corporate Social Responsibility (CSR)
Union Carbide- Bhopal.
Exxon Oil Spills in Alsaka
Cement factories in Kahoon
Leather Factories of Kasur

19. corporate governance: not limited to
companies
Public sector corporations – new legislations provide better governance
structure.
Other corporate vehicles: cooperative societies ?
Other vehicles of business: Partnerships – no mention – doing big
business