Listed Companies (Code of Corporate Governance) Regulations, 2017, have been approved for notification by the Securities and Exchange Commission of Pakistan (SECP). They replace the Code of Corporate Governance, 2012 (CCG 2012) issued under the PSX listing regulation and are seen as a stride towards aligning corporate governance practices in Pakistan with best international standards.
They shall come into effect for period beginning on January 1, 2018.
The regulations are aimed at strengthening governance structures, bringing consistency in the corporate practices and promoting transparency through enhanced disclosure requirements. Furthermore, the role and responsibilities of directors have been made clearer and enhanced, independent decision-making is encouraged, gender diversity is supported and mechanism for transparency and accountability is strengthened.
They have been finalized after rigorous in-house debate and extensive public consultations. The task force formed to suggest changes to the CCG 2012 was led by Mr. Ebrahim Sidat. It included representative of the SECP, PICG, Central Depository Company, Pakistan Stock Exchange, corporate practitioners and industry representatives.
Meanwhile, the Companies Act, 2017, was promulgated, which included the enabling provision to provide for framework of corporate governance, hence, regulations were framed. It was ensured that the said regulations are concise, avoid duplication of requirements of Act or any other statutory requirements and retained the best corporate principles as also endorsed by the 2012 Code and task force.
The draft regulations was placed on the SECP’s website in August 2017 to solicit public opinion. In view of request from stakeholders, the deadline of providing comments was extended by a month. Further, consultative session with stakeholders was held in October to deliberate on the stakeholders’ views.
Noteworthy requirements of the regulations, among others, include decreasing the limit of permissible directorship in listed companies of a director from seven to five. Further, the regulations aims at strengthening presence and role of independent directors therefore, board of directors are mandated to have at least two or one third of number of directors, whichever is higher, as independent directors.
The independent directors shall be required to file a declaration confirming that statutory criteria for independence has been duly complied.
One of significant requirements of the Act is to prescribe female directors has been incorporated in the regulations by mandating one female director within one year of notification of regulations or reconstitution of board whichever is later.
Companies are required to publish and circulate a statement of compliance with these regulations, the format of which has been provided. In addition, penal provision for non-compliance with the regulations has been added. However, where it is impractical for any company to comply with the requirements of regulations, the SECP is empowered to relax such requirement.
The regulations have been framed keeping in view the dynamic governance standards, local and international best practices and need for making such governance practices relevant and effective in a structured manner.
The SECP believes that the regulations will strengthen governance practices, result in availability of enhanced information to markets participants and hence will provide better protection of the rights of all investors, particularly minority shareholders.