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Need to reform public sector

Being nominated as a non-executive chairman or director of the governing board of directors in the public sector enterprises (PSEs) including financial institutions, corporations and privatised units still having government shareholding, has become a much sought-after position on account of highly lucrative financial opportunities it offers to non-executive board members.

The dimensions of incentives paid can be judged from the fact that the fee paid to every director for attending a board meeting in one PSE is reported to be as high as US $10,000 per meeting while a director at another PSE gets Rs 500,000 per meeting. The annual earnings of a director at some other PSE is well over Rs 10 million per annum.

And well above the fee paid to directors for attending the board meetings as stated above, many PSEs are reported to have selectively doled out heavy performance bonuses; in a few cases PSEs provide company-maintained cars, security, medical coverage for self and family even travel abroad for medical treatment and other fringe benefits. Some PSEs, holding land, have even allotted priced plots to the non-executive board members. Many of the board meetings of PSEs, though based in Pakistan, are reported to have been held abroad at public expense. It all works on the simple principle of ‘you scratch my back and I scratch yours’ and everybody is happy while ignoring the moral values which they have been entrusted to honour.

Even in some PSEs, which are making losses and therefore on government subsidies, the perks enjoyed by the board members remain lucrative although the boards in these PSEs are equally or jointly responsible for the losses that these entities incur.

As against this the multinational companies based in Pakistan and earning substantial profits nominate the non-executive directors who have the profile and experience to add a significant value to the affairs of the company and the incentives paid to directors are modest and regulated in conformity to international compliance for fair business practices. The same holds true for majority of the large reputed companies in the corporate sector of Pakistan.

How far the financial incentives awarded to the PSEs board members a fair and ethical business practice and in line with the rules set by Securities and Exchange Commission of Pakistan (SECP) is something which needs to be well investigated, debated and addressed in the best national interest. There are over 25 high-value PSEs and therefore it’s big public money at stake, which has been ruthlessly squandered.

Taking note of the abnormality, the Transparency International Pakistan conveyed its concerns to the Federal Minister of Finance vide its letter dated 25th July 2013 under the subject: “Illegal remunerations drawn by civil servants as nominated members in the board of directors of public sector enterprises and listed companies” with a reminder sent on 14th September 2015. Transparency International Pakistan presented to the ministry a very comprehensive report based on well investigated and documented facts and figures. The Finance Minister took note and well responded and issued a notification dated 22nd November 2013 to the effect that “that one-third of any fee in excess of Rs 100,000 received by a civil servant from consultancy shall be credited to general revenue and that no civil servant, other than the one appointed under statutory provisions shall be appointed to or nominated by the federal government to the board of directors of more than one statutory corporation, company ,autonomous body, institution, society, etc, whether fully or partially owned or controlled by the federal government in the interest of equity and justice and that the allowances, fee, honorarium, etc, in excess of Rs 600,000 per annum which includes all perks and privileges received by the civil servant shall be credited to the general revenue”.

There is no evidence in public knowledge to confirm that the said notification is in practice and all loopholes to bypass the system have been plugged. But, the independent directors, which the government nominates from the private sector, remain out of the reach of the notification applicable to civil servants. As the matter of concern is the squandering of public money, the directors nominated by the government from civil service and private sector both need to be bracketed together to ensure transparency and notification applicable to all without discrimination.

The financial loss to the public exchequer is one concern but the greater issue is that the charm of such heavy benefits for not doing much of work has promoted a culture of favouritism; individuals, therefore use political influence to secure board positions. With this mode of induction, the directors become subservient to the dictates of their beneficiaries and lose their independent stature to act on principles and in the sole interest of the organisation which they are nominated to lead. A lack of a professional and compromised board is one major reason for the pathetic performance of our PSEs.

There are however exceptions where a PSE board has directors of very high calibre and moral values, both from the civil service and private sector, who stood their grounds and refused undue and unethical benefits and even protested and cast their votes of dissent. But this class, once in majority is fast disappearing. The nation salutes these stalwarts.

Essentially, a non-executive director’s role is to provide a creative contribution to the board by providing objective criticism. Non-executive directors are nominated on a board to bring to its independence, impartiality, wide experience, special knowledge, personal qualities with high moral standing; and above all, he should be a role model for the company.

It is actually the responsibility of the Securities and Exchange Commission of Pakistan (SECP) to safeguard the interests of shareholders and the state. Like all the regulators of Pakistan, the role of SECP is quite passive and not proactive. It should react well in time when shareholders and national interests are being compromised; it must not remain dormant and prompt Transparency International to do the job for them.

The next level to be addressed in public interest is for the public representatives in both the houses to take note of areas where public money is squandered and frame laws to arrest such wastes.

Farhat Ali, "Need to reform public sector," Business Recorder. 2016-03-05.
Keywords: Economics , Financial institutions , Medical care , Moral conditions , National interest , Stock exchanges , Civil service , Transparencies , Pakistan , PSEs , SECP