Wednesday 27, January 2016

Dubai – MENA Herald: Improving the governance of businesses, particularly family-owned firms that comprise the majority of non-oil economy in the Middle East, is a top concern for the Region. This is according to the ‘Corporate Governance for Competitiveness in the Middle East and Africa’ report, just released by Crescent Enterprises, the UAE-based conglomerate, and co-developed with the Pearl Initiative, the leading Gulf business-led organisation promoting a corporate culture of accountability and transparency as a key driver of competitiveness across the Region.

Covering an in-depth analysis and policy recommendations aimed at enhancing corporate governance within privately-held firms, listed companies and state-owned enterprises in the MENA Region, the report was developed as part of the World Economic Forum’s MENA Regional Business Council’s initiative aimed at increasing competitiveness and improving the business climate in the MENA Region.

Released at the World Economic Forum Annual Meeting 2016 in Davos that was attended by over 2,400 leaders in business and government, the report focuses on one of six key pillars for policy reform proposed for the Region, which includes enhancing the efficiency of the labor market, modernizing bankruptcy and insolvency regulation, and simplifying the process of creating a company.

Badr Jafar, CEO, Crescent Enterprises, founder of the Pearl Initiative, and a member of the WEF’s MENA Regional Business Council, commented: “There has never been a stronger business case for embracing the principles of good corporate governance. A community of well-governed businesses create stable economies and in-turn stable societies, which are what businesses need to thrive. As the saying goes, ‘what goes around comes around’, and if we want to see strong opportunities generated for the millions of young men and women across the Region then we need to take responsibility for the sustainability and health of the companies we are growing here.”

While the pace and obstacles for incorporating better governance standards is unique to each market and type of business across the Middle East and North Africa, the report seeks to identify common themes that need to be explored and adapted at local levels in order to boost competitiveness.

Samer Khoury, President of Consolidated Contractors Company (CCC), Chair of Middle East and North Africa Regional Business Council, and Board Member of the Pearl Initiative added: “This important initiative of the Regional Business Council for Middle East North Africa at the World Economic Forum aims to bring about meaningful reform that can transform the business landscape in the Region. Promoting systems of good corporate governance is a key pillar of this initiative and an essential overarching theme that closely dovetails with the other key areas of focus. It is with the support and valuable contribution of our regional companies and their CEOs that we are one step closer to achieving a positive change for the future of our Region.”

Key observations and recommendations from the Report include:

Privately Held Firms – The biggest challenge has been the lack of disclosure or transparency, while the impact of voluntary governance codes has been weak. The report calls for introducing specific requirements for private firms whose capital is open to multiple shareholders, enhancing the role of the Companies Comptroller and the Ministries of Economy in the dissemination of corporate information, introducing stringent minority shareholder protections, and improving standards embedded in company laws.

Listed Companies – Implementation of corporate governance standards in the Region has been driven by compliance requirements and has not had the desired impact on the corporate culture. Governments may wish to call for institutional investors such as pension funds and insurance companies to formulate and disclose their voting policies. In many countries across the MENA, effective implementation of corporate governance rules requires more rigorous public enforcement by securities regulators, as well as a more effective framework for the private enforcement of shareholder rights.

State-owned Enterprises (SOE) – In most Middle East countries, strategic SOEs are not subject to local competition legislation and are often exempt from corporate governance codes. The report recommends the establishment of independent sectoral regulators and empowerment of competition authorities, which are essential to creating a more level playing field between SOEs and their private counterparts. Sharing best practices of successful SOEs will also be useful to bridge the governance gap between them and publically listed firms.

According to Badr Jafar, also a Trustee of the World Economic Forum’s Global Agenda for Economic Growth and Social Inclusion, while significant progress has been achieved in establishing governance frameworks for listed companies, a big gap still exists for the same degree of implementation in privately-held family firms: “Improving corporate governance policies is critical to the survival and continuous growth of our family firms which account for over 80% of the Middle East’s non-oil GDP, and where we will witness the transfer of more than US$1 trillion of assets from one generation to the next within the next decade,” he said.

Going forward, the ‘Corporate Governance for Competitiveness in the Middle East and Africa’ policy document will serve as an important starting point for furthering the dialogue on ways to implement robust corporate governance frameworks and policy reforms to ensure mitigation of the risks of value destruction, while creating opportunities for employment and allowing economic activity to flourish in the Region. The policy document will form part of the Arab World Competitiveness Report 2016.