ISLAMABAD: Despite the enactment of the State-Owned Enterprises Act 2023 under the IMF programme, the government continues to violate the law and its relevant rules by appointing top bureaucrats as independent BoD members in public sector entities.
A case in point is Security Papers Limited, a listed company indirectly owned by SBP through its 100% holding of PSPC (Pakistan Security Printing Corporation).
There are a total of 10 members on the Board of Directors of Security Papers Limited, including its CEO, and seven members are directly or indirectly appointed by the government, including Sualeh Faruqui, Federal Secretary of Commerce. Faruqui continues to assume charge as an independent director of Security Papers, clearly indicating a conflict of interest and violating the law of the land.
The SOE Act 2023 was approved by parliament during the tenure of the PDM-led government under the IMF conditions.
Before this, Public Sector Companies Rules 2013 were also violated where Sualeh Faruqui was deemed independent in the elections held in 2020, once again making a mockery of the laws (both Companies Act 2017 and PSC Rules). Also with him was Muneer Ahmed (CEO of Punjab Provincial Co-operative Bank). Both were deemed independent when they were not.
Even after several complaints were filed by shareholders and potential directors about these glaring violations, nothing happened. Sualeh Faruqui also happens to sit on the SECP policy board, so the question is how the regulator will act against him.
“Who cares about such blatant violations of the law enacted by parliament in Pakistan?” This was the question of one top official who shared the sorry state of affairs at the Security Papers Limited. Even though this alleged breach landed in the Islamabad High Court (IHC), the breach of law and rules has continued unabated so far.
The Independent Board of Directors of Security Papers Limited includes Sualeh Ahmed Faruqui and Muneer Ahmed. The company had also wrongfully appointed Uzma Ijaz as an independent director for three years. In the last board meeting, she changed her designation to non-executive from independent.
Now the SOE Act has made it mandatory that there will be a majority of independent directors (non-ex-officio and non-executive) in companies where the federal government directly or indirectly owns more than 50% of the shares. But in the case of Security Papers Limited, top-serving bureaucrats are appointed independent directors.
Within less than a year of passing the act, these top bureaucrats are undermining it themselves. Even previously, compliance with PSE regulations was not done by SECP.
The SOE Act enacted by parliament states that the Central Monitoring Unit (CMU) of the Ministry of Finance will maintain a database of all directors of boards of SOEs based on the data shared by the line ministries and divisions.
For this purpose, each ministry or division shall (i) share the details of the appointments on the boards of SOEs under its administrative control, and (ii) at the end of a board member’s tenure, the line ministry or division will share the performance evaluation of each member of the board with the CMU. Even after one year of having passed the act, the nomination committees have not been appointed, nor has a definite list been made of what constitutes SOEs.
To avoid conflict of interest, the SOEs Act binds that, unless expressly stated otherwise, the requirements regarding interest, conflicts of interest, and related party transactions contained in the Companies Act 2017 will apply to all SOEs. Directors must not involve themselves in a situation in which they may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company or SOE. Some of these directors are standing up as independent, and the companies that report to them (State Life, which owns 9.3% of Security Papers Limited) provide them with proxies. These entities should have a proxy policy, and they should ideally not be giving proxies to those government servants to whom these entities answer, as there is a clear conflict of interest. How will the performance of these directors be judged by State Life when the boss of State Life, who is the secretary of commerce, stands up as an independent director in Security Papers? Also, how does the CEO of Punjab Provincial Cooperative Bank stand up as an independent director when he is taking votes from his bank and is a quasi-government employee?
In FY22, the earnings of Security Papers went down by more than 35% compared to FY21, with a PAT of PKR948 million from PKR1.45 billion. Even in FY23, PAT was only Rs967 million when most of the earnings came from cash rather than from business. The performance of these directors is for all to see, yet they continue to benefit from this.
This scribe sent out questions to the Board of Directors of Security Papers Limited, including Sualeh Faruqi, Munir Ahmed and the company’s secretary, Yasir Qureshi, and inquired how government officials could be appointed independent directors but got no reply.