Corporate Governance in the GCC - Euromoney

will slow down the decision-making process and therefore hinder theirgrowth and development,” says Vink.Those that have watched corporate governance codes being introducedin other geographical regions argue that this could scarcely befurther from the truth, and that good corporate governance can feedpositively through to companies’ bottom lines. At an OECD Roundtableon Corporate Governance for Banks in Saudi Arabia, held in May 2007, apresentation delivered by the UK Company, Global Governance ServicesLtd, listed a number of benefits that companies can derive from goodcorporate governance. These include higher market values; betteraccess to capital; cheaper access to capital; higher credit ratings; anenhanced corporate reputation and improved abilities to deal with riskand scandals.Others express caution, however, about the linkage between goodgovernance and positive side-effects such as improved credit ratings.“To assume that a company can be upgraded exclusively on the basis ofgood governance is misleading,” says Amra Balic, governance analyst atStandard & Poor’s in London. “Governance is just one of a wide range offactors that we take into account when assigning a rating.”Nevertheless, a number of market participants insist that a range ofbenefits springing from good governance are not merely hypothetical.Dr Khaldoon Sorour is CEO of the recently-established Forsa Investmentsin Saudi Arabia. Half Saudi and half Lebanese, Sorour previouslyworked for Alliance Bernstein in London, and his experience has taughthim that investors are prepared to put a quantifiable value on goodcorporate governance practices. “Institutional investors in western marketshave been prepared to pay premiums of anything between 10%and 40% for companies in regions like the Middle East and Russia whichhave demonstrably better governance standards in terms of their readinessto provide transparent information,” says Sorour, who believes thatmuch still needs to be done to improve corporate governance acrossthe region. “The GCC has certainly improved and I think standards arehigher than they are in countries like Russia or the Philippines,” he says.“But we are still nowhere near where we should be.”For their part, a growing number of leading GCC companies are reportingthat they too have seen empirical evidence suggesting that highquality corporate governance can generate palpable, quantifiable benefits.One good example is provided by Kuwait’s largest listed company,Mobile Telecommunications Company (MTC), which now has consolidatedrevenues in excess of $2.7bn and more than 32m active customerslocated throughout the Middle East and North Africa. MTC says thatit believes “effective corporate governance will in the long term improveour performance, thus benefiting all stakeholders and ultimately servingthe public interest.” The benefits of implementing a well-developedcorporate governance policy, MTC adds, are “tangible”. “For example,” itsays, “rating agencies now look at corporate governance practices, andcompanies with sound practices, such as full financial disclosure andacross-the-board corporate transparency, can benefit from lower borrowingcosts. This was evident in MTC’s case….when financial institutionsprovided the company with [a] $2.4bn bridging loan in May 2005to [support] our acquisition of Celtel.”MTCMTC is one of the international success stories of the Middle Eastbusiness and industry. Founded in 1983 as a Kuwaiti mobile phoneservice provider, it has grown substantially in recent years to thepoint where it operates in 14 countries in Africa and five in theMiddle East, including Jordan and Kuwait where it is the dominantoperator.The company, which now has more than 13 million customers, has aclearly defined strategy of expansion both by winning new licencesand by acquisition, it has bought the Dutch company Celltel, whichhad a widespread base in many parts of Africa. It has financed itsexpansion prudently and efficiently.Corporate governance in the GCC: why is it needed?