Risk index launched to track uncertainty in economy

Index defines and measures governance risks of firms in the country.

KARACHI: Capital is a coward that avoids uncertainty. To ascertain the level of uncertainty in an economy, international research institutions come up with indices, matrices and other analytical tools that help investors make informed investment decisions involving the least amount of risk.

It was against this backdrop that the Pakistan Institute of Corporate Governance (PICG), in collaboration with Mettle Consulting – a UK-based advisory company – launched the GovnRisk Index on Monday. The index defines and measures governance risks of firms operating in Pakistan and facilitates well-governed firms in attracting and retaining local and foreign investment.

This is the first such index constituted in an emerging market, after successful launches of similar indices in the United Kingdom and the United States.

The GovnRisk Index measures governance risk at the company level across six core areas, while using 31 separate indicators, through an online survey. The six distinct aspects of governance risk are corporate culture, internal controls, critical self-analysis, quality of oversight, disclosure and transparency, and quality of management.

The formal launch of the index took place on the trading floor of the Karachi Stock Exchange (KSE) in the presence of British Deputy High Commissioner and Director for UK Trade and Investment in Pakistan Francis Campbell, Chairman of the Securities and Exchange Commission of Pakistan (SECP) Muhammad Ali, KSE Managing Director Nadeem Naqvi, PICG President and CEO Fuad A Hashimi, Mettle Consulting CEO Dr Andrew Tucker and Institute of Capital Markets CEO Syed Javed Hassan.

Speaking to The Express Tribune after the formal ceremony, Hashimi said listed and non-listed companies – including NGOs and universities – can subscribe to the GovnRisk Index at an annual subscription fee of $5,000. An in-depth company report will cost between $10,000 and $30,000, he added.

Explaining the index’s computation, Hashimi said that the chief executive officer, chief financial officer or company secretary from each subscribing entity would assume the position of chief liaison officer, who would then send input to Mettle Consulting.

Besides the chief liaison officer, 25 managers from each entity would also be required to submit their feedback. These will then be taken into account while computing the index, according to respective weights assigned to different tangible determinants under the six core governance risk areas.

According to Hashimi, at least two companies – ICI and Pakistan Petroleum Limited – have already signed up for the index. “Four other companies have indicated their interest. Given the response we are receiving, I expect we will have eight to 10 subscribers by the end of this week,” he said.

Hashimi said about 25 subscribers would be required to make the index ‘sizeable’. He added that he was expecting at least four companies from every sector in the index to better reflect sector-wide, comparable trends.

In the beginning phase at least, he said, it will be up to the subscribing companies whether they want to share index scores with the general public or not. However, the index will likely become more ‘public’ as institutions like the KSE are going to get involved with the increasing number of participants in the index.

The index will also be launched in the Philippines, Indonesia and Malaysia in the near future, he added.

Published in The Express Tribune, October 9^th, 2012.