Business | General
Gulf suffers from poor corporate governance
Corporate governance standards in the six GCC countries are poor and the region generally complies with only half the internationally accepted best practice codes, a report said yesterday.
- By Arif Sharif, Staff Reporter
- Published: 00:00 October 3, 2006
- Regulators should quickly introduce corporate governance reforms in state-owned enterprises, which are major contributors to the economies of the GCC.
- Regulators in the GCC need to establish a regional GCC corporate governance task force to help promote standardised, best-practice laws that will apply across all regional stock markets. This will aid regional integration and the planned currency union.
- Specialised courts to deal with the enforcement of securities laws also need to be established.
- Increase financial transparency by harmonising financial reporting requirements and adopting standards like the International Financial Reporting Standards.
- Establish a registrar of companies, requiring all companies, proprietor-ships and joint stock companies, to provide financial information.
Dubai: Corporate governance standards in the six GCC countries are poor and the region generally complies with only half the internationally accepted best practice codes, a report said yesterday.
But regional regulators are pushing reforms to lift standards, aided by the sharp downturn in regional equity markets, the survey by DIFC's The Institute for Corporate Governance and the Washington-based Institute of International Finance, said.
In the UAE, the market regulator Securities and Commodities Authority is drafting a code for all listed companies while the Abu Dhabi Securities Market has already issued one. The Dubai Financial Market is also drafting a code. The UAE Ministry of Economy will also introduce a corporate governance code in its new company law.
An IIF spokeswoman told a news conference the GCC average for compliance with international best practices is nearly 50 per cent, lower than in other emerging markets, like India's 75 per cent and about 65 per cent in China.
The equity culture in the six GCC countries is generally weak and investor education needs to be improved, she added.
"A lot of this is because markets across the region are young. Oman and Kuwait and relatively better because they are a little older and only one country, Oman, has a corporate governance code," Dr Nasser Saidi, director of the Governance Institute, said.
The survey evaluated corporate governance standards across some 56 criteria falling into five broad categories: minority shareholders' rights, accounting and auditing standards, responsibilities of board of directors, laws governing ownership and laws governing control structure.
Saidi said reforms are being carried out across the region and regulators are using the recent price correction in GCC stock markets to upgrade corporate governance frameworks.
Bahrain is revising its companies law and will shortly introduce a corporate governance code. Saudi Arabia issued a draft corporate governance code in August on which it has invited comments and will shortly enforce one for listed companies. In Oman, the Muscat Securities Market is likely to be privatised.
Saidi said the region is amid an economic boom and it is important to improve corporate governance standards to sustain that boom. He said market capitalisation as a percentage of GDP in the Mena region currently stood at about 120 per cent, higher than the OECD average of 95 per cent but there was still room to broaden and deepen the markets.
Other changes are also helping improve standards, the report said.
GCC corporations have made acquisitions worth $25.9 billion so far in 2006 in foreign markets that is contributing to improvements in private sector standards.
Quick fix
Recommendations to make the GCC compliant with the IIF's corporate governance code:
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