Corporate governance in Pakistan ensures transparency, accountability, and ethical business practices. The Securities and Exchange Commission of Pakistan (SECP) regulates corporate governance for both listed and non-listed companies, providing mandatory frameworks for public companies and voluntary principles for private entities. Strong governance protects investors, prevents financial mismanagement, and improves business sustainability.
1. Evolution of Corporate Governance in Pakistan
- 2002 – SECP introduced the first Corporate Governance Code for listed companies.
- 2012 & 2017 – Major revisions were made to incorporate global best practices.
- 2019 – SECP issued the Listed Companies (Code of Corporate Governance) Regulations, 2019, incorporating the “comply or explain” approach, allowing flexibility in compliance.
Corporate governance has evolved significantly over time, adapting to global business standards and economic conditions. The 2019 Code balances mandatory compliance with flexible reporting, enabling companies to either adhere to governance principles or explain deviations in their reports.
(SECP Corporate Governance Code, 2019)
- Key Provisions of the Corporate Governance Code (2019)
Board Composition & Independence
- At least one-third of board members (or a minimum of two) must be independent directors.
- CEO and Chairman roles must be separate to ensure independent oversight.
Board Committees for Oversight
- Audit Committee – Consists of non-executive directors, with a majority being independent.
- HR & Remuneration Committee – Oversees executive salaries and company policies.
Transparency & Risk Management
- Internal audit function is mandatory, either in-house or outsourced.
- Companies must publish an annual compliance statement confirming adherence to governance rules.
Corporate governance rules focus on improving oversight, preventing conflicts of interest, and enhancing financial transparency. By enforcing independent directorships, board committees, and risk management protocols, SECP ensures companies operate responsibly.
(SECP Corporate Governance Regulations)
- Compliance Under the Companies Act, 2017
Annual Return (Form A/B)
- Companies must file updates on corporate structure and shareholding annually.
- Deadline: Within 30 days of the Annual General Meeting (AGM).
Financial Statements & Audits
- Private companies must submit financial reports, while public companies require audited statements.
- Deadline: Within 120 days of the financial year-end.
Changes in Directors or Management (Form 29)
- SECP must be notified within 15 days of any appointment, resignation, or role change in directors, CEO, or senior management.
Change of Registered Office (Form 21)
- Companies must inform SECP within 15 days of any office relocation.
SECP enforces strict reporting and documentation rules to ensure companies remain compliant. Non-compliance may lead to fines, legal consequences, or reputational damage.
4. Corporate Governance for Non-Listed Companies (NLCs)
Voluntary Governance Principles for Private Firms & Non-Profits
- SECP provides governance guidelines for private businesses, family enterprises, and NGOs.
- While compliance is not mandatory, companies are encouraged to follow best practices.
Key Governance Recommendations
- Board Leadership – Establish a clear chain of command and separate CEO & Chairman roles.
- Risk Management & Financial Transparency – Companies should conduct regular audits and establish internal control systems.
- Stakeholder Rights – Protect shareholder interests and ensure equitable decision-making.
“Comply or Explain” Approach
- Companies that do not follow governance recommendations must provide valid reasons in their annual reports.
SECP encourages strong governance frameworks in private and non-listed companies to enhance operational efficiency and attract investors.
(SECP Governance for Non-Listed Companies)
5. Importance of Corporate Governance
Prevents Corporate Fraud & Mismanagement
- Strengthens financial oversight and reduces corruption risks.
Ensures Legal & Regulatory Compliance
- Helps companies avoid legal penalties, lawsuits, and reputational damage.
Attracts Investors & Builds Market Credibility
- Companies with strong governance practices are more likely to gain foreign investments and market trust.
Supports Long-Term Business Growth
- Enhances corporate stability, profitability, and operational efficiency.
Good corporate governance is not just a legal obligation—it is a strategic necessity for sustainable growth. Companies that prioritize governance build stronger investor relations, minimize risks, and create long-term value.