CORPORATE GOVERNANCE

Zainab bibi
BS(ACCOUNTING AND
FINANCE) 7th
F17-0847 Submitted
to:Sir Sheraz khan

a
 TABLE OF CONTENT
DESCRIPTION PAGE.NO
1. Introduction: 3
2 . Corporate governance 4,5
2.1 History of corporate governance in
Pakistan and world

3. Methadology
3.1 (Number of companies)
3.2 (Nature of business)
6 to 8
3.2.1 Nishat Mills Limited
3.2.2 Kohinoor textile mills limited
3.2.3 Redco Textiles Limited
3.2.4 Masood textile limited
3.2.5 Janana De Malucho Textile Mills Ltd.
3.3 (Total capital of companies)

4. Attributes
4.1 CEO duality
4.2 board size 9 to 12
4.3 Non- executive director
4.4 Family concentrated ownership
4.5 Independent audit committee
4.6 Cross directorship
5. year of data 13
6. Analysis 13
7. Reference 13
1.Introduction:
The industries are considered as revenue generation resources of any
country and all corporate activities clustered around the industry’s
performance, specially, the textile industry shares a major portion of
GDP of Pakistan. Pakistan is a leading exporter of goods produced by
textile industry. The fabric production by this vital important industry is
widely appreciated by different countries of the world. The main hurdle
in the way of progress of textile industry, but also overall industrial
sector of Pakistan is lawlessness and lack of political will to give tax
holidays to promote the working of this industry and consequently a
healthy step for this important sector of The economy. According to
various think tanks this century belong to Asia also the focus of
attention of world great powers is towards the Asian countries like
China, India and Pakistan. It is a golden opportunity for Pakistan to cash
it because of its geographical location on the map of the world to
double the profit ratio. It is a great time for developing country like
Pakistan to rehabilitate its area to avoid ruination . In order to be
successful, there is dire need to reframe the economic policies to
ensure the development at large scale; it would give a valuable place in
shape open market for goods and will help out Pakistan in saving the
capital which is crucial for the survival of any economy.

The administrative and institutional framework in Pakistan is not

satisfactory the day to day unpredictable fluctuation in prices of oil, gas
and other energy resources have declined the progress of this sector.
The overwhelming increases in macroeconomic issues have encouraged
the investors to flee out country to those economies which are friendly
to them. The point to ponder is what is the reason behind the current
position of textile industries of Pakistan in spite of all above mentioned
problems, what is the stimuli behind the reasonably good performance
of textile industry even the conditions seems not well.

2. Corporate governance:
The word “Governance” comes from the Greek word kybernan, meaning to
“Steer”, “guide” or “Govern”. At its broadest, governance the act of governing
refers to the relationship between the governors and the governed, such as that
between the government and the people in a democracy, and has at its basis the
decision-making powers abandoned by individuals to those in authority so that
the common interests of country can be served. Defiantly the ship of state needs
a competent captain and team to guide it but it also has to have a clear vision of
where it is, where it is going, and how well it is progressing. So Governance
mechanisms are designed for these ends. The term “corporate governance” is
susceptible of both narrow and broad definitions. Narrowly defined, it concerns
the relationships between corporate managers, directors and shareholders. It can
also encompass the relationship of the corporation to stakeholders and society.
More broadly defined still, "corporate governance" can encompass the
combination of laws, regulations, listing rules and voluntary private sector
practices that enable the corporation to attract capital, perform efficiently,
generate profit, and meet both legal obligations and general societal
expectations. OECD defines Corporate Governance, “A set of relationships,
between a company’s management, its board, its shareholders and other
stakeholders. Corporate governance also provides the structure through which
the objectives of the company are set, and the means of attaining those
objectives and monitoring performance are determined.

2.1 History of corporate governance in

Pakistan and world
The establishment of the Security and Exchange Commission of
Many new financial instruments are introduced by the SECP in order to
enhance corporate governance. The code of corporate governance was
issued in March 2002 by the Security and Exchange Commission of
Pakistan in order to improve transparency, governance and protect the
interest of the investors by improving the disclosure in financial
reporting of companies. The Code of Corporate Governance is the
results of the joint effort of Securities and Exchange Commission of
Pakistan and Chartered of Pakistan in collaboration with Institute of
Cost and Management Accountants of Pakistan (ICMAP) and three
Stock Exchanges. The code includes man recommendations in line with
international good practice. All listed companies publish and circulate a
statement along with their annual reports to set out the status of their
compliance with the best practices of corporate governance. The Code
primarily aims to establish a system whereby a company is directed and
controlled by its directors in compliance with the best practice so as to
safeguard the interest of diversified stakeholders. It proposes to
restructure the composition of the board of directors in order to
introduce broad based representation by minority shareholders and by
executive and nonexecutive directors.

The Code emphasised openness and transparency in corporate affairs

and the decision making process and requires directors to discharge
their fiduciary responsibilities in the larger interest of all stakeholders in
a transparent, informed, diligent, and timely manner. The salient
feature of the Code includes setting up of audit committees and
internal audit functions by all listed companies [Code of Corporate
Governance (2002)]. In August 2002 SECP launch a project on corporate
governance in collaboration with UNDP and Economic Affairs Division
of Government of Pakistan. This project is launched mainly for the
implementation of code of corporate governance and strong regulatory
frame work for the corporate sector in Pakistan.In 2007 the Security
and Exchange Commission of Pakistan, International Financial
Corporation (IFC) and Institute of Corporate Governance of
Pakistan(PINCG) conducted a Survey on “Code of Corporate
Governance of Pakistan”.

3. Methadology
This study examines the relationship between Corporate Governance
and corporate performance in communication sector of Pakistan. A set
of listed companies has been investigated to analyze the relationship
for the year 2019.

3.1 NUMBER OF COMPANIES : 5

 Nishat Mills Limited
 Kohinoor textile mills limited
 Redco textiles limited
 Masood textile mills limited
 Janana De Malucho Textile Mills Ltd

3.2 NATURE OF BUSSINESS

3.2.1 Nishat Mills Limited
is the flagship company of Nishat Group. It was established in 1951. It is one of
the most modern, largest vertically integrated textile companies in Pakistan.
Nishat Mills Limited has 227,640 spindles, 805 Toyota air jet looms. The Company
also has the most modern textile dyeing and processing units, 2 stitching units for
home textile, Two stitching units for garments and Power Generation facilities
with a capacity of 120 MW. The Company’s total export for the year 2016 was
Rs35.931 billion (US$ 344.744 million). Due to the application of prudent
management policies, consolidation of operations, a strong balance sheet and an
effective marketing strategy, the growth trend is expected to continue in the
years to come. The Company’s production facilities comprise of spinning.

3.2.2 KOHINOOR TEXTILE MILLS LIMITE

is located in Lahore, Lahore, Pakistan and is part of the Textile Manufacturing
Industry. KOHINOOR TEXTILE MILLS LIMITED has 6,374 total employees across all
of its locations and generates $140.07 million in sales (USD).D&B Hoovers
provides sales leads and sales intelligence data on over 120 million companies like
KOHINOOR TEXTILE MILLS LIMITED around the world, including contacts,
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3.2.3 Redco Textiles Limited

is based in Pakistan, with the head office in Islamabad. It operates in the Fabric
Mills industry. The company was established on 1991. There are currently 399
(2020) people employed by Redco Textiles Limited. The company’s latest financial
report indicates a net sales revenue increase of 72.31% in Q12021. A growth of
13.3% was recorded in its total assets.

3.2.4 MASOOD TEXTILE MILLS LIMITED

is located in Faisalabad, Punjab, Pakistan and is part of the Textile Manufacturing
Industry. MASOOD TEXTILE MILLS LIMITED has 14,161 total employees across all
of its locations and generates $225.83 million in sales (USD). There are 3
companies in the MASOOD TEXTILE MILLS LIMITED corporate family. D&B
Hoovers provides sales leads and sales intelligence data on over 120 million
companies like MASOOD TEXTILE MILLS LIMITED around the world, including
contacts, financials, and competitor information.

3.2.5 Janana De Malucho Textile Mills Ltd.

(the Company) was incorporated on 6th October, 1960 as a Public Limited
Company under the able professional guidance of founder Chairman (Late) Lt.
Gen. M. Habibullah Khan Khattak. It was established as a composite textile unit at
Kohat with a capacity of 12,500 spindles, and 250 (weaving) looms and a
processing unit.The mill is located in Kohat at a distance of 53 km south of
Peshawar. Commercial production started in 1963 and another 12,500 spindles
were added to the spinning capacity in 1968 with 250 looms.

The Company is engaged in production of super fine counts of 80s and 100s
combed/carded yarn from extra-long staple cotton of USA Pima and CIS origin.
The Company also manufactures and sell sale 40/s combed and 60/s combed yarn
for air jet looms which is being sold on premium.

3.3. Total capital of companies

COMPANIES Total capital
Nishat Mills Limited 11 billion
Kohinoor textile mills limited 0.02 billion
Redco textiles limited 0.05bilion
Masood textile mills limited 1.85 billion
Janana De Malucho Textile Mills 0.001billion
Ltd

4.1 CEO duality:

CEO duality refers to the situation when the CEO also holds the position of the
chairman of the board. The board of directors is set up to monitor managers such
as the CEO on the behalf of the shareholders. ... A dual CEO benefits the firm if he
or she works closely with the board to create value.

A strong power in the CEO duality actually is good because it can create a clear
direction of a single leader, but on the other hand it is also a disadvantage of CEO
duality. This is because if a person has enormous power within a company then it
will create segregation of duty

COMPANIES CEO DUALITY

Nishat Mills Limited
Kohinoor textile mills limited
Redco textiles limited
Masood textile mills limited
Janana De Malucho Textile Mills
Ltd
This company does not hold CEO
duality.
The role of CEO and chairperson are
split in Kohinoor textile mills limited
Redco textile limited have different
chairperson a nd CEO.
Masood textile mills limited is not
involved in CEO duality.
CEO duality does not exist in Janana De
Malucho Textile mills ltd

4.2 Board size

Board size refers to the total number of directors on the board of each sample
firm which is inclusive of the CEO and Chairman for each accounting year. This will
include outside directors, executive directors and non-executive directors.

A large number of members represents a challenge in terms of using them

effectively and/or having any meaningful individual participation. According to the
Corporate Library's study, the average board size is 9.2 members, and most
boards range from 3 to 31 members. Some analysts think the ideal size is 7.

COMPANIES Board size

Nishat Mills Limited 7
Kohinoor textile mills limited 7
Redco textiles limited 8
Masood textile mills limited 7
Janana De Malucho Textile Mills 7
Ltd

4.3 Non- executive director

A non-executive director typically does not engage in the day-to-day
management of the organization but is involved in policymaking and
planning exercises. A non-executive director's responsibilities include
the monitoring of the executive directors and acting in the interest of
the company stakeholders.

COMPANIES Non- executive director

Nishat Mills Limited 4
Kohinoor textile mills limited 3
Redco textiles limited 3
Masood textile mills limited 4
Janana De Malucho Textile Mills 2
Ltd

4.4 Family concentrated ownership

Family concentrated Ownership simply refers to the case where
majority of shares are held by family owners. Similarly in literature,
 Concentration of Ownership at level 3 and 5 (percentage of shares held

by 3 largest and 5 largest shareholders) has been calculated .

COMPANIES Family concentrated

Nishat Mills Limited
Kohinoor textile mills limited
Redco textiles limited
Masood textile mills limited
Janana De Malucho Textile Mills Ltd
ownership
25 % off total shares are held by
directors, CEO, their spouses and
minor children.
67.48 % off total shares are held by
directors, CEO, their spouses and
minor children.
Its most shares are held by general
public and financial institution and
promoters.
Most of the shares are related with
associated companies, undertaking
and related parties.
Most of shares are held by foreign
investors

4.5 Independent audit committee

Audit committee characteristics, such as its independence, are seen as
essential attributes that could enhance an audit committee’s ability to
discharge its responsibilities. The independent board is better than the
inside director in monitoring management.
A public sector organization board-level committee made up of at least
a majority of independent members with responsibility to provide
oversight of management practices in key governance areas.

COMPANIES Independent audit

committee
Nishat Mills Limited 3
Kohinoor textile mills limited 3
Redco textiles limited 3
Masood textile mills limited 3
Janana De Malucho Textile Mills Ltd 2

4.6 Cross directorship

Cross directorship is said to exist when two (or more) directors sit on
the boards of the other. ... For example, director A is an executive
director on the board of company X and also holds a non-executive
position on the board of company Z.

COMPANIES Cross directorship

Nishat Mills Limited Yes (as it is a subsidiary company)
Kohinoor textile mills limited NO
Redco textiles limited DOESNOT EXIST
Masood textile mills limited NO
Janana De Malucho Textile Mills NO
Ltd
5. Year of data:
2019

6. Analysis
The aim of this report is to analyze the link between the corporate
governance quality and performance of Pakistani listed firms.

I analyze the performance effects of corporate governance quality with

reference to both valuation and operating performance. I prepare this
report by using indicators (CEO duality, board size, independent audit
committee, Family concentrated ownership, cross directorship) based
on the information which can be extracted from the annual reports of
the institutions or from their corporate websites.

7. Reference
www.researchgate.com
www.accaglobal.com
official websites of companies
www.wikipidea .com