Corporate governance and accountability

One hopes the SECP will perform better than usual.

KARACHI: Debate over corporate political spending has gained attention recently after Jahangir Khan Tareen, a prominent politician, industrialist and the secretary general of Pakistan Tehreek-e-Insaf, was accused of using shareholders’ money to fund his party.

This brings to the fore the managerial performance and accountability of Pakistan’s listed companies with ideas of improving corporate governance gaining momentum.

All of this should be enough, you might think, to attract the authorities’ attention. But it seems the Securities and Exchange Commission of Pakistan (SECP) has a different priority. Tarin’s story is the epitome of poor corporate governance. According to experts, protecting investors and ensuring proper corporate governance are the essence of the SECP’s mission. The regulator is not supposed to support and implement the securities’ laws, but also, at times, urge practices that go beyond the letter of the law. It is also tasked with upholding the integrity of the entire corporate system.

In the late 2011, keeping in mind the diversified needs of the equity market, securities experts, institutional and individual investors, advocates and many legislators joined hands in a broad effort to get the corporate governance framework reformed in the country.

Consequently, the revision of the Code of Corporate Governance in 2012 was a significant step towards greater accountability and shareholder participation. The-then SECP chairman Muhammad Ali rightly hailed it as a “corporate governance revolution.”

The revised code was little short of revolutionary as it instructed the companies to make sure that they would have mechanisms to address possible conflicts of interest, to recognise and safeguard the rights of stakeholders and a framework in which internal complaints could be heard, with adequate protection for individual whistleblowers.

Time, however, was not on his side. Since his departure, as a result of judicial activism, everything seemed to have slowed down.

With the tug of war among commissioners, the SECP, after the regular chairman, has been bent on self-serving vendettas.

A new era?

Time is ripe for making the SECP an assertive regulator of the equity and financial markets. The government has done the right thing to appoint the Zafarul Haq Hijazi, an experienced regulatory affairs officer, as the SECP chairman. It was comforting to read that in his address to SECP employees, he has reported to have said that he would not “compromise on investors’ interests”.  The new chairman is expected to review 20-month activity and uphold the signature mandate using disclosure to promote transparency. As mandatory disclosure, leverages market discipline and, in a way, are means of accountability that stand in contrast to a more substantive government oversight of activities.

The chairman, in his agenda of investor protection, should also prioritise investor awareness as in this day and age, there simply is no substitute.  Unfortunately, the non-implementation of 2012 investor education programme, in its true spirit, has given an opportunity to critics for reiterating their stance of regulators’ incapacity to investor protection.

It is saddening to observe that every day self-appointed financial gurus set forth their views and one gets surprised to find out that very few people read the company’s annual report or conduct independent research and just depend on predications of these gurus.

They may be right or wrong. It doesn’t matter to them as they know that if they make the prediction often enough, it increases the likelihood they will be right and investors might get tempted to rely on their forecasts. With his team of dedicated commissioners, the SECP chief should also ensure that uncertified people do not advise people with regard to their investment decisions.  One can hope that the SECP will once again provide a level playing field for companies in Pakistan and hold corrupt actors accountable.

The writer is a business and  economics columnist 

Published in The Express Tribune, December 29^th,  2014.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.