A requiem for the SECP law division

The SECP is not alone in its downward spiral, merely reflects our national preference for convenience over principles

“I don’t think they play at all fairly… and they don’t seem to have any rules in particular; at least, if there are, nobody attends to them.” — Alice in Wonderland

In a matter of four days last week, the Securities and Exchange Commission of Pakistan (SECP), the somewhat nondescript but ultimately powerful apex regulator of the corporate sector, made two organisational changes: Firstly, it abolished its law division and adjusted its lawyers in its five remaining divisions and secondly, it unceremoniously dismissed the head of the legal department. On the surface, both changes appear routine and unremarkable. A closer look, however, suggests not only the evident end of the law division but also, and far more importantly — perhaps even worryingly — a shift in the nature of corporate regulation in the country.

The SECP has explained these changes as a move to improve its efficiency and has added that these are entirely within its legal mandate and in accordance with the law. The words of the SECP, whilst true in a purely technical sense, do not shed any light on the manner in which the law division was hampering its efficiency. One would think that for the apex regulator who is entrusted primarily with the task of enforcing the law, the law division, if not an indispensable forerunner in all its decision-making, would at the very least be a trusted ally or a sage counsel. Clearly, however, the SECP’s present management thinks otherwise.

As I tried to understand this episode, I found myself thinking of the time when I had joined SECP as the executive director law (or head of legal department) in March 2005. Coming straight from legal practice in Karachi, I had not known what to expect and was shocked when I discovered that whilst the SECP was very keen to engage a head for its legal department, no such department in fact existed. Although the SECP did employ lawyers, it did so mostly at junior levels, and then posted them in its various departments where they reported and remained answerable to the operational heads who not only had no knowledge of the finer points of law but also whose objective in making any decisions was — at best — expediency rather than legality or even correctness.

The SECP chairman at the time, being a lawyer himself, was of the view that the legal department must work independently of the operational departments and, in fact, act as a connector for the departments so that the decisions of the SECP remained cohesive in all its areas of operations. It was to implement this philosophy that I started plucking lawyers from out of the operational departments and congregating them under the single umbrella of the legal department where they would be answerable only to lawyers and where a senior, responsible officer would be able to withstand the pressure exerted by operations. In doing so, however, I encountered resistance, sometimes even outright hostility, both from operations (who resented a check on their hitherto unfettered ability to act) and even the lawyers themselves who had found and ingratiated themselves to godfathers and protectors necessary for their survival in the organisation. This process continued under the next chairman, who, despite many differences of opinions, understood and supported the idea of the legal department and sought its advice on matters of law and policy.

To guess at what may have happened now to reverse the process would be pure speculation. What remains true, however, is that no matter how grievous the loss of efficiency due to the existence of the law division, disbanding it and summarily dismissing its head (who had been with the SECP in increasingly important capacities for more than seven years and was an important resource), was not the solution. In doing so, the SECP has severely compromised the integrity of the regulator: Junior lawyers lacking the necessary expertise and gumption to take a stand on the law and isolated from their peers will once again find themselves at the mercy of the operational heads for their careers and will likely accept any intellectual compromise, perhaps even unwittingly, merely to hold on to a coveted and increasingly insecure job. The greater tragedy, however, is that the SECP is not alone in its downward spiral and is in fact merely another facet of the national preference for convenience over principles. May the law division not rest in peace!

Published in The Express Tribune, June 22^nd, 2011.