Corporate Governance in Public Sector

Mohammad Iqbal Ghori FCMA Chief Financial Officer FESCO

Scheme of Presentation
1.

What is corporate Governance?

2.
3.

Why for Public Sector?

Code of Corporate Governance for Public

Sector
4. 5. 6. 7.

What Matters in Code of Corporate Governance Issues Recommendations Question & Answers

Corporate Governance?
Corporate Governance involves a set of relationships between a companys management, its board, its shareholders and other stakeholders. (OECD Principles Define Corporate Governance Comprehensively, 2004)

Core Values of Corporate Governance

Openness

Accountability
Fairness Transparency Responsibility & integrity Efficiency and effectiveness Balance between International Standards and

local need and realties

Private Vs Public Sector

Private sector
Objectives

PSE
Pursues of efficiency and social distributional objectives

Clear focus on value maximization

Agency issues

Bungle agency - concerned about self-interested behavior by managers or controlling shareholders

Strong market-driven incentives and discipline

Multi agency - concerned about self-interested behavior by managers and politicians / bureaucrats

Incentives/ Discipline

Weak non-market mechanisms

Transparency

High level of disclosure (for listed firms)

Low level of disclosure

ADB Report on Governance

CCG Why in Public Sector

An imperative concern
Excessive confidentiality in decision making Conflict of interests? Inefficiency in public expenditure Non-transparency

Now greater demand for: Openness and accountability in government, with Greater willingness to challenge decisions Stakeholders Participation

Ultimate Goal of Corporatization

Corporatization cannot be successful without

CCG
Commercialization Privatization

Objective of Corporate Governance

Building Firewall between the Government's policy making role and ownership role.

GoP BoD Management

Strengthening of BoDs as envisioned under the Companies Ordinance

Professional and commercially oriented management selected by the BoDs

Corporate Governance in PSE

Composition of Board Role of Chairman and CEO Responsibilities, Power and Function of Board Related Party Transaction Board Capacity Building Board Committees Qualification of CFO and Company Secretary Directors Report Conflict of Interest Internal Control Board Committees Remuneration of Board Self Evaluation

Issues
More focused on independence than specialization /

discipline Qualification of CFO and Company Secretary

Member of ICMAP or ICAP but still backdoor is open for

conventional and rankers

Conflict of interest can compromise Self Evaluation

Mechanism Ministerial Responsibilities of Members of Board of Directors Influence of Ministry / GoP Unresolved Sector specific issue
Corporate Governance could not work in power sector

Immature regulatory regime and Readiness

Recommendations

Selection and Ethics

Transparent and merit based selection and appointment of Boar of

Directors
Skilled Based Nomination Process
Sector Specialist instead of Generalist Professional

from at least Accounts/Audit, Law and H.R

Discipline
Establishing clear terms of reference for Board Sub-Committees

Independent mechanism to eliminate conflicts of interest

Prioritizing the issues that need the attention of the Board to ensure

focus on items of material nature

Performance
Performance Contract between BoD and GoP

Implementation of Integrated Reporting in Public

Sector Entities Mandatory Third Party Corporate Governance Audit Establishment of Holding Company to formulate Policy and monitor Performance
Help construct talent pool for all sector

Settlement of Sector specific Issues

Regulatory - Pricing
Political

Establishment of Corporate Planning and Control

Department

THANKS