SOEs directors: Framework for appointment, evaluation, disclosure tightened

Islamabad: The government has implemented a more stringent framework for appointing, evaluating, and disclosing conflicts of interest among directors of state-owned enterprises (SOEs). The updated "Guidelines on Appointment, Evaluation and Disclosure for Boards of State-Owned Enterprises (SOEs) 2026," issued by the Finance Division's Central Monitoring Unit (CMU), aim to enhance transparency, accountability, and performance of SOE boards.

These guidelines, aligned with the State-Owned Enterprises (Governance and Operations) Act, 2023 and the SOE Ownership and Management Policy 2023, require SOE boards to justify the skills of new members and conduct annual performance evaluations, as well as disclose any conflicts of interest.

When an SOE board faces a vacancy for an independent director, it must promptly submit recommendations to the Board Nominations Committee (BNC) outlining the existing skills and knowledge on the board as well as the required skills from the prospective director. For boards nearing completion of their tenure, they must submit their performance report at least three months prior, including an evaluation against objectives, strategic policies, financial and non-financial performance, failures, and skill gaps.

The BNC will identify and recommend candidates to the federal government for appointment, requiring at least three candidates per vacancy, with expertise matching the SOE's business nature and scope.

The guidelines also mandate that boards provide BNC recommendations at least one month before an existing director's tenure ends or a vacancy arises. If a board fails to provide timely recommendations, the BNC will conduct its own assessment. Newly appointed directors must complete the Directors Training Programme within three months of appointment, while SOE management will organize an orientation for these new members.

To strengthen conflict-of-interest safeguards, each SOE must maintain a register of interests. Directors with conflicts must abstain from discussions or voting on related matters and their presence will not count towards the quorum for such meetings. Performance evaluations, now a regular requirement, will be conducted annually at the end of a director's tenure or upon resignation, with approved evaluations shared with the CMU for a central directors' database.

This comprehensive framework, approved by the Federal Cabinet, ensures SOE boards operate with heightened transparency and accountability.