KARACHI, Jan 30: While numerous companies and banks have developed a penchant for holding board meetings outside Pakistan sometimes at the best holiday resorts on the planet it would perhaps be difficult for many to justify the costs against benefits.

Fauji Fertiliser Company Limited (FFC) on Friday announced 22 per cent growth in earnings, with profit after tax rising to Rs6.53 billion for the year ended December 31, 2008. The result, though generally thought to be lower than expectations, shareholders and analysts received a payout surprise with the company declaring bonus shares, 25 for every 100 shares held. The FFC stock at the market hit its upper circuit, up by Rs4.11 to close at Rs86.35.

The FFC accounts arrived on Friday all the way from Casablanca, Morocco, where the board met on Thursday. The company with majority stake in the hands of the local investors could have done best, if the members would have sit around in the board room at the registered office in Rawalpindi.

But FFC, in joint venture with Fauji Foundation and Officie Cherifient Des Phosphates, Morocco was in the throes of building a plant to produce phosacid, essential raw material for DAP. That could perhaps be accepted as a reason good enough for directors to take trouble of travelling all the way to Casablanca.

But many corporates and banks would be hard pressed to justify holding board meetings abroad.

A couple of years ago, when the State Bank of Pakistan allowed banks with as little as 31 per cent foreign shareholding to hold the meetings of their boards outside Pakistan, shareholders viewed the decision with skepticism. The boards many banks prefer to sign financial figures either in the pleasant environments of the modern Middle East or take the trip, to even as far as Paris, London and Geneva.

The one principal reason forwarded by such banks and even cash rich corporates was that the majority shareholders were foreigners. But some of the foreign banks with as high as 70 per cent foreign holding were known to be inviting foreign participants to meetings in the country.

“It gives the foreign investors an opportunity to acquire first hand knowledge about the state of their investment,” says a senior official of a bank, who favours home over abroad. The investors’ objection in regard to board meetings overseas is in respect of extra costs. “Banks sitting atop the depositors’ money should distribute greater return to their depositors and disburse higher dividends to their shareholders instead of squandering money on such trips,” says an investor.

But there may be justifiable reason for some foreign directors who feel uncomfortable travelling to the country. In that case, the law provides that a nominee of a director unable to attend board meeting could participate instead. “So why not take that cheaper route instead of taking a whole entourage to expensive cities or tourist resorts?” asks an ex-official of the corporate regulatory body.

In regard to costs, a director on the board of a company mentioned that it would not just be the half a dozen or a dozen members sitting on the board who could leisurely leave for the Bahamas, but a team of dozens of officials would accompany them.

Those could include the company secretary, the chief financial officer, the deputy financial officer and heads of other departments such as those of credit, deposits and marketing. “Consider the huge costs which all of this involves,” he says.

Another disgruntled corporate executive claimed that this perk would be in addition to an average pay of millions of rupees that were disbursed to executive directors and senior managements, in salaries and bonuses.

An amended circular issued by the top watchdog (Securities and Exchange Commission of Pakistan) had a little while ago made things easier by permitting companies with directors abroad, to hold their meetings through tele/video conferencing.

All that underscores the point that unless there is good reason to do so, banks and corporates should, in the interest of good corporate governance, take the cost-effective route to a board meeting.

A mid-level executive who by the way always gets left out of the company’s entourage that leaves for some serene place abroad for the board meeting said that banks and companies should be asked to show the cost of holding board meetings separately on their profit and loss accounts.

Was he speaking out of jealousy? “May be”, he says with a smile, but asked, if holding meetings abroad did not tantamount to (unwittingly) sending a wrong signal about security of foreign nationals in Pakistan?”

A simple question that one, but no one, of the many people contacted on Friday, wanted to give a straight answer.