Corporate Governance in the GCC - Euromoney

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Recent initiatives oncorporate governance in theMiddle EastWhile the Middle East’s track record in corporate governance may be chequered, the good newsis that consensus among influential figures from throughout the region’s public and privatesector is that decisive measures need to be taken to improve governance standards.At the same time, however, task force participants acknowledged that theMENA banking industry was still hampered by insufficient understandingof corporate governance. As a consequence, they agreed that specialattention needs to be paid by the MENA banking sector to strengthening“Special attention needs to be paid by the MENA banking sector tostrengthening boards, improving shareholder rights, protecting minorityshareholders and addressing related party transactions”For example, delegates at the meeting of the MENA task force on CorporateGovernance of Banks, held in Amman in February 2007, agreed on theimportance of strengthening corporate governance in the financial servicessector across the Middle East region. More specifically, they acknowledgedthat as banks were at the front line of the financial sector therewould be beneficial side-effects of improved corporate governance in thebanking industry for the non-banking sector. They also agreed that excessliquidity in the region reinforced the need for improved bank corporategovernance, and that market pressure (from, for example, internationalcorrespondent banks) would provide an important incentive for MENAbanks to enhance their corporate governance policies.boards, improving shareholder rights, protecting minority shareholdersand addressing related party transactions. Attention also needs to be dedicatedto initiating a dialogue among stakeholders in improving corporategovernance and developing bank-specific governance codes. Finally, thetask force agreed that the continuation of education programmes andother initiatives aimed at raising awareness about corporate governancewas essential.Recent Initiatives on Corporate Governance in the Middle East13
The Hawkamah InitiativeOne of the most conspicuous of those initiatives was the establishment in the second quarterof 2006 of the Hawkamah Institute for Corporate Governance in Dubai, which is described by itsexecutive director, Dr Nasser Saidi, as a “Think and Do Tank” rather than merely a think-tank.A passionate advocate of good corporate governance standards, DrSaidi is a former Minister of Economy and Trade and Minister of Industryof Lebanon (1998-2000), who joined the Dubai International FinancialCentre (DIFC) as Chief Economist in 2006.“We help design and implement corporate governance programmes andmonitor the outcomes,” Dr Saidi explains. “We work at both a companyand a country level, with the private sector as well as government agenciesand capital market authorities.” That, says Saidi, means adopting arange of different approaches and programmes to corporate governanceadvisory services. “For example, the development of policies addressingcorporate governance in the banking sector needs to be approached ina completely separate way from governance among listed companies,”he explains. “In the banking sector our strategy is to work with bankpractice. Already, the Institute has made important progress in heighteningawareness about the need for improved corporate governance, andthe first study published by Hawkamah and aimed at benchmarkinggovernance standards in the region was a report entitled CorporateGovernance in the GCC – An Investor Perspective. Released in September2006 by Hawkamah and the Institute of International Finance (IIF), thisreport was the result of a series of meetings held with senior officials fromcapital market authorities, central banks and stock exchanges, local fundmanagers and representatives from law, accountancy and managementconsultancy companies involved in corporate governance in the GCC.Other initiatives launched by Hawkamah have included the support it hasgiven to a number of countries, such as Lebanon, Morocco and Tunisia,in setting up national task forces on corporate governance. It has also“We work at both a company and a country level, with the private sector aswell as government agencies and capital market authorities”supervisory authorities, whereas for listed companies it’s all about workingwith stock exchanges and capital market authorities, and developingprogrammes aimed at enhancing transparency and disclosure and improvingaccounting standards.” Other important partners for Hawkamahin the private sector are some of the more reform-oriented chambers ofcommerce and business associations in the Middle East.inaugurated a range of training programmes for market participantsranging from independent directors to investors, and addressed morethan 5000 market players in conferences, seminars and workshops acrossthe Middle East. That has helped Hawkamah attract over 200 membersat the last count and sign some 25 memoranda of understanding (MoU)with international and regional partners.“With family-owned companies, meanwhile, the approach is differentagain,” adds Saidi. “There, the focus is usually on working with families toaddress issues such as those arising from succession and generationalchange and advising on the need to divorce family matters from businessmatters.”The public sector is also an important area for Hawkamah, and willbecome progressively more so as governments in the Middle East turnto privatisation as a means of bolstering corporate performance. “Stateownedenterprises still loom very large in our region,” says Saidi, “andthe stakeholders in those companies are of course very different. This isa relatively new area for Hawkamah, but we have already worked withEgypt to draw up the first corporate governance code for SOEs, which isnow being implemented.”Fundamental to Hawkamah’s raison d’être is the promotion of harmonisationof corporate governance standards in the GCC and across thewider Middle Eastern region and their alignment with international bestHawkamah recognises, however, that it is early days as far as the acceptanceof corporate governance in the region is concerned, which is a viewthat is shared by a number of market participants. At Global InvestmentHouse, for example, Vink says that he conducted a very simple exerciseas a means of finding out how far companies had progressed towardsdefining corporate governance and developing a strategy for building aninternal governance strategy. This involved telephoning the switchboardat 30 large companies in the region and asking to be put through to theperson in charge of corporate governance. Only once was he directed tothe appropriate department.Also at the corporate level, S&P comments that “it is positive that companiesgenerally prepare their financial statements in accordance withinternational financial reporting standards, but fully audited annual accountsand quarterly financial statements are not always easily accessible,with a number of listed companies not posting their most recent financialdetails on their websites. Furthermore, financial results are often filed laterthan required by local regulators.”
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