Sorting out Middle Eastern corporate governance

Good corporate governance is a fashionable thing to support, and in the US doing it properly is now a legal issue for company executives. But does corporate governance really have any relevance in the Arab World?

A conference in the Burj Al Arab in Dubai this week hosted by the new Center for Innovative Thinking was aimed at putting corporate governance squarely on to the business agenda in this part of the world. Indeed, so convinced is the CIT of its relevance that it chose to launch the Middle East Centre for Corporate Governance at this event.

CIT's Professor Mohammed Zairi explained that higher standards of corporate governance are an essential part of economic development. He said that poor company organization left a feeling of 'suffocation' and called for an evolutionary path to good governance.

Visiting from Leeds Business School in the UK, Professor Steve Letza defined the concept of corporate governance in terms of accountability, transparency, openness, integrity and risk. His further analysis related to issues of competence, conduct, communication, culture, commitment and control.

Where corporate governance really seemed to have basic relevance to business in the Arab World was in terms of making a company attractive to business partners, either for joint ventures or investment, or even an IPO or trade sale.

It seemed quite clear that while having one owner with a ramshackle business organization might work adequately in some instances this would not be acceptable to external investors. They would want to see business systems in place and be assured that a company had a future beyond the life of its present owner and have independent evidence that its accounts were in order.

Several speakers mentioned that good corporate governance would be essential for any company wanting to list its shares on the upcoming Dubai Regional Exchange at the Dubai International Financial Centre. But as other speakers pointed out corporate governance is a more basic concern than that.

The eminent UAE lawyer Dr. Habib Al Mulla said that recently he had been drafting a new law and the nearest term for 'corporate governance' was 'best practice'. Indeed, this is a very good point, and the adoption of best practice in running a company is surely to be encouraged.

However, there is much to be debated in the realm of corporate governance, such as which system is most relevant to the Arab World. The conference this week highlighted the US/UK, European and Japanese models, though strangely failed to even consider the Sharia Law and its very definitely views on corporate governance.

Dr. Al Mulla also pointed out that a 'one size fits all' view of corporate governance was a mistake as clearly the appropriate form of governance depended on the size of the company.

What the new Middle East Center for Corporate Governance needs to do is to draw up its own code of conduct for corporate governance tailored to the needs of the Arab World. It might borrow Sharia components, for example, and restrict corporate indebtedness. This reduces the risk of a company failing by overstretching itself financially, and has as much common sense as religious value.

But in general anything that promotes the adoption of international best practice by regional companies is to be encouraged. Sometimes in the very rapid economic expansion of the past 40 years basic management structures have been overlooked and such issues need to be addressed for further progress to be achieved.