Corporate Governance in the GCC - Euromoney

Corruption perception index, world Arab countries 200302468UKUSAUAEOmanJapanQatarIraqYemenLebanonSaudi ArabiaKuwaitJordanBahrain10SwitzerlandIceland12Less corruptCountry rankMore corruptSource: Arab Human Development Report, 2004“The thought process that many Middle Eastern companies are now goingthrough is really no different to what happened in the western corporatesector a decade or so ago”than Afghanistan and Mali. The UAE’s overall score of 4.3, meanwhile,is a higher average than those posted by Switzerland or Greece, but isnot helped by a disclosure index score of 4 – below Djibouti, Iran andBotswana.In many ways, bankers say that these indications are disappointing, especiallyas some Middle Eastern countries have already demonstratedthat it is possible to develop very high standards of corporate governanceagainst the odds. Vink says that Lebanon has already established aprecedent for outstanding corporate governance standards that othercountries in the Middle East would be well advised to replicate.Nevertheless, bankers also recognise that there are a number of goodreasons why corporate governance standards in the Middle East ingeneral – and in the GCC in particular – are not as high as they are inthe US or western Europe. Foremost among these is the structure ofmany of the largest companies in the region, which have historicallybeen built up as family-owned organisations operating in a relativelysmall regional market that have since expanded into large-scale conglomerates,some of which are now global players. “One of the reasonswhy the Middle East is still a babe in arms with respect to corporategovernance is that up until very recently most of the region’s businesswas transacted on a regional basis,” says Vink. “Trade, money andpeople tended to circulate within the region, but there is only a certainamount of business that can be done on that basis, and corporatesin the Middle East are increasingly looking to expand their horizonsbeyond the region.” Although many of those companies may havetheir roots in family-owned businesses, says Vink, a large cross-sectionare now major global players. “In the western world when we talk aboutfamily-owned companies we tend to think of organisations like fatherand-sonplumbing businesses. In the Middle East, a family-ownedbusiness can be a multi-billion dollar conglomerate.”Today, says Vink, attitudes towards corporate governance among thosecompanies is changing, but he adds that external observers should notbe surprised if the process of change takes time. “The thought processthat many Middle Eastern companies are now going through is reallyno different to what happened in the western corporate sector a decadeor so ago,” says Vink.Certainly, an increasing number of the region’s leading quoted companieshave been announcing a series of initiatives on corporate governancethat sound encouraging and progressive. Take the example ofEmaar, the real estate giant that is comfortably the largest companylisted on the Dubai Financial Market (DFM), accounting for about 18.6%of the DFM’s market capitalisation. As DFM’s most liquid stock, Emaar isalso popular with foreign investors as a proxy for the region’s boomingreal estate market, which makes the observance of international-stylecorporate governance practices especially important. Hence the company’sannouncement in November 2005 that it had set up a CorporateGovernance Advisory Council, explaining that “this pioneering initiativeaims to develop international benchmarks for corporate governancepolicies, rules and practices…that will be a beacon to progressivecorporations and institutions in the region.”