A Small Club: Distribution, Power and Networks in Financial Markets of Pakistan (Policy)

1. THE STOCK MARKET THAT DOES NOT GROW!

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 index 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 is 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.