By Adnan Rafique
ISLAMABAD: Pakistan Institute for Development Economics (PIDE) in its study report has found that Pakistan Stock Exchange (PSE) was dominated by 31 families and that the boards of directors of KSE 100 index companies are mostly filled with people close to these families.
A study by Vice-Chancellor PIDE Dr. Nadeem Ul-Haq and Amin Hussain, Small Club: Distributors and Networks in the Pakistani Economic Market, has mentioned that back in 2018, when this data was collected, 31 business families were dominant in the market, the study sheds light on corporate groups and their ownership in the stock market. Dr. Mahboob-ul-Haq mentioned that back in 1967, there was a monopoly of 22 families in Pakistan. After 50 years, most of the Stock Market fortune was owned or controlled by 31 families.
The paper stated: “Pakistan’s stock market tends to make headlines,
sometimes because of record highs that make it the ‘best performing market of the region’, and sometimes because of the crashes. However, the degree to which it contributes to capital formation in the country is not a topic of study, while the ensuing ownership and governance structure is hardly ever made a part of public discourse.
One such study concluded that ‘around 64 percent of the 44 selected sample companies are controlled by prominent business groups and families of Pakistan’. This paper extends the aforementioned research to cover the top 100 companies that constitute the benchmark KSE-100 index2 at the Pakistan Stock Exchange (PSX).
“It also analyses the structure of ownership and sponsor control of companies constituting the KSE-100, and their impact on the functioning and transparency of the stock market. Pakistan’s corporate governance and human resource management practices are frequently questioned in the media and academic circles. A common phenomenon is companies managed as family enterprises despite being listed on the stock exchange. The offspring of the owners tend to be absorbed into the management of these companies, which are referred to as ‘seth companies’, seth being the founder/owner of the company. “The objective of this paper was twofold. The first is to shed light on corporate groups and their ownerships in the stock market. We review the ownership structures of the large conglomerates to examine the extent of diversification in the stock market. This also gives us an idea of the kind of power that large houses wield in the market, and the choices available to the small shareholder. Secondly, we look at corporate governance by looking at how company boards are structured and examine the influence of the owner and his family on the structure and professional management of the company. Prevailing accounting standards and listed entity regulations require disclosure of shareholding by directors, and significant shareholding of more than five percent held with legal persons (individuals or companies), in addition to those held with associated undertakings, banking and financial institutions, trusts, etc. Using data from disclosures in 2018, this study focuses on directorship and significant shareholding of five percent or more for all listed entities that constitute the KSE-100 index and uses it as an indicator of ‘control’ and concentration of ownership in the top 100 companies.
