Inefficient state enterprises: SECP drafts new regulations to check corruption

Company board, instead of prime minister, will appoint CEO.

ISLAMABAD:

The Securities and Exchange Commission of Pakistan (SECP) has unveiled draft regulations for improving governance in public sector companies, turning towards separating policy and operational posts in a bid to introduce checks and balances for eradicating corruption.

Under the regulations, the authority of appointing chief executive officers of public sector companies will be given to the board against the current practice when CEOs are appointed by the prime minister, which is contrary to best practices.

The board will also have a majority of independent directors and their tenures have been fixed for three years to ensure transparency and continuity, according to the draft of the Public Sector Companies Regulations 2012.

The cabinet committee on restructuring of public sector enterprises has shortlisted CEOs for four power distribution companies. But despite a lapse of four months Prime Minister Yousaf Raza Gilani has not yet finalised anyone.

“The regulations have been framed in light of the Companies Ordinance 1984 and according to this ordinance the powers of appointing CEOs rest with the company board,” said Waseem Ahmad, Joint Registrar of SECP while talking to The Express Tribune.

He, however, pointed out that the SECP had foreseen some issues in enforcement of the regulations, which would be done in consultation with the stakeholders.

According to the regulations, the board, headed by the chairman, will formulate the policy while the chief executive officer will be responsible for implementation.

The chairman will chiefly be responsible for proper working of the board and all matters relating to governance will be placed on the agenda of the board meeting. The chief executive will be responsible for the management of the company under the supervision of the board.

The regulations say that the chairman will be elected from among independent directors and then the board will appoint chief executive of the corporation as per provisions of the companies ordinance.

Moreover, any person that does not meet the ‘fit and proper’ criteria cannot be appointed the CEO.

According to the fit and proper criteria, individuals who do not enjoy moral and professional integrity and are convicted by courts cannot be appointed as CEOs.

The SECP has formulated the draft regulations in order to improve governance framework of public sector companies, says an official announcement. These regulations have principally been based upon the Code of Corporate Governance, which has been customised in the context of public sector companies, it adds.

The SECP says various recommendations have been made in the regulations aimed at optimising efficiency, enhancing transparency in operations and providing a mechanism for accountability.

These regulations have been designed in view of the distinct governance challenges faced by public sector companies, according to the SECP. The inefficiency of such companies is choking the economy and draining fiscal resources, necessitating urgent restructuring of their operations, it adds.

The government constituted the cabinet committee on restructuring of public sector enterprises in January 2010 to improve corporate governance and service delivery, and to move to a structural surplus and increased public sector savings.

Subsequently, in October 2011 the government formed a task force on corporate governance of public sector enterprises with the mandate to examine the prospects of developing a regulatory mechanism for improving governance and enhancing board effectiveness and empowerment through a range of measures. The regulations have been vetted by the task force.

Published in The Express Tribune, March 25^th, 2012.