ISLAMABAD (March 31 2003) : The reforms introduced by Securities and Exchange Commission of Pakistan (SECP) has made a very positive impact on the capital markets in Pakistan which is reflected by the figures of capital raised through stock exchanges from Rs 3 billion in 2000 to Rs 16 billion in 2002.
This indicates the increase in investor confidence for investment in listed securities, said Chairman of SECP, Abdul Rehman Qureshi, while speaking at a seminar on 'Code of Good Corporate Governance and Role of Directors', here at the Institute of Cost and Management Accountants of Pakistan (ICMAP) on Sunday.
The SECP, he said, was committed to providing equal opportunities to investors all over the country.
Despite the fact that there has been a rapid improvement in technology and communication costs, it is unfortunate that the capital market activities are restricted to only three cities. This applies to both, the stock exchanges and the Central Depository Company (CDC).
The SECP chairman said that the Commission has been insisting that stock exchanges should expand terminals in various cities so that investors living in remote areas can also be provided the opportunity to invest in listed securities.
SECP has also advised CDC to look into the possibility of setting up offices in certain other locations.
'I intend to direct the CDC to at least have its presence in Peshawar, Quetta, Sialkot, Faisalabad, Multan and Middle East,” he remarked.
He added that SECP is conscious of the fact that listed companies may have some difficulties in the enforcement of Code of Corporate Governance and it is on record that the reported difficulties of the companies have mostly been removed by SECP through certain policy decisions. “The Commission is also issuing explanatory notes to the Code,” he added.
He said that SECP strongly feels that the Code of Corporate Governance is basically a voluntary code and management of the companies should be prepared to follow the Code in letter and spirit, without taking it as a legal obligation.
Qureshi said that all financial institutions (both banking and non-banking), even if they are not listed, should observe the Code in the best interest of their business and investors.
“With this approach in view, all insurance companies have recently been directed to follow the Good Corporate Governance Code in the same way as the listed companies do,” he said.
“SECP appreciates the hard work done in preparing the Code of Corporate Governance which is basically meant for listed companies.
I personally feel that some special codes aiming at efficient governance of the companies be developed for other companies also, like the companies with specialised business and the companies established for promotion of trade, commerce and other useful objects,” he suggested.
He observed that governance, which derives its roots from the principles of transparency, equity, justice and fairness, is a matter of commitment and belief.
“There is need of inculcating the respect of such principles among the entrepreneurs, managers and all the stake-holders.
I wish that time should come when the directors are able to lead the respective companies at the optimum level of good governance standards and command full respect and confidence of the shareholders and the creditors,” he said.
He said that he strongly believes in the competence of directors in the interest of business and the companies.
Keeping in view the provisions of relevant law, which requires the appointment of directors through elections, he said that the SECP, for the time being, is not in favour of bringing drastic changes in the Company Law so as to insert hard eligibility conditions for appointment of directors.
With a view to achieve the desired objectives, the observance of Code of Corporate Governance has been strengthened, he added.
The Chairman said that the companies have been advised to induct non-executive directors on their Boards purely on merit and competence.
Besides, the companies may engage professionally qualified persons in the team of senior management.
He informed the participants that SECP has prescribed, inter alia, the qualification of being cost and management accountant for the post of Company Secretary and other senior positions.
He said that Good Corporate Governance mainly depends upon certain essential factors which included extent of regulatory compliance including compliance of other laws and regulations like Prudential Regulations, Ownership structure, Composition of the Board of Directors, Executive management and their role, Stakeholders relations, Financial transparency and disclosures and Self regulations and adherence to operation manuals.
It is a fact, he said, that professional activism and commitment to promote better standards of corporate conduct and improvements in the financial reporting is the hallmark of professional institutes and associations in many countries.
Professionals have often taken the lead to promote progressive changes in corporate culture and in the capital market.
In this regard he appreciated the initiative taken by ICMAP and expressed the hope that this spirit would continue in future.
He said that professionals must raise standards and not compromise on quality. “In my view, this is the first and foremost duty of all professional bodies.
Apart from high standards of qualifying examinations, ensuring continuing education of qualified professionals in a focused and really concrete manner is essential,” he added.
He urged that investment professionals must adopt, maintain, and ensure compliance with the highest standards of ethical and professional conduct.
He said that adequate spadework, preparation and training of the concerned are essential for successful implementation of any system.
He said that the case of Code of Corporate Governance is not different, and added that this was the reason that SECP had started a series of workshops for training of directors of the companies.
He expressed the hope that with the active participation of the professional accounting bodies, the objectives could be soon achieved.
In his presentation on the subject, Mumtaz Abdullah highlighted the importance of good corporate governance for the promotion of good corporate governance in the country.
He said that corporate governance involves a set of relationships between company's management, its board, its shareholders and other stakeholders.
It also provides the structure through which the objectives of the companies are set and means of attaining those objectives and monetary performance are determined.
He said that Code of Corporate Governance can be divided into three subheads: The Board of Directors and their role; Corporate and financial reporting framework; and Audit Committee and the role of Audit.