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Corporate Governance-The Biology of Incorporated Businesses

Table of contents

Executive Summary.............................................................................................................1
Corporate Governance.........................................................................................................2
Components of corporate governance.................................................................................3
The Board of Directors (BOD)........................................................................................4
The CEO, Company Secretary and CFO.........................................................................5
Reporting and Meetings...................................................................................................8
The System of good corporate governance....................................................................11
............................................................................................................................................12
Corporate governance in Pakistan.....................................................................................12
PICG at Present..............................................................................................................14
PICG Code of Corporate governance............................................................................15
Corporate Governance Case studies..................................................................................20
The Lubrizol Corporation..............................................................................................20
Cairo and Alexandria stock exchange (CASE)..............................................................21
Cases in Pakistan............................................................................................................25
Conclusion.........................................................................................................................27
Bibliography......................................................................................................................28

Executive Summary

Corporate governance is the set of policies, people, laws, regulations


and reporting of corporate business entities. It is a primary focus of
regulators in today’s world. Sound corporate governance brings
prosperity to the masses in the economy by raising investor confidence
and proper management of the investments. Good corporate
governance is vital for organisations to survive.

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Corporate Governance-The Biology of Incorporated Businesses

The major components of corporate government are; the Board of


Directors, the Executive Offices, Regulators, Reports, Upper
Management, and Company Policies. The flow of corporate
governance comes from the top through the board, it is moulded into
the organisation through the CEO and reflected in the reporting
process with transparency. The over all flow is influenced by external
stakeholders.

Corporate governance in Pakistan is still at the developing stage. The


regulators mainly; the Securities and Exchange Commission of Pakistan
and the State Bank of Pakistan, are constantly engaged in developing
corporate governance in the country. The government has formed an
institute of corporate governance which promotes good corporate
practices through various means.

Cases of poor corporate governance can be found around the world.


They are mostly connected to fraudulent practices. The other major
malpractices were; irregularities in accounts, non-compliance with law,
nepotism, and exploitation of minority share holders.

Corporate Governance

The term corporate governance refers to all the activities, policies,


personnel, regulations and reporting which is related to the control of
the company’s actions. Corporate governance is done through all those
individuals who have a controlling influence in a corporation such as
creditors or stock holders. It focuses on reducing principal-agent
problems and undermines stakeholders view in company operations.

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Corporate Governance-The Biology of Incorporated Businesses

Corporate governance is at the centre of attention in today’s business


world. This is greatly due to the large number of stakeholders whose
wealth and interests are at stake in the business. What has further
highlighted corporate governance today has been the increasing
influence and awareness of these stake holders. With out sound
corporate governance a business cannot survive.

Corporate governance is not just related to core business activities.


Good corporate governance caters to various other issues present in
the society. Corporations today have developed a concept of corporate
social responsibility. The major components of corporate governance
comprise of company policies, Board of Directors, the role of the CEO,
creditors, Stockholders, regulators, reporting and maintaining overall
transparency about the business operations.

Corporate governance can be both good and bad. The Securities and
Exchange Commission try’s to ensure that sound corporate governance
is maintained in all businesses by regulating corporations. Further
business expansion is also dependent on sound corporate governance.

Components of corporate governance

Corporate governance is not just related to human elements. As


mentioned earlier, it comprises of all the policies, practices, activities,
individuals and stakeholders of the business. The Major components of
corporate governance could be stated as:

• The Board of Directors


• The Upper Management

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Corporate Governance-The Biology of Incorporated Businesses

• The Stock holders


• The Regulators and other Stakeholder institutions
• Reporting
• Company Policy
• Company Activity
• The CEO, Company Secretary, and CFO
• Meetings

The Board of Directors (BOD)

Good corporate governance is always trickled down from the top of the
organization. Therefore the role of the board of directors plays a
significant role in the overall corporate governance of any organization.
The BOD is responsible for developing policies and communicating the
company objectives to the operational levels. These objectives must be
developed in line with the regulations and demands of the various
stake holders. The BOD appoints a chief executive officer (CEO) to play
an intermediary role between the principal (Owners) and the Agents
(Management and Employees) in order to achieve company goals.

The BOD must be of sufficient size and must be fully aware of


shareholder and other stakeholder objectives apart from the business
environment. The BOD primarily is consisting of individuals who have a
significant share of ownership in the entity. However other directors
maybe hired if felt necessary. Those members of the BOD who are also
shareholders are termed ‘Non-Executive Directors’, whereas the
directors who are specifically hired on the basis of need and are not
shareholders to the business are called ‘Executive directors’. There
is no specified mix of the number of executive and non-executive
directors in the board. However the regulators have assigned the

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Corporate Governance-The Biology of Incorporated Businesses

minimum number of directors to a specified number which varies from


country to country. The selection of the Directors is done through
elections at company meetings on defined time intervals.

The CEO, Company Secretary and CFO

Three of the most crucial executive offices are; Chief Executive, Chief
Financial Officer (CFO), and the Company secretary. These offices are
run through high ranked personalities who posses sound knowledge of
running corporations. The regulators keep close checks on these
officers and their selection process is the outcome of several
scrutinizing procedures. The selection of these individuals is done
through an election process and the final approval is given by the
regulators after assessing the various eligibility requirements such as
qualification and experience. All of these individuals have tremendous
responsibility and are to be held accountable for approximately all of
the company activities. They are also given the highest remunerations
and authority.

They must be well aware of all the rules and regulations defined in the
country’s corporate law.

The CEO plays the most significant role in managing the organisation
and the principal-agency relationship. The CEO is the highest paid
individual and is responsible and accountable for all business activities
and performance. A good CEO is pivotal for the prosperous functioning
of the organisation. An effective CEO must possess sufficient
qualification and skill to communicate Board objectives to the lower
layers of the hierarchy and to execute them in to performance.

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Corporate Governance-The Biology of Incorporated Businesses

The appointment of the CEO is done by the BOD, however once the
BOD has selected a CEO he is finally approved by the relevant
regulatory body. Much scrutiny is done on the character, skills and
abilities, qualification and experience of the CEO before he is
appointed. The CEO is accountable to the directors and should be held
responsible for all performances of his subordinates.

The Company Secretary is another key figure in the corporate


governance structure of an organisation. The company secretary is
primarily responsible for ensuring that shareholder interaction with the
regulator and company offices are in line with the rules and regulations
laid out in the corporate law. The company secretary is also responsible
for maintaining interaction with shareholders and regulators, the CS
must communicate to the relevant members the schedules of
meetings, elections, results and other announcements.

The regulators have defined certain qualifications for a person to be


legible as a candidate for Company secretary.

The Chief Financial Officer is perhaps the most important post after
the CEO. The CFO has a significant amount of power and say in the
company and is in charge, accountable and in control of all the
company’s financial activities. The CFO must also be approved by the
Securities and Exchange Commission, and is also required to possess
suitable financial qualifications in order to hold the office of CFO. CFO’s
are usually the second highest ranked officers in organisations and
receive a healthy remuneration.

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Corporate Governance-The Biology of Incorporated Businesses

The Regulators

The regulators are usually comprised of a number of government


institutions which try to ensure that the best methods of corporate
governance are being practiced in an organisation. The Regulators are
of two types; 1) Primary Regulatory Bodies, 2) Secondary Regulatory
Bodies.

Primary Regulatory Bodies are those regulators that are the same for
all businesses regardless of the industry. The securities and exchange
commission of Pakistan (SECP) is one such example. The SECP is the
primary regulator for limited liability companies. Each corporation must
register itself with the SECP in Pakistan. The companies are also
obliged to provide a number of documents and information to the
SECP.

Secondary regulators are those regulators which are industry specific.


For example the State Bank of Pakistan for the Banking industry. These
regulators are responsible for developing rules and regulations in order
to maintain best practices in the respective industry. e.g. the ‘ Food
and Drug administration’ is the regulator for the companies in the food
and drug industry of the United States, or the Karachi Port Trust as a
regulator for all shipping lines calling the Karachi Port. The primary
task of all regulators is to monitor, generate and enforce laws, and to
take suitable action for any deviations from the defined laws and codes
of governance.

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Corporate Governance-The Biology of Incorporated Businesses

Other External Stake Holders

Apart from the BOD, Executives, Regulators and upper Management


there are various other elements which play a key role in a company’s
corporate governance. The extent of their role is defined by the
influence or controlling interest they hold in the organization. Some of
the major indirect corporate governors are:

⇒ Creditors
⇒ Customers
⇒ Society
⇒ Media
⇒ The general public
⇒ Other rights groups

Many provisions are provided in the corporate law to increase in the


influence of these stake holders in the corporate governance of the
company. The provisions are based on the magnitude of the stake
these parties possess. e.g. the creditors are given a right to assign
their candidate on the BOD just to ensure that the money of the
creditors is being utilized properly. Similarly, minority shareholders are
also allowed to nominate their candidate for a Board Seat.

Reporting and Meetings

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Reporting company performance is an essential element for good


corporate governance. The best corporate governance practices
require a comprehensive and transparent reporting system.

There are some conflicts in this regard occurring between the various
components of the corporate governance. The cost of mailing reports
to each and every shareholder is seen at times burdensome, especially
when it is of reporting to a small shareholder.

Reporting nonetheless is considered as a very important part of


corporate governance. The companies have to report about company
performance not only to shareholders, but to almost all the relevant
stake holders. e.g. the Regulators, Creditors, general public and other
rights groups. The regulators have made certain reports mandatory to
be published and delivered to concerned individuals and institutions on
specified time intervals.

Some of the major reports that are published are:

⇒ Annual Reports
⇒ Quarterly reports
⇒ Reports for the regulators
⇒ Reports for the stock exchanges
⇒ CSR Reports
⇒ Marketing Reports
⇒ Investment Reports
⇒ Performance evaluation Reports

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Corporate Governance-The Biology of Incorporated Businesses

The Annual report and quarterly reports are considered to be the most
significant reports for all stake holders. They provide a thorough
financial analysis, performance analysis and information that is vital for
investors, regulators and the general public.

Contents of the annual and quarterly reports are:

⇒ Financial statement
⇒ Auditors report
⇒ Directors, CEO and CFO’s Report
⇒ Statement of ownership equity
⇒ Dividend Policy disclosures
⇒ Any other reports considered to be necessary for the stake
holders

The CFO plays a crucial role in the reporting process. The financial
statement are the major part of the report and consist of the Balance
Sheet, the Income Statement, statement of cash flows, statement of
owners equity, financial derivatives and notes attached to the report
which assist in comprehending the report, the dividend policy must
also be elaborated in the report. These statements have to be
approved by both the CFO and CEO, however they are more relevant to
the CFO.

Maintaining transparency and integrity in the reports is what is


considered as the key feature for good corporate governance practices.

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Corporate Governance-The Biology of Incorporated Businesses

Timely publication; delivery to the relevant institutions and individuals,


and report presentation are vital elements for good reporting. There is
increasing debate on the extent to which the reports are window
dressed and influenced by biasness.

The System of good corporate governance

Board of directors develop policies and direct


management with primary focus on
Shareholder benefit and Stakeholder view

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CEO acts as a bridge between BOD and


Management in implementation of policies
Regulators
influence
governance
in order to
provide
benefit to
the masses
Management performs activities with
good business savvy, objectivity and
integrity

Good Corporate governance

Corporate governance in Pakistan

Corporate governance is rapidly developing in Pakistan. In 2002 the


state bank of Pakistan launched a project for developing the Pakistan
institute of corporate governance. The idea was to encourage sound
and strong corporate governance in the Pakistani corporate sector. The
motive behind the project was based on the fact that; investor

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Corporate Governance-The Biology of Incorporated Businesses

confidence in the economy is dependent on the quality of corporate


governance of institutions.

It was felt that the existing business schools were not providing
sufficient focus on developing strong corporate governance. The
institute of corporate governance would focus on:

• Training of SECP’s own staff


• Staff of the stock exchanges
• To impart training to the directors
• And promote awareness about good corporate governance

The project was executed in collaboration with the UNDP. The PICG was
developed to form a bridge between two prominent stake holders in
the corporate world, namely; 1) The Regulators, 2) The Corporations.

Experts suggested that the PICG’s role could be further facilitated by


the following aspects:

• Training of Corporate Secretaries, the CEOs and possibly the


CFOs
• Preparation of research reports on corporate issues and matters

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Corporate Governance-The Biology of Incorporated Businesses

• The PICG magazine to contain articles, guidelines and reviews on


various corporate matters
• PICG to develop expertise to mediate in conflicts resolution in
corporate matters
• To Provide other resource material for promoting sound corporate
governance

PICG at Present

The PICG at present is operating as a not-for profit organization, limited


by guarantee and without share capital. Its setup has been structured
through a public-private partnership, the shareholders include, in
addition to the Securities and Exchange Commission of Pakistan
( SECP), the State Bank of Pakistan ( SBP), the three Stock Exchanges
in Pakistan, the Banking, Insurance Associations and Apex bodies of
the chambers and NBFI’s, Professional bodies of Accountants &
Company Secretaries, Academia, and the Corporate Sector.


The PICG offers a membership program. Members obtain facilities
such as:

• Being associated with high level corporate networking.


• Access to the latest thinking and best practices in Pakistan,
Commonwealth countries and elsewhere in the world.
Source: www.picg.org.pk

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Corporate Governance-The Biology of Incorporated Businesses

• The opportunity to help influence and improve Corporate


Governance standards in Pakistan.

Members of the Institute are able to:

• Play a part in achieving the Institute's mission


• Participate in and vote at the annual meeting
• Be eligible for election to the PICG Board and working
committees
• Attend meetings, roundtable discussions, workshops, programs
and other PICG activities, at concession rates
• Enlist your name and biographical details on the PICG website
• Participate in workshops on developing guidelines.
• Participate in Workshops to focus on issues and develop positions
• Participate in Workshops for experience sharing
• Avail opportunities for delivery of a talk on a relevant subject
• Avail opportunities for authoring a paper on a relevant subject
• Avail opportunities for organizing and designing a forum or an
event or a project.

PICG Code of Corporate governance

The PICG has developed a code of corporate governance. The code is


available on the PICG website and is expected to be adopted by all

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Corporate Governance-The Biology of Incorporated Businesses

corporations. The code of governance is a 12 page document and can


be summarised as follows: 1

According to Sec 37 of SECP, all listed Companies should comply with


the Code of Corporate Governance. All listed Companies should
encourage effective representation of independent non-executive
directors including those who represent minority interests. Under this
they may seek that minorities have rights in electing the directors. The
Corporate may also publish the notice of general meetings. A
statement from minority candidate must be submitted which includes
the profile of the minority candidate. The information may also be
provided regarding shareholding structure and copies of registered
members.

The Board should also include at least one independent director


representing the equity interest of Banking Company, Development
Financial Institutions, Non-Banking Financial Institutions (including
Modarba, Leasing Company or Investment Bank), Mutual Fund or
Insurance Company.

That Executive directors i.e. working or is a whole time director, should


not be more than 75% of the elected directors including the Chief
Executive. Elected directors are also responsible to give them consent
1
Source: PICG Code of Corporate Governance

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Corporate Governance-The Biology of Incorporated Businesses

of the act performed in aligned to their duties and power under


relevant Laws, "Memorandum of Association", and regulations of Stock
Exchange in Pakistan.

Qualification and Eligibility to Act on a Direction:

A person who is serving as a director of a listed company should be


registered as national tax payer other than if he is a non-resident. He
has not been convicted as a defaulter or in any banking company or
stock exchange. And that no person is elected or nominated as a
director if he or his spouse is engaged in business of stock brokerage.

Tenure of Office of Director

The tenure of office for the elected director is three years. A casual
vacancy shall be filled up within thirty days.

Responsibility, Powers and Functions of Board of Directors

Objective judgment should be there in every action of the directors for


the best interest of the company. A statement of ethics & Business
practices should be prepared, signed by all directors and
acknowledged by all employees.

Board of directors should formulate a Vision statement incorporating


corporation's strategy and objective. They are responsible for a system
of sound internal control at each hierarchy level. Appointment,
remuneration and terms and conditions of employment of Chief
Executive and other Executive directors are determined and approved
by board of directors. The chairman of listed company is elected from

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non-executive director for whom the board of directors clearly defines


the roles and responsibility.

Meeting of the Board:

The chief executive officer is liable to conduct and preside over


meetings of the board of directors and that all directors should meet at
least once in every quarter of the financial year. Agenda of meeting
should be circulated not less than seven days, except in case of
emergency meetings. The chairman is responsible that the minutes of
meetings are satisfactorily recorded and the director has power to
append the notes to the minutes, which if not given his rights may
approach SECP.

Orientation Courses:

An orientation course is conducted for directors to acquaint them with


their duties and responsibilities.

Chief Financial Officer (CFO) and Company Secretary:

CEO is responsible for appointments, remuneration and terms and


conditions of employment of CFO, company secretary and head of
internal audit with the approval of board of directors and that these
shall not be removed except by CEO with approval of BOD.

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Corporate Governance-The Biology of Incorporated Businesses

Qualification of CFO and Company Secretary:

A CFO is appointed if he is a member of recognized body of


Professional Accountants and that he is a graduate from Recognized
University having at least 5 years of experience in handling Corporate
and Financial affairs in Listed Companies, or Banks or Financial
Institutions.

A Company secretary shall also be a member of a recognized Body of


professional Accountants, a member of recognized Body of Corporate /
Chartered Secretaries, a person holding Masters Degree in Business
Administration, or Commerce or being a Law graduate recognized by
HEC and having 2 years of experience.

Corporate and Financial Reporting Framework:

It should include director's report to shareholders, including Financial


Statements, proper Books of Accounts, appropriate Accounting policies,
International Accounting Standards, a system of Internal Control,
significant evidence that the business is a Going Concern, summarized
key operating and Financial dates of last six years, significant plans
and decisions, Dividends paid, and if not then a reason should also be

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Corporate Governance-The Biology of Incorporated Businesses

furnished, number of Board Meetings held during year including


attendance of each director.

Disclosure of Interest by a Director Holding Company's Shares:

A director having any relationship of another listed Company shares


should notify in writing to the Company's secretary of his intentions.

Auditors not to hold Shares:

Auditors should not involve in buying of Company's shares or may not


ask their spouse or any other relatives to buy Company's Shares.

Corporate Governance Case studies

The Lubrizol Corporation

The Lubrizol Corporation has a history of maintaining good corporate


governance practices. Some examples of Lubrizol history of good
practices include:

For more than 20 years, Lubrizol’s Board has consisted of at least 75%
non-employee directors and only non-employee directors have been
members of the key Board Committees. For more than 10 years,
Lubrizol’s outside Board members have met regularly without

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Corporate Governance-The Biology of Incorporated Businesses

management present and the Chair of the Organization and


Compensation Committee has acted as the lead director. For more
than 15 years, Lubrizol has had written Board of Directors Governance
Guidelines, and in 2000 the company first published them verbatim in
Lubrizol proxy statement, long before the law required their
publication.
Since the founding of the Company, ethics has been a cornerstone for
Lubrizol success. Lubrizol current Ethics program has been in existence
since 1994 and Lubrizol Chief Ethics Officer regularly has provided
reports to the Audit Committee. In recent days, the company has been
asked to make presentations to numerous entities including public
companies and educational and governmental institutions on Lubrizol
Ethic’s program.
The company is proud of its history of good corporate governance
practices and considers these practices not only good for Lubrizol
shareholders, but also for Lubrizol employees, customers and
suppliers.

Cairo and Alexandria stock exchange (CASE)

In 2004 and 2005, the Cairo and Alexandria Stock Exchange (CASE)
was the world’s best performing emerging markets exchange, driven
by Egypt’s impressive economic growth. Newsweek magazine named it
one of the world’s ten best stock markets for 2005.

Booming capitalization and good liquidity were the reward for the
exchange’s tough decision to demand more disclosure from listed
companies and to weed out those companies not considered investor
grade. Tellingly, after the CASE instituted new disclosure rules, about
one third of companies de-listed from the exchange.

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Corporate Governance-The Biology of Incorporated Businesses

But the first to gain from increased transparency are the companies
themselves, stresses CASE management. “This is for the benefit of the
company, not of the exchange. We tell our members that if you do this,
investors will reward you. They will hold your shares even in the bad
moments. This rang a bell with them,” says Shahira Abdel Shahid,
advisor to the CASE chairman.

Ms Abdel Shahid points to Orascom Telecom, Commercial International


Bank and Orascom Construction Industries as examples of companies
that have gained from better disclosure.

In mid-2002, the CASE implemented new rules that set the minimum
standard of transparency, focused mainly on reporting requirements.
“Before this, there was no emphasis on disclosure in exchange rules,”
she explains. “There is more understanding by the new regulator that
transparency is important – the case was different in the past.”

“We inherited a lot of companies that were listed simply for tax
benefits. So we set about to weed these companies out,” says Ms
Abdel Shahid. The exchange backed up the new rules with aggressive
fines and suspensions from trading, encouraging many illiquid
companies to de-list. New rules this year will set the corporate tax rate
at 20 per cent for all companies, eliminating any tax breaks for listed
companies. “We expect a lot of voluntary delisting as a result. But we

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Corporate Governance-The Biology of Incorporated Businesses

are happy with this. We will have fewer but better capitalized
companies,” she says.

At the end of September 2005, there were 765 CASE-listed companies,


down from 1,151 at the end of 2002. But during the same period,
market capitalization more than tripled to US$ 67 billion, from US$ 21
billion.

Most of the exchange’s efforts to promote transparency have been


aimed at the top companies that make up the CASE 50, which account
for 80 per cent of trading volume. Some of these initiatives have
subsequently been extended to the CASE 100 companies, which
account for nearly all of the exchange’s trading.

Some of the steps taken have made disclosure easier for companies.
For instance, a web-based filing system for CASE 30 companies has
replaced paper forms and faxes. But most of the CASE’s efforts are
focused on

Education and training. In 2003, the exchange appointed a head of


disclosure. To encourage compliance, the CASE designated an analyst
for each industry sector to meet with listed companies and explain the
new rules and their benefits. “Our main message is that investors seek
information,” says Ms Abdel Shahid. Today, nearly all CASE 50
companies have an investor relations officer (IRO).

Perhaps the most important initiative has been the exchange’s Investor
Relations and Corporate Governance Committee, which is made up of
representatives from ten CASE-listed companies. “These are the
companies best in disclosure. They act as the blue chip companies to

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Corporate Governance-The Biology of Incorporated Businesses

their peers,” says Ms Abdel Shahid. The committee plays a


communications and advisory role, and also sponsors events and
publications. Membership involves both company chairmen and their
IROs, and Ms Abdel Shahid characterizes participation as “very active.”

Separately, the CASE audit committee has met with all of the CASE 50
companies to explain the role of audit committees in good corporate
governance.

Besides contributing to good market performance, the CASE’s push to


increase member quality has recently earned it full membership in the
World Federation of Exchanges, alongside markets such as NYSE,
Nasdaq and LSE. “This is an upgrade for us, and we are the only Arab
stock market to be a member,” says Ms Abdel Shahid.

It has also encouraged a broader investor culture in Egypt “There is


now more space dedicated in local newspapers to the stock exchange,
and a class of financial journalists has emerged,” she says.

Along side the CASE’s efforts to improve transparency; other Egyptian


initiatives are also focused on promoting good corporate governance.
The Egyptian Institute of Directors, with support from the World Bank
and the International Finance Corporation, has created a voluntary
code of corporate governance and runs training courses for directors of
listed and unlisted companies. “This shows that Egypt is on the right
track,” says Ms Abdel Shahid.

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Corporate Governance-The Biology of Incorporated Businesses

Future CASE initiatives will likely include an annual disclosure award,


similar to one given by the Malaysian stock exchange. The exchange
would also like to dedicate more attention to fighting insider trading
through changes in trading rules and courses for company directors

Cases in Pakistan

The Taj Company was involved in poor corporate governance


practices. The company was running a ponzi scheme through which it
was able to receive huge amounts of deposits illegally. What was far
more disappointing was the religious affiliation the company had
attached with its name. Even 15 years after their fraudulent practices
have been stopped; the company still owes heavy liabilities to over
25000 people.

Crescent Bank Fraud

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Corporate Governance-The Biology of Incorporated Businesses

The entire board of directors and CEO Anjum Saleem of Crescent


Standard investment bank were legally stopped from running their
offices on evidences of suspected fraud and irregular accounting.
External Auditors had predicted a missing amount of over Rs.6 Billion,
apart from illegal maintenance of parallel accounts, concealment of
bank assets, un-authorized massive funding of group companies,
unlawful investments in real estate and stock market, etc. the SECP
took legal action against the companies officers, although much of the
actions taken were criticized as insufficient.

ENGRO Group of Companies

SECP was at the receiving end of immense criticism once it had


allowed Fertilizer giant ENGRO to establish its subsidiary ENGRO Foods.
Critics believed that the company was associated with the urea
business and were tremendously concerned about the extent to which
hygiene requirements for the industry would be met by ENGRO foods.
However SECP counter argument was based on the fact that ENGRO
has had a rich history of sound corporate governance which satisfied
SECP that ENGRO will be responsible in regards to hygiene issues
associated with ENGRO foods. Time proved that Engro’s corporate
governance was in good practice and has led to the success of ENGRO
food’s with products such as Olper’s Milk.

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Corporate Governance-The Biology of Incorporated Businesses

Conclusion

Corporate governance is an inevitable phenomenon of corporate


businesses. Whether it is good or bad is determined by the
performance of the components. Good corporate governance is being
promoted in almost all parts of the world. The benefits sound corporate
governance brings are:

o Increase in investor confidence


o Economic prosperity
o Transparency in business activities
o Better management of investment of the masses

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Corporate Governance-The Biology of Incorporated Businesses

Corporate governance is at the evolutionary stage in developing


countries. However that does not mean that poor corporate
governance is not present in the developed world. With cases such as
the Enron bankruptcy, it is quite evident that corporate governance
mal-practices are present everywhere. Major issues in corporate
governance are Ethical dilemmas, Window Dressing, Board
Composition, and interaction with minority shareholders.

Bibliography

o www.wikipedia.com

o Pakistan Institute of Corporate Governance


(www.picg.org.pk)

o ICAP Corporate Law Text Book

o Pakistan Business Review article- changing role of the


board of directors

 Institute of Business Management, Karachi – Spring 2008 28


Corporate Governance-The Biology of Incorporated Businesses

Special thanks to: Mr.Humayun Zafar; Visiting faculty IoBM for his
precious inputs.

 Institute of Business Management, Karachi – Spring 2008 29