Dubai: Last week’s announcement that an Abu Dhabi court had convicted and given jail time to two company officials in a case involving share fraud at a state-run firm will give a much-needed boost in confidence to investors, who have been concerned by a lack of corporate governance standards, analysts say.
The Abu Dhabi Criminal Court sentenced senior executives at a government owned company to prison for 10-15 years and levied heavy fines on other executives. The top executives deceived the board of directors of the company by recommending the approval of the purchase of shares, claiming that the target company was owned by a bank, and failed to disclose that the target company’s shares were owned by the chairman, according to the court.
Last week’s announcement is the latest in a number high-profile cases involving corporate governance. Drake and Scull, an engineering construction firm, is being investigated by Emirates Securities and Commodities Authority. The regulator has confirmed that an external audit team will go through DSI’s financials dating back several years to see how it came to posting a Dh5 billion plus loss in 2018. The team has been empowered to conduct detailed investigations, including decisions taken by former board of directors as well as senior executives.
Ultimately the board has to accept responsibility for any company failure. They have failed in their duty to ensure the company’s prosperity.
The private equity firm Abraaj was at the centre of its own scandal in 2018 over co-mingling of funds, which caused the company to declare bankruptcy.
Last week’s decision is becoming welcomed by investors, who have been nursing huge losses on its shareholdings.
“It is great that oversight is spotting these infractions and putting them to a stop. What is also encouraging is the added transparency with respect to these incidents and how the authorities are dealing with them. With time, these issues will decrease and their impact will weaken as government cracks down and investors become more vigilant and aware,” Issam Kassabieh, Senior Financial Analyst, Menacorp told Gulf News.
“They need to follow proper procedures in all investment dealings which have been set by the authorities and instill strong governance framework,” Kassabieh said.
Under UAE law, shareholders in public and private sectors could play, if they choose to, an important oversight role.
Corporate governance has been a sticky issue among companies in the UAE and the Gulf region, and analysts say the biggest reforms should come in on the role of the non-executive board members, whose basic role is to protect the rights of investors. There are also called to oversee what some have called a brazen attempt to ditch the corporate governance standards by some companies, including allegations that some companies have acquired other companies owned by family members.
“Under UAE law, shareholders in public and private sectors could play, if they choose to, an important oversight role in ensuring that companies have systems in place to effectively manage key risks, including appointing and holding board members accountable for company operation and performance, and overseeing management’s approach to risk management, legal and regulatory compliance,” Abeer Jarrar, a corporate lawyer at international law firm Linklaters, told Gulf News.
It is great that oversight is spotting these infractions and putting them to a stop. What is also encouraging is the added transparency.
When asked if non-executive directors would be held liable for their role in the board, Jarrar said: “the law, in terms of directors’ duties and liability does not differentiate between executive and non-executive directors and they are in general equally liable for fraudulent acts, abuse of power etc if a decision is approved by board majority and a director does not register his objection (noting that absence and no vote do not necessarily relieve a director from liability).”
Jane Valls, Executive Director at GCC Board Directors Institute agreed. “Ultimately the board has to accept responsibility for any company failure. They have failed in their duty to ensure the company’s prosperity and to properly oversee the company’s risks,” Valls said.
“This is why board composition [and especially board diversity and truly independent professional directors who understand good governance] and effective corporate governance practices are so important. Shareholders are better protected from poor company performance when the board is made up of effective directors who fully understand their role and responsibilities,” she added.