Gulf governments must develop minimum standards for how state-controlled companies are run to help improve their financial stability, says the chief economist of the Dubai International Financial Centre (DIFC). Raising the level of corporate governance of these firms would also improve the quality of public services and provide greater transparency and a better protection of the state's interests, said Nasser Saidi, who is also the executive director of the Hawkamah Institute for Corporate Governance.
"If you have better guidelines and enforce them effectively, this can help to avoid mishaps and the need for state intervention in state-owned enterprises as you have greater transparency and can hold the board accountable," Dr Saidi said. "What Hawkamah is hoping for is that in the UAE and elsewhere in the region we can work with state audit institutions to develop guidelines that can become mandatory."
Government-controlled companies have for many years helped to lead efforts to drive GDP growth and diversify economies. These enterprises are active across a wide spectrum of sectors including industry, property, logistics, energy, utilities and financial services. Some of these companies have had financial troubles since the global downturn. The highest-profile example may be Dubai World, which is seeking to restructure US$26 billion (Dh95.49bn) of debt, much of which was taken out by the conglomerate's property units.
Dubai World's troubles prompted an injection of $20bn from the Central Bank and the Abu Dhabi Government. From April 30, firms listed on the Abu Dhabi Securities Exchange and Dubai Financial Market must comply with new regulations from the Emirates Securities and Commodities Authority aimed at establishing new corporate governance standards, including ensuring that companies have separate chief executives and chairmen.
The standards apply to listed companies partially owned by the Government. Any code would need to map out a uniform framework of what governments expect of their enterprises, require greater transparency and disclosure, as well as guidelines for board nominations, said Dr Saidi. The code would also have to clarify the companies' responsibilities to stakeholders, he added. Removing political appointees from boards of directors and ensuring financial accounts were made public would help improve the corporate governance of government-controlled companies, Dr Saidi said.
It would also ensure such firms were operating on a "level playing field" with private companies in the same sector, he said. "If a state-owned enterprise is offering services to the public or clients they are a stakeholder and the company should be held accountable for the quality and level of services given," Dr Saidi said. GCC states are lagging behind Egypt, which has developed guidelines on corporate governance for state-owned enterprises, he added.
"It's a hot topic among government circles in the region at the moment," said Hamish Walton, a corporate lawyer at Clyde and Co in Abu Dhabi. "Putting in place some type of structure for corporate governance will help. It's not just about eliminating risk but how to expand businesses from the right foundations and improve the quality of decision-making." email@example.com