{"id":686,"date":"2024-09-12T05:26:30","date_gmt":"2024-09-12T05:26:30","guid":{"rendered":"https:\/\/www.ahkmt.pk\/web\/?p=686"},"modified":"2024-09-13T04:53:09","modified_gmt":"2024-09-13T04:53:09","slug":"director-training-program-by-unido-reecp-pfan-usaid-and-nibef","status":"publish","type":"post","link":"https:\/\/www.ahkmt.pk\/web\/director-training-program-by-unido-reecp-pfan-usaid-and-nibef\/","title":{"rendered":"Director Training Program by UNIDO, REECP, PFAN, USAID and NIBEF"},"content":{"rendered":"\n
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The United Nations Development Industrial Organization (UNDIO), Renewable Energy & Energy Efficiency Partnership (REECP), Private Financing Advisory Network (PFAN), USAID, and National Institute of Business and Economic Frameworks (NIBEF) organized a five-day Director Training Program from July 22-26, 2024. Sumaira Gul represented Dr. Akhtar Hameed Khan Memorial Trust and e-Guard at this significant event.
On the first day of the training, Ahmed Ammar Baseer inaugurated the session by highlighting the objectives of the Pakistan Private Sector Energy Project. He provided an overview of its impact and discussed the role of women as Drivers of Change within the project pipeline.
Mr. Saif Islam, another key speaker, welcomed the participants and underscored the importance of the training, particularly focusing on the significance of Corporate Governance. He elaborated on the fundamental principles of corporate governance, emphasizing the critical responsibilities of a Board of Directors and its role in ensuring the ethical and effective management of a company. The session covered the importance of diversity and independence within the board, along with the formation and function of various board committees.<\/p>\n\n\n\n

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Saif Islam also delved into the dynamics of board operations, including group decision-making, leadership styles, and board culture. He discussed how boards should evaluate their performance to ensure continuous improvement and provided examples from the corporate sector to demonstrate the practical application of these governance principles. The day concluded with an interactive group discussion where participants shared their insights and experiences.
On the second day, Hussain Kazmi took the lead, focusing on the regulatory frameworks that govern corporate governance in Pakistan. He discussed the Companies Act 2017 and the Securities Act 2015, shedding light on their relevance to corporate governance and the duties and obligations of company directors. Kazmi explained the ethical responsibilities of directors, including their code of conduct and the importance of policy formulation.<\/p>\n\n\n\n

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The training also covered the hierarchical structure within companies, discussing the roles and responsibilities at different management levels, from the first line of management to the third line. Kazmi emphasized the need for boards to assess and manage risk at the highest level, citing that in the United States, for example, only 20% of employees perform efficiently, while the remaining 80% may struggle without proper oversight and governance.
Participants were provided with an overview of key corporate regulations, including the Companies Act 2017, the Securities Exchange Commission Act 1997, the Public Sector Companies Corporate Governance Rules 2013, and the Listed Companies Regulations 2019. Kazmi emphasized that all companies must adhere to these laws, and he clarified that while directors cannot take loans from their companies, they are allowed to provide loans under certain conditions.
The discussion also touched on the role of directors in safeguarding company records. It was highlighted that companies must maintain nine registers, both in soft and hard copies, which include critical information such as resolutions passed during board meetings. These records must be preserved for a minimum of 10 years in hard copy and nine years electronically. Failure to comply with these requirements could result in significant penalties from the Securities and Exchange Commission of Pakistan (SECP).
Participants were informed about the importance of regular board meetings, which must be held every three months. The agenda for these meetings should be circulated in advance, and any discussions outside the agenda should not be entertained unless explicitly mentioned under “Any Other Business.” The accurate maintenance of meeting minutes is crucial, as they serve as a formal record and may be required for legal or regulatory review.
Finally, the training addressed the evolving landscape of corporate governance, including the proposed introduction of a Corporate Sector Climate Law, similar to the Financial Action Task Force (FATF) regulations. This law aims to ensure that every company considers environmental sustainability as part of its governance practices, including the mandatory appointment of an environmentalist.
The program provided participants with a comprehensive understanding of corporate governance principles, legal frameworks, and the practical responsibilities of directors, equipping them to lead their organizations effectively and ethically.
In case a company fails to comply with the law, the Securities and Exchange Commission of Pakistan (SECP) will issue a 30-day notice to the company’s registered address. Even if the company does not receive this notice, it is still obligated to respond to avoid legal complexities. A decision on the company’s response is typically reached within two to three hearings. If the decision is unfavorable to the company, it has the right to file an appeal before a bench. Should the bench’s decision also not favor the company, it can further appeal to the High Court. Conversely, if the decision is in the company\u2019s favor, the SECP may escalate the matter to the Supreme Court.<\/p>\n\n\n\n

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On the third day of the training, Mr. Hakeem Salman Shahzad stepped in as the main speaker because Mr. Safdar Butt was unable to attend due to an emergency. Mr. Shahzad delivered an extensive talk on Related Party Transactions and the issuance of company shares. He explained that every company is required to issue its annual report each year, detailing the company’s financial performance, including income, expenses, assets, and liabilities.
During his session, Mr. Shahzad shared several notorious corporate scandals to illustrate the importance of transparency and accurate financial reporting. For instance, he discussed the infamous Enron scandal of 2001, where the company suffered a staggering $74 billion loss due to fraudulent accounting practices. He also highlighted the WorldCom scandal in 2008, which involved massive accounting fraud that led to one of the largest bankruptcies in U.S. history.
Mr. Shahzad emphasized the importance of accurately recording the depreciation of machinery in the company\u2019s books. He explained how some companies have manipulated their financial statements by continuing to list machinery at its original purchase price even after significant depreciation over time. This kind of misrepresentation can lead to scandals when the true financial state of the company is eventually revealed. He cited an example where 70 shareholders acquired a $74 billion loan without reporting it, further stressing the need for vigilance in financial reporting.
He also touched upon the principle that every purchase or expense in a company should be properly recorded. Fraud often occurs when expenses are incorrectly reported as assets, misleading stakeholders about the company’s true financial health. He mentioned a case involving a Pakistani bank that committed fraud by diverting funds into real estate investments through close associates of the bank’s chief. The bank eventually collapsed as a result of these actions.
Regarding partnerships, Mr. Shahzad explained that in the case of an Association of Persons (AOP) company, one or more individuals can create a partnership deed and register it with the registrar. He also discussed the differences between unlimited and limited companies, noting that a sole proprietor\u2014a business owned by a single person\u2014is registered with the Federal Board of Revenue (FBR) using the proprietor’s National Identity Card (NIC) number. In cases where a sole proprietor faces financial difficulties, creditors can recover debts by auctioning the individual\u2019s personal properties and assets. This is not the case for private limited or public limited companies, where the loss is limited to the amount invested in shares, and if the company goes bankrupt, its assets are sold to pay off liabilities.
Mr. Shahzad also discussed listed companies\u2014those registered on the stock exchange\u2014explaining that any shareholder who owns more than 51% of the shares can control the company. In Pakistan, even a 30% to 33% shareholding can be enough to exert significant control. He mentioned “UD Dog stock exchange shares,” referring to shares that are often considered worthless and have minimal impact on the market.
He explained the two main types of share purchases: long-term and short-term investments. He then delved into the fundamental aspects of financial management, covering income, expenses, assets, and liabilities. He described the importance of cash flow from operating activities, financing activities, and changes in equity. The financial statements start with the opening balance sheet at the beginning of the year and end with the closing balance sheet at the year\u2019s conclusion, both of which are interconnected.
Mr. Shahzad introduced the participants to the Return on Equity (ROE) analysis, which measures a company’s profitability relative to shareholders’ equity. He also explained the DuPont analysis, a tool used to evaluate the components of a company’s ROE. Investors use DuPont analysis to compare the operational efficiency of similar firms and to identify strengths and weaknesses within a company.
Furthermore, he introduced the Lean Canvas model, a strategic management tool that helps entrepreneurs and companies map out their business models.
Mr. Shahzad also outlined the roles of executive directors in a company, covering areas such as finance, procurement, marketing, and administration. He emphasized that it is mandatory for all companies to appoint at least one female director. He also briefed participants on the roles of non-executive directors and independent directors, noting that these individuals typically do not have financial interests or benefits from the company. Nominated directors may be appointed by investors or other stakeholders. He discussed the concept of “shadow” or “rubber-stamp” directors and mentioned that if a shareholder does not receive dividends for five years, their shares may be dissolved.
Participants were also educated on the Code of Corporate Governance and its relationship with the governing bodies of a company.
On the fourth day, Mr. Wasi Ullah began the session by discussing how to overcome risks and the expected risks that companies may face. He explained risk drivers and provided an example of Nokia, a company that was once a market leader but suffered a decline due to strategic decisions by its Board of Directors (BoD) that negatively impacted sales. He also shared the story of Allied Bank Limited (ABL), originally held by the Noman Mukhtar family. He emphasized that the BoD is responsible for making strategic decisions and stressed the importance of incorporating risk management into these decisions. ABL\u2019s decision to enter the steel sector, without the necessary expertise, led to significant losses. However, they mitigated further risk by hiring engineers as advisors to the BoD.
Mr. Ullah elaborated on the Risk Management Framework, explaining that there are three possible paths to success for a company or its BoD, and each path may be correct. However, the key is to choose the path that leads to success with the least time and investment. He emphasized that technical experts can provide valuable advice to avoid risks.<\/p>\n\n\n\n

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He also explained the “Blue Ocean Strategy,” which suggests that companies should not focus solely on a single competitor or market but should instead explore new opportunities in untapped markets. He highlighted the importance of strategic risk management, operational risk, financial compliance, and reputation risk. He also covered how to leverage risk and finance assets properly, explaining how companies should present their assets in their financial statements, particularly in the balance sheet.
He introduced participants to the following concepts:
Inorganic Growth: Refers to growth achieved through mergers, acquisitions, or takeovers, which can offer positive opportunities.
Cost Flexibility: Managing costs effectively while maintaining the ability to adapt to changing circumstances.
Fixed Charges: Expenses that remain constant, which can negatively impact financial opportunities if not managed correctly.
Mr. Ullah also presented a research paper on pricing cost (P. Cost) and discussed market risks, including trade packaging orders. He emphasized that measuring risk is crucial for prioritizing and managing it effectively. He provided a formula for calculating risk:<\/p>\n\n\n\n


Risk=Impact\u00d7Probability\u00a0of\u00a0Occurrence\\text{Risk} = \\text{Impact} \\times \\text{Probability of Occurrence}Risk=Impact\u00d7Probability\u00a0of\u00a0Occurrence
For example, a risk with an impact of 100,000 and a probability of 1\/100 would be calculated as:
100,000\u00d71100=1,000100,000 \\times \\frac{1}{100} = 1,000100,000\u00d71001\u200b=1,000<\/strong><\/p>\n\n\n\n


He explained that this formula is based on risk management data reliability and probability. He recommended reading the book The Winning for a deeper understanding of risk management and advised companies to use financial data as a basis for risk identification.
He further explained that every company faces unique risks, such as market risk, operational risk, and the risk of hiring incompetent personnel. He provided examples of companies like Rough Traders, which suffered losses due to inadequate risk evaluation, and discussed market risks related to currency fluctuations.
To manage market risk, he suggested using a hedging strategy, where a company invests in assets with rising values while mitigating losses by fixing rates for a certain period. This strategy helps companies manage exchange rate risks and other financial uncertainties.
Mr. Ullah also discussed forest risk, where companies might borrow $1 million from a bank, not in cash, but in assets or instruments (referred to as “pures”). Both parties agree on a fixed time and rate, with the seller (the bank) being time-bound, while the buyer (the borrower) is not, allowing the borrower more flexibility in managing the investment.
In the second half of the day, Mr. Asim presented on the importance of knowledge, information, and data in governance. He differentiated between “doing the right things” in governance and “doing things right” in management. He cited the example of Engro\u2019s Olpers Dairy Products, where the company struggled to establish itself in a market already dominated by brands like Haleeb and Milk Pak. This difficulty arose partly because the company’s owners, who became shareholders, appointed the owner’s son as CEO without thoroughly evaluating the market risks.
Mr. Asim highlighted the importance of having a well-structured approach when making IT-related decisions. He outlined seven key questions to consider when evaluating IT projects and suggested that unresolved issues should be referred to the BoD or the relevant IT department. He emphasized that IT projects often take time and that initial failures can sometimes lead to future success.
He introduced participants to key concepts in IT governance, including:<\/p>\n\n\n\n


GCR<\/strong>: Governance Compliance Issue
OTC<\/strong>: One Time Cost
RC<\/strong>: Recurring Cost
TCO<\/strong>: Total Cost of Ownership (calculated as OCT + ACR + Administrative Costs)
<\/p>\n\n\n\n

Mr. Asim also discussed the five pillars of IT governance:
Strategic Alignment
Performance Management
Value Delivery
Risk Management
Resource Optimization
He further explained that the five main questions to consider in IT governance are:
Where are we?
Where are we going?
What do we have?
What do we need?
What is the return on investment?<\/p>\n\n\n\n


These pillars and questions guide organizations in aligning their IT strategies with overall business goals, ensuring effective governance, and maximizing the value derived from IT investments.
The second half of the day was covered by Ms Sadaf Baqir who explained the ESG and what it is and why ESG. Triple Bottom Line People, Planet and Profit is going practices.
In ESG people empowerment is social aspect and is it a new requirement and it started in 2002. In 2017 ESD started investing in only trusts so many trusts developed EOBI provident Funds, Social Security, SECP 2021, ESG2024.
ESG stands for Environmental, Social, and Governance. It is a framework used to evaluate a company’s performance and impact in these three key areas:
Environmental: This focuses on a company\u2019s impact on the planet. It includes how the company manages its carbon footprint, waste management, resource use, pollution, and efforts toward sustainability. Companies are assessed on how they address environmental risks and opportunities, such as climate change and resource conservation.
Social: This aspect considers how a company manages relationships with employees, suppliers, customers, and communities. It covers issues like labor practices, diversity and inclusion, human rights, consumer protection, and community engagement. Companies with strong social practices are often those that treat their workforce fairly, contribute positively to society, and manage social risks effectively.
Governance: Governance refers to the internal practices and policies that guide a company\u2019s operations. It includes the company\u2019s leadership structure, executive pay, audits, internal controls, shareholder rights, and compliance with laws and regulations. Good governance ensures transparency, accountability, and ethical behavior within a company.
ESG is increasingly important to investors, who use these criteria to assess potential investments, believing that companies with strong ESG practices are better positioned for long-term success and sustainability.
For reporting there are international standards and there is a reporting framework for it and there are separate committees for it and they are measuring it and there are separate companies or rating.<\/p>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

The United Nations Development Industrial Organization (UNDIO), Renewable Energy & Energy Efficiency Partnership (REECP), Private Financing Advisory Network (PFAN), USAID, and National Institute of Business and Economic Frameworks (NIBEF) organized a five-day Director Training Program from July 22-26, 2024. Sumaira Gul represented Dr. Akhtar Hameed Khan Memorial Trust and e-Guard at this significant event.On the first day of the training, Ahmed Ammar Baseer inaugurated the session by highlighting the objectives of the Pakistan Private Sector Energy Project. He provided an overview of its impact and discussed the role of women as Drivers of Change within the project pipeline.Mr. Saif Islam, another key speaker, welcomed the participants and underscored the importance of the training, particularly focusing on the significance of Corporate Governance. He elaborated on the fundamental principles of corporate governance, emphasizing the critical responsibilities of a Board of Directors and its role in ensuring the ethical and effective management of…<\/p>\n

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