Last week’s announcement that an Abu Dhabi court had convicted and given jail time to two company officials for their involvement in a fraudulent stock deal sends a message that the market has been waiting for. The message is that business executives will be held accountable for their actions. Investors in the region, who have seen their investments languish, want to hear that messages repeated. Investors are welcoming the fact that authorities are prosecuting these infractions and working to bring them to a stop.
Over the last few years, too many firms have been operating without the necessary oversight that should come directly from its board of directors. This avoidance of duty has resulted in a number of high-profile scandals, including the bankruptcy of Abraaj for co-mingling of funds, the investigation into the loss of billions by Drake and Scull, and the failure and eventual dissolving of retailer Marka, who, despite making millions in questionable acquisitions, failed to turn a profit after listing on the DFM in 2014.
Following the DFM and ADX’s admission to the MSCI’s Emerging Market Index in 2015, investors had great hope for the UAE’s markets. Instead, they’ve been forced to deal with scandals and slumping markets. That is hurting the UAE’s position as a hub for finance. Last week’s announcements could restore confidence in the system, but there are a number of things that would further help restore investor confidence into the markets.
Directors cannot be allowed to continue to draw salaries for the “privilege” of being on a board. They must provide governance or face the consequences.
The first is the empowerment of Emirates Securities and Commodities Authority. While the ESCA has been active in suspending and warning traders, the authority should be given additional power to regulate, police and prosecute all criminal market activity. The ESCA needs to be sending a warning to any and all companies that no irregularities will be tolerated and any failures to confirm to the authority’s rules will be prosecuted.
The second is the establishment of a regulatory framework that governs the roles of directors, including fully describing their duties and fiduciary obligations. Ultimately, the board of directors has to accept full responsibility for any company’s failures in governance. This needs to include forcing publicly listed companies into accepting an outside director who can provide oversight. Directors cannot be allowed to continue to draw salaries for the “privilege” of being on a board. They must provide governance or face the consequences.
The UAE’s markets cannot afford more scandals. It must find a way to ensure a world-class investment environment.