The UAE’s accession to the MSCI Emerging Markets Index next month will expose the country’s listed entities to an unprecedented degree of scrutiny by international funds and investors entering the market.
This scrutiny will go far beyond an entity’s balance sheet and income statement. Listed entities with high corporate governance standards are set to be especially favoured by international funds investing in the UAE for the first time.
“If you’re investing in emerging markets you want to invest in companies that are best in class,” says Sameer Al Ansari, the chief executive of Hawkamah, a Dubai-based institute for corporate governance.
“One key measure of this is a company’s corporate governance standards – the information that’s available on a company, access to details about the chairman and the CEO, an investor relations department that communicates information in a timely manner and so on.”
“So if companies in the UAE are serious about attracting foreign capital they need to take these functions seriously.”
Listed entities have come a long way in the past 10 years in terms of their transparency levels and communications with the market, thanks in no small part to increased interest in the country from international investors, according to Rami Sidani, the head of the region’s portfolio management at Schroder Investment Management.
“Since we arrived here the pool of liquidity has changed from one that’s dominated by retail investors to a market where international investors have become a major player,” he said.
“Companies here now have very developed investor relations functions and vastly improved communication with the market.”
Market forces – particularly increasing scrutiny from international funds – will continue to persuade the country’s listed entities to improve such corporate governance standards, he said, as companies that do not adhere to international transparency norms will be punished by the markets.
The importance of such standards has not gone unnoticed by the Securities and Commodities Authority. The stock market regulator announced plans last month to compel all listed entities to set up investor relations departments.
“[Investor relations] has now become vital, as the local markets continue to enjoy increasing significance among the various categories of investors at both the national and international levels,” the regulator said.
“Creating such a department would help improve the level of disclosure in those companies to boost investor relations and meet investors’ ambition … It will serve as a launch pad for preparing the UAE market towards an upgrade to the advanced market status.”
The regulator did not respond to requests for comment on when the regulations would be finalised and when they were likely to come in to force.
According to Mr Al Ansari, improvements in corporate governance in recent years have been greatest at the sub-board level, including better internal audit functions, remuneration committees, the drafting of companywide corporate governance manuals and the appointment of dedicated corporate governance officers.
However, much work still needs to be done at improving corporate governance at the board level, despite recent improvements, Mr Al Ansari said.
“Of the entities we track in the UAE, 49 per cent of companies have independent non-executive directors on their boards, while 27 per cent of the top 50 companies conduct regular board evaluations,” he said.
“However, not many board members in this part of the world have been through director development programmes and training on the responsibilities of company boards. One day we hope that all public companies will make this a requirement for all of their board members.”
jeverington@thenational.ae
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