Transcript Rapid Response Unit - State Bank of Pakistan

Corporate Governance Department
World Bank Group
Corporate Governance in Pakistan:
Results from the Corporate
Governance ROSC
1
Corporate Governance Department
Private Sector Development Vice Presidency
The World Bank Group
May 29, 2006
Outline
• About the CG ROSC for Pakistan
• Findings
• Recommendations
2
Introduction to the Corporate
Governance ROSC
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The ROSC Assessments Examine:
1. Legal and Regulatory Framework
2. Enforcement Activities
3. Private Sector Business Practices
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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:
–
–
–
–
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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
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
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Overview- World Bank Corporate
Governance Assessments
Completed
Published
On-going FY06
Assessments by Region
Assessments by Year
Assessments by Region
(through 2004)
LCR (8)
10
FY05
MNA (4)
10
FY04
10
FY03
SAR (4)
ECA (21)
8
FY02
AFR (4)
10
FY01
EAP (7)
0
7
48
37
6
10
20
30
40
50
Overview of World Bank Corporate
Governance Assessments
2001
2002
2003
2004
2005
Brazil
Georgia
Mauritius
Egypt 2
Armenia
Croatia
Czech 2
Brazil 2
Slovenia
Poland 2
Czech Rep.
Lithuania
Hungary
Russia
Ghana
Egypt
Bulgaria
Ukraine
India 2
Pakistan
India
Latvia
Korea
Peru
Thailand
Malaysia
Morocco
Hong Kong
Romania 2
Malaysia 2
Philippines
Romania
Chile
Indonesia
Nepal
Poland
South Africa
Mexico
Jordan
Brazil 3
Turkey
Slovakia
Pakistan
Macedonia
Zimbabwe
Colombia
Panama
Azerbaijan
8
Notes: Assessments in bold are in process. Assessments in italics have not been published.
A Review of Corporate Governance in
Pakistan
- Findings -
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Corporate Governance Assessment:
Summary of Assessment in Pakistan
• Summary of assessment carried out in May 2004
• Assessment results:
–
–
–
–
–
10
4 principles “Observed”
17 principle “Largely Observed”
10 principles “Partially Observed”
1 principles “Materially Not Observed”
no principles “Not Observed”
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
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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
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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
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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
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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
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- Recommendations -
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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
17
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
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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
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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
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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
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Thank you
For More information, pls. contact:
• Alex Berg - Corporate Governance Department, World Bank
E-mail [email protected]; Tel. +1 202-473-3687
• Kaiser H. Naseem - Manager, IFC Pakistan Corporate
Governance Project
E-mail [email protected]; Tel. +92 51 909 0658
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Doing Business Indicator of
Investor Protection
New Zealand
1
Romania
44
Singapore
2
Bhutan
52
Canada
3
France
56
Hong Kong
4
Germany
57
United States
7
Russia
73
United Kingdom
9
Saudi Arabia
74
Bangladesh
17
Turkey
75
Pakistan
20
Nepal
90
India
29
Spain
94
Chile
36
Egypt
114
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