THE `Global Competitiveness Index` released by the World Economic Forum has assigned `values` and `ranks` to countries in accordance with the best corporate practices.

Pakistan has been able to show gradual improvement in some sectors in the last three years. Yet, on the question of `protection of minority shareholders` interest`, the corporate sector of the country stands at about the same place for the last two years.

It tailed at the 88th place among 142 nations in 2010-11, while it made to the 81st place among 144 countries in 2011-12.

Those in the knowledge of developments on the corporate sector say that globally minority shareholders have awakened to seek new rights to influence the policy of the companies they invest in.But the kind of shareholders` activism witnessed on theWall Street or other regional developed markets, has yet to develop in our capital markets.

However, regulators say they have moved to frame laws that give minority shareholders the voice that would be heard. Imtiaz Haider, the Commissioner Securities Markets at the apex regulatory body, the Securities and Exchange Commission of Pakistan (SECP) says the Regulator, through the `Code of Corporate Governance` has made it mandatory for the companies to offer one seat to an independent minority director.

`Such a director should also be the chairman of the company`s internal audit committee`, he says. A corporate strategist observed that the Code of Corporate Governance promulgated by the SECP and the listing regulations of the Karachi Stock Exchange 35(1) provides that all listed companies `shall encourage effective representation of independ-ent non-executive directors, including those representing minority interests, on their Board of Directors.

For the purpose, listed companies may take necessary steps such steps that the minority shareholders as a class are facilitated to contest election of directors by proxy solicitation`.

The law regarding placement of one minority director on the board would go into effect when the next elections to the board are held.

But corporate experts say that the attempt to settle minority shareholder as director, though well-intentioned, seems impractical.

`Minority shareholders are disorganised and election of a candidate through cumulative voting by stockholders is a difficult task`, says one, adding that the sitting sponsor directors, on the other hand, would be perfectly pleased to put a puppet on the board, though that would clearly be seen as `conflict of interest.

The small voiceless presence of mi-nority shareholders at company meetings allows the board to approve all `special resolutions`, regardless of its impact on company`s future. It is understandable then that the revolutionary step of empowering minority shareholders to occupy places on company boards would possibly be met by enormous resistance from powerful sponsoring directors.

And where such an independent person gets hold of a seat on the board to represent minority shareholders, would his voice be heard? The Commissioner Securities Market at the SECP says that where the voice of such a director is drowned in angry exchanges with the rest of the board members, the lone director could write a dissenting note on the board resolution.

And to keep small investors well-informed, the SECP has made it mandatory for corporates to place all material information on their web-sites, Mr.Imtiaz says. Such information could include the constitution of the board, the company affairs and the financial statements.Like the rest of the world `institutional investors in Pakistan have now assumed the role of biggest minority shareholders in companies, in place of individuals` Many market experts believe that since it would be impossible for small shareholders to agree to any one person walking into the boardroom to represent them, the class action of minority shareholders may be led by Mutual Funds.

However, the corporate regulators do not subscribe to that view.

`Representatives of mutual funds should not hold the position of directorship on the company boards`, argues Imtiaz Haider.

He explains that mutual funds, are not themselves the biggest shareholders, but they represent the unit holders.

There could, therefore, be a conflict of interest, because the directors representing the mutual funds are armed with the confidential information discussed at the board meeting, but not the unit-holders.

The issue assumes significance since the country`s largest mutual fund-the National Investment Trust (NIT) which currently manages a colossal sum of Rs76 billion of unitholders money commands directorship in no less than 115 companies.

The Fund and its directors would therefore be in the knowledge of confidential information regarding the plans of all those company boards, related to such vital issues as the payment of dividends and mergers and acquisitions.

Tariq Iqbal Khan, the former Managing director of NIT however disagrees. He contends that keeping mutual funds out of the board would be against `corporate democracy`.

`Anyone who has sufficient votes to acquire a seat on company boards should have right to enter the board room`, he says, adding that even in case of mutual funds, the consequential beneficiary are the unitholders.

Mr Tariq Iqbal argues that the Board is collectively responsible for all acts and if mutual funds were to be denied the directorship in companies, the law would have to be stretched to push the government nominees also off the board of directors, since the government also is the custodian of public money.