Abdullah Al AbdulGader is a leading light in the Saudi Arabian business establishment who has made it his mission to advance the cause of good corporate governance across the region through the GCC Board Directors Institute (BDI), which he founded.
What is the basic concept behind BDI?
I think it is a noble idea, a non-profit making organisation aimed at filling the void in best practice in board effectiveness and governance in the region. It came about through the collaboration of leading corporates, financial organisations and consultants in the Gulf, people like McKinsey [a consulting firm], Allen & Overy [international lawyers], Heidrick & Struggles [an executive recruitment firm] and PwC [accountants PricewaterhouseCoopers]. We also got the support of big regional players like Saudi Aramco, Sabic, Emirates NBD and Investcorp. These came together in 2007 to offer research, advocacy, knowledge-building and training programmes to directors in the region. We've now got 250 members, mostly from Saudi Arabia and the UAE, who are trying to put the issue of corporate governance high on the agenda of business and political leaders in the region.
What have you found to be the main challenges so far in promoting good corporate governance in the region?
I am not saying we are lagging a long way behind. There have been big improvements since we first set up, and now Oman, Saudi, the UAE and others have produced corporate governance codes. Levels of transparency have shown big improvements. But, like many places in the world, we must avoid the temptation to just be box-tickers, and therefore we have to show that good corporate governance is not just a cost-centre, but can have tangible benefits in terms of business value for companies here. Research elsewhere in the world has shown as much as a 40 per cent premium in the share price of companies the markets regard as having good corporate governance, and it would be interesting to repeat that exercise here.
The Middle East has developed pretty quickly with its own traditional models of corporate structure. Why change the set-up?
Sure, the GCC constitutes an important part of the world economy, and has been growing in importance in recent years. But the world is increasingly connected. We have seen big and foreign investment from the GCC area in the rest of the world, and this is being mirrored by investment into the region. GCC companies operating outside the region need to be aware of best practice globally, and good governance within the region will attract more foreign investment. It's a two-way process.
Business in the GCC has traditionally been dominated by governments and family groups. Are these factors you have to contend with?
You are right, there has been that mindset. But we have to convince them that corporate governance is an issue that should be taken seriously. I believe there is a willingness to change, especially after the failures we've seen in the rest of the world, like Enron and the banking collapses of 2008.
The region has arguably had its own crises of governance, such as the Al Gosaibi/Saad affair in Saudi Arabia, and Dubai World's woes in the UAE. What's your view?
There have of course been issues in the region, but I don't believe events like the DP World restructuring or the Al Gosaibi/Saad affair affected the whole system, there was no systemic risk from them. With Al Gosaibi/Saad there was a definite lack of corporate governance, not enough checks and balances, but it was not serious enough to affect the whole Saudi financial system.
There is much talk of Saudi Arabia opening up to foreign investors soon, and for a long time you were at the heart of the financial establishment on the Capital Markets Authority (CMA). Will it happen?
I was on CMA for five years until 2009, but am outside it now so cannot give you a definitive answer, but I would say that the attraction of all markets in the GCC to foreign investors would increase if there were better standards of governance.
How important are non-executive directors in your corporate governance philosophy?
Very important indeed. They provide expert individual judgement without external influences, but I would like to make the distinction between non-executives and independents. The independence factor is essential. They should have no family ties to the executive board and no connections to major contractors, customers or other parties like the auditors. We have made progress, the statistics show it. In 2011 GCC countries had 64 per cent independents, up from 46 per cent two years before.
Should governments and regulators insist on higher standards of governance?
Governments have a role, but too much regulation will hamper the growth of the markets. There has to be a balance, and that's where BDI comes in, to complement the role of the regulator.