On Monday this column highlighted the powers taken by the government to sack the chief executive of a PSE under the recently promulgated Companies Ordinance 2016. Today it will comment upon another clause inserted in the new ordinance which deals with the appointment of a CEO.

There has been an addition of two subsections in both Section 186 and 187 which deal with the appointment of the first and subsequent chief executives. The clauses give the government the power to nominate and appoint the chief executive of a public sector company in such manner as may be specified. Moreover the next addition says "A chief executive nominated under sub-section (4) shall hold office during the pleasure of the Government."

The previous legislation and the Public Sector Companies (Appointment of Chief Executive) Guidelines, 2015 gave the power to appoint a chief executive to the Board. The responsibility to evaluate the candidates based on the fit and proper criteria specified by the SECP was given to the Board and in turn it had to recommend three individuals to the government for appointment. The board would then appoint the one approved by the government and also be responsible for the development and succession planning of the chief executive.

Granted that the government has the controlling stake in many PSEs along with the majority of shareholding. But this column is of the opinion that the appointment powers of a CEO should rest with the board of directors rather than the government or some specific ministry. Any provision to the contrary will only result in fundamentally undermining the spirit of corporate governance. For, how will there be independence or accountability when the board has no authority?

Coupled with the fact that the government does not also require three fourths board majority to sack a CEO which it has appointed, it is certainly is an alarming state of affairs for the already messed up PSEs of the country.

Put simply, it will be much more beneficial for improving the performance of PSEs if the board has independence in setting strategy, reviewing management performance and the overall operations of the PSE. Therefore in order to hold the board accountable it is necessary to give it the freedom to make choices it deems best in the interest of the company. Otherwise, there will be a conflict of interest where the chief executive will always be inclined to tilt towards the wishes of the government which has the power to appoint and sack them.

At a time when the SECP is going all out to increase transparency in the market and encouraging corporate governance in the country, this measure sticks out from that direction. The focus in this regard should also be to encourage transparency in the management of PSEs and limiting the government's role in the workings of the company. The introduction of these kinds of measures also reaffirms the view of this column that the legislation should have been thoroughly discussed in Parliament and legislated as act rather than an ordinance.