Corporate Governance ensures management accountability

The 'Corporate Governance' became the slogan of the new world in the backdrop of the scandals of giants Enron and WorldCom which bankrupted the investors.
Following countless cases of corporate scandals reflecting failed governance and accounting abuses in big companies besides inflated size of corporate entities and increase in business complexities coupled with the absence of a formal regulatory structure, the trust principles were found to be insufficient to fully defend the interests of stakeholders.
These early experiences led to the introduction of special laws to regulate registration of companies, particularly, in the cases of sudden collapses of some local and foreign businesses such as the fall-out of the Taj Company in Pakistan.
According to Dr Tariq Hassan, the former chairman of SECP, the term 'Corporate Governance' was started to be widely used in the 1980's to describe the general principles by which the business of companies were directed and controlled.
He said the Institute of Chartered Accountants of Pakistan took the initiative to develop a framework of good governance in Pakistan in December 1998.
He observed that, the Securities and Exchange Commission of Pakistan issued the Code of Corporate Governance in March 2002 to set up a structure for good governance of companies listed on Pakistan's stock exchanges.
He said: "the SECP issued directions to the Karachi, Lahore and Islamabad bourses to include the provisions of the code in their respective listing regulations.
As a result, the listing regulations were suitably modified by the stock exchanges. The code was aimed at providing a framework by which companies were to be directed and controlled with the objective of safeguarding the interests of stakeholders and promoting market confidence."
According to the manual released by the SECP, Principles of Corporate Governance address five areas: (i) the rights and responsibilities of shareholders; (ii) the role of the stakeholders; (iii) the equitable treatment of shareholders; (iv) disclosure and transparency; and (v) the duties and responsibilities of the Board.
Corporate entities in Pakistan are primarily regulated by the SECP under the Companies Ordinance, the Securities and Exchange Ordinance, 1969, the Securities and Exchange Commission of Pakistan Act, 1997, and the various rules and regulations made there under.
In addition, special companies may also be regulated under special laws. In this way, listed companies are also regulated by the stock exchange; banking companies are also regulated by SBP. While, companies engaged in electricity business are checked by NEPRA; telecom companies by PTA; and oil and gas companies are also watched by the OGRA.
The financial market regulators said corporate sector has to be more transparent with shareholders and ensure corporate governance. We have to recognise that the issue of corporate governance is a journey, which has to be constantly examined and continuous efforts are necessary to make it fruitful.
Even today, under the Companies Ordinance, many provisions remain unaltered from those contained in the Companies Act, 1913 and its precursors, they said. As a result, development of corporate law in Pakistan continues to be influenced by English company law, they added.
Stakeholders said there had been a breakdown in the country's corporate governance. Regulatory bodies admitted they had failed to curb companies' worst excesses or to call directors to account. Non-executive directors had failed to challenge executives and had blocked investors who asked for checks and balances to be imposed on executives. This exposed a wider tension in relations between shareholders and boards. However, shareholders insist there is no need for regulatory change or a radical overhaul of the Corporate Governance Code.
They said that in the country, the corporate governance framework is a good but we need to apply it better.
So it is clear that good and proper corporate governance is considered imperative for the establishment of a competitive market. This helps companies to improve their performance and attract investment.
Moreover, it provides mechanisms to monitor managers' behaviour through corporate accountability, safeguarding the investor's interest in the long run. So good corporate governance ensures the accountability of the management in use of capital.