Corporate Governance in the GCC - Euromoney

How banking and capitalmarket authorities areaddressing the challengeMuch of the onus for promoting and monitoring good corporate governance standards will need tocome from banking and capital market authorities as well as from institutes such as Hawkamah.Again, the signals in this respect are positive, with a number of the region’ssupervisory bodies already having announced or implementeda range of initiatives aimed at strengthening corporate governance bypromoting enhanced transparency.As one of the most encouraging examples of this process, witnessthe passage by Saudi Arabia in July 2003 of its Capital Market Law(CML), aimed at providing a unified and comprehensive regulatoryframework within which the country’s broader capital market candevelop. More specifically, the CML is constructed around a series ofdetailed provisions setting out requirements designed to enhancetransparency and accountability among all market participants andto eliminate market manipulation and insider trading. A key recentaddition to the CML has been the publication of a code of corporategovernance for listed companies in Saudi Arabia. In tandem with thepassage of the CML, the Saudi Arabian Capital Market Authority (CMA)was established as the body responsible for overseeing the marketand enforcing itsregulations.Elsewhere in the GCC, Oman is often nominated by bankers as thecountry that has done the most at a capital market level to promotegood governance. In September 2006, for example, Oman’s CapitalMarket Authority signed a Memorandum of Understanding (MoU)with Hawkamah aimed at actively promoting and improving corporategovernance standards in the Sultanate. When this initiative wasannounced, Hawkamah explained that “the Capital Markets Authorityhas issued a series of regulations dealing with corporate governancein Oman, which arguably comprise the most comprehensive corporategovernance regime in the region. The primary regulation is the Codeof Corporate Governance, the first in the region, put in place to ensurethat the governance structure of public limited companies in Omanprovides the shareholders and investors with quality disclosure, workingtowards harmonization of corporate governance standards in theregion. Oman has been the pioneer of financial market reforms andtransparency in the Middle East and the signing of this MoU highlightsthe opportunities for similar signings with other institutions inthe region.”This year has seen supervisory authorities in other GCC countriesintroducing similarly progressive measures. In May, for example, Bahrain’sMonetry Agency (BMA)invited a high-level group of delegatesfrom listed companies, brokerage, audit and law firms to a meetingat which the Bank announced that it was finalising amendments to anumber of guidelines on disclosure standards for publicly listed companiesas well as those governing insider dealing. The BMA announcedat the time that “the Capital Markets Rulebook, which will compriseVolume 6 of the CBB Rulebook, will solidify the regulatory foundationfor securities market activities, thus providing a firm foundation forthe further advancement of Bahrain’s financial markets.”Providing an update on the BMA’s plans to strengthen investor protectionand Bahrain’s status as a financial centre, the Bank’s Governor,Rasheed Mohammed Al Maraj, said that “the recent market correctionsin the region have underlined the need for enhanced corporategovernance among listed companies. The BMA bears responsibilityfor ensuring that corporate governance requirements in Bahrain donot fall short of international standards and best market practices.”He added, however, that “before we implement any new rules, it is ourpolicy to seek the views of the industry and related parties.”Dubai has also been taking measures aimed to promote transparencyin its capital market. The Dubai International Financial Exchange(DIFX), which according to the DIFC “aims to become the leadinginternational financial exchange between Western Europe and EastAsia”, opened for trading at the end of September 2005. Although theDIFX has yet to attract as many listings as it had originally hoped, ithas clearly aimed to raise the bar as far as reporting and disclosure areconcerned. “We are currently working on a prospectus for a companylisting on the DIFX which runs to about 250 pages,” says HSBC’s King.“That would not be unusual in a mature financial centre like the UKor the US, but it is in sharp contrast to some other regional exchangeswhere listing requirements are much less stringent.”Dubai’s other stock exchange, the Dubai Financial Market (DFM),has also been taking notable steps towards improving transparencyof information flows. At the start of August 2007, the DFM took theinitiative of publishing for the first time a comprehensive “CompaniesGuide 2006”, aimed at providing investors with extensive informationabout the 46 companies now listed on the market. At the launch ofthe guide, the DFM’s Chairman Essa Kazim announced that its publicationwas “in line with DFM’s commitment to transparency.”How banking and capital market authorities are addressing the challenge21