Countries Leading the Second Wave of Corporate Governance in the Middle East

Countries_Second Wave of Corporate Governance

  • Corporate governance (hawkamah in Arabic) in Middle East is no longer a term that requires defining, or has an unclear business case
  • All Middle East countries except Iraq have issued a General Corporate Governance Code, with Egypt, Saudi Arabia and UAE being the front runners.
  • UAE has emerged as one of the least corrupt and most globalised economies in the Middle East, ranking 26th out of 177th in the Transparency International’s 2013 Corruption Perceptions Index.

Middle East is making consistent progress in the implementation of corporate governance initiatives. In part 1 of our Corporate Governance article series, we had talked about the meaning of corporate governance and emergence of a second wave of corporate governance reforms in the Middle East. And now, in this second part, we will look at the progress made on actual implementation of corporate governance practices by Middle East nations.

Corporate governance (or hawkamah in Arabic) in the Middle East is no longer a term that requires defining, or has an unclear business case. Even from the perspective of a family-controlled business, the case for better governance requires much lesser justification today as compared to a decade ago, as discussed in our first article. Moreover, over the past few years, regional regulators have been abolishing the voluntary nature of corporate governance standards — The Emirati, Saudi, Jordanian, Omani and the Qatari securities regulators have moved to a mandatory corporate disclosure requirement regarding compliance with local corporate governance codes.

All Middle East countries except Iraq have issued a General Corporate Governance Code, with Egypt, Saudi Arabia and UAE being the front runners. Saudi Arabia and the United Arab Emirates (members of the GCC (Gulf Cooperation Council)) and Egypt were among the first few Middle East nations who developed and issued Corporate Governance Codes and Guidelines for companies in their territory. The Egyptian Institute of Directors was the first in the region to launch a corporate governance code targeted specifically at state-owned entities in 2005, based on OECD Guidelines on Corporate Governance of State-Owned Enterprises. While Saudi Arabia published its Corporate Governance code in 2006, the UAE published corporate governance guidelines in 2007 for joint-stock companies and in 2011 for small and medium enterprises. The table below gives a quick snapshot of the region’s progress so far:

Countries_Second Wave of Corporate Governance1Table 1:  Corporate Governance Codes and Guidelines in Various Middle East Countries

Source: OECD

The UAE has emerged as one of the least corrupt and most globalised economies in the Middle East, ranking 26th out of 177th in the Transparency International’s 2013 Corruption Perceptions Index. Qatar followed at 28th, with Bahrain, Oman and Saudi Arabia not too far behind. If we look at the actual steps taken to control corrupt practices, we find that while corporate governance centers and institutes of directors have been established in most countries of the region, UAE has more than one corporate governance institute i.e. the Hawkamah Institute, the Abu Dhabi Corporate Governance Center, GCC and BDI.

Despite progress made by the countries, corporate governance still leads the list of factors required for improving investor trust and confidence. The importance of corporate governance was highlighted in a recent survey conducted by the CFA Institute to evaluate opinions on key issues currently facing investment markets in the Middle East and North Africa (MENA). The results showed that investment professionals believe political stability and good corporate governance can have the most positive impact on MENA’s economy. Similarly, the majority of respondents (70%) reported that improved corporate governance practices can improve investor trust and confidence across markets in the MENA region. Interestingly, this issue garnered the highest support among all issues in the whole survey.

Question: What do you think would improve investor trust and confidence across markets in the MENA region? Select all that apply. (N=188)

Countries_Second Wave of Corporate Governance2

 

Chart 1: Corporate Governance leads the list of Factors for Improving Investor Trust and Confidence

Source: CFA Institute, MEIC Pre-Conference Survey

We believe that growing awareness at a country level, and increasing investor demand for transparent corporate governance practices will drive adoption among corporates in the region. In the next and final part of our coverage on corporate governance in the region, we will look at case studies of companies in the Middle East that overcame hurdles and improved their governance practices in ways that boosted their performance and growth.

 

The article was originally published at: Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

 

 

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