The Securities and Exchange Commission of Pakistan (SECP) has notified draft Listed Companies (Code of Corporate Governance) 2017, under the newly promulgated Companies Act, 2017. The said regulations have also been placed on SECP’s website to seek public comments within 14 days.
The draft regulations are aimed at strengthening governance structures, bring consistency in the corporate practices and promote transparency through enhanced disclosure requirements. 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 aim at strengthening presence and role of independent directors therefore, boards of directors are mandated to have at least two or one third of directors, whichever is higher, as independent directors. The independent directors shall be required to file a declaration of independence with the company.
One of significant requirements of the Act is to prescribe female directors and that requirement 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.
In addition, the regulations provide stringent quorum requirements for board meetings, mandatory attendance of directors in general meetings, development of significant policies and calls for a formal and effective mechanism for annual evaluation of the board’s own performance and of its committees. Moreover, the requirement of minimum number of directors obtaining training, as in code, has been accelerated to be 100% by 2020.
At present, the Code of Corporate Governance, 2012, is applicable to listed companies through the Pakistan Stock Exchange Regulations. In 2016, Pakistan Institute of Corporate Governance (PICG) formed a task force to review the code keeping in view the best practices followed around the globe. The task force members, led by Mr. Ebrahim Sidat, comprised of representative of the SECP, PICG, Central Depository Company, PSX, corporate practitioners and industry representatives and finalized draft recommendation for revision of code.
However, in view of the fact that the Companies Act provides for framework of corporate governance, the recommendations of task force were incorporated in the form of said draft regulations. The draft regulations are concise, and they avoid duplication of requirements of Act and retain the best corporate principles as also endorsed by the code and task force.