Corporate governance used to be seen as something only large listed companies needed to worry about. In Pakistan, that mindset is changing fast. Today, lenders, regulators, investors, and even customers are paying closer attention to how businesses are managed, controlled, and held accountable.
In this blog, we explore why corporate governance is becoming critical for Pakistani businesses, the numbers behind the shift, and what weak governance can cost companies in real terms.
Governance gaps are costing businesses real money
Poor governance is not just a compliance issue. It directly affects profitability, valuation, and survival.
According to the Securities and Exchange Commission of Pakistan, over 45 percent of enforcement actions taken against companies in the last three years were linked to governance failures. These included weak board oversight, related party transactions, and lack of internal controls.
In many cases, businesses only discover governance issues during audits, disputes, or funding negotiations. By then, the cost is already high.
Regulatory pressure is increasing
The SECP has strengthened its Corporate Governance Code, especially for listed companies and regulated sectors.
Between 2021 and 2024, the number of penalties issued for governance noncompliance increased by more than 30 percent.
Key focus areas include:
- Board independence
- Disclosure practices
- Internal controls
- Conflict of interest management
Even private companies are now expected to meet higher standards when dealing with banks and foreign partners.
Investors care more about governance than ever
Investor behaviour in Pakistan is changing. Private equity firms, foreign investors, and even local banks are conducting deeper due diligence before committing funds.
A recent investment survey showed that 60 percent of investors in Pakistan rejected at least one deal due to governance concerns, even when financial performance looked strong.
Weak governance signals risk, uncertainty, and future disputes. Strong governance builds confidence.
Family-owned businesses face unique challenges
Over 70 percent of businesses in Pakistan are family owned. While this structure offers speed and trust, it also creates governance risks.
Common issues include:
- No separation between ownership and management
- Informal decision making
- Unclear authority lines
- Poor succession planning
According to a local business study, only 20 percent of family businesses in Pakistan survive into the second generation.
Governance frameworks help family businesses professionalize without losing control.
Internal controls remain a weak point
Internal controls are the backbone of governance, yet many businesses overlook them. An audit review conducted by local firms found that over 50 percent of mid sized companies had material control weaknesses. These included poor authorization processes, weak segregation of duties, and undocumented policies.
These gaps increase the risk of fraud, errors, and regulatory breaches. Strong governance starts with strong controls.
Governance improves operational performance
Governance is not just about rules. It improves how businesses operate.
Companies with defined governance structures often show:
- Better financial discipline
- Faster decision escalation
- Lower dispute risk
- Clear accountability
According to international benchmarks, firms with strong governance frameworks perform up to 20 percent better in operational efficiency compared to poorly governed peers.
The same trend is now visible in Pakistan.
Banks are tightening governance expectations
Access to financing is becoming harder without governance credibility.
Banks are increasingly asking for:
- Board structures
- Policy documentation
- Risk management frameworks
- Compliance records
In 2024, over 35 percent of SME loan rejections were linked to governance and documentation issues, not financial weakness alone.
This shows how governance directly affects funding access.
Digital reporting is exposing weaknesses
As businesses move toward digital accounting and reporting, governance gaps become more visible. Manual approvals, undocumented decisions, and informal controls do not translate well into digital systems.
This has led to more audit observations and management letter points. Governance readiness is now a prerequisite for digital transformation.
What this means for you
If your business operates without clear governance, you may be exposed without realizing it. This environment means:
- Higher regulatory scrutiny
- Tougher investor reviews
- Increased audit risk
- Slower access to finance
Is your business built to scale or just to survive?
How advisory support strengthens governance
Professional advisory helps businesses design governance that fits their size and structure.
This includes:
- Board and management frameworks
- Policy and control design
- Risk and compliance alignment
- Family business governance models
Good governance does not slow businesses down. It protects them while they grow.
Final thoughts
In Pakistan’s evolving business environment, corporate governance is no longer optional; It is a competitive advantage. Businesses that invest in Governance today are more trusted, more resilient, and better prepared for growth tomorrow. Strong governance is not about control. It is about clarity, confidence, and continuity.
