CGIP – Pakson International Plastic Industries (Pvt.

) Ltd

Corporate Restructuring of Pakson

International Plastic Industries (Pvt.) Ltd.
Technical Proposal

Pakson International Plastic Industries (Pvt.) Ltd

49 - A S.I.E. #1, Gujranwala 52250, Pakistan.

10 April 2019

Buildstone Consulting Group

1 – Akbar Road, Rawalpindi Cantt 46000.
Office No 9, 4th Floor, Faisal Shopping Mall, Saddar,
Rawalpindi Cantt 46000.

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 CGIP – Pakson International Plastic Industries (Pvt.) Ltd

10 April 2019

Dear Muhammad Azam Mughal Sahib,

Thank you for inviting us to submit our proposal to provide an objective analysis of the
Governance practices of Pakistan International Plastic Industries (Pvt.) Ltd.

In the light of the meetings held with the senior management of Pakson both in Gujranwala and
Rawalpindi we have carried out an in depth analysis of the company including the start of
business as well as its growth stages with going through change management and future plans
of expansion and have prepared a detailed technical proposal.

This proposal will support the strategic growth objectives of the company, and assist in
implementation.

We recognize that this is a strategic project for the company and have put together a highly
experienced team with strong and relevant credentials.

We look forward to working with you, and can assure you that our team is ready to commence
work once we agree on the Technical proposal including timeline of delivery, roles and
responsibilities and scope of work. The financial proposal will be submitted once the Technical
proposal is accepted. The estimated time for the completion of the project is 4 months, however
timely availability of information can reduce the time frame.

Let me also assure you that during the project we are also promised to hold all the information
shared as confidential and will remain within BCG.

Should you have any questions in the meantime, please do not hesitate to contact us.

Asim A F Chishti
CEO
Buildstone Consulting Group
asim@bcgconsulting.pk

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Table of Contents Page

Executive Summary 3

I. Background

II. Addressing Problems That Tear Families Apart:

Why Good Governance Matters For Family Firms 5

III. Description of BCG's approach and methodology 6

IV. The engagement will be divided into four phases. 6

Phase I: Corporate Governance Review & Assessment 6

Phase II: Development of family governance mechanisms 7

Phase III: Development of Corporate Governance Documents 10

Phase IV. Grooming Future Owners and growth strategies 11

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Pakson International Plastic Industries (Pvt.) Ltd.

Executive Summary

1. The two main issues highlighted in meetings with Pakson's owner/senior management
are related with succession planning and growth. These are common features of all family
businesses both locally as well as internationally.

2. First and foremost, it is important to come to a common understanding that

family businesses are usually more complex in terms of governance than their counterparts due
to the addition of a new variable: the family. Adding the family emotions and issues to the
business increases the complexity of issues that these businesses have to deal with. Unlike in
other types of businesses, family members play different roles within their business, which can
sometimes lead to a non-alignment of incentives among all family members, e.g. lop -sided
control functions.

3. As the family has grown, Pakson now has to decide on the best course of action. The
problems increase when younger members of the family are inducted into the business,
commonly known as the cousin confederation. The senior members within the firm start to
react to the new inductees.

4. The family's overall objectives are:

 To manage the business as one family unit

 At the same time the family also has to cater to the needs of the younger inductees
from the family, namely the second generation.
 Pakson is also aiming to grow and diversify into other fields of businesses.

5. If Pakson has to meet its objectives outlined at para 4 above, it has to corporatize its
ownership structure as well its way of doing business. More specifically, as Pakson has become
larger, a more formal pattern of organization is required if there is not to be confusion, overlap
and the danger of matters requiring attention not being given adequate consideration.

6. Proposed corporate governance mechanisms and a corporate structure have been given
respectively. In this regard, shareholdings of family members will need to be finalized including
cross-holdings between companies.

7. It makes sense to encourage all the family members with an interest in the firm to
arrange to meet at regular intervals to discuss family and business issues. This involves deciding

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who is entitled to membership - for example, should members by marriage who may not own
shares be included.

8. The rules and procedures for the family council, addition of family constitution, the
Board of Directors and the various committees of the board along with the number of times
they should meet in a year must be agreed upon and implemented in letter and spirit. BCG can
help in drafting and formalizing all the regulations required in this regard.

9. The formation of Pakson's Board Council will provide basis not only for a logical
organizational structure, but also for establishing clear lines of authority and responsibility.

10. Finally, a pre-requisite for family firms that are desirous of growth and looking for new
avenues of investments, is to develop a strategic plan the purpose of which is to align Pakson's
vision and mission with its strategic initiatives.

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Pakson International Plastic Industries (Pvt.) Ltd.

Technical Proposal

I. Background

BCG has been given an assignment by Pakson International Plastic Industries (Pvt.) Ltd., the
client, to assist in addressing, primarily, succession planning and growth issues in the family-
owned business (FOB).

In this regard, BCG has held two detailed meetings with the senior management/owners of
Pakson in March/April 2019 during which various issues with specific reference to succession
planning and potential ownership structure were discussed.

Since issues relating to succession planning and ownership structure fall within the ambit of
corporate governance, BCG proposes a comprehensive solution that can meet the
requirements of the client that, if implemented properly, can ensure not only the long term
sustainability of the business through successive generations but of the family as a cohesive
unit as well.

II. Addressing Problems That Tear Families Apart: Why Good Governance Matters For
Family Firms

Family Owned Businesses (FOBs) face unique problems with continuing their operations
successfully over successive generations due to governance issues.

While corporate governance is conventionally regarded as applicable to public corporations,

family-owned businesses are equally in need of sound governance mechanisms,

Creating and applying a system of good governance is crucial for the preservation of not just
financial wealth, but also of human and intellectual capital of FOBS.

III. Description of BCG's approach and methodology

Before suggesting any options for the way forward, it is essential to understand that the long
term sustainability of a family business over generations is resultant from factors that result in

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successful transformation of family businesses from one generation to another. To this end,
BCG's approach is based as follows:

 Commitment to Good Corporate Governance: The demonstration of a clear focus on

effective structures and processes for achieving the benefits of good corporate
governance.
 Governing body and functioning: The existence of a competent, legitimate, well-
structured and effective board, including recommendations related to the composition,
structure, and work procedures of the board council.
 Management Control: The presence of an environment facilitating the achievement of
sound internal control; management of risk; and the integrity of financial information.
 Disclosure & Transparency: The easy availability of timely, accurate, relevant, complete,
and actionable information equally to shareholders and, as appropriate, to other
stakeholders, including regulators.
 Shareholder Practices: Equitable treatment of all shareholders.

IV. The engagement will be divided into four phases.

Phase I: Corporate Governance Review & Assessment

After the recent initial meetings with the client's top leadership, BCG believes that some of the
issues that need to be addressed are as follows:

 Ownership, management succession, and growth

 Family employment policies
 Relations between the family salary-earners and family dividend-receivers
 Intra-family decision-making processes providing incentives for hiring and retaining
qualified professional non-family managers
 Providing incentives for hiring and retaining qualified professional non-family managers

In this regard, more information may be required once BCGs proposal is accepted by the client.

Phase II: Development of family governance mechanisms

1. Possible governance mechanisms: In order to address the issues highlighted in Phase II

outlined above, BCG will work with the client to devise governance mechanisms on the
following lines:

 Family Council
 Governing Council

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 Council committees.

A well-functioning family governance structure will help build trust among family members
(especially between those inside and outside of the business), and unify the family thus
increasing the viability chances of the business. A possible governance structure could be as
given in Figure-1.

2. Key family governance issues to be addressed by Pakson

 The family has to decide whether family employment will be based on merit or
relationships only.

 Also other factors such as compensation, merit and resource allocation should be based
on well-defined and transparent rules and procedures that have the buy-in of all family
stakeholders.

 Establishes rules for share ownership and transfer to ensure shares are kept in the
family when desired.

 Establishes guiding principles for family dividend payments to help resolve differing
family cash demands

Some sample issues faced by FOBs are given in the table below:

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3. Business structure: The present ownership structure of Pakson's is not geared either
towards addressing succession issues or preparing them for future growth.

It is assumed that M/s Pakson International plastics (Pvt.) Ltd is a business in which Mr. Asif and
Mr. Azam are equal shareholders. Other business initiatives of the family are stand-alone
enterprises which have no legal link with M/s. Pakson International plastics (Pvt.) Ltd, except
that ultimate ownership of these initiatives goes back to Mr. Azam’s family. This pattern is akin
to “Group of companies” concept.

One option could be to grow organically and eventually form a “Group of companies”, however
this route has many potholes and problems.

The other option is to set up a “Holding company” with provisions for formation of a number of
subsidiaries under its umbrella. The process includes steps like approval of company’s name,
submission of documents, certificate of incorporation, etc.

Figure 1

Sample of a Holding company

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Furthermore, the cross-holdings between companies also need to be agreed upon by the family
members.

This is just one of several combinations of ownership structure that can be chosen, depending
on what the family agrees upon.

From a longer term perspective, the owners will need to have a vision for ownership structure,
for instance, structure of share ownership and degree of concentration of voting rights in the
family, whether or not being open to public shareholding and shareholding rights of spouses.
Owners need to have clarity on all these issues to have a clear vision for future.

Phase III: Development of Corporate Governance Documents.

1. Once the basic governance mechanism, the ownership structures along with the
shareholding percentage of the respective family members have been firmed up, the next stage
is the documentation stage where roles and functions of each of the institutions (such as BoD,
family council, the Board committees etc.) within the governance system are discussed and
then formalized.

2. A sample: Governing Council’s functions and responsibilities

- Review Company performance and identify issues that need to be addressed.

− Hold management accountable to achieving strategic, operating, and financial objectives.

− Evaluate strategic alternatives, including acquisitions and divestitures, diversification

opportunities, and new revenue streams.

− Review, evaluate and approve the strategic plan.

− Review and approve operating and capital budgets. Make capital allocation decisions across
various enterprises

− Bring new ideas to the table, challenge management thinking, and share insights from other
industries etc.

3. The essential idea behind this exercise is to realize that an effective ownership group needs
to formalize policies and processes for:

(I) Management and board interaction,

(ii) Information management and confidentiality,

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(iii) Issues of conflicts of interests,

(iv) Dividends and other withdrawals,

(v) Estate planning,

(vi) Corporate philanthropy (Zakat, CSR, etc) and

(vii) Succession of governance roles.

Phase IV. Grooming Future Owners and growth strategies

1. Developing informed and effective next generation owners is also an important aspect
of responsible ownership.

Appropriate mentoring and training processes need to be built-in to ensure that the next
generation owners obtain a good understanding of: (i) the business culture and means to
contribute to it, (ii) business strategy and the ways to track it and (iii) principles of good
governance.

Succession norms including ownership transfer, voting rights, directorship and leadership need
to be clearly defined and established to facilitate smooth transition of ownership and stability
in business leadership.

BCG can assist in the training in corporate governance as well as other areas such as Finance
and Accounting.

2. Growth and Strategic Planning

If the company has to successfully grow, whether in the current line of business or diversify into
other areas, then it must have a structured approach towards long term planning. A haphazard
approach can lead to unsatisfactory results or business failure.

BCG can help train, especially the younger members of the family, in adopting a scientific
approach to strategic planning. Such a methodical approach will bring about better clarity in the
minds of the decision makers as to which new ventures to pursue in the future.

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The following chart summarizes the phases of engagement and deliverables by BCG

CG Phase II
Phase I Phase III Phase IV
Improvement Development of Development of Grooming Future
Program CG Review & family Corporate Owners &
Assessment governance Governance Growth
mechanisms Documents strategies

Family Council Develop codes of Developing

Ownership governance and
informed and
management Governing Council ethics, Board
effective next
succession and Charter, Directors
Council TORs, model
generation
growth
Committees. documents, etc. owners

4 weeks 4 weeks
4 weeks 4 weeks

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Project Monitoring

Ms Pakson International Plastic Industries shall designate an officer of sufficient professional

capacity and rank as chief point of contact for the BCG Team. Representatives of the company’s
management and board of directors will also be expected to respond to occasional requests for
additional information and to participate in conference calls/visits to provide the BCG Team with
the maximum amount of relevant information in advance of its fieldwork if necessary.

To effectively oversee the above process as well as deliverables, a Project Management structure
should be established consisting of the following:

Project Management Team:

The Project Management Team (PM) consists of a BCG Representative and Client Representative.
The team is responsible for week by week management of Project tasks and deliverables. The
roles of the PM Team include:

 Monitoring progress against Project plan;

 Maintaining the Project plan and all other Project documents;
 Coordinating Project tasks with all necessary stakeholders;
 Communicating Project events and developments to all necessary stakeholders as
needed;
 Helping identify Project issues and facilitating corrective actions as needed;
 Providing updates to the Project Steering Committee on a regular basis;
 Elevating key issues to the Steering Committee, as needed, for decision.

Project Steering Committee:

The Project Steering Committee consists of senior team members of BCG.

 Monitoring the overall progress of the Project (via briefings from the PM Team);
 Providing decisions on key issues;
 Approving major changes to the Project plan;
 Supervising and approving deliverables based on recommendations from the PM Team.

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