This document provides a summary of a report on corporate governance standards and codes in Pakistan. It notes that in 2002, the Securities and Exchange Commission of Pakistan (SECP) issued a mandatory corporate governance code for listed companies. The State Bank of Pakistan also required non-listed banks and financial institutions to comply. The SECP later issued a separate code for insurance companies. It also established the Pakistan Institute of Corporate Governance to provide training to directors and raise awareness. The document identifies several issues with corporate governance in Pakistan, such as concentrated ownership limiting minority shareholder influence, need for improved disclosure, and lack of independence on company boards. It provides recommendations to address these issues through legislative reforms and further technical assistance.

1. Report on the observance of
Standards and Codes - ROSC

2. Country Assessment - Pakistan
Importance of Corporate Governance is rising

3. 1.
• In 2002 SECP issued a code of corporate
governance (most are mandatory for listed
companies)
• SBP required non-listed banks and DFI comply
with the code.
• SECP issued separate code for insurance
companies.

4. 2.
• PICG has been created, with the goal of
training directors and building more
awareness

5. Market Profile
• Fastest growing equity market in 2002
– Pakistan equity market was 2nd largest in the region after India
– In 2004 KSE was the largest stock exchange with 661 listed
companies
• Low cost credits
– Cheap loans discourage equity financing as significant source
• Ownership and control are concentrated
– State, foreign multinationals, and families are controlling share
holders
• Institutional Investor
– Govt. owned investment funds preented in own portfolios, and
the brokers and other financial institutions concerns with short
term gains.
• Pakistan with strong “SECP”

6. Key Issues
• The followings points highlights for
assessment of Pakistan with OECD Principles
of CG
– Investor Protection
– Disclosure
– Company oversight and the board
– Enforcement

7. Investor Protection
• Basic shareholder right
• Share holder participation in AGM
• Concentrated controls limits influence of
minority shareholders

8. Disclosure
• Improved quality and timeliness of financial
reporting
• Shareholder
• Related party
• Independent oversight over the audit
profession

9. Company oversight and the board
• No clear distinction between ownership and
control
• Insufficient guidance
• Board dominated by controlling share holders
• Independents directors are the exception
• Board remunerations not attractive

10. Enforcement
• Securities Exchange Commission of Pakistan
– SECP take assistance from ASIAN Development
bank to improve CG.
– SECP =ENFORCING CG regulations
– SBP= improving CG in banking sector and DFI
– Stock Exchanges = oversight listing requirement
• State Bank of Pakistan
• Stock Exchanges

11. Recommendations
• Established corporate governance
enforcement priorities
• SECP –
– Disclosures
– Enforcement
– Independent audit oversight

12. • Mobilize the private sector to improve
corporate governance in private sector
• KSE
• Institutional investors
• Independent directors
• CDC

13. Legislative reforms should focus
• Independent directors and board composition
• Review the ownership disclosures
• Shareholder rights should be strengthened
• Increase the accountability of directors

14. Focus Future technical assistance on
high – priority implementation
• Development of national action plan
• Trainign awareness programs
• Improved governance in State Owned
Enterprises

15. Principle by Principle

16. Ensuring the basis for and effective
• Overall corporate governance framework
• Leal framework
• Clear division of regulatory
• Regulatory authority has sufficient authority

17. Rights of Shareholders and key
ownership functions
• Basic shareholers right
• Right to participate in fundemental decision
• Shareholder AGM rights
• Disproprtiate control disclosues
• Control arragmenet should be allowed to
function
• Exercise of ownership right should be
facilitated
• Share holders should be allowed to consult
with each other

18. Equitable treatment of share holders
• All shareholders should be treated equally
• Prohibit insider trading
• Baord /manager dislcosure interests

19. Role of Stakeholders in corporate
governance
• Legal right of stakeholders are to be respected
• Stakeholders redress
• Performance – enhancing mechnisms
• Stakeholders disclosures
• “Whistleblowers” protection
• Creditor rights law and enforcment

20. Disclosure and Transparency
• Disclosure Standards
• Accounting Standards
• Independent Audit manually
• External auditor should be accoutable to all
shareholders
• Fair and timely dissemination
• Research on conflict of interests

21. Reposibilities of Board
• Act with due dlligence and care
• Treat all shareholders fairly
• Hogh ethical standards
• The board should fullfil certain key functions
• The board should be able to exercise objective
judgement
• Access to information