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CORPORATE GOVERNANCE
Corporate Governance is for "to control upper level"

Steps of Control Process

1. Establish a standard
2. Measure the performance
3. Compare the performance with actual standard
4. Take corrective action (if deviation occurred)

Types of Control
Three types of control are:

1. Feed forward (anticipating method)

2. Concurrent (during process/ management by walking around)
3. Feedback (post evaluation)

1st Definition of Corporate Governance:

A system used to govern a corporation so that the interests of corporate owners
are protected.

2nd Definition of CG:

The system by which companies are directed and control in the best
interest of shareholders and other stake holders.

COMPANY: The firms which is registered. It is divided into two types.

1. Listed Company: Any company which sale their shares to the public or
which is registered in stock exchange.

2. Unlisted Company: Any company which do not sale their shares to the
public or which is not registered in stock exchange.

Organization: The firm which is not registered.

Shareholders: Those people who have the shares of the company may be
equity or preference shares.

Equity shareholders: They are the owner of the company.

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 Preference shareholders: They are not the owner of the company.
Stakeholders: All those people who’s any action will affect the organization
or any action by the organization will affect them. Like employees, vendors,
owner, etc.

Parliament: It is divided into two categories.

a) National Assembly b) Senate Assembly
Having 342 seats Having 104 Seats
Elected for 5 years Selected for 6 year
Must be 25 years old Must be 30 years’ old
Chairman senate Speaker
Elected Selected

ACT: Any bills pass by the parliament means any one assembly (National or
Senate) will go to other assemble and they have to replay within 90 days
otherwise it is conceder as rejected if the bill is pass in both assemblies it will go
to president having age 45 or more have to replay within 10 days. If bill rejected
by president, then again it goes back to parliament if parliament approved again
then go back to president again but no matter if he approved or reject it within 10
days it will consider as approved, any bill that go through this process is called
ACT.

Ordinance: If any bill \order pass by president himself it will go to national

assembly and National Assembly should replay within 120 days if it is approved
in both assemblies consider as approved if not consider as Repel.

The Princi ples of Corporate Governance:

The OEDC (organization of Economic Corporation and Development) identifies
different principles of Corporate Governance:
1. The rights of the share holders
2. The equitable treatment of share holders
3. The role of stake holders
4. Disclosure and transparency
5. The responsibility of the board
6. Encouragement of whistle blowing

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 Benefits of Corporate Governance:
1) Reduce risk
2) Improve leadership
3) Enhance performance
4) Improve access to capital market
5) Enhance stake holders support
6) Enhance the marketability of goods and services

1. Reduce Risk:

It helps to ensure that the personal objectives of the board and company's
strategic objectives are brought into line with those of stake holders. It can
help to reduce the risk of fraud.

2. Improve Leadership:

It allows increased strategic decision making through the influence of NEDs

(Non-Executive Directors) because all board members are encouraged to
examine board decisions critically.

3. Enhance Performance:
It institute (focus) clear accountability and effective links between
performance and rewards which can encourage the organization to improve
its performance/ productivity.
4. Improve access to Capital Market:
It reduces the level of risk as perceived by outsiders including investors.

5. Enhance Stake Holders support:

By showing transparency, accountability and social responsibility will
enhance stake holder’s confidence.

6. Enhance the ·Marketabi lity of Goods and Services:

It creates confidence among others stake holders including employees,
customers, supplier and P a rt ie s and joint venture (JV).

Disadvantages/Features of Poor Corporate Governance:

Though mostly discussed in relation to large ·quoted companies, governance is
an issue for all organizations.

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An increasing number of high profile corporate scandals and collapses, including
Polly_ Peck international, BCCI and Maxwell communications Corporation
prompted the development of governance codes in the early 1990s. However,
scandals since then, such as Parmalat and Enron have raised questions about further
measures that may be necessary. These scandals have highlighted the need for
guidance to tackle the various risks and problems that can arise 111 organizations'
systems of governance.
1 . Dominating by single person
2. Lack of involvement of board
3. Lack of adequate control functions
4. Lack of supervision
5. Lack of independent scrutiny
6. Lack of contact with share holders
7. Emphasizing on short term profitability
8. Misleading accounts and information

1. Dominating by Single Person:

A feature of many corporate governance scandals has been boards dominated by

a single senior executive with other board members merely acting as a rubber
stamp. Sometimes the single individual may bypass the board to action their own
interests. The report on the UK Guinness case suggested that the Chief Executive,
Ernest Saunders paid himself a substantial reward without consulting the other
directors. The presence of non-executive directors on the board is felt to be an
important safeguard against domination by a single individual.

2. Lack of Involvement of Board:

Boards that meet irregularly or fail to consider systematically the
organization's activities and risks are dominating and implementation of law
is clearly weak. Sometimes the failure to carryout proper oversight is due to
a lack of information being provided.

3. Lack of Adequate Control Function

An obvious weakness is an infective internal audit function. Since this is one of
the most important aspects of internal control.

Another important weakness is a lack of adequate technical knowledge in key

roles. For example, in the audit committee ·or in senior compliance position. A
rapid turnover of staff involved in accounting or control may suggest inadequate
resourcing and the constant change will make control more difficult.

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4. Lack of Supervision:
Employees who are not properly supervised can create large losses for the
organization through incompetence, negligence or fraudulent activity. The
behavior of Nick Lesson, the employee who caused the collapse of Barings
bank was not challenged because he appeared to be successful, whereas he was
using unauthorized accounts to cover up his large trading losses. Lesson was
able to do this because he was in charge of both dealing and settlement, a
systems weakness or lack of segregation of key roles that has also featured in
other financial frauds.

5. Lack of Independent Scrutin y:

External auditors may not carry out the necessary questioning of senior
management because of fears of losing the audit and internal audit may avoid
awkward questions because the chief financial officer determines their
employment prospects. Often corporate collapses are followed by criticisms of
external auditors; such as the Barlow clowes affair where poorly planned and
focused audit work failed to identify illegal use of client monies.

6. Lack of Contact with sta keholders:

Board members may be out of touch with the interests and views of
shareholders. One possible symptom of this is the payment of remuneration
packages that do not appear to be warranted by results. Equally the directors
may choose to pursue their own interests and ignore the requirements of the
shareholders.

7 . Emphasis on Short-Term Pro fitability:

Emphasis on short-term results can lead to the concealment of problems or

errors or manipulation of accounts to achieve desired r e s u l t s .

8. Misleading Accounts and Information:

Often, misleading figures are symptomatic of other problems (or are designed
to conceal them). In many cases, poor quality accounting information is a major
problem if markets are trying to make a fair assessment of the company's value.
Giving out misleading information was a major issue in the UK's Equitable Life
scandal where the company gave contradictory information to savers,
independent advisers, media and regulators.

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Reports on Corporate Governance:
There were three significant corporate governance reports in the United Kingdom during the
1990s. The Cadbury and Hampel reports covered general corporate governance issues, whilst
the greenbury report concentrated on remuneration of directors.
Sarbanes-Oxley Act 2002 General guidelines for corporate governance
The recommendations of these three reports were merged into a Combined Code in 1998, with
which companies listed on the London Stock Exchange are required to comply. We look at the
combined code in this section.
Since the publication of the Combined Code a number of reports in the UK have been published
about specific aspects of corporate governance.
 The Turnbell report focused on risk management and internal control
 The Smith report discussed the role of audit committees
 The Higgs report focused on the role of the non-executive director

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Driving Forces for Corporate Governance Development:

CG issues came to prominence in the USA during 1970s and in the UK and Europe in
1980s and in Pakistan 2.002. There are several reasons why this happen.

1. Increasing International and Globalization

2. Issue Concerning "Financial Reporting"
3. High Profile Corporate Scandals

1. Incasing International and Globalization:

It means that investors and institutional investors in particular began to
invest outside their own country . This leads to calls for countries to
operate in an acceptable fashion/ regulations and to report corporate
performance fair.

2. Issue Concerning "Financial Reporting":

These issues were raised by many investors and were the focus of
much debates and litigations, to greater transparency and reduction
in risk faced by the investors.

3. High Profile Corporate Scandals:

An increasing number of high profile corporate scandals and collapse
prompted the development of governance courts in early 1990s.

Rule based VS Pr incipl e based A p proach to CG:

Rule based A p proach:

A rule based approach provides a set of rules which must be followed in all
circumstances; rule based legislation includes punishment for noncompliance.

Princi ple based Approach:

A principle based approach is not a rigid set of rules but consist of principles
which should be followed unless there is justifiable explanation.

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Effective Control System (Qualities):
i. Acceptability
ii. Accessibility
iii. Adoptability
iv. Action Oriented
v. Appropriateness
vi. Affordability

1. Acce
ptability:

To the people who will operated (whom it will be operated) that fit with their
needs and expectations and the culture of the organization.

2. Accessibility:
That is in terms of its ease and understanding of an operation.

3. Ado ptabi lity:

In terms of changing ability with changing condition and demand.

4. Act ion Oriented:
In terms of deviation trigger corrective action or improvement.

5. A p propriateness:

That is in term of the circumstances, skill knowledge and ability (SKL) of the people
of operating.
6. Affordability:

The cost of operating control must be less than the cost associated with
deviations/ failures (in other words prevention cost must be less than failure cost).

Company Ordinance to Overwrite memorandu1n or Article:

i. The provision of this ordinance shall have effect not which standing anything
contain in the Memorandum, Article of a company or any contract/ Agreement
executed by .it or any resolution passed by the company in general meeti.ng
before or after the commencement of this ord inance of the set provision and
ii. Any provision contained in the Memorandum / Article which is against to the
aforesaid provision shell be void.

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 Section VI of the company ordinance provide that the right conferred by the
ordinance on a company, cannot be over ruled .by any provision ·in

a) Memo
b) A1ticle of Association
c) Contract/ Agreement
d) Resolution of General meeting
e) Director/ board meetings anything mentioned above in conflict with the
provision of company ordinance shall be void.

Obligation to Register Certain Association/Partnerships as

companies
i. No association/partnerships consisting of more than 20 shall be form for the
purpose of carrying on any business that has for its objects and acquisition of
gain as a way of profit unless it is registered a s a company u n d e r this
ordinance.
ii. A person guilty of an offence under this section shall be liable to a penalty not
exceeding of level 1 on the standard scale and also be personally liable for all
the liabilities incurred in such business
iii.
a. Nothing in this section to apply to
b. Any society, body or association, other than a partnership, formed or
incorporated under anal al for the time being in force in Pakistan; or
c. A joint family carrying on joint family business; or
d. A partnership of two or more joint families where the total number of
members of such families, excluding the minor members, does not
exceed twenty, or
e. A partnership formed to carry on practice as lawyers, accountants or
any other profession where practice as a limited liability company is
not permitted under the relevant laws or regulations for such practice.

Fundamental Principles for Professionals (in CG):

1. Confidentiality
2. Objectivity
3. Professional Competencies and due cure
4. Professional Behavior
5. Integrity

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1. Confidentiality:

A Professional Accountant should respect the confidentiality of

information occurred as a result of professional and business
relationships and should not disclose any such information to the
third party without proper and specific authority unless there is a
legal or professional rights or duty to disclose. Also the
information occurred should not be used for personal advantage.

2. Objectivity:

The professional may be exposed to a situation that may divert

their objectivity. A professional should not allowed prejudice,
biasness conflict o f i n t e r e s t o r u n d u e influence of others to
over right professional or business adjourns.

3. Professional Competencies or Due cure:

A Professional as a continuous duty to maintain professional KSA

at a level required to ensure that a client or employer received the
advantage of competent professional services based on current
developing in practice, legislation and technique.

4. Professional Behavior:

A Professional Accountant sh oul d comply with relevant laws and

should avoid the reaction that discredits his profession.

5. Integrity:

The principle of integrity imposes and obligations on all

professionals to be straightforward and honest in professional
and business relationships, it also implies fair dealing and trust.
The professional should not be associated with reports, returns.
Communication, or other information where they believe that the
information is:
a. Contains a materially false and misleading statement.
 b. Contains statements or information furniture recklessly.
c. Omits or obscure information require to be included where
such omission or obscurity would be misleading.

When information should be disclosed:

In following circumstances when professionals are required to disclose confidential
information or when such disclosure may be appropriate;
1. Disclosure is permitted by law and is authorized by the client of the employer.
2. Disclosure is required by law for example.
a. Production of documents or other provisions of evidence is course of legal
proceedings.
b. Disclosure to the appropriate public authorities of infringement of the law that come
into lights.
3. There is a professional duty or right to disclose when not prohibited by
laws. i. To comply with technical standards and ethical
requirements.
ii. To protect the professional interest of professionals in legal proceedings.
iii. To comply with quality review of a professional/ member body.
iv. To respond to an enquiry or investigation by a member/ regularity body.

Threats:
Compliance with the fundamental principles may potentially be threatened by a broad
range of circumstances such as:

1. Self-interest Threats:

This may occur as a result of financial or other interest of the

professionals or immediate or close family members.

2. Self-Review Threats:
This may occur when a previous judgment needs to be reevaluated by the
professionals responsible for that judgment.

3. Self-Advocacy Threats:

This may occur when a professionals promotes a position or opinion to

the points that subsequent objectivity may be compromised.
4. Familiarity Threats:
This may occur when a close professional r e l a t i o n s h i p , or
professional b e c o m e s t o o sympathetic to the interest of professional
fellow/ friend.

5. Intimidation Threats:

This may o c c ur when a professional accountant m a y be detoured/

diverted from a c t i n g objectivity by threats actual or perceived.

Safe Guards
Safe guards that may illuminate or reduce such threats to an acceptable level fall into
two broad categories;

1. Safeguards created by Profession/ legislation/ regulations:

i. Educat ion, training and experience requirement for entry into a
profession
ii. Continuing professional d e v e l o p m e n t
requirements iii. Corporate Governance regulations
iv. Professional Operating Standard (SOP for that profession)
v. Professional or regulatory monitoring and disciplinary procedures

vi. External review by a legally empowered third party.

2. Safeguards in the Work Environment:

I. Firms, leaderships that stressed the importance of
compl iance with the fundamental p1inciples
II. Policies and procedure to implement and monit or
quality control of client engagement.
III. Documented policies regarding the identification threats
for compliance fundamental principle.
IV. I nternal policies and procedures requiring
compliance with the fundamental principles.
V. Discussing ethical issues with those in charge of client
governance.
VI. Timely communication of firm's policies and procedures
and any change of them, to all partners of professional
staff.
 Ethical Conflict Resolution:

In applying standards of ethical conflict the professional may counter

problems in resolving ethical conflict, when face some significant,
ethical issues they should follow the establish policies of their firms,
employing organizations or professional bodies to try and resolve the
conflict.
When initiating either formal or informal conflict resolution process the professional
should consider following either individually or together with others as part of
resolution
process:
a) Relevant Facts
b) Ethical Issues involve
c) Fundamental Principles related to the matter and q
uestions d) Establish internal procedures
e) Alternative Course of action

Having considered these issues, they should determine the best course of action
consistent with the fundamental principles identified. We should also weigh the
consequences of each possible course of action. If the matter remains unresolved they
should approach other appropriate person with their firms or other employing
organization for help or obtaining resolution.

When a matter involves the conflict with or within the organization he should approach
to the audit committee or other body responsible for governance of that organization.

If a significant cannot be resolve, we should consult the relevant professional body they
may also consider seeking legal advice.

lf after conducting all relevant possibilities the matter remains unresolved than he
should refuse remain associated with the matter , or he may also withdraw
from the engagement term or specific assignment or resign altogether from the firm
or employing organization.
 Directors:
Director wise Categories:
1. SMC (Single Member Company)

2. Private

3. Public (1. Listed Companies & 2. Unlisted Companies)

Employee wise Categories:

1. Econori1ically Significant/ Large (it has more than 750 employees)
2. Medium
3. Small
4. Association (it has 2-20 or 20-50 employees)

1. SMC:
It has only one director. It is the only company where director is present at the start
of
the company. He (director) can appoint board of directors in the work load situation
and it is only company where he can remove board of director but BOD cannot
remove him. It has two sub types:

i. Nominal Director:
When the director will die in this situation nominal director will perform.

ii. Alternative Director:

When director will on leave in this situation alternative director will work.

2. Private Compan y:
Minimum numbers of directors are two, minimum members are two and
maximum members are 50. If one director has left or dies than second
member can rule till maximum 6 months and after that he has to appoint
second director or convert _ its company into SMC.

3. Public Company:
1. Listed (at least 7 members)

2. Unlisted (at least 3 members)

 A p pointment of Director and its Procedures
Appointment of First Director:
1. Name of fist director may be mentioned in the Article of Association of the
company and if not so mentioned the name and number of first director shall
be determinant by the majority of subscribers to the memorandum.
2. If any of the above two means no persons are appointed as directors, all the
natural persons among the subscribers to the memorandum shall be considered
as directors.
3. First director shall retire on the date of first AGM (annual general meeting)
4. Directors so retiring s h a l l continue to perform as d irectors until t h
e i r successor a r e appoi nted .
5. It there is any difficulty in the election of directors, the directors so
conti nuing to act as director shall inform the registrar within 15 days of
their retirement.

Procedure for Election of Directors:

i. Existing d irectors shall decide the number of directors for the next term at
least 35 days before the date of AGM. Such number once fixed cannot be
changed by the directors themselves without the approval of members of in a
general meeting.
ii. General meeting shall be called for the election and the notice of general
meeting shall include the number of directors to be elected.
iii. Every member interested in contesting the election of director shall send the
notice of his interest to the company at least 14 days before the date of
meeting, he can withdrawsuch notice at any time before the election if he so
desires.
iv. Company shall send such notice receive to all the members i n the
same manners as a notice of general meeting as given to the shareholder
within 7 days before AGM.
v. In case of a listed company it shall be pu blished in one issue of daily
newsp aper i n Urdu and English language having circulation in the
province where the stock exchange is situated with which the company is
listed.
vi. If the member of persons offering themselves to be elected as director is not
more than the number of directors fixed for election by the directors, the
director shall stand elected on a post, otherwise polling shall be conducted .
vii. Members holding at least 10% voting power in the company may make an
appeal to the court to declare the election of all directors or anyone or more
 of directors and such appeal shall be made within 30 days of the date of election.
viii. Court shall decide so if it is satisfied that there have been material
irregularities in the holding of election and incidental for related matters.
ix. The act performs by the director for any meeting of the director shall remain
valid even if any defect is subsequently discovered in the appointment.
x. Provided that as soon as any such defect has come to the notice, the director
shall not excise the rights of his office till the defect has been rectified.

Fresh Election of Directors on request of substantial Acquirer:

1. Where a person acquires 10% or more voting shares in a listed company,
he may apply to commission for ordering the company to hold fresh
commission for ordering the company to hold fresh elections of director in the
fourth coming AGM.
2. The commission may, if it deems/ consider appropriate in the interest of;
a) Company
b) Share holders
c) Market
3. The person whose request fresh electio11 of directors is held shall not
dispose of the share acquires by him for at least one year from the date of
election of
directors.

I neligibility of Certain Persons to become Director:

No person shall be appointed as director of company if:

1. Is a mi nor
2. Is an unsound mind (Idiot, Stupid, Insane, Lunatic, Drunker, Delirious)
3. Has applied to be adjudicated as on insolvent as his application is pending.
4. Is ·an undischarged insolvent
5. Has been convicted by a court for an offence invol ving moral behavior
6. Has been debarred from holding such office under any
provision of the ordinance.
7. Has betrayed lack of honesty behavior and declaration to this defect has been
made by the court at any time during the preceding 5 years.
8. Has been declared by the court as defaulter of prescribed amount in
repayment of loan to a financi.al institution.
Disqualification of Directors by SECP\ So Motto Action by SECP

1. Conviction of affiance in connection with promotion, formation, management or

liquidation of the company or company’s property.

2. Persistence or continuous default in relation to provision of their Act requiring any

return amount or other documentation to be field with, deliver, send or notice of any
matter to be given to registrar or SECP.

3. A person has been director of company which become insolvent at any time while he
was a director. (Not applicable after 2 year)

4. Business of the company on which he is or has been a director has conducted to

defraud its members or any other connecting person or in an appraises manner to its
members.

5. Affair of a company in which he is a director has been conducted in a manner which

deployed to the shareholder of reasonable return.

6. Person involved in illegal deposit taking or illegal gratification.

7. Person has been declared a defaulter by exchange or his TRE has been canceled.

8. He has been interred into a plea bargaining arrangement with any of regulatory
authority.

9. They have conducted their business in a manner that effects the sovereignty of
Pakistan. Or friendly relationship with other state.

10. The person is convicted of insider trading or market manipulation practices.

Exemption\ indemnifications of Directors/ Officers:

Any provision in the article or any contract for exempting or indemnifying the director
or other officers of the company against their default, breach of trust, breach of duty or
negligence shall be void, however if the charges against the said officer or director
are not proved and he is acquitted in bonafide than the company may compensate
him the cost inquired to defend his case.
 Vacation of Of fice of Director:
The d irector shall ipso facto vacate the office of director if;

1. Any of the ineligible proved above apply to the director as it is.

2. He absents hi mself from three consecutive meetings of the board and from
meetings held in consecutive three months whichever is longer.
3. Accept any loan for guarantee in contravention of the provision of the ordinance.
4. Accept any office of profit without sanction of the company in the general meeting .
5. Company may add in its articles any other clause in addition to these mentioned i n
this ordinance.
6. Assignment of office by any director to some other person shall be effective only if
it is approved by company through a special resolution, however appointment of
an alternative director can be made with the approval of other directors. If the
director is leaving abroad for the period of three months or more the alternative
director shall ipso facto vacate the office of the other director office.

Types of Meeting:

1. Strategy Meeting
2. AGM (annual general meeting)
3. EOGM (Extra Ordinary General Meeting)

I. Strategy Meeting

 Before 30th Jun 2017 it was mandatory once in a life otherwise company will have
to pay fine.
 From 1ST JULY 2017 ACT if any company conducts AGM within 9 month of
incorporation or 6 Month of its Production then it will be considered as Strategic
meeting.
 If any company converted from private to public within less than one year then
they must have to conduct this meeting.
 Only Strategic reports will be discussed and approved in meeting.
 Strategic reports will be signed by CE and one director if company is unlisted and
sing by CFO if company is listed.
 Strategic report’s copy should be send to members 21 days before the meeting.
 If any Meeting adjourn due to any reason, then meeting will be held on same day,
same time, and same place next week.
 If chairman of meeting is change due to any reason, then new chairman will sign
the report.
 Things which will be discussed in this meeting are

Number of shares
Number of members
 Number of shares sold
Number of shares in hand
Expenditures of the company

II. AGM (annual general meeting)

 It will have held within 16 months of in cooperation.

 It will have held every year once with in the 4 month of financial closing year.
 In this meeting both general and special matter but approved only special agenda.
 Notice for the meeting will be send to all members before 21 days.
 If any Person is not able to attend meeting due to unavailability in the country/city,
then he has to inform the company 10 days before so they can arrange E-Meeting for
him.
 If any person is not able to attend the meeting due to sickness, or any other reason
than he has to nominate a Proxy and informed 48 hours before the meeting. (working
hours)

Mutandis and Mutatis Rights

If a director nominates any proxy person for AGM, then he has all the rights as the
original director have except speech right.

III. EOGM (Extra Ordinary General Meeting)

 All meeting other than the Strategic meeting and AGM, are called EOGM.
 They are called by directors himself.
 If anyone having voting power more than 10 % will have the power to call this
meeting.
 If meeting is called by any member, then Directors have to call\arrange the meeting
within 21 days.
 If director will not call the meeting within 21 days, then member will call the meeting
within 90 days.
 If Director Will not call the meeting, then all amount expended on meeting will be
deduct from the salary of Directors.
 This meeting cannot be adjourning like Strategy meeting and AGM.

Chief Executive Of ficer:

Chief Executive Officer means an individual who, subject to the control and directions
of the directors is interested with the power of the management of the affai rs of
the company. (The person who has controlled over the management of the company) .
Appointment o f C hie f Executive:
i. Directors shall appoint Chief Executive within 15 days of the date of
incorporation or on the day of commencement of business whichever is earlier.
(first Chief Executive)

ii. First Chief Executive can be appointed for the period maximum of the first AGM.
He may earlier resign or be removed from his office.

iii. Subsequent Chief Executive shall be appoi nted within 14 days of themselves;
a. Directors election
b. Office of the Chief Executive falling vacant as the case may be.
iv. Subsequent Chief Executive shall be appointed for the maximum period of
three years however; he may be earlier removed from office or he may
otherwise seize to hold office.

v. Retiring Chief Execut ive shall continue to perform his services until
•
his successor is appoi nted.

Terms of Appointment of Chief Executive & filling up of Casual Vacancies:

1. Company's Article of Association shall decide/ state the authority for

determination of terms and conditions of Chief Executive .
2. By virtue, his being Chief Executive, he shall be considered a director of the
company and shall enjoy and be liable to all the rights and liabilities
attached to the office of the director.
3. If person is ineligible to become a director of a company, he is also
ineligible to become a chief Executive of the company as well.

Removal of Chief Executive:

Chief Executive can be removed at any time regardless of any provision in the
Article of Association or in his appointment to the contrary by any of
following mode.

1. By passing a special resolution in general meeting of the company .

2. By passing a resolution by BOD wi th their at least three fourth majority

of the present directors.
 I neligibility of Certain Persons to become Chief Executive:

No person shall be appointed as director of company if:

1. Is a mi nor
2. Is an unsound mind (Idiot, Stupid, Insane, Lunatic, Drunker, Delirious)
3. Has applied to be adjudicated as on insolvent as his application is
pending.
4. Is ·an undischarged insolvent
5. Has been convicted by a court for an offence invol ving moral behavior
6. Has been debarred from holding such office under any provision of the
ordinance.
7. Has betrayed lack of honesty behavior and declaration to this defect
has been made by the court at any time during the preceding 5 years.
8. Has been declared by the court as defaulter of prescribed amount in
repayment of loan to a financi.al institution.

Disqualification of Chief Executive by SECP\ so Motto Action by

SECP

1. Conviction of affiance in connection with promotion, formation, management or

liquidation of the company or company’s property.

2. Persistence or continuous default in relation to provision of their Act requiring any return
amount or other documentation to be field with, deliver, send or notice of any matter to
be given to registrar or SECP.

3. A person has been director of company which become insolvent at any time while he was
a director. (not applicable after 2 year)

4. Business of the company on which he is or has been a director has conducted to defraud
its members or any other connecting person or in an appraises manner to its members.

5. Affair of a company in which he is a director has been conducted in a manner which

deployed to the shareholder of reasonable return.

6. Person involved in illegal deposit taking or illegal gratification.

7. Person has been declared a defaulter by exchange or his TRE has been canceled.

8. He has been interred into a plea bargaining arrangement with any of regulatory authority.

9. They have conducted their business in a manner that effects the sovereignty of Pakistan.
Or friendly relationship with other state.
10. The person is convicted of insider trading or market manipulation practices.

Auditors (Internal):

a) 1st auditor will be appointed within 90 days of In-Corporation and will be

appointed by BOD.
b) 2nd auditor will be appointed by members in AGM.
c) He can Appointed for the duration of AGM to AGM.
d) If any auditor left the company or company fired him due to any reason before the
completion of duration, then they have to appoint new auditor within 30 days.
e) If auditor is appointed by directors, then they can set his limitations.
f) If appointed by members in AGM, then they can set the limitations of auditor.
g) SECP have power to appoint any auditor if company did not appoint any auditor.
h) If company fire any auditor, then to appoint new auditor need permeation from
commission.
i) According to Act 2017 external auditor will be CA and will be appointed in three
companies which are as follows:
 public company
 Private company which is subsidiary of Public company.
 Private company having share of capital is more than 3 Million.

When Commission Appoints auditors directly:

There are four conditions to appoint auditor directly by commission which are:

I. If the auditor was not appointed by company within 90 days of incorporation.

II. If the auditor was not appointed by company in the AGM.

III. If auditor leave the company or company fired him due to any reason.

IV. If company appoint any auditor and he is not interested in doing work, then
 commission will appoint the auditor directly.

Duties of Auditor (External):

I. Conduct the audit, prepared report and express opinion in compliance with the
requirement of ISA (Internal standard of adoption) adopted by ICAB.
II. Carry out such examination to form an opinion as: -
 Weather Adequate accounting record have been kept and adequate return have
been received from branches not visited by him.
 Whether the company’s FS for in agreement with accounting record and
returns.
III. He should make a record on book of account and FS that should be laid before
AGM.
IV. If auditors report makes reference to some other report\statement, such report
shell be ANNEXED\Attached (extra copy) to auditor’s report and make part of
director’s report.
SECP may by general or the special order, direct that statement of compliance (the
points highlighted by director) to be attached with director report and shell be
reviewed by the auditor who shell issue a review report to members and SECP on
the format as specified.

Plenty for auditor

If auditor report is made with the intent to profit the internal auditor or any other person or to
put another person to disadvantage or loss of material consideration, he shall be punishable with
imprisoner of up to two years and plenty of one million.

Responsibilities of
BOD:
BOD shall perform their duties with a sense of objective judgment and independence
in the best interest of a com pany, they shall ensure that: 1

1. Professional s t a n d a r d s and corporate v a l u e s a r e p u t i n p l

a c e t o promote i n t e g r i t y within t h e organization, Code of
Conduct, acceptable or unacceptable behavior shall be communicated by
the board
.to all the employees of the company and further shall be placed on the
w eb site of the company.
2. Proper control and system a r e i n place for identification or redress of
grievances arisi ng from unethical practice.
3. System of internal control is established and effectively implemented at
all level.
4. Mechanism for measurement of boards own performance is put in place
 within t wo years of this implementation.
5. A proper vision and mission statement is prepared and it will ensure that
the significant policies are in practice regarding;
a) Governance, risk management and compliance
issues b) HR management including succession
planning
c) Procurement of goods and services
d) Investors' relations including awareness, complai ns
and communication
e) Terms of credit and discount to
customers f) Investment and
disinvestments of funds
g) Determination and delegation of financial power
h) CSR initiative including donations, charities and other
philanthropic activities

POWER OF BOD:
The decisions which BOD can take without approval of members (SPETIAL RESOLUTION).
1. Issue Share.
2. Issue debentures or any other instrument in nature of redeemable capital (give
money to take back your instrument).
3. Barrow money otherwise then on debenture.
4. Invest the funds of company.
5. Approved financial statement.
6. Approved bonus to Employ.
7. Declared interim dividend.
8. Take over a company or acquire the controlling or substantial takeover of any
other company.
9. Right of bed dept. advances and receivable.
10. Right of inventory and other asset to the company.

Not the Power of BOD/ without approval of Members (spatial

resolution)

1. Sell, lease or dispose of undertaking (20% of your earning) and sizeable parts
(25% of its total assets).
2. Sell or dispose of any subsidiary of company.
3. Remit (accepting less amount) or give extension of time for repayment of any
depth against any person. (Under section 182).
4. If anything approved its validity is of one year, if time goes more than one year
then it collapses then again need to take approval from members.
 Social Responsibility/Levels of CSR:
The concept of social responsibility has been described in different ways e.g.
it has been called “profit making only", going beyond profit making, and any
discretionary corporate activi ty intending to further social welfare and
improving social or environmental conditions. This concept can be enhanced
by following level/ approach CSR, it incl udes;

1. Social Obligation
2. Social Responsibility
3. Social Responsiveness

1. Social Obligation:
Social obligation is a fim1s engaging in social action because of its
obligation to meet certain economics and legal responsibilities. The
organization does work it’s oblige to do and nothing more.
This idea reflects the classical view of social responsibilities, which says
that management's only responsibility is to maximize profit. (Providing
product, meeting legal standards and providing jobs).

2. Social Responsibilities:

The social responsibility as a business or company's intention beyond its

legal and economics obligations to do the right things and act in a way that
is good for the society.

3. Social Responsiveness:

Social Responsiveness means that a company engages in social action in response to

some popular social needs. Managers in those companies are guided by the social
val ues and make practical, market oriented decisions about their actions/
activities. (Cause an effect marketing).
 Arguments in f avor of CSR:
1. Public Expectations:
Public opinions now favor businesses that pursuing economic and social goals.

2. Long run Profit:

Socially responsible companies tend to have more secure long run profit
than the companies which do not do this.

3. Ethical Obligations:

These businesses are socially responsible because responsible actions are the right
things to do.

4. Public Image:

Business can create a favorable public image by pursuing social goals on company do
a social activity has a better image in the society.

5. Better Environment:

Business involve in social activities help to solve difficult social problems (pollution.
water problem pollution etc.)

6. Discouragement of Further Governmental Legislation:

Avoiding of tax.

7. Stock Holders/ Stake Holders interest:

The interest of stock holder’s/ stake holders will have increased because CSR
activities may improve their business stock prices in long run or in future.

8. Intention of Prevention over Cure:

Business or companies address social problem,before they become serious or costly
to correct.
 Arguments against CSR:
a) Violation of Profit Maximization:
Business is being social responsibility only with its economic interest.

b) Dilution of Purpose:

Pursuing s o c i a l g o a l s d i l u t e s b u s i n e s s e s ’ primary p u r p o s e / o
bjectives
“ economical productivity" .

c) Cost:
Many social responsible actions do not cover their cost and someone m ust have
to pay these costs.

d) Too Much Power:

Business have a lot power already and it they pursue social goals
they may have social power ( dominance)

e) Lack of Accountability:

There is no direct line of accountability for social actions.

Owner or Employer's Corporate Social Responsibility (CSR)

A. Health and Safety Provisio11 Practices
a) To provide safe system (work practices) such as equipment/ machinery must
be properly mai ntained .
b) To p r o v i d e s a f e and h e a l t h y w o r k e n v i r o n m e n t s u c h as
cleanliness, h y g i e n e arti fi cial humidification.
c) To carry out risk assessment, generally i n writing of all work hazards
on the continuous basis.
d) To introduce on the control to reduce risk (feed forward, concrete, feedback).
e) To further initiate or revise safety policies to employees who are at risk
such as young workers, women, and shift workers .and part time workers.
f) To provide appropriate training and safety matters.
 g) To provide adequate safety tools and devices.
h) To provide competent health and safety advisors.
i) To avoid unfair labor practices.
j) To provide precaution/ methods/ways incase of emergency.
k) To share hazards and risk information with other employees including those
adjourning premises, other sight occupiers and all subcontractors entering the
premises.

B. They should not use abuse dominant position (PUBLIC)

An abuse of dominant position shell be deemed to have been brought about,

maintained or continued if it conceits of practices which prevent, restrict, reduce,
and distort competition in the relevant market.

The practices of abuse include abuse

1. Limiting production, sales and unreasonable increase in price or other
unfair trading conditions.
2. Price discrimination by charging different prices of same goods from
different customers without any objective justification.
3. Tie-in (must purchase this thing then we will give you the thing which you
want) where the sale of goods is made conditional of the perches of other
goods.
4. Applying dissimilar condition to equivalent transection of other parties
placing them at a competitive disadvantage.
5. Predatory pricing (dumping) driving competitors out of the market or
preventing new entry any monopolize the market.

C. Prohibited agreement: -
No company or owner or undertaking will enter into agreement that are considered
prohibited.
a) It includes fixing the purchase or selling price or imposing any other
restricted trading condition with regard to the sale or distribution of any good
or the provision of servicers.

b) Dividing or sharing the market for good /services weather by territories by

volume of sale of goods by types of good\services or by any other means.
(dividing area wise)

c) Fixing or setting the quantity of production, distribution or sell with regard to

any goods or means of providing any services.
 d) Limiting technical development or investment with regard to the production
distribution or sell of servicers.

e) Collusive tendering or bidding for sale purchase or procurement of nay

goods\services.

4 Views / 4 Theories/ 4 Prospectuses:

4 Views/ Theories include

1. Utilitarian View
2. Rights View
3. Theory of Justice View and
4. Integrated Social Contract Theories

1. Utilitarian V i e w :

The utilitarian View says that ethical/social decisions are made solely on the
basis of their outcome or conseq uences. Utilitarian theory uses a quantitative
method for making ethical decisions by looking at how to provide to greatest
goods for the retest numbers. Utilitarian theory encourages efficiency and
productivity.

2. Rights View:
The rights views which is concern with the respecting and protecting
individual liberties and privilege such as the right to privacy, freedom
of conscious speech, life and safety religious practices etc.

This would incl ude protecting the free speech of employees who
reports legal violations by · their employees such as legal
strikes,whistle blowing.

3. Justice View:
U nder this theory/approach manager / owners are to impose and enforce
rules clearly and partially and do so by following legal rules and
regulations. A manager/ company would be using theory of justice by
deciding to provide the same· rate of pay to individual who a re similar to
the level of KSA as well as on performance not basing that decision are
betray differences such as gender, personality raise and personal favorites.
Justice View Not Applicable On: -

1. Professional occupation education/qualification

2.Seniority system.
3.Employment Test system.
4. Per peace pay system.

4. Integrated Social Contract Theory:

This view of CSR is based on integration of two perspectives;

1. The general social contract that ·allows business to operate and define
the acceptable ground rules.

2. In a more specific contract (prospective) among member of community

that addresses acceptable ways of living.

Grievances, its Purpose and Procedures

Grievances:
Grievances occur when an individual feel that he being wrong fully or unfairly
treated by a colleague or supervisor and wish to assault his/ her rights
(discrimination).

Purpose of Formal Grievances:

When an individual has a grievance he should be able to pursue it and

ask to have the problem solved, some grievances may be capable to
solution informally by the individuals' manager and however it an
informal solution is not possible there should be a formal grievances
procedure:

It purposes Includes:
1. To allow "objective grievance handling" , incl uding "pulling of ', per
iod and independent case investigation.
2. To protect employees from victimization, particularly where a
grievance involves their immediate supervisor.
3. To provide legal protection for both parties in the event of dispute
resulting in claims before an employment tribunal.
4. To encourage grievance airing which is an important s o u r c e
of feed b a c k to the management on employee’s problem
and d issatisfaction.
 5. To require full and fair investigation of grievances, enabling the
employer - employee relation to be respected and preserved.

Procedure of Formal Grievances:

The statutory procedures are as follows;

1) The individual should state the grievance in writing (three moths your
grievances can be arise).
2) The first interview will be held between the immediate supervisor/manager
, unless he is a subject of com plaint , in which case it will be next level up.
3) If the immediate manager cannot resolve the matter, all the employees
is otherwise dissatisfying with the first interview the case should be
refe rred upward to his superior (higher a u t h o r i t y /committee).
4) Allow his for the involvement of an individual or groups/trade union or staff
association representati ve .
5) State time limits for initiating certain grievances procedures and subsequent
stages of it (such as communication of decision and appeal).
6) Written record of all meetings I decisions concerned with the case to be made and
distributed to all participants .

If Grievances Approved Against Any Person Than: -

1. Cut 3% of fine from his salary.

2. Increment will be hold for one year.
3. Demotion to lower post.
4. Dismissal from job without giving any notice.

Requirement of Code of Corporate Governance

For General Companies (Listed and Unlisted Companies):
I. The directors of listed companies shall annex statement to the
following effect wi th the director report.

2. The financial statement prepared by the management by the listed

company presents its state of affairs fairly, the result of its
operation, cash flows and change its equity
 3. Prop r books of account of the listed company have been maintained

4. Appropriate accounting policies have been consistently applied . i n

preparation of financial statements and accounting estimate are based on
reasonable and prudent judgment.

5. International Financial Standards (IFS) as applicable in Pakistan have

been followed in preparation of financial statement and any departure/
deviation their form has been adequately disclosed and explained.

6. The system of internal control is sound in design and has been effectively
implemented and monitored.

For Listed Companies:

Provided that where necessary the following information shall also be annexed to
the director’s report of listed company;

a) If the listed c o m p a n y is not considered to be a going concern the

fact along with the reasons shall be disclosed
b) Signi ficant deviation from last year in operating results of the listed
company shall be
Highlighted and reasons there of shall be explained
c) Key operating and financial data of last 6 years shall be summarized
d) If the listed company has neither declared of dividend or nor issued
bonus share for any year, the reasons shall be given.
e) Where any statuary payment such as taxes, duties, levies/ charges are
outstanding, the amount together with a brief description and reasons for
the same shall be disclosed.
f) Significant plans and decisions such as corporate restructuring, business
expansion and discontinues of operation shall be out line along with
future prospectus, uncertainties I risk shall also be mentioned.
g) A statement as to the value of investment of provident, gratuity and pension
funds based on their respected audited accounts shall be included.
h) The numbers of board and committees meeting held during the year and
attended by each director shall be disclosed .
i) The detail of training programs attended by the directors shall also be
mentioned.
 Chairman of the Meeting:

Chuim1an of the board of director shall preside the general meeting and in the
absence of the chairman a director shall preside the meeting. lf none of the
directors are present (within 15 minutes’ time of the meeting) or if directors
present are unwilling to chair the meeting, members shall choose any of t
he member as chairman.

If chairman not come for meeting, then: -

1. Weight for 15 min.

2. Then make chairman any of the director to conduct meeting.
3. Do voting.
4. If no director preset or not willing to act like a chairman, then select any
member.
5. If he cannot nominate any person if he is sick then adjourn the meeting or
select other chairman.

Special Audit and Investigation

Special Audit:
1. Commission may order the special audit and appoint auditors;
a) On its own motion
b) On application of the members having not less than 20% voting
power in the company.
2. Commission may give interim order and directions during
the course of order as he deems fit, further on the receipt of
the report of the special audit commission may pass such
directions for immediate compliance to the management of
the company as he deems fit.
3. Expe11ses of special audit shall be born as follows;
a) Incase special audit has been order by the commission on
his own motion that cost shall be borne by the company,
commission may give the cost initially but will recover
the cost from the company .
 b) Incase special audit has been order by the commission on request of the
members, one half shall be borne by the members and other half by the
company. The member shall be required to pay their share of expenses
in advance.

Investigation:
Following persons ran apply to commission for investigation into the affairs of the
company:

A) Members having l0% or more share capital if company has a share capital
B) 1/10th of number of members if company has not share capital. (Provided that
member shall have to show sufficient evidence regarding the necessity of
investigation.
C) Commission may order investigation on the basis of report of registrar against
the company on the basis of his enquiry or inspection of books and records.
D) Company in a general meeting may resolve and makes an application to the
commission for an investigation.
E) The court may order an investigation on petition of any interested person or
shareholder.

Action Taking By SECP After Investigation:

After investigation SECP may apply to coat and coat will give order.

1. Remove director chef exertive or other officers.

2. If remove director then, if the no of directors is
completed then no need to appoint director.
3. If all directors removed, then go to AGM.
4. Then appoint directors within 14 days.
5. Appoint Administrator.
6. Direct the directors to carry out changes in management
and accounting policies.
7. All future contract will be canceled. (Retrospective
effect).
8. No compensation to the contractor will be given.
9. Give order to wind up the company.

Grounds or Circumstances F or Investigation:

The commission may order an investigation on its own

motion if it is of the opinion that:
1. The business of the company .is being conducted;
a) To defraud its members, creditors and any other
persons b) For fraudulent or unlawful purpose
c) In a manner oppressive of its members
2. The company was formed for fraudulent or unlawful purpose
3. The person charged with fom1ation or management of the
company has committed fraud. misfeasance or breach of trust
or other misconduct or they are currying on an authorized/
illegal business
4. The members have been deprived of reasonable return
5. The members have been deprived of the information that they reasonably
expect
6. The shares of the company have been allotted for inadequate consideration
7. The affairs of the company have not been managed in
accordance with sound business principle or prudent
commercial practices. .
8. That the financial position of the company is such as to i n danger its solvency.

Unclaimed Shares, Certificates and Dividend

1. Share or mudarba certificates has been issued and remain unpaid for 3 years
from the date it is payable.
2. Dividend /bonus shares have been declared by the company and remain
unclaimed for 3 years from the date it is due.
3. Any other instrument or amount which remain unclaimed or unpaid have
such nature for the same period (3 years).
4. Company shell give 90 days’ notice to share holder /certificates holder to
file a claim.
5. .After expiry of 90 days’ final notice shell be published in 2 daily newspapers
(one Urdu and one English) have been wide circulation.
6. If no claim is made, company shell after 90 days from the day of its publication
of second notice.
1. Deposit and unclaimed /unpaid amount to the credit FG (federal
government).
2. In case of shares or certificate or other instrument the company
deliver these to SECP and SECP shall after the selling of the share
and deposit the amount into the unclaimed account of FG.

7. Any claimant may apply to SECP and SECP after necessary verification
forward the claim to SBP or NBP for making payment (that should be paid
within 30 days).
8. While making payment expenses incurred for sell of those share shell be
deducted and if relevant shares /certificates has not been sold on the date of
 claim. the person shell be intitule to receive those share/certificate or other
instruments.
9. No claim will be made after 10 years.

Appointment of administrator/management by
administrator
The creditor having interact of amount not less than 60% of paid of capital may
represent to SECP that.
1. company, s member’s directors or person connected with management of
guilty of preach of trade misfeasance (illegal activity) or miss conduct.

2. Affair are conduct in unlawful, fravalent oppressive and pre judiciary manners.

3. Member of deprived or reasonable return for consecutive three years’ market

value/net worth of share has fallowed below 75% of Par-value, debt equity
ratio has fallowing beyond 9.1 and current ratio has fallow beyond 0.5 to 1(1
t0 1 need for solvency clearance).

4. Industrial unit owned by company is not proper operation for 2 years and
equimilated losses exceed 60% of paid of capital.

5. SECP may within 60 days of such application appoint administrator either

from panel maintained by SECP\SBP or so moto action.

6. No appointment management of company’s affair are vest to him and he shells

excise that all power of directors.

7. No compensation or payment of damage’s applicable for loss of office

terminate of contract etc. and no sue can be filed against administrator for
bonfite acts.

8. Any person angered by the order of SECP\administrator may appeal to

ministry of federal government within 60 days of order.
 Level of Fines:
:
Levels Fine pay per day fine till not pay
Level 1: 25000 500

Level 2 500,000 1000

Level 3 100 Million 500,000

Stake holders their types and interest and how to manage their
interest with reference to Medlow metrics.
Stake holder are person or groups that have a legitimate interest in the business conduct
and who’s concretes should be addressed as a matter of principle. May stake holder
groups have influence over the way in which organization are managed and operated.
they can be fundamental to corporate governance. They are categorizing into three types.

1. Connected (shareholder, customer, supplier, bankers and finance)

2. Internal (management, director, employs, trade union and other head of
department).
3. External (society, community, government, pressers group, media and
compotators)

How can manager/organization manage stock holder relationship.

1. They need to identify the organization’s stack holder group that are lively to be
influence\effected by to organization decision.
2. They need to determine what particular interest\concern the stake holder might
have such as product quality, financial issue, environment protection.
3. They need to decide how critical each stake holder is to the organization decision
and action.
4. The final step is to determine how to manage stake holder relationship.
 Medlow Metrics
Low High

Low power
Minimal
Low Keep Informed
efforts

Keep Satisfied Key Players

High

Money Laundering And Its Stages

Definition of Money Maundering: -

1. The concealment of the origin of illegal obtained money. Typically, by means of

transfer’s involving foreran banks or legitimate business.
2. It is the process of transforming profit of crime and corruption in to ostensibly legitimate
business.

Stages of Money Laundering

1. Placement
2. Layering
3. Integration
Placement: It refers to the act of introducing “dirty money” (money obtained by
criminal means) into the financial system in some way.

Layering: Is the act of concealing the source of that money by way of series of
complex transaction and book keeping gymnastic.

Integration: Integration refer to the act of accruing that money purporting legitimates
means.
39 | P a g e