Corporate Governance in Pakistan: Legal Framework and Enforcement Deficiencies

Abstract

Corporate governance has become one of the key foundations of economic stability, investor confidence, and sustainable development, especially in the emerging economies like Pakistan. In the last 20 years, Pakistan has been making major legal and regulatory reforms to enhance corporate governance standards, the most important of which have been the company law legislations, securities regulation and codes of corporate governance published by the regulatory bodies. With all of these formal developments, there are significant gaps in terms of enforcement and practical application of corporate governance standards. This paper is a critical review of corporate governance in Pakistan in the context of analysis of the current legal framework, regulatory bodies, and mechanisms of enforcement of corporate behavior of the Pakistani context. It claims that although the corporate governance regime in Pakistan is generally consistent with the international best practice in formal aspects, its performance is compromised by lax enforcement, regulatory capture, high concentration of ownership, low shareholder activism and judge/administrative accountability. The article also has shown that adherence to standards of corporate governance is usually seen as a box-ticking exercise instead of a commitment to transparency, accountability, and protection of the stakeholders. The analysis of corporate governance in Pakistan places the framework of the corporate governance system in a comparative and international context, which identifies systemic loopholes between law and practice and the necessity to enhance and strengthen the institution and culture. It finds that both strong legal rules and plausible enforcement, independent regulators, effective remedies and a governance culture of accountability over compliance are all necessary in order that corporate governance can show meaningful improvement.