Muhammad Hamayun Sajjad Advocates for Strong Governance to Transform Pakistan’s Banking Landscape

While environmental and social aspects dominate the discourse on ESG (Environmental, Social, and Governance), governance – the pillar that ensures vision matches with action – often remains overshadowed. This oversight can be problematic. In the banking sector, governance is not merely about compliance; it ensures that institutions serve society responsibly and deliver on their promises. For Pakistan’s banking industry, the case for robust governance has never been stronger. It’s not a point of debate that good governance is indeed the true cornerstone of sustainable businesses. It ensures that the businesses’ commitments are actionable rather than simply aspirational, fostering trust among stakeholders. Globally, examples abound of challenges in governance – such as lack of independent oversight – and the damage that can be caused, both reputationally and operationally, with organizations having to later work on repairing such damage and further restore credibility. In Pakistan, there is work to be done to turn challenges in governance frameworks into opportunities. According to a World Bank assessment, only 40% of surveyed companies in Pakistan have implemented a code of ethics. Furthermore, boards in many organizations lack explicit responsibility for governance practices, and succession planning is not yet common. These gaps undermine stakeholder confidence and limit an organization’s ability to address emerging risks effectively. Pakistan’s banking sector must heed lessons learned from governance crises elsewhere around the world, leveraging this cornerstone to bridge the gap between promises and tangible outcomes. Independent directors have a critical role in effective governance. They are expected to bring an unbiased perspective, safeguard against groupthink, and ensure long-term strategic alignment with a business’s goals and commitment to its stakeholder groups, including end consumers. Independent directors have played pivotal roles in upholding transparency and ethical leadership during crises across the globe. Bringing to the table the ability to withstand external pressure, support leadership and ensure decisions remain transparent ensures the organizations’ long-term sustenance and growth. The importance of this role is reinforced by the introduction and implementation of regulatory frameworks such as the Securities and Exchange Commission of Pakistan (SECP)’s Listed Companies (Code of Corporate Governance) Regulations, issued in 2017, which introduced a requirement to appoint not less than two members – or one third of the total members of the Board, whichever is higher – as independent directors. In Pakistan’s banking sector, the responsibility of an independent director transcends mere oversight; they play a critical role in driving accountability, ethical oversight, and long-term value. Structural issues do exist including the lack of diversity in boards, and the tools to address complex business and ESG risks effectively which can create significant challenges. These can be addressed by the involvement of independent directors with wide-ranging experience and greater diversity. For Pakistan, global evidence supporting the critical role of independent directors underscores the value in empowering independent directors with clear mandates and continuous training to drive change in governance, especially in aligning a business’ commitments to end consumers with real, measurable outcomes. Stakeholder trust and industry-wide progress rely on full, accurate disclosures on governance practices, and boards must operate with clear frameworks for addressing business and ESG risks, ensuring institutions are not vulnerable to reputational and operational setbacks. Governance is not an ancillary pillar; it is the lynchpin that ensures business and societal sustainability and ethical practices. For Pakistan, where opportunities to enhance governance could be described as pronounced, embracing robust frameworks is not optional but imperative. Independent directors, empowered and equipped, can serve as the guardians of ethical oversight, bridging the gap between vision and action. By prioritizing governance, Pakistan’s banking sector can not only lead the integration of governance in all aspects of business domestically, but also set a benchmark for the region. The time to act is now. The article is written by Muhammad Hamayun Sajjad, CEO Mashreq. He is also an Independent Director on Board of Directors of 1LINK.