Corporate Management in Pakistan – Personal Ownership Firms – Asrar Qureshi’s Blog Post #938

Corporate Management in Pakistan – Personal Ownership Firms – Asrar Qureshi’s Blog Post #938

Dear Colleagues! This is Asrar Qureshi’s Blog Post #938 for Pharma Veterans. Pharma Veterans Blogs are published by Asrar Qureshi on its dedicated site https://pharmaveterans.com. Please email to aq.pharmaveterans@gmail.com for publishing your contributions here.

Credit: Artem Podrez

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Preamble

Pakistani companies may be divided into various types based on their legal constitution.

Sole proprietorship companies are those who have only one owner, who owns the entire organization, its assets, and its operations.

Partnership firms are those which have two or more partners who come together to start and run and business. Whatever may happen later because many partnerships somehow dissolve at some stage.

These firms are legally registered under companies ordinance.

Private Limited companies are those which are more formal and are registered with the Securities and Exchange Commission of Pakistan (SECP), and may be Single Ownership, or Multiple Ownership. In multiple ownership, there may be minimum of two or more directors, with one of them being the managing director or chief executive officer. Shares of private limited companies are not traded on the stock exchange.

Public Limited corporations are the ones which may have hundreds or thousands of small and large shareholders, and their shares are traded on the stock exchange. The share value determines the market value or market capitalization of the organization.

Corporate management applies to all types of organizations.

Legal Framework for Businesses

Pakistan laws governing corporates fall under six categories:

1. General corporate laws

2. Rules and regulations made under corporate laws

3. Stock exchange listing regulations and bylaws

4. Civil laws, including those that provide remedies for seeking declarations, enforcement of a claim, and recovery

5. Criminal laws for breaches of trust, fraud etc.

6. Special prosecution under National Accountability – NAB Ordinance, for corporate fraud and misappropriations 

In addition, the SECP believes that the best way to promote the interests of all corporate stakeholders is to ensure that business is conducted in accordable with the highest prevailing ethical standards. Pakistan draws ethics principals primarily from Islamic laws.

Personal Ownerships

Over 90% businesses start as family-owned enterprises, with one or more owners. The management of these organizations depends on the capability, education, understanding, and thinking, because ownership and management are combined in one or more shareholders. 

Issue #1 – Agency of Dictatorship

The combining of ultimate powers of ownership of the organization and all its assets along with the entire control of day to day working, leads to the possibility and occurrence of dictatorship.

Corporate governance refers to the manner in which the affairs of a corporate body are or should be conducted in order to serve and protect the individual and collective interests of stakeholders. Essentially, it involves balancing the interests of the many stakeholders in a company, which include its shareholders, management, employees, customers, suppliers, financiers, government, and the community. 

Since most of the stakeholders may be, and are manipulated, the dictatorship gets firmer and stronger with time. 

Issue #2 – Understanding the Roles of Stakeholders

Interestingly, none of the stakeholders is recognized for its real role and importance, the contribution it makes, and the possibility of loss if they are not allowed to perform their actual roles. Generally, most stakeholders are unable to perform properly. The management, including managers and staff, underperform in most private organizations because they are not given space to perform. It leads to wastage of capabilities and capacities. Suppliers add value to any business in more than one ways: they contribute to working capital with their supplies, they make organization’s business possible, and they are critical for the existence of business. However, most organizations treat suppliers shabbily. Customers are among the most important for any business, but they are manipulated and hoodwinked. Financiers, whether shareholders or investors like financial institutions, are also manipulated in many ways.

The entire energy of the organization is spent on manipulating, controlling, and distorting the roles, rather than advancing the interests of the organization.

Issue #3 – Burden of Decision Making

Due to the agency of dictatorship, the staff is discouraged to make decisions. The burden of decision making therefore falls on the shoulders of the owner(s). While they might feel important in doing so, but it forms a lot of burden on them. Lot of literature shows that participative decision making is better, as it shares the burden of decision making, but it is not practiced.

Issue #4 – Margin of Error

It is always lonely at the top, and much of the information supplied to the top is biased and colored, therefore, the margin of error in decision making increases. Similarly, due to the lack of challenge to owners, error margin expands to several other areas.

Issue #5 – Financial Indiscipline

The tendency to being financially imprudent and even undisciplined can be there and may be detrimental for the long-term health of the organization. It is not uncommon to see the owners flouting financial rules and laws. To save themselves, they go into more irregularities, and the problem perpetuates.

Solution

The solutions are available but shall only be workable when two things happen: one, the realization that something is wrong; and two, there is the will to change. 

The primary solution is delegating the responsibilities and authorities according to hierarchy. The second solution is participative management, in running operations, taking decisions, and bringing discipline.

Concluded.

Disclaimers: Pictures in these blogs are taken from free resources at Pexels, Pixabay, Unsplash, and Google. Credit is given where available. If a copyright claim is lodged, we shall remove the picture with appropriate regrets.

For most blogs, I research from several sources which are open to public. Their links are mentioned under references. There is no intention to infringe upon anyone’s copyrights. If, however, it happens unintentionally, I offer my sincere regrets.

References:

https://openscholarship.wustl.edu/cgi/viewcontent.cgi?article=1179&context=law_globalstudies 

https://www.scribd.com/document/360271703/1719-pdf