Corporate Governance and Principles-based market rule exploitation by Public listed companies in Pakistan, proposing a Solution model to overcome issues to have the effective enforcement of practices

Abstract

This project investigates corporate governance practices in Pakistan, specifically focusing on the flexibility exploited by public listed companies under the "comply or explain" approach mandated by the Securities and Exchange Commission of Pakistan (SECP). The research highlights how this approach allows companies to evade full compliance with the Code of Corporate Governance (CCG) and opens avenues for agency conflicts, where majority shareholders often dominate decision-making at the expense of minority shareholders. Through case studies of Suraj Cotton Mills and High-Noon Laboratories, this project identifies critical shortcomings in board composition, related party transactions, and audit committee independence, emphasizing how these gaps weaken corporate governance. The research also draws comparisons with rule-based governance models used globally, advocating for a more stringent enforcement mechanism in Pakistan. Recommendations include increasing board independence, improving audit committee standards, and ensuring transparency in related party transactions to protect shareholders' rights and restore investor confidence. The project concludes that a hybrid model combining principles-based flexibility with rule-based rigor is essential to mitigating corporate governance challenges in Pakistan. This solution aims to align managerial actions with shareholder interests while fostering a transparent and accountable corporate environment.