ZAFAR A KHAN

Governance
Public sector is very sizable in Pakistan; it interests a lot of people because it impacts a lot of lives. Governance challenges in the public sector one of the greatest impediments in change is governance in the public sector. The responsibility matrix responsibility = authority and accountability (both go hand in hand, both are important elements) Authority decreases, accountability increase. - People own the state enterprises - People delegate their power to parliament - The parliament delegates to government - Government then forms the board of directors - The board of directors then form the management Authority Accountability

The model is however not working because the board is not empowered properly. Accountability diffuses and board is not well constituted in their skill set, in their background. The board doesnt achieve cohesion needed to develop a more conducive environment for success of the organization. State Owned Enterprise is viewed as a domain for patronage, privileges and populist gains.

SUGGESTIONS - Achieve bipartisan consensus on how to govern SOE - Consolidate shareholder rights of the state under one body. (currently defense owns PIA and so on so forth) This model is being followed in Malaysia and has shown great results in terms of establishing common ground and structure. - Empower this super body to appoint board of directors i. Establish a fit and proper criteria ii. Make process transparent iii. Appointments cannot be cancelled with change in government iv. Reappointment to be based on performance - Board to appoint/remove CEOs - (PIA board member never attend any meeting, he had been elected from Baluchistan said he was afraid of flying, a meeting was later on scheduled in Quetta even then he did not attend) This is how it should be. GOVERNMENT BOARD ELECT CHAIRMAN

APPOINT CEO

But in Pakistan the government appoints the CEO and the Chairman w/o giving the board that authority.

MERIT POLICY Procedure to dismiss unscrupulous employee be simplified. Decision should be based on merit following due process. Decisions must reflect commercial viability. Social welfare role, where required must be properly budgeted.

LONG TERM FIX The state must get out of running businesses State must focus on regulation and in promoting a competitive environment.

TRIGGERS OF CHANGE Opportunity Fear of loss (faster)

TYPES OF ENTERPRISES
Multinational corporations State owned Family owned NGO/Civil society organizations

1. The approaches differ in MNCs (proactive, research involved, cascaded from head quarters, global linkage with vision/mission/values/strategy, if an MNC loses interest in a country due to say law etc can trigger them to move operations Azko Nobel selling off ICIs soda ask business etc that doesnt tie in with their paint business) Different MNCs have different methods of dealing with change 2. State owned enterprises 3. Family Owned 4. NGOs/CSOs Year 2002 SECP Code of Corporate Governance A need was felt to see how well it had worked and to see how well it had worked. The code exists in a lot of countries (best UK combined code). Revision should include i. The CEO and chairman should be two different people ii. Increase number of independent board member [Executive Directors are on the payroll of the company, the non executive directors are either Interested (have relatives who are executive directors or senior management, have large holdings

iii.

iv. v. vi.

of shares of the company) or Independent (do not have large share holdings of the company, or relatives in the senior management)] Mandate a HR committee of the board [if people are said to be valuable assets then board needs to have an HR committee, just like the mandated Audit Committee]. Boards should conduct self evaluation. Limit the number of directorships (allow board members to be part of only 5 or say X companies as opposed to no limit right now). Director should undergo formal training to understand their responsibility, task, the dos and donts, their fiduciary relationship etc. A mandated training programme.