Arif Naqvi, the founder and ex-chief executive officer of Abraaj group.
The implosion that sank Abraaj Capital was a wake up call for true corporate governance standards to be imposed. File picture of Arif Naqvi, founder and ex-CEO of Abraaj group. Image Credit: Gulf News Archive

Two years ago, the spectacular fall from grace of Dubai-based private equity titan, Abraaj, concentrated minds on the importance of developing a strong corporate governance culture in the region.

The UAE had been proactive in its response to the Abraaj scandal - on April 28, new corporate governance rules for public companies came into force, which are in line with international best practice and aim to promote accountability, fairness, gender diversity and transparency.

The legislation includes a mandate for a female board representation of not less than 20 per cent and a requirement that the majority of board members should be independent, non-executive directors. These are pragmatic, sensible measures and will help to maintain the UAE’s standing in the international capital markets.

Rot endures

However, recent scandals at NMC Health and Al Masah Capital have reignited longstanding concerns over corporate governance standards in the UAE. NMC Health collapsed into administration in March after more than $4 billion of hidden debt came to light following suspected fraud by senior executives within the firm. As with Abraaj, numerous conflicts of interest existed, including family members occupying senior positions within the company and former partners of the firm’s auditor, EY, sitting on its board.

The scandal engulfing Al Masah Capital, one of the region’s largest private equity firms, also has echoes of Abraaj. In September 2019, the Dubai Financial Services Authority (DFSA) accused the firm of numerous breaches between 2010 and 2016, including carrying out unauthorised financial services and making misleading or deceptive statements about fees to clients.

In May this year, Dubai’s regulator prohibited Al Masah from performing any financial services work in or from the emirate and imposed a combined $5.03 million penalty on the firm and its senior management.

Lessons have to be learnt

The UAE has been swift and decisive in its actions against NMC Health and Al Masah and - having learned its lesson from Abraaj - clear in the communication of its actions to the financial markets. However, the scandals draw attention to the fact that the UAE’s business culture, with a tendency toward interconnected businesses and closely controlled company ownership, remains at odds with the requirements of listed companies.

We have spoken previously of issues that need to be addressed to foster an atmosphere of accountability and trust as MENA pivots away from its reliance on petrochemicals to a more diversified and open economy.

Begin at the top

Chief among these changes are having truly independent board directors, increasing gender diversity within companies, particularly at board and senior levels, greater transparency and disclosure practices and more robust financial controls.

In the context of globally interconnected capital markets, governance mandates are vital to foster trust at an organisational and systemic level. And indeed, the new corporate governance rules for public companies introduced in April addresses many of these points.

However, it is imperative for trust in the region that privately-owned companies seek to tackle these issues, particularly given that in comparison to their global peers, businesses in MENA are averse to stock market listing.

We believe nurturing the adoption of a commitment to transparency and the highest ethical standards at the individual level is a vital adjunct to these efforts. In this regard, our members have a vital role to play in the development of the region’s capital markets via the dissemination of the highest industry standards, ethical leadership and advocacy.

By continuing to harness the ethical standards and investment knowledge for which our members are known, the transformation in attitudes and expectations will feed through to improved corporate governance standards from the bottom up. Simply put, when people know better, they do better.

I’ll leave the last word to an astute observer of human life, the Persian poet, Rumi: “Yesterday I was clever, so I wanted to change the world. Today I am wise, so I am changing myself.”

- William Tohmé is Senior Regional Head at CFA Institute.