BALANCING REGULATION AND AUTONOMY: A CRITICAL ANALYSIS OF CORPORATE LEGAL GOVERNANCE IN PAKISTAN AND THE UNITED STATES

Abstract

Corporate governance law presents a dilemma based on two mutually exclusive demands: the need to restrict managerial opportunism through external control and the need to maintain discretion that allows managers to perform value-generating activities. The article examines how two different countries, the US and Pakistan, try to find a compromise between these two opposing forces. The US relies on federal securities laws, state-level fiduciary laws, and a judiciary that both accepts and limits managerial discretion in favor of shareholders. In contrast, Pakistan enacts laws such as the Companies Act, 2017, and regulations of the Securities and Exchange Commission of Pakistan, but governance in Pakistan is affected by family- and state-owned businesses and an often subordinate judiciary. The article suggests that when it comes to corporate governance, the US and Pakistan encounter different risks: while the US may find itself in a situation where its corporate law innovations will be the result of reactionary adjustments to scandals and will reflect an excessive loyalty to shareholders, Pakistan may experience only superficial reforms that do not address the fundamental issues of power relations between different stakeholders. The article concludes by offering recommendations to Pakistani lawmakers concerned about the ability of the US-style governance laws to engender the desired changes in Pakistani corporate governance. The US corporate governance laws are the result of a specific institutional development in which elements of control and discretion were introduced in a responsible manner through negotiations and compromises between various stakeholders. To truly emulate these laws, Pakistani lawmakers should consider this institutional context and evaluate which areas of US corporate governance require detailed attention. In particular, it is advisable to avoid adopting uniform standards since they may fail to consider the nuances of different business relations in Pakistan.