What Should be Done for the Corporate Governance System of Pakistan?
Corporations in Pakistan currently experience fragile regimes in stabilizing sound corporate norms centralized on the main issues as follows: Islamic Law acts as the central governing body of rules that impose imperative conformity norms of business practices with Islamic religion that hinder corporate governance; issues of dispersed ownership and centralized family control of businesses that promotes unfair business practices.
Although the English common law to an extent have influenced Indian corporate norms which in turn made Pakistan to adopt these accepted practices in the conduct of business, it is imperative according to literature that such norms nevertheless should blend with Islamic law. [1] It is a definite interpretation under common law regardless where business around the globe operates, whether operated by a relative foreign national, it is a common disposition in most cultures that any business practice of an acceptable and sound judgment may surface potential and multifaceted conflicts that occur in interwoven paces, at the least, in business-to-business transactions even more relevant in a globalized economy. It is also common knowledge that religious beliefs become sensitively fragile even in normal discussion levels and is discouraged to argue especially when imbued in clear contrast for specific purposes of business. Moreover what makes this pervasive sense of belief discourages to introduce the nation to implement the free decision-making and entrepreneurship practices of a globalized economy, as other emerging economies do, since the common elements of trade of buying and selling and any potential misunderstanding common in business that leads to conflict violates Islamic Law except where the transaction volume is relatively small.[2]These common business approaches in the case of Pakistan far from succinct definition from any typical business organization implement where legislative and executive systems dictate with highest ideology and impacts with clear prominence the business conduct of a corporation. Top business executives are held directly responsible for the general governance, the integrity of institutional processes and outcome of these practices. Therefore, any nature of the desired results will justify the credibility of their means of acceptable governance, their acceptability to public investors by means of shareholding stakes especially when the onset of a current trend of international investment inflows express interest into Pakistani businesses that serve as the critical foundation of economic success. We discuss the following three theories of approach, the Stewardship Theory, Agent Theory and Stakeholder Theory. To apply this case, we arrive to the following premises: Stewardship Theory emphasizes that natural policies following accord to the interpersonal dictates of a company owner, whether they are run by a few or single individual or a management team, is inherent to Pakistani corporate profile. Since family norms centralize as the controlling element of a business structure in Pakistan, secondary to shareholder decisions, it is more salient that success is likely when these norms prevail among the pool of subordinate managers with a reasonable variance of detail. Therefore it is sound to argue that a CEO should run to regulate and filter conflicts into a sound unity of decision, whatever best serves the corporation not only weighed on financial goals, with subordinate managers working for the common good of the corporation or business.[3] This theory would apply if family business values have the utmost and effective management skills inherent to a common entrepreneur as the CEO is. With the proper acceptance of the ideals as the CEO does in Pakistani corporate strategy, implementing this simple yet effective approach when employed with a liberalist mind will enable Pakistani managers to enhance to win over localized business opportunities then to advance into higher levels of international investment interest to accommodate blend with leading global economies to build a stronger market and economy while this may contrast with Islamic Law in which a revamp in corporate society should separate these social entities. The Agent Theory supports the premise that any individual is individualistic in its own decisions and does not take into account any meaningful, needed attachments, as multiple minds are better than one. Therefore, this profile type resembles to the nature of corporate pitfalls that takeover in contemporary Pakistan corporations and is strongly discouraged. Individualistic attitudes may lead unquestionably into untimely disaster. The Stakeholder Theory, which upholds business ethics with morals and values of managing an organization, implements when the Stewardship Theory is resolved. However, the decision-making process and participation coverage to develop and pervade towards the ideals of corporate strategy that would lead to interests by international firms and to make stronger assimilations for stronger capital base are manifest in mergers and acquisitions as the current trend of corporate strategy in a globalized economy. on the rapid rise. Exercising this type of strategy leads to equity capitalization growth, debt reduction and a greater brand management and market capture, as the mainframe goals, to attain financial growth. That said the Stakeholder Theory should be the governing goal over the Stewardship Theory.
[1] Abraham (2006, pp. 327), states: “Pakistan draws ethics primarily from Islamic Law since the Constitution mandates all laws conform to Islam.” This conformity attests to Article 227 and Article 2A to the Constitution of the Islamic Republic of Islam.
[2] Islamic Law Regarding Business (Anon.,2002) states that: “Islam has given detail laws on business. Islam has not permitted selling and purchasing of goods, which are prohibited in Islamic Law, and any kind of uncertain transaction that could lead to quarrel or conflict is prohibited.”
[3] Johnson (2011) states that: “If a firm adopts a stewardship mode of governance, certain policies naturally follow. Firms will spell out in detail the roles and expectations of managers. Stewardship theory advocates managers who are free to pursue their own goals. Freedom will be used for the good of the firm.”
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