Economist and business executive Sadia Khan is recognised as Pakistan’s leading advocate of better corporate governance for her work over the past two decades in the public and private sectors. As Pakistan prepares to implement new corporate governance rules, she hopes that they will lead, among other things, to more women on corporate boards.
Khan has literally written the book on the subject, which she hopes will help the country’s business leaders, policymakers and regulators move to the next stage. As the lead author and editor of The Corporate Governance Landscape of Pakistan, she says: ‘In my country we have a tendency to reinvent everything. I wanted to record what has been accomplished in corporate governance in the last 15 years for people to take it to the next stage.’
Corporate governance reform in the country has advanced significantly since Khan spearheaded the adoption of Pakistan’s first code of corporate governance in 2002, as executive director of the Securities and Exchange Commission of Pakistan (SECP). To that effort she brought experience gained as a financial economist at the Asian Development Bank, helping countries in south-east Asia implement corporate governance reforms in the wake of the region’s 1997 financial crisis.
Pakistan’s first steps towards a national corporate governance regime were not universally welcomed. The recommendations of the 2002 task force were ‘subjected to all kinds of abuse from the corporate sector’, Khan recalls. The family-owned firms that dominated the landscape ‘didn’t like the concept’ of independent directors, for example. As a result of this opposition, Khan says the final document was ‘truncated’.
Even so, the 2002 reforms introduced the basic provisions of corporate governance for publicly traded firms. They addressed several issues related to directors – conflicts of interest, and their roles, powers and obligations – and imposed a maximum limit on the number of directorships an individual can hold. The code also mandated audit committees, and prohibited auditors from providing non-auditing services. In his contribution to The Corporate Governance Landscape of Pakistan, Ebrahim Sidat, retired former chief executive of EY in Pakistan, described it as a ‘pioneering framework’.
Nevertheless, the code’s provisions proved too much for a handful of corporate patriarchs, who moved to delist their businesses. A decade later, however, with Khan again playing a major role in the task force that developed a second round of reforms, attitudes had begun to change and have continued to evolve since.
‘There has been a mind-shift due to a greater awareness of the business case,’ Khan says. ‘Well-governed firms are in a better position to attract foreign capital, and executives now understand how more robust accounting affects the bottom line. They have realised the importance of corporate governance, instead of just doing things to satisfy regulations.’
The 2012 code reflects the new mindset. Among other provisions, it stipulated that at least one board member should be independent, and set a target for one-third of members to be independent in future. It also made it illegal for individuals to hold the positions of chairman and CEO simultaneously, and required boards to establish human resource and remuneration committees.
Khan is a member of several corporate boards herself, including those of Karachi-based Engro Fertilizer and a subsidiary of Malaysian telecoms infrastructure services company Edotco. She has also been a non-executive director of several others, so she is well placed to monitor the progress of the current governance reforms. ‘There has been a change in people’s perceptions,’ she says. ‘Company officials are more open to the concerns of all business partners, including minority shareholders and creditors, and corporate social responsibility programmes are becoming more prominent.’
While the latest rules form part of the new Companies Act 2017, which came into force in June, specific provisions were prompted by revelations made in the Panama papers last year, notably concerning the then prime minister Nawaz Sharif and his family, who were found to have controlled offshore bank accounts.
In consequence, the provisions include, for example, a requirement for directors, officers and shareholders to disclose their interests in any foreign entity. The aim is to boost transparency in financing and help identify money laundering.
The new law also helps advance what Khan calls her pet project – greater participation of women as directors on corporate boards. The 2012 code encouraged companies to appoint women to boards.While the new provisions do not stipulate that women participate on all corporate boards, they give the SECP power to insist that women be appointed to the boards of what it regards as public interest companies.
Khan hopes gender diversity will receive greater attention in Pakistan as a result. She says there is a whole body of literature suggesting diversity leads to better decision-making. Women are also the primary customers for many products and services. ‘Most of the spending is done by women, even in male-dominated households. If your customers are women, you need to be in touch with them.’
Women board members can also play a part in breaking up the old boys’ clubs that have dominated boardrooms, she says, with the directors’ concomitant unwillingness to criticise each other.
Yet Khan is wary of imposing quotas to boost the number of women direcors, in part because of the reaction to them. ‘Quotas lead to a sense of entitlement on the supply side,’ she says, ‘and resentment on the demand side.’ Yet she is not entirely closed to the idea. ‘Certain countries and societies may need a push,’ she says. ‘And Pakistan may be a case in point. We need to have that discussion. More importantly we need to step up our efforts to train women for board positions.’
Khan is not formally involved in the task force preparing the latest proposals, but her voice will continue to be heard. She says it remains to be seen whether the new rules will be implemented in both letter and spirit across all segments of society.
One of the big challenges is putting the rules into practice. ‘We have some of the best regulations and laws, but implementation is lacking,’ Khan says, with businesses all too often respecting the letter of the law, not the spirit.
Education is one of the important keys to change here, which helps explain why students are one of the target groups for Khan’s book. ‘From the students’ perspective, we address the principles: transparency, accountability and fairness,’ she says. ‘It is not just about appointing two independent directors. You need to appreciate the essence.’
Alongside her involvement in corporate governance, Khan runs her own business, Selar Enterprises, an export management and advice company. A graduate of INSEAD’s MBA programme, she is also the current president of the business school’s global alumni association.