Corporate governance: SECP drafts guidelines to help non-listed companies

Guidelines will improve governance and stability of firms.

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has issued draft principles of corporate governance for non-listed companies for stakeholders’ comments. “The set of thirteen principles aims to promote transparent and accountable governance practices in non-listed entities (NLCs)” a statement issued by the commission here said. The recommended governance rules for non-listed companies in line with best international practices were formulated while keeping in view the domestic corporate environment.

The SECP had introduced the Code of ‘Corporate Governance’ for listed entities in March this year. The SECP believes that virtuous corporate governance in non-listed companies will lead to higher investments and capital formation from local and foreign investors, and reduce economic vulnerability to financial crises. Moreover, improved corporate governance practices may also assist NLCs looking to be listed on stock exchanges in smoothly transiting to a listed company status.

Companies following good corporate governance principles may benefit from higher valuations, improved profitability, and may gain broader access to external financing than their poorly-governed peers. Empirical evidence has been gathered in the form of numerous research reports to support the idea that there is a correlation between adopting the basic principles of corporate governance such as fairness, transparency, accountability, responsibility, organization’s performance and competitiveness.



NLCs constitute the bulk of businesses in Pakistan, with over 60,000 NLCs registered with the SECP compared to only 604 companies listed on the country’s stock exchanges. Recognising the significance of NLCs to the national economy, ‘Principles of Corporate Governance’ have been formulated to extract the potential of improved corporate governance practices in non-listed segment of the national economy. The principles of good governance are presented on the basis of a dynamic phased approach, which takes into account the degree of openness, size, complexity and level of maturity of individual companies. The NLCs can extract from this stepwise approach useful guidelines to promote their sustainability, to bring external parties to their boards, to attract funds, and to solve issues between shareholders.

The SECP strives to provide a regulatory environment which is conducive for development and promotion of a robust corporate sector and ensures promulgation of balanced regulations. These principles are a set of guidelines from the SECP and will only be applicable on a voluntary basis.

Published in The Express Tribune, April 23^rd, 2013.

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