State of corporate governance leaves much to be desired

Without full-time chairmen, many state-owned enterprises operating with difficulty.

KARACHI:

After the departure of the Pakistan Peoples Party (PPP), many analysts expected notable improvement in the state of corporate governance in Pakistan.

After all, the incoming government led by the Pakistan Muslim League-Nawaz (PML-N) took great pride in its urban, industrial roots. One year on, however, its report card has little to show as far as corporate governance and meritocracy in state-owned enterprises (SOEs) are concerned.

The performance of a number of SOEs and regulatory bodies remains questionable, as they have operated without chief executives for the last one year or so.

The Competition Commission of Pakistan (CCP), State Life Insurance Corporation, Pakistan Reinsurance, National Insurance Company and National Electric Power Regulatory Authority are some of the many government organisations that continue to operate without full-time chairmen.

But arguably the most obvious case of bad governance involves the apex regulator of Pakistan’s corporate sector: the Securities and Exchange Commission of Pakistan (SECP).

The year-long race for the chairmanship of the country’s top regulatory body is far from over.

The sorry tale of the yet-to-be-filled vacancy of the SECP chairman began with a newspaper advertisement back in May 2013. Along with other vacant positions in state-run organisations, the government invited applications for the post of the SECP “commissioner/chairman”. Consultancy firm AF Ferguson was appointed to short-list candidates, who were then to be interviewed by a special committee headed by the federal tax ombudsman.

However, the government later discarded the whole process, saying the 2013 advertisement was not legally sound. It was followed by yet another advertisement in March, but this time the government invited applications for three commissioners instead.

The SECP already has four commissioners, including the acting chairman. The SECP Act 1997 says the number of commissioners is to be between five and seven. However, there have traditionally been only five or fewer commissioners at the SECP since 1999.

Importantly, while the 2013 ad stated candidates must have at least 20 years of experience, the March 23 ad reduced the experience requirement to 10 years.

“This shows the government wants to induct three, instead of one, commissioners and that at least one of them does not even have 20 years of relevant experience,” said a senior bureaucrat while requesting anonymity.

However, through a separate notification in the same month, the government quietly excluded the SECP and the CCP from the purview of the Federal Commission for Selection of Heads of Public-Sector Organisations (FCSHPSO). Apparently, the move was to ensure the appointment of the government’s handpicked candidates at the two organisations.

This was followed by a writ petition filed by solicitor Dawood Ghaznavi against the federation of Pakistan in the Islamabad High Court (IHC). In its short order delivered on April 10, the court suspended the notification till the next date of hearing, saying “it appears to be … an effort to oblige the blue-eyed persons without competitive process.”

As for the appointment of chairmen/CEOs of other SOEs for which the government invited applications through the newspaper advertisement last year, the government’s performance has been equally disappointing.

Many state-run entities, such as State Life Insurance and House Building Finance Company (HBFC), have yet to publish their audited financial accounts for over two years because of either incomplete boards of directors or the absence of full-time chairmen.

Some of these organisations – like HBFC, First Women Bank and National Investment Trust (NIT) – eventually got their managing directors/CEOs. But none of the appointed people were shortlisted by AF Ferguson or interviewed by the FCSHPSO.

“Saying that red tape and poor governance have been the hallmark of the PML-N government in its first year in power will not be an overstatement,” said one bureaucrat.

Usage of finance bills

Successive governments have been fond of bringing amendments to the Acts governing state organisations like the SECP, State Bank of Pakistan (SBP) and National Bank of Pakistan (NBP) through finance bills.

Although amendments to these Acts must be preceded by a thorough parliamentary discussion, governments typically try to use finance bills to enact changes in order to minimise discussion.

Following the Supreme Court’s order last year declaring amendments to the SECP Act through the Finance Bill illegal, the right course for the current government would have been to roll back all the changes introduced through finance bills over the years.

As many as 14 amendments have been introduced to the SECP Act through finance bills in the last few years alone.

Sources say about three months ago the SECP’s policy board recommended to the ministry of finance that it should roll back all amendments. So far, the ministry of finance has failed to act on the SECP’s recommendation.

Published in The Express Tribune, May 26^th, 2014.

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