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  • 8/9/2019 CG Pres V2


    A Case Study on

    Dewan GroupDewan Group

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    the RRISK


    the DDAMAGE

    Presented toPresented toSSirirHH



    A Project By;

    Muhammad SaadSaadYusufi

    KashifKashifShabbir ShaikhMadihaMadihaArif


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    The Agenda

    Brief on Code of Corporate GovernanceBrief on Code of Corporate Governance

    Short HistoryShort History

    Short VideoShort Video

    Presentation of CasePresentation of Case


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    The Code of Corporate Governance

    Effective in Pakistan Via No. 2(10)SE/SMD/2002- March 28,2002.

    Covers Explicitly the Areas of

    Board of Directors

    Qualification & Eligibility of Directors

    Tenure of Directors

    Reponsibilities, Powers & Functions of Board of Directors

    Board Meetings

    Appointment Criteria of Key Management Personnel

    Reporting procedure

    Role of Auditors & Audit Committee

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    Short HistoryCorporate Governance issues came to prominence in the USA during1970s and in the UK and Europe from late 1980s.

    The major corporate scandals had also played a key role in the

    development of Code. Examples include Polly Peck Int, BCCI and

    MaxwellMaxwell CommunicationsCommunicationsCorp.

    The UKUK CadburyCadbury ReportReportsuggested key principles of openness, integrity

    and accountability

    The GreenburyGreenbury CoCodeof 1995 focussed on determination of Directors pay

    through added stress on renumeration committee and specefic role ofnon-executive directors

    The HampelHampel ReportReportof 1998 backed the Greenbury and Cadbury report

    by addressing on application of corporate Governance Principles and the

    policies representing Best Practise.

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    Short History


    The TurnbullTurnbull ReportReport(1999, revised 2005) focussed on riskmanagement and internal controls

    The SmithSmith ReportReport(2003) discussed the role of audit committee

    The HiggsHiggs ReporReport (2003) focussed on the role of the non Executivedirector

    Other contributions were made by the Kings ReportKings Reportand theSingapore code.

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    Short Video

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    Deewan Group

    So, What Went Wrong.So, What Went Wrong.

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    Deewan Group

    But prayers of the companys Chairman Dewan Muhammad

    YousufFarooqui which he had passionately made in the two-

    paragraph directors report for first July-September quarter

    have not been answered as sales have gone down 35pc

    Financial losses have marred other textile companies of the

    group. Loss ofDewan Khalid Textile jumped 26pc to Rs42m

    from previous years Rs34m. Dewan Textile Mills is also in red

    with Rs200m in losses, up 150pc.

    MA Jabbar, Chairman SITE Association ofIndustry, says poor

    performance of textile makers is repercussion of too much

    reliance on states support for too long.

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    An Analysis of the Case

    Key Areas ExaminedKey Areas Examined

    Directors Executive, Non Executive & Independent

    Board Meetings & Representation ofDirectors

    Board Committees


    Directors Report

    Disclosures Pertaining to Remuneration ofDirectorsOther Disclosures

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    The chairman for most of the Dewan Group is Mr.

    Dewan M. YousufFarooqui

    Mr. Farooqui also works as a ChiefExecutive Officer

    for Deewan Cement and Deewan Farooq Motor


    Other members of the same family hold the directors

    offices as well as CEO ship in key companies

    The group has limited Non Executive or Independent


    Infact most of the Related

    Directors are part

    of key Board Committees including Audit Committee

    which should preferably have only non executive


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    Q:Q: As per Code of CorporateAs per Code of CorporateGovernance, can a CEO of aGovernance, can a CEO of aCompany be the Chairman of theCompany be the Chairman of the

    same company?same company?

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    Answer!As per Code of Corporate Governance part (ix)

    The Chairman of a listed company shall preferably be elected from

    among the non-executive directors of the listed company.

    The Board ofDirectors shall clearly define the respective Roles and

    responsibilities of the Chairman and ChiefExecutive, whether or not

    these offices are held by separate individuals or the same individual.

    So the Answer is YES But lets review another clause of the Code

    Clause (viii) e

    Appointment, remuneration and terms and conditions of

    employment of the ChiefExecutive Officer (CEO) and other

    executive directors of the listed company are determined and

    approved by the Board ofDirectors

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    Final Word!

    Preferably the CEO and the Chairman should

    be two different officers as it would not only

    provide better governance but also would

    not open the channel of influence at the

    board meetings while deciding for the

    remuneration of the CEO.

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    Board Meetings

    The Board Meetings of the Company are held in the Same premises at

    Dhabeji District at separate intervals but on the same day.

    The agenda for most of the company Annual General Meeting is the


    Another alarming sign is that Dewan Farooq Spinning Mills and Dewan

    Mushtaq Textile Mills have the same Chairman. This poses another

    concern over the governance aspect in these companies.

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    External Auditors

    Dewan group has been using the services of M/s Feroze SharifTariq & Co formost of its companies

    The minutes of the meetings even reflect re-appointment and extension ofthe term.

    The Code of Corporate Governance is silent on the extent of work taken byauditors in engaging with clients.

    Further the code however puts a limitation that incase the same firm isengaged in audit work for more then 5 years then the rotation of partner is amust.

    In our given case M/s Feroze SharifTariq & Co have qualified their opinionon various grounds for the Dewan Group of Companies however theweakness of code of corporate governance is witnessed. Such anengagement may question the objectivity of the work performed by theexternal auditor.

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    Mission Statements are an indicator to how does the company differentiate itselffrom its competition and then makes a clear stance towards the strategic side ofthe business.


    Every listed company shall ensure that:

    The Board ofDirectors adopt a vision/ mission statement and overall corporatestrategy for the listed company and also formulate significant policies, havingregard to the level of Materiality.

    The group in question has been using similar stance in most of the mission


    his is why the companies do not have a set direction on which theyshould move. We must clarify that the mission statement needs to be specific interms of how the company plans to march ahead. This has connection to thevision as well as the strategic goals.

    Similar mission statements do not portray a competitive and strategic approach.

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    TheDirectors Report

    The Directors report is a presentation of how the strategic Gurus of thebusiness interpret the companies affairs. These statements have a great valuein determining the confidence of the Directors towards the company and itsaffairs.

    In our particular case the Director mainly Mr. Dewan M. YousufFarooqui hasexponentially explained the affairs of the company. Though most the groupcompanies have faced significant losses due to lost sales and heavy debts.

    The positive part of his reports has been him being vocal on the problems thecompany has been facing.

    In his march he has also tried to put up the managements stance over theQualification of the External Audit Report. Defending the management viewson such instances may be a dire effort to lift the image however such casesare generally addressed in the management letter by the auditors and aresettled at those grounds,. Clarifying in the public only shows the lack ofweight in the managements arguments.

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    We would now present to you theWe would now present to you the

    extracts from the group companies,extracts from the group companies,

    these extracts would provide a viewthese extracts would provide a viewof how variation is observed inof how variation is observed in

    different reports of the company.different reports of the company.

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    DisclosuresDewan Farooq Spinning Mills LtdDewan Farooq Spinning Mills Ltd

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    DisclosuresDewan Cement LtdDewan Cement Ltd

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    SummaryThe code of corporate governance provides a guidance towards better reporting howevergreater part of responsibility lies on corporations.

    Standardized reporting is the only solution for better governance

    The Directors report is an essential component of financial reports and should be criticallydrafted and reviewed

    The committees of the board act as an arm and should be used for better control

    The directors should ideally not be related parties and preference should be given toindependent and non executive directors

    External and internal auditors have a specific duty to work in collaboration and ensure

    that objectivity is maintained in the scope of work performed

    The Terms of Reference are an important feature in defining the role of each boardcommittee.

    Statement of compliance with code of corporate governance is a mandatory requirementand should be made part of the financial statements.

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