This paper aims to highlight the failure of corporate governance in banking sector. Banking in Pakistan was predominantly controlled by the state until 1990. The five major commercial banks controlled 100% of the domestic banking market. However in 1990, the government declared privatization as one of its key policy objectives. The privatization of Muslim Commercial Bank (MCB) Limited was declared, and bids were requested from interested parties. Four bids were received and the evaluation committee headed by the then Governor of State Bank of Pakistan did not ratify the highest two bidders. Instead, the third highest bidder (the National Group) was invited to match the highest bid. The contract was agreed upon and signed. The natural question here is whether the bidding process was fair. Clearly, there are reasons to doubt the fairness, given that the deal was awarded to the third highest bidder.

The concept of corporate governance is as old as the concept of corporations. It has been taken seriously globally only in the recent times after a series of corporate scandals like Enron and WorldCom (Bari and Cheema, 2003). In the last decade, corporate governance was a dominant policy issue in developed and developing worlds alike (Mir and Nishat, 2004). The modern corporate world and its stakeholders seek to know on a top priority basis, how these corporations ought to be governed, who should govern them and how best to create a balance between order and freedom (Cheema, 2003). This paper aims to highlight the failure of corporate governance in banking sector. Although there are other studies providing a solution to the problem, this paper is an answer to the demanding question from less-experienced researchers who would like to have some rule of thumb to decide upon. This research adds significantly to the body of knowledge in this area. Single case study approach is used in this paper. Data for analysis was collected from both primary and secondary sources.

Corporate Governance Journal, Privatization of MCB, Corporate Governance Failure, Muslim Commercial Bank (MCB), Nishat Group, Monopoly Control Authority (MCA).