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Corporate Governance Department World Bank Group . Corporate Governance in Pakistan: Results from the Corporate Governance ROSC. Corporate Governance Department Private Sector Development Vice Presidency The World Bank Group May 29, 2006. Outline. About the CG ROSC for Pakistan Findings

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slide1

Corporate Governance DepartmentWorld Bank Group

Corporate Governance in Pakistan:

Results from the Corporate Governance ROSC

Corporate Governance Department

Private Sector Development Vice Presidency

The World Bank Group

May 29, 2006

outline
Outline
  • About the CG ROSC for Pakistan
  • Findings
  • Recommendations
slide4

The ROSC Assessments Examine:

  • Legal and Regulatory Framework
  • Enforcement Activities
  • Private Sector Business Practices
corporate governance rosc assessments
Corporate Governance ROSC Assessments
  • Assessments are benchmarked against the 33 OECD Principles of Corporate Governance
  • Voluntary
  • Standardized report (Report on Observance of Standards and Codes, ROSC) including policy recommendations
  • Four audiences:
    • Policymakers: to identify opportunities for legal & regulatory reform
    • Private sector: understand strengths and weaknesses
    • (International) analysts: benchmarking
    • Technical assistance providers, including IFC: Identify key reform areas
corporate governance reform the public policy rationale
Corporate governance reform:the public policy rationale

An improved corporate governance framework will:

  • Protect shareholders and depositors
  • Protect public pension savings for retirement
  • Improve corporates’ access to finance (both equity and debt)
  • Help Pakistan:
    • attract, allocate and monitor investment
    • Increase financial stability
    • Increase market capitalization and growth
overview world bank corporate governance assessments
Overview- World Bank Corporate Governance Assessments

Completed 48

Published37

On-going FY06 6

Assessments by Region (through 2004)

overview of world bank corporate governance assessments
Overview of World Bank Corporate Governance Assessments

Notes: Assessments in bold are in process. Assessments in italics have not been published.

corporate governance assessment summary of assessment in pakistan
Corporate Governance Assessment: Summary of Assessment in Pakistan
  • Summary of assessment carried out in May 2004
  • Assessment results:
    • 4 principles “Observed”
    • 17 principle “Largely Observed”
    • 10 principles “Partially Observed”
    • 1 principles “Materially Not Observed”
    • no principles “Not Observed”
pakistan corporate governance landscape
Pakistan: Corporate Governance Landscape
  • Awareness of the importance of corporate governance is rising
  • Very important corporate governance code
  • Rapidly rising market capitalization (60% last year)
  • Creation of PICG
  • Unique feature: strong regulator of securities and company law
  • Strong concentration of ownership in hands of state/ families
  • Relatively little foreign portfolio investment
key issue investor protection
Key Issue: Investor Protection
  • Basic shareholder rights are respected
  • However, shareholder participation in the AGM can be cumbersome
  • Concentrated ownership brings minority shareholder rights protection to foreground
key issue disclosure
Key Issue: Disclosure
  • Improved quality and timeliness of financial reporting in recent years
  • Requirement to disclose indirect or ultimate beneficial ownership easily circumvented
  • Recent controversy over related party transaction disclosure and transfer pricing
  • No system of independent oversight over the audit profession
key issues company oversight and the board
Key Issues: Company oversight and the board
  • No clear distinction between ownership and control Boards dominated by executives/controlling shareholders
  • Insufficient guidance on duties of care and loyalty
  • Independent directors are the exception rather than the norm
  • Board remuneration is not adequate to attract qualified independent directors
key issues enforcement
Key Issues: Enforcement
  • Enforcement is centered on the SECP and the State Bank of Pakistan
  • The Stock Exchanges are responsible for monitoring and enforcing compliance with the Code
  • Market participants consider the judiciary to be inefficient and expensive, and an ineffective source of shareholder redress
establish corporate governance enforcement priorities
Establish corporate governance enforcement priorities
  • SECP should focus on enforcing the rules on the disclosure of ownership and related party transactions
  • SECP should continue to work to build its enforcement capacity
  • Develop a system of independent audit oversight
mobilize the private sector to improve corporate governance
Mobilize the private sector to improve corporate governance
  • The Karachi Stock Exchange (and its successors) should consider a market differentiation strategy
  • Institutional investors should play a more effective corporate governance role
  • Build a core group of effective independent directors
  • At the CDC, dematerialization and the move towards a central registry should be encouraged
legislative reform should focus on key areas of concern
Legislative reform should focus on key areas of concern
  • Strengthen rules for independent directors, improve board compensation, and clarify the role of the Chairman of the board.
  • Improve the ownership disclosure framework
  • Strengthen shareholder rights by improving access to the AGM, lowering thresholds for shareholder redress, and updating rules on changes in control
  • Increase the accountability of directors
focus future technical assistance on high priority implementation
Focus future technical assistance on high-priority implementation
  • Development of a national action plan
  • Training and awareness programs to develop a culture of corporate governance that extends beyond the SECP and the larger companies
  • Improve corporate governance in the state owned enterprise sector
final remarks
Final Remarks
  • Excellent progress, have come a long way
  • But much now needs to be done in terms of implementation at corporate level
  • Law on the books vs. practices
slide22
Thank you

For More information, pls. contact:

  • Alex Berg - Corporate Governance Department, World [email protected]; Tel. +1 202-473-3687
  • Kaiser H. Naseem - Manager, IFC Pakistan Corporate Governance Project [email protected]; Tel. +92 51 909 0658
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