Corporate Governance Family

Owned Business

Final Project

 Arooj Akbar
 Abeera Zahid
 Anam Rauf
 Ifrah Imran
 Naveed Ahmed

University of Management &Technology

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Contents
Acknowledgement .......................................................................................................................... 3
Abstract ........................................................................................................................................... 3
Introduction ..................................................................................................................................... 4
Literature review ............................................................................................................................. 5
Economics Money based highlights ............................................................................................ 5
The Pakistan Corporations .......................................................................................................... 6
Need of Governance in Corporate ............................................................................................... 6
Corporate governance ..................................................................................................................... 7
Code of Governance .................................................................................................................... 7
Composition of the Board of Directors ................................................................................... 7
Function Board of Directors .................................................................................................... 8
Committees of the Board of Directors ..................................................................................... 8
Role of Management ....................................................................................................................... 9
Family Firms in Pakistan .............................................................................................................. 10
Objective: ...................................................................................................................................... 10
Problem: ........................................................................................................................................ 10
Methodology: ................................................................................................................................ 11
Analysis: ....................................................................................................................................... 11
Opinion on the results: .................................................................................................................. 12
Recommendation .......................................................................................................................... 13
References ..................................................................................................................................... 13

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Acknowledgement

In the Name of Allah, The Most Beneficent, the Most Merciful. All the praises and thanks be to
Allah, the Lord of the 'Alamin who gave me love, strength, good health, and talent to complete
my Research paper.

In writing research paper we also face many difficulties’ but “Alhamdulillah” we complete on
time and in writing research paper we also learn new things in it. Secondly, I express my deepest
thanks to my teacher “Sir Saqib” who taught me that how writing a research paper. And which
difficulty occurs in it and yes my thanks and appreciations also go to my group members who
helped me in writing the research paper.

Abstract

This paper examines that Pakistan family owned business has good corporate governance or not,
as in Public Companies, because in non family owned business has good corporate governance
and good corporate governance mean good performance so we checked the corporate governance
as the base of performances, because if corporate governance is good than performances are also
good but when we checked the corporate governance in family owned business we realize that
non family owned business has good corporate governance and best rather than non family
owned business because in non family owned business they use their personal influence in it.

The Securities and Exchange Commission of Pakistan has not introduced any proper institution
to check companies' obedience of the code of governance, and there is no proper tool in place to
measure if the companies are really obeying it..

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Introduction

Corporation and Corporate governance are not new words in business world. However, corporate
governance is becoming a buzz word in the related to big business world of Pakistan for last ten
years. The basic reason of this new words and its importance is SECP has made it required for all
listed companies in Pakistan to follow the established standards of related to big business
corporate governance and publish it in the once a year reports for all concerned people who are
interested in a project or business. There is a growing interest in idea of how a big business is
controlled and run in Pakistan, mainly because how a big business is controlled and run is a key
to developing a system where supply and demand controls prices and production and a
community of people living well together in changing from one thing to another processes of
people making, selling, and buying things like Pakistan. This question can be born in mind how a
big business is controlled and run helps in changing processes of people making, selling, and
buying things And the answer is how a big business is controlled and run is a compared to other
things new term used to describe a process. This process tries to make sure of that the business
and management of related to big business is carried on going along with the highest winning or
most common standards of related to the rules and beliefs of doing the right thing and
effectiveness upon idea you think is true that it is the best way to safeguard and help increase in a
good way the interests of all related to big business people who are interested in a project or
business. Holding this idea you think is true that when listed companies follow the established
standards of how a big business is controlled and run, this will improve the performance and
confidence of organization and all people who are interested in a project or business match up
each pair of items in order of not only of one organization but of overall process of people
making, selling, and buying things, completely. Since the code is practiced, has it been helpful to
improve the performance of organizations? Has SECP completed her goals? In order to get the
answers of these questions this research is managed and done which is mostly secondary data
based. The data is collected through the instance of watching, noticing, or making a statement of
once-a-year reports of the concerned organizations.

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Literature review
Economics Money based highlights
Ex-Most important Minister, Shaukat Aziz when he was minister for finance and money based
studies in June 2000 shared the money based highlights of that time. According to him the
condition of Pakistan was very challenging and the country was facing huge concerns like some
macroeconomic activities and their firm, restoring the confidence of investors and businessmen,
increasing the growth rate, reducing and managing poorness, and improving Corporate
governance issues, especially government-run services and their employees departments and
offices, so that the confidence of general public can be increased. To tackle all these concerns
and putting the country back on the track of progress, a complete and multidimensional success
plan of reaching goals was needed. In other simple words the country was demanding growth
and the firm both of them needed consistent and committed efforts from all areas in the country
and the effective role playing of all concerned departments and government run services and
their employees workers. Had this happened, the country can be steered towards depending on
yourself for what you need, which is the call of time. Because of governmental policies, a shy
and weak recovery of money based growth could be managed in the money related year, 1999-
2000. This recovery should certainly be modest because of some obvious reasons and these were
ineffective putting into use of policies.

The statistics showed that the performance of large scale manufacturing was reduced to around
one-half of what the country could accomplish or gain with effort in the time in history of 80s.
Along with this, the companies that perform services, like trucking, health care, entertainment,
etc, was showing the growth of 4.1% only in comparison of 6.6% in 80s. Investment also had
been lowering in getting worse in 90s because of poor performance of large-scale manufacturing
and companies that perform services like trucking, health care, entertainment, etc. This poor
investment rate was also responsible for poor growth in 90s like government-run services and
their employee’s investment broke down worse from 9.1 to 5.3 in the same ten years. Mr.
Shaukat Aziz further said that thinking about these facts of money-based growth slump; the
demand of time was to focus on increasing the growth speed and power and the confidence of
investors to cause the money-based activities. This further needed to design the appropriate
money based and public policies and their putting into use to affect positively the money-based
growth rate. These would help in developing and making firm and strong macroeconomic
surrounding conditions the improvement of the country (Aziz, S., 2000).

Along with these, government took the measures like money related, money-based, and
exchange rate policies as part of the regular majority of people changes to have better effect on
process of people making, selling, and buying things and the ability to keep something around, or
keep something going. Changes never happen completely separate from others and many
changes support each other. Like alone could not give sound results unless related to what holds
something together and makes it strong good changes to be conveniently useful for them. Both of
them made possible the improvement of money based attempts to begin something new along
with improved setting apart and distributing of useful things supplies and they eventually caused

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elimination of hurdles for people and businesses that are not part of the government
development. Changes were needed on related to managing money side also. Government
changed the legal role of State Bank of Pakistan (SBP) and banking companies' rule that made
sure of the capital in the banking area along with some changes that meet the needed thing of
international practices in the banking area of Pakistan. Besides these, the insurance area was no
longer controlled by laws and SECP (Security and Exchange Commission of Pakistan) was given
power (Money-based Survey, 2001-2002).

The Pakistan Corporations

Ex-Most important Minister, Shaukat Aziz (2000), put some light on different legal people in
charge to control different related to big business areas. He at first discussed the background of
companies' rule. Companies Rule came into being in 1984 when Indian Companies Grouping
together Act was changed to the end. Pakistani companies have been established and
ruled/managed according to the Companies Rule 1984. The legal authority to make sure of this
thing is SECP in Pakistan. But now Pakistan moved to company’s act 2017. In addition to SECP,
there are some special laws win which control the special companies in Pakistan. There is
another institution with the name of stock exchange, which is also responsible to control the
listed companies. Banking companies are controlled by the State Bank of Pakistan. NEPRA
(National Electric Power Legal Authority) is another legal authority to manage the companies
involve in generation and distribution of electric power in different parts of the country. In
almost the same way, Pakistan Telecommunication Authority (PTA) is responsible for the firms
provide telecommunication services and last but not the least, Oil and Gas Legal/law-based
Authority is responsible for oil and gas based companies.

Need of Governance in Corporate

Ex-Most important Minister, Shaukat Aziz (2000) further added on and highlighted the need of
how a big business is controlled and run in Pakistan. According to him it has been heard that
weak system of how a big business is controlled and run causes obstacles in investments in short
run and lack of money based development in full swing in the long run. The findings of the
McKinsey survey done in 2000 pointed out that investors show interest to pay even large higher
cost to the companies having effective and producing a lot with very little waste. Some other
surveys have also been managed and did/done and the findings are more or less same and
investors in Europe and US support the same ends results and wait in investing those companies
which are not having effective. Shaukat Aziz drew attention to two small glass container
purposes that are common across the world

Corporate governance increases the performance of companies by developing the desired culture
in which owners, directors, workers and entrepreneurs are having a reason to do something to
improve the operational wasting very little while working or producing something.

Corporate governance should change an organization into law obeying firm that establishes a
system where directors and workers control their behavior and remain responsible to the all
concerned people who are interested in a project or business. This makes the control and

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watching of related to big business performance possible and participation of other people who
are interested in a project or business in decision making (Aziz, 2000).

Corporate governance

Corporate governance is the manner by which a function is conducted, and hence how a big
business is controlled and run is the manner by which corporations are and should be conducted.
The term contains many attributes of which trust, clearness/open honesty and responsibility for
behavior are basic aspects.

The shareholders' role incorporate governances to assign to a position the directors and the
people who carefully check business records and to make happy by meeting a need or reaching a
goal themselves that the right corporate governance structure is in place. The responsibilities of
the directors include setting the company’s related to a plan to reach a goal, providing the
leadership to put them into effect, supervising the management of the business and reporting to
shareholders on their management. The Board's actions are subject to laws, rules and the
shareholders in general meeting"

Code of Governance
The 2017 code will apply to listed companies and to all other businesses, to the extent related,
where the laws and hidden under licensing needed things require such businesses to obey the
2017 code. The term company used here in after will suggest listed companies and all
things/businesses to which the 2017 code applies

Composition of the Board of Directors

Number of Directors
The 2017 code has reduced the greatest possible number of directorships that can be held by a
director at the same time in listed companies from seven to five. However, as was before now the
case, while calculating this limit the directorships in the listed smaller companies owned by
larger companies of a listed holding company will be left out. The 2017 code has also prescribed
the date from which the limit on the directorships may be serious and stubborn, in other words,
when the board will be built-up again not later than the expiry of its current term or one year of
the effective date of the 2017 code, whichever is earlier. It is important to note that section 155
of the Companies Act, 2017 bury alia states that no person will hold office as a director at the
same time in more than such number of companies as maybe specified. Further, section 155
needs that a person holding the position of director in more than seven companies on the
beginning ceremony of the Companies Act, 2017 will make sure of the following the law as
you're told of this section within one year of such beginning ceremony. We understand that to
date the number of companies has not been specified by the SECP .It would, however, appear
that the number of companies may not be more than seven

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Independent Directors
The 2017 code has introduced a needed thing to assign to a position not less than two members
or one third of the total members of the Board, whichever is higher, as independent directors.
Whereas the 2012 code need to required appointment of at least one independent director and
encouraged appointment of at least one third of the members of the Board as independent
directors. The 2017 code has also introduced a needed thing for every independent director to
submit along with his/her permission to act as director, an official, public statement with such a
statement to the company that he/she satisfies the judging requirements of independence told
under the Companies Act, 2017.Every independent director will give such official, public
statement with such a statement to the Chairman of the Board at the first meeting in every related
to managing money year as well as on an event of any change affecting his independence. We
were understood such event will change the status of the independent director. Further, the 2017
code has not given any further explanation as to the steps to be taken by a company in relation to
the independent director when such event happens. The date prescribed for the constitution of
such Board will be not later than the expiry of its current term according to the effective date of
the 2017 code.

A Female Director is mandatory now

Function Board of Directors

Annual review of business by the Board

The 2017 code has introduced a needed thing for the Board of Directors to be responsible for the
authority and control of risk and for figuring out the company's level of risk tolerance by
beginning and building on risk management policies. Further, the Board will try at least every
year, an overall review of business risks to make sure that the management maintains a sound
system of risk identification, risk management and related to the deep down, basic way
something works and internal controls to safeguard valuable things, useful things supplies,
reputation and interest of the company and shareholders

Directors at the general meetings

All the directors are needed to attend the company's general meeting(s), ordinary and very
unusual, unless prevented from doing so due to any reasonable cause

Committees of the Board of Directors

Audit Committee
Committee is mandatory to be chaired by independent director that is not being the chairman of
the board and additional terms of reference. In code of corporate governance it is clear that it is
necessary to have in place explicitly documented terms of reference of the audit committee.

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Audit committee meeting

The code 2017 clear that the CEO and CFO attend the meeting when they are invited only

HR & R Committee
The code 2017 had introduced that it is mandatory the HR & R committee to meet at least one
time in a financial year

Separate Nomination Committee

The 2017 code has introduced the idea of 'nomination a group that decides or promotes
something. The Board may be equal to a separate nomination group of such number and class of
directors, as it may think of appropriate in the facts or conditions that surround someone.

Separate Risk Management Committee

The 2017 code of corporate governance also introduced the concept of risk management
committee. This committee may include the following

 Monitoring the financial, compliance and review all the material control
 Have appropriate extent of telling to people known of the company's risk solid basic
structure on which bigger things can be built and internal control system in the Directors'
report.

Role of Management

The behavior of managers can affect a lot the performance and value of a company. How a big
business is controlled and run is a way of handling "the separation of ownership and control",
where managers of corporations may not have rewards or reasons for doing something to act in
their shareholders' best interests. how a big business is controlled and run as an idea includes the
separation of roles and responsibilities, communication channels, and behavior between
shareholders, board of directors both executives and nonexecutives and the CEO. Different
schools of thought there are more than two, but not a lot of schools of thought describing the
patterns of relationships, movement, or sound of how a big business is controlled and run. These
people who are interested in a project or business shareholders as well as other parties all have a
stake in the company and can choose how to put in order of importance their stakes based on the
information they have about the company. It is the responsibility of the management to balance
all these interests. At the same time the people who are interested in a project or business will try
to influence management to meet their interests, goals and expectations. Following person who is
interested in a project or business explanation of why something works or happens the way it
does how a big business is controlled and run is needed to make sure that the voice of people
who are interested in a project or business is heard and that information about the company is
distributed equally to all people who are interested in a project or business. Management
explanation of why something works or happens the way it does Management explanation of

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why something works or happens the way it does assumes that management should put the long-
term best interest of a group ahead of the person's self interest .Managers, unlike agents in the
service business functioning explanation of why something works or happens the way it does,
think about their interests to be matched up even with the interests of the corporation and its
shareholders. Also, managers as managers are in the best position to make as big as possible the
interests of people who are interested in a project or business, including shareholders, since they
are most familiar with the patterns of relationships, movement, or sound of related to big
business strengths, weaknesses, opportunities, and threats. According to the management
explanation of why something works or happens the way it does how a big business is controlled
and run in the form of selecting and training able to do something very good and deserving
people's trust because of honesty, etc. managers must commit all parties to work towards a
common goal without taking advantage of each other.

Family Firms in Pakistan

In Pakistan Family ownership firms have a lot of importance in other words family firms are the
most important part of Pakistan process of people making, selling, and buying things. Mostly
private limited companies are attached with family businesses. In Private limited company’s
shares are not move from one place to another able easily. The public limited companies also
have a major part of family firms. Two papers have been included about Pakistani family firms.
Study decides the result of effect of family businesses and non family businesses ownership
structure on firm performance. For that purpose third largest area in Pakistan select the
manufacturing area after farming and mining area first and second match up each pair of items in
order. Large numbers of manufacturing firms are the family firms in Pakistan.

Objective:

Main objective of this paper to find out corporate governance in family owned business is good
or not.

Problem:

In this research paper in which the analysis is been conducted is “Is corporate Performance based
on corporate governance?” On this issue there is many research paper exist with different result
because there is no measurement tool for corporate governance in Pakistan yet.

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Methodology:

As per this paper is conduct in the search of an answer of the question which is “Is performance
in corporate sector is based on corporate governance?” so, we circulated the questionnaire based
on corporate governance framework , but that wasn’t really helpful to get sound data so then
there is comparison between family business and non family business. Which is based on
financial ratio ROE which has been taken from financial statements. The reason behind
comparison is non family business mostly tend to be more organized and with corporate
governance so, comparison will tell us is corporate governance in family corporate is good or
not.

Analysis:

The companies data used in this paper are National Ltd (foods), Nishat Mills and JDW sugar
mills. Which are families owned companies and Gul Ahmed Ltd, Nestle Pakistan Ltd and Faran
sugar mill Ltd, Which are known as Non family owned companies.

In this paper the analysis is based on financial ratio ROE as we believe that performance is based
on corporate governance. So, we the hypothesis that

H1=U1 > U2

Which says U1, Non family owned businesses are better than family based business in terms of
performance. This also indicates the old good corporate governance.

Family Owned Non-Family Owned

companies Companies
Return on equity Return on equity
4.99 17.63
32.8 254.97
-2.14 5.13

F-Test Two-Sample for Variances

Variable
Variable 1 2
Mean 11.88333333 92.57667

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Variance 340.8394333 19817.76
Observations 3 3
Df 2 2
F 0.017198687
P(F<=f) one-tail 0.016907894
F Critical one-tail 0.052631579

t-Test: Two-Sample Assuming Unequal Variances

Variable
Variable 1 2
Mean 11.88333333 92.57667
Variance 340.8394333 19817.76
Observations 3 3
Hypothesized Mean
Difference 0
Df 2
t Stat -0.984392104
P(T<=t) one-tail 0.214352128
t Critical one-tail 2.91998558
P(T<=t) two-tail 0.428704256
t Critical two-tail 4.30265273

We checked are hypothesis by using the test with T-test. Two sample assuming un equal
variances. In the result statistical analysis supported are hypothesis and we didn’t rejected the
hypothesis because

-0.98439 < 2.919988

Opinion on the results:

Family firms are trying their best to comply with the code of corporate governance. As it is
mandatory and can’t run business effect without it but still there is lacked of corporate
governance because of more family members in management and personal influence and which
can lead to agency conflict as well. So, corporate governance in family owned business is semi-
effective which should be completely effective.

The related to studying numbers analysis showed that non-family firms had greater mean values
for performance numbers that change.

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The results this way got from based on actually seeing things data of firms listed on SECP
clearly reflect that non-family firms outperform family firms with every performance number or
thing that changes included in the study. This can serve as a guideline in figuring out ownership
structure for firms in Pakistan.

The Need of related to big business corporate governance established an idea that obedience of
the Code of Corporate governance leads to an increased investment and increased confidence.
However, for Pakistani investors obedience of the code of related to big business corporate
governance remains a secondary investment judging requirement. Pakistani investors have their
own like nothing else in the world set of investment judging requirements. The general point of
view and perception of people towards CG is more of a forced following the law. They still think
about it as a set of law whose following the law is made required thing by SECP. They follow it
as a strong desire just to meet the needed thing of SECP. However, now, they do not yet follow
CG whole heartedly with an intension to adopt the best related to big business Practices.

Recommendation

The recommendations include that the SECP should come up with a tool to measure companies'
obedience of the non related to managing money parts of the code. One of such tools is Balanced
Scorecard, which is used to measure related to managing money and nonrelated to managing
money aspects in related to a plan to reach a goal manner to measure and improve the related to
big business performance. There is exists a need to work on the general perception of the
corporations so that with the passage of time, adopt the code whole heartedly with a view to
include best related to big business practices. Develop able to be real judging requirements to
measure level of good authority and control.

In Pakistan mostly firms have family ownership structure and have very small study on family
and non family ownership firms in Pakistan. Family ownership firms play a very important role
in Pakistan process of people making, selling, and buying things. Focus only four sub parts
thought believed for study in Pakistan and select the manufacturing area mostly. Four
manufacturing areas are selected for studying the first is chemical manufacturing area, second is
construction and material, third is car and fourth is pharma and bio-tec. And many parts/areas are
free for this type of research in Pakistan. Mostly in studies sample size are very small in Pakistan
like 2 to 4 years only. For further studies sample size can be increased also.

References

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https://www.researchgate.net/publication/302407437_Corporate_Governance_in_Pakist
an_An_Empirical_Study

file:///C:/Users/Ali/Downloads/Documents/National-Food-Annual-Report-2016-17.pdf

file:///C:/Users/Ali/Downloads/Documents/annual17.pdf

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