Corporate Governance in the GCC - Euromoney

standards of corporate governance. “On the basis of available evidence,”notes this report, “the Steering Group concluded that “activist” hedgefunds and private equity firms could help strengthen corporate governancepractices by increasing the number of investors that have theincentive to make active and informed use of their shareholder rights.This may include demands for changes in management, the compositionof the board, dividend policies, company strategy, company capitalstructure and acquisition plans. Such active and informed ownership isexpected to stimulate the search for the best possible use of corporateassets and thereby contribute to better risk and resource allocation inthe economy as a whole.”Other commentators agree that private equity can be supportive oflonger-term corporate growth and good governance. A recent WatsonWyatt report says that “private equity owners are a small group ofpeople whose interests are, to a large extent, aligned. This makes decision-makingmore efficient. Without quarterly public market scrutiny,companies can implement longer term strategies. Private equity companiescan employ compensation strategies that align the interests ofmanagement and owners.”Stephen Vink, vice presidentof Risk Management , GlobalInvestment HouseAbout Global Investment House “Global”Global Investment House “Global”is a fully-fledged investmentcompany incorporated in 1998and falls under the regulation ofthe Central Bank of Kuwait. Itsunderlying foundation is to meetthe high expectations of localand international clients and toenhance the investment serviceindustry and advance the capitalmarket in the region.Global plays an important role inpromoting investment opportunitiesin the Arabian Gulf Peninsula to investors through expertfinancial engineering as well as in-depth research and reports.Global’s achievements have been recognized on local, regional, andinternational levels.In emerging markets in general, and in the Middle East in particular, itcan be argued that private equity has greater potential for introducingbest corporate governance practice than it does in more mature markets.That is the conviction firmly held by Abraaj Capital, which is widelyviewed as the region’s leader in private equity, and which recentlycompleted the largest deal of its kind in the Middle East – which wasthe $1.9bn buyout of the Egyptian Fertiliser Company (EPC).“Privateequity is an unemotional, faceless investor, which is important becauseit means that it leaves no stone unturned in the due diligence processthat takes place before any acquisition is made,” says Frederic Sicre,Executive Director at Abraaj Capital’s Dubai headquarters.Global has recently received “Best Investment Bank in Kuwait” awardfrom Euromoney Magazine, the third consecutive award from theauthoritative publication which previously awarded Global the “BestEquity House in Kuwait” award in 2005 and 2006 and “Best RealEstate Investment House” in December 2005. The company’s currentassets under management reached KD2.39 billion ($8.3 billion) as at30 June 2007.That is no different, conceptually, from the process that precedes anyprivate equity transaction in developed economies. But in the emergingmarkets, the process can also add very significant value to the investeecompany. “In this part of the world we often encounter very successfulentrepreneurs who have profitably grown their businesses at a locallevel,” explains Sicre. “But taking that business to the next step, often bygiving it a more international focus, means putting in place the rightmanagement and human resources systems, and the right finance andreporting policies. Private equity is very well positioned to support thatprocess in family-owned companies, for example, and can help introducebest practices that exist around the world.”“This region is over-capitalised but under-managed,” says Sicre. “By helpingto make managerial and operational improvements private equitycan act as a genuine value creator. It’s not just about financial engineering,which is often the case in the mega-buyouts you see in the US andEurope.”“The Steering Group concluded that “activist” hedge funds and private equityfirms could help strengthen corporate governance practices by increasing thenumber of investors that have the incentive to make active and informed useof their shareholder rights”