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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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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




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: PakistanCorporate 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 Pakistan

  • 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 Pakistan

  • 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: PakistanCompany 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 Pakistan

  • 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 Pakistan

  • 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 Pakistan

  • 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 Pakistan

  • 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 implementation

  • 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


Thank you implementation

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


Doing business indicator of investor protection
Doing Business Indicator of implementationInvestor Protection


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