Gulf Aims to Take Lead in Corporate Governance: The Middle East Magazine's Economic Analyst, Pamela Ann Smith, Looks at the Latest Moves by Hawkamah, the Dubai-Based Institute for Corporate Governance, and Why They Could Pave the Way for Another Huge Influx of Foreign Capital and Private Investment Once the Global Recovery Sets In
Smith, Pamela Ann, The Middle East
THE FINANCIAL MELTDOWN and economic crisis in the US and Europe has once again focused attention on the regulation of banks and corporations, as well as their ethics. The spectacular collapse, or near collapse, of leading international financial institutions such as Lehman Brothers, the unregulated activities of the big US investment banks and private equity firms, as well as the excessive salaries and bonuses paid to executives who have often lost massive sums for their shareholders, are all the subject of headlines around the world.
In the Middle East and North Africa (MENA), the effort to ensure that the region's banks and companies adopt, and implement, international codes of corporate governance and best practice was already making substantial headway before the sub-prime credit crunch arose last year. Speaking in Doha during Hawkamah's two-day annual conference in mid-November, Executive Director Dr Nasser Saidi described the financial crisis in the West as the failure of the banks and financial institutions concerned to comply with basic governance norms. "It was poor governance, and from this we can learn lessons," he said. Distorted incentive structures were another problem.
Risk management was relegated to the background instead of being given the prime importance it deserved. "What," Saidi asked, "were the audit committees of the institutions that faced the crisis doing?" Banks and financial institutions in the Gulf were basically "sound and solid," but, he added, "We have to safeguard them through better corporate governance." This was "the key for the region to maintain and grow its wealth, and to promote sustainable development."
Qatar's Minister of Economy and Finance, Youssif Hussain Kamal, who also chairs the Qatar Financial Market Authority (QFMA), told the conference that "There is a critical need to enhance corporate governance in the region given the situation of the global financial markets. We need," he insisted, "to urgently look at adapting global best practices to the region's needs." This, he added, could "help to stabilise our financial markets."
Later that month, at DIFC Week, the Dubai International Financial Centre's annual extravaganza of forums and conferences, Mahmoud Salem, Vice President of The Bank of New York Mellon, noted that despite the substantial inflow of foreign funds to the Gulf in the past few years, much of which has now been withdrawn, the region had not really attracted a broad base of investors. "What it has attracted is a small sliver of hedge funds, not value fund managers, sector investors, pension funds, retirement funds [or] index funds." What was needed in the future, he maintained, were "all kinds of investors".
Salem was speaking on a panel that also included Peter Barker-Homek, CEO of TAQA, the Abu Dhabi National Energy Company, who pointed out that the current crisis meant that it was crucial that companies wishing to raise money build up good relations with investors. "It will be critical to be transparent, to show good corporate governance and to communicate with investors through conference calls and meetings. Companies will be rewarded for that," he maintained.
"If you want to be a global player on international stock exchanges and attract the appropriate type of investors, then issuers and companies must comply with these corporate governance standards." The Gulf, he added, stood to benefit more than any other region in the world once capital flows resumed. "Those foreign investors that have left did so for liquidity reasons in their home markets. We can turn the tide," he insisted, "if we create the institutional strength to attract capital."
"To become a credible, long-term destination for ... investors, regional companies must demonstrate that they are serious global participants by addressing a pressing concern ... corporate governance," Georges Makhoul, regional head for the Middle East and North Africa (MENA) at the US investment bank, Morgan Stanley, said recently. …