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In March 2002, the Securities and Exchange Commission of Pakistan issued the Code of
Corporate Governance to establish a framework for good governance of companies listed on
Pakistan's stock exchanges. In exercise of its powers under Section 34(4) of the Securities and
Exchange Ordinance, 1969, the SEC issued directions to the Karachi, Lahore and Islamabad
stock exchanges to incorporate the provisions of the Code in their respective listing regulations.
As a result, the listing regulations were suitably modified by the stock exchanges.
The set of rules and procedures that ensure that managers do indeed employ the principles of
value based management where VBM is, a managerial approach where the whole aim,
strategies and actions are linked to shareholder value creation Essence of Corporate
Governance, to make sure that the key shareholder objective wealth maximization is
implemented. A basic definition of corporate governance signifies the manner in which business
and affairs of the corporations are directed and managed by their board of directors and senior
The Benefits of Corporate Governance:
The popularity and development of corporate governance frameworks in both the developed and
developing worlds is primarily a response and an institutional means to meet the increasing
demand of investment capital. It is also the realization and acknowledgement that weak corporate
governance systems ultimately hinder investment and economic development.
The Pakistani Corporation:
Corporate entities in Pakistan are primarily regulated by the SEC under the Corporate entities in
Pakistan are primarily regulated by the SEC under the Companies Ordinance, the Securities and
Exchange Ordinance, 1969, the Securities and Exchange Commission of Pakistan Act, 1997, and
the various rules and regulations made there under. In addition, special companies may also be
regulated under special laws and by other regulators, in addition to the SEC. In this way, listed
companies are also regulated by the stock exchange at which they are listed; banking companies
are also regulated by the State Bank of Pakistan; companies engaged in the generation,
transmission or distribution of electric power are also regulated by the National Electric Power
Regulatory Authority; companies engaged in providing telecommunication services are also
regulated by the Pakistan Telecommunication Authority; and oil and gas companies are also
regulated by the Oil and Gas Regulatory Authority.
The Origins of Corporate Governance in Pakistan:
Since 1948, when Pakistan came into being, Indian Companies Act, 1913 is used by corporations
until the promulgation of Companies Ordinance, 1984 corporate entities in Pakistan primarily
regulated under Securities and Exchange Ordinance, 1969 and SECP Act, 1997 With the changes
in the International Business Environment SEC took responsibilities and powers of the Corporate
Law Authority in, 1999The SEC has focused on encouraging businesses to adopt good corporate
governance practices to manage business challenges internationally.

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The Need for Corporate Governance:

Moreover, it ensures the conformance of corporations to laws, rules and practices, which provide
mechanisms to monitor directors' and managers' behavior through corporate accountability that
in turn safeguards the investor interest. It is fundamental that managers exercise their discretion
with due diligence and in the best interest of the company and the shareholders. This can be
better achieved through independent monitoring of management, transparency as to corporate
performance, ownership and control, and participation in certain fundamental decisions by
A stakeholder is a person (including an entity or group) that has an interest or concern in a
business or enterprise though not necessarily as an owner. Communication with stakeholders is
important feature of corporate governance as cooperation between stakeholders and corporations
allows for the creation of wealth, jobs and sustain ability of financially sound enterprises.
A person who attempts to use his or her rights as a shareholder of a publicly-traded corporation
to bring about social change. Some of the issues most often addressed by shareholder activists
are related to the environment, investments in politically sensitive parts of the world and
workers' rights (sweatshops).The term can also refer to investors who believe that a company's
management is doing a bad job and who attempt to gain control of the company and replace
management for the good of the shareholders.
As company is an artificial person and it has no mind. It must exercise its power through the
medium of human agency authorized to act on its behalf. The members of the company elect
small body of persons called directors to direct the affairs of company in the manner provided in
the companies ordinance, 1984.The term board of directors is collective name of the directors.
Appointment and Proceedings of Directors:
The directors of a company shall subject to section 174, fix the number of elected directors of the
company not later than thirty five days before the convening of the general meeting at which
directors are to be elected. The number so fixed shall not be changed except with the prior
approval of a general meeting of the company. Meetings of board of directors (abroad) SECP
vide its circulars has noticed that some listed companies are holding meetings of their board of
directors outside Pakistan.
Fiduciary Duties:
Fiduciary relationships appear in many legal contexts: contracts, wills, trusts and elections (e.g.
of corporate directors). However, fiduciary duties and remedies draw on a common source
equity. Thus, in addition to damages a remedy in common law fiduciaries must account for illgotten profits even if their entrusts suffered no injury a remedy in equity. The similarities and
differences among fiduciary relationships explain why law regulates fiduciaries in the first place,
and why the regulation varies with different classes of fiduciaries. Therefore, before discussion
fiduciary duties we discuss the features by which fiduciary relationships can be recognized.

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Powers and Responsibilities of Directors:

The directors of a company shall exercise the following powers and responsibilities on behalf of
the company, and shall do so by means of a resolution passed at their meeting:
To issue shares
To make loan
To invest the funds of the company
Liability of Directors:
Any provision in the articles of a company or in any contract with a company or otherwise, for
exempting any director, chief executive or officer of the company from any liability in respect of
any negligence, default ,breach of duty or breach of trust of which he may be guilty in relation to
the company, shall be void.
Executive and Non-Executive Directors:
The senior operating officer or manager of an organization or corporation. Executive director
titles (EDs) are frequently reserved for the heads of non-profit organizations, and their duties are
similar to a chief executive officer's (CEO) duties of a for-profit company. The executive director
is responsible for the day-to-day management of the organization, working with the Board of
Directors, and operating within a budget. A member of a company's board of directors who is not
part of the executive team. A non-executive director (NED) typically does not engage in the dayto-day management of the organization, but is involved in policy making and planning exercises.
In addition, non-executive directors' responsibilities include the monitoring of the executive
directors, and to act in the interest of any stakeholders.
The CEO:
The highest ranking executive in a company whose main responsibilities include developing and
implementing high-level strategies, making major corporate decisions, managing the overall
operations and resources of a company, and acting as the main point of communication between
the board of directors and the corporate operations. The CEO will often have a position on the
board, and in some cases is even the chair. The first CEO must be appointed within 15 days of
incorporation or on commencement of business of the company.
The Company Secretary:
According to section 2 (33) of companies ordinance secretary means an individual appointed to
perform the secretarial, administrative or other duties ordinarily performed by the secretary of
the company. The definition reveals following important facts:

Only a natural person can be appointed as company secretary

The CFO:
The senior manager responsible for overseeing the financial activities of an entire company. The
CFO's duties include financial planning and monitoring cash flow. He or she analyzes the
company's financial strengths and weaknesses and suggests plans for improvement. The CFO is
similar to a treasurer or controller in that he or she is responsible for overseeing the accounting
and finance departments and for ensuring that the company's financial reports are accurate and
completed on time.

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Internal Control System:

Methods put in place by a company to ensure the integrity of financial and accounting
information, meet operational and profitability targets and transmit management policies
throughout the organization.
Reporting Requirements:
The directors shall make and attach every balance sheet report with respect to:

The state of the company `s affairs

The amount, if any, which they recommend should be paid by way of dividend

In the case of a public company or a private company which subsidiary of a public company, the
directors report shall in additional to above matters:

State the earning per share.

Give reasons for incurring loss and a reasonable indication of future prospects of profit, if
1. First auditors:

The first auditors of a company shall be appointed by the directors within sixty days of the
date of incorporation.
2. Commission power to appoint auditors:


At an annual general meeting no auditors are appointed.

Auditors appointed are unwilling to act as auditors of the company.

Power and duties of auditors

Qualification and disqualification of auditors
Subsequent auditors
Role of audit committee

Corporate governance is the mechanism by which the agency problems of corporation
stakeholders, including the shareholders, creditors, management, employees, consumers and the
public at large are framed and sought to be resolved.