Enforcement of Shareholders’ Rights: Assessing the Efficacy of Two-Tier Board Structure for Pakistan

This article challenges those arguments that suggest a two-tier board structure for improving the enforcement mechanism as an alternative to the private enforcement mechanism for the protection of the rights of shareholders in Pakistan. The corporate ownership structure in Pakistan is controlled by majority shareholders who, by their majority shareholdings in corporations, control Executive boards by appointing their friends and family members as board members. A two-tier board structure, which is supposed to monitor Executive boards, is composed of the representatives of shareholders, employees, and independent directors. Also, the representatives of employees, being trade union leaders and under the threat of being replaced, would serve the interests of the majority shareholders. Independent directors are supposed to monitor the Executive boards, but their independence is questioned when controlling shareholders appoint their friends and family members as independent directors. This article emphasises the need for an effective statutory remedy for shareholders’ protection.