Ensuring good corporate governance practices
Wednesday, 2 June 2010
THE government will be embarking soon on the task of reforming the legal framework that regulates the country's corporate world. In the first step, according to the finance minister, the Bank Companies Act would be amended, followed by the move to bring about necessary changes in the Company Act of 1994 and the securities-related laws and regulations. Reforms are necessary to ensure consistency and coherence between the existing laws governing the corporate entities and to help develop a sound and healthy corporate governance culture in the country.
The Banking Company Act adopted in 1991 was amended on a couple of occasions. Yet it needs further updating, particularly in the light of the problems experienced by the central bank while overseeing the activities of the banks, which are quite large in their numbers, 47 to be exact. There is no denying that that the operations of the banking institutions, both private and public, are better regulated now than two decades back. Much of the credit for the improvement in this respect goes to the financial sector reforms programme (FSRP) implemented under the guidance of the multilateral lenders. The financial health of most banks is now stable and some of them are earning hefty profits. But the fact remains that the culture of corporate governance is yet to get its roots deep into the banking institutions, barring the foreign ones. The situation in the private banks, though well below the desired level, is relatively better than the public sector ones.
Corporate governance involves lots of factors, including policies and laws that influence the administration and operations of a corporation or a company. The basic objective of corporate governance is ensuring accountability at all tiers of a company. It is supposed to be done by the companies themselves, not by the government using coercive means. What the government can do is that it can create an environment that would encourage the board of directors to ensure the system of good governance in their respective companies. The global focus on corporate governance increased in 2001 following the collapse of some large US corporations because of fraudulent practices indulged in by their top management, and everybody then started talking about the need for good corporate governance. The US government passed Sarbanes-Oxley Act with a view to restoring confidence in corporate governance. The US government put in place an oversight mechanism in the matters of corporate governance.
The government leaders here also sometimes highlight the need for ensuring good corporate governance in local companies. But the stakeholders concerned, who are more prone to the old style of non-transparent management practices, are, apparently, not that much enthusiastic about heeding to such kind of advice. Now that the government has decided to take up the tough job of reforming the corporate legal framework that still contains many archaic laws of the British colonial and Pakistani periods, some changes in corporate culture are expected. The reforms need to be carried out in such a manner that the very environment encourages the companies to follow good corporate governance practices. However, prior to advising the corporate world to comply with good corporate governance practices, the government should ensure transparency and accountability in the operations of its own entities and help improve their proper enforcement capacity without giving any scope for exercise of discretion. That would, obviously, give a positive signal to the private sector.
The Banking Company Act adopted in 1991 was amended on a couple of occasions. Yet it needs further updating, particularly in the light of the problems experienced by the central bank while overseeing the activities of the banks, which are quite large in their numbers, 47 to be exact. There is no denying that that the operations of the banking institutions, both private and public, are better regulated now than two decades back. Much of the credit for the improvement in this respect goes to the financial sector reforms programme (FSRP) implemented under the guidance of the multilateral lenders. The financial health of most banks is now stable and some of them are earning hefty profits. But the fact remains that the culture of corporate governance is yet to get its roots deep into the banking institutions, barring the foreign ones. The situation in the private banks, though well below the desired level, is relatively better than the public sector ones.
Corporate governance involves lots of factors, including policies and laws that influence the administration and operations of a corporation or a company. The basic objective of corporate governance is ensuring accountability at all tiers of a company. It is supposed to be done by the companies themselves, not by the government using coercive means. What the government can do is that it can create an environment that would encourage the board of directors to ensure the system of good governance in their respective companies. The global focus on corporate governance increased in 2001 following the collapse of some large US corporations because of fraudulent practices indulged in by their top management, and everybody then started talking about the need for good corporate governance. The US government passed Sarbanes-Oxley Act with a view to restoring confidence in corporate governance. The US government put in place an oversight mechanism in the matters of corporate governance.
The government leaders here also sometimes highlight the need for ensuring good corporate governance in local companies. But the stakeholders concerned, who are more prone to the old style of non-transparent management practices, are, apparently, not that much enthusiastic about heeding to such kind of advice. Now that the government has decided to take up the tough job of reforming the corporate legal framework that still contains many archaic laws of the British colonial and Pakistani periods, some changes in corporate culture are expected. The reforms need to be carried out in such a manner that the very environment encourages the companies to follow good corporate governance practices. However, prior to advising the corporate world to comply with good corporate governance practices, the government should ensure transparency and accountability in the operations of its own entities and help improve their proper enforcement capacity without giving any scope for exercise of discretion. That would, obviously, give a positive signal to the private sector.