Following the recent corporate governance and corruption scandals, senior government officials and business leaders alike have issued statements emphasising the need to tackle the region's core corporate governance challenges. The media has also played a significant part in raising awareness of the role of corporate governance. The business community has generally accepted that sound corporate governance practices and procedures are a key driver of sustainable growth in that they foster transparency, accountability, efficiency and credibility. And rightly so, as the empirical evidence from emerging markets is clear: corporate governance is increasingly at the heart of investment decisions and investors are willing to pay a premium of 10 to 30 per cent for well governed companies. The importance of this recognition cannot be underestimated, but it is the next steps that are crucial. The sentiment needs to be followed by actions.
Although corporate governance is now very much a buzzword, it remains just that, and it is not always clear what corporate governance entails in practice. A recent study by the International Finance Corporation and Hawkamah, the Institute for Corporate Governance, showed that while the overwhelming majority of listed companies ranked corporate governance among their top priorities, 53 per cent of respondents were unable to properly define the term.
Regulators and companies need to formulate step-by-step strategies for creating an environment that encourages and maintains investor confidence. Equally, it should be remembered that good corporate governance is not a box-ticking exercise. It is about companies embedding best practices in all levels of their organisations, starting from the top, while governments set up proper compliance and enforcement mechanisms.
Also, Western corporate governance codes cannot be simply imposed to a region with traditions and a market in which most companies have traditionally been either state-owned or family-owned. What is required is that the region creates local solutions to local issues, while adopting international best practices. Hawkamah was set up for this very reason, to guide regulators and companies in the process of building corporate governance frameworks. Hawkamah has carried out studies and conducted surveys on the corporate governance needs of the region and, together with the International Finance Corporation, has published a list of recommendations to address the weak corporate governance framework and regulatory structure in the UAE.
Corporate governance is fundamental for the growth of financial markets, which have never held as much importance in the region as they do now. This is starting to be recognised by the business community and regulators, but there is a gap in understanding what corporate governance entails in practical terms. * Dr Nasser Saidi is executive director of Hawkamah, the Institute for Corporate Governance, a Dubai-based regional "think-and-do-tank" advocating corporate governance reform in the Middle East and North Africa