Syed Adil Gilani, Advisor, Transparency International Pakistan, in a letter sent to the Chairman of Securities and Exchange Commission of Pakistan (SECP) on September 8 has informed him that some elected directors of listed companies have been awarded negotiated contracts for services by these companies, and director/partner of a listed company, which has client-contractor relationship with a certain company, has become nominated director of that company.
This act, according to Transparency International Pakistan, is a glaring example of 'Conflict of Interests', as directors are owners' representatives on the Board of Companies, and they, or their firms, shall not be awarded contracts during the period they are on the Board, because this is tantamount to a very apparent conflict of interests. " Transparency International Pakistan understands that such practices are in violation and in contrast to the requirements of laws administered by the SECP for listed companies," the letter said.
The relevant clause of Code of Corporate Governance for listed companies states that: "Considering that the directors have the eventual responsibility for the long-term prosperity of the company, they have multiple duties and obligations. Broadly speaking, there are legal, contractual and fiduciary obligations. Directors are under a positive duty to exercise their powers with due skill and diligence when acting on behalf of the company. And breach of a duty can render a director liable both under civil and criminal law."
Transparency International Pakistan has requested the SECP to confirm whether:
--- The elected directors of listed companies are allowed to be appointed as paid advisors to the very company on a remuneration basis, which has to be decided/approved by the Board of Directors, for assignments like: medical specialist, consultants, economist, IT expert, auditors, lawyers, architects, consulting engineers or contractors, or not.
--- A company, in which such director of the company is partner/director, can be or can not be awarded assignments for services, or supplies or contracts, and that, too, on negotiated basis, and;
--- A director/partner of a company, in which he has client-contractor relationship with a certain company, can or cannot become director of that company.