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Saudi Capital Market Authority increases regulation
Regulators are also contributing. In 2011, Saudi listed companies were required by the Capital Market Authority (CMA) to form a nomination and remuneration committee that would review and audit boards, including appointments and salaries. Since 2012, CMA-licensed entities have been required to include independent members on their boards of directors and to disclose information about board composition, activities, internal audits and financial matters. These firms must also have in place corporate governance policies covering board membership and other criteria.
All this is precipitating sustained change in the way that GCC boards operate. One specific example highlighted by Al-Morished is that there will likely be fewer directors sitting on several boards at the same time - a common trend - because lack of time is an impediment to effectiveness.
Impact on Middle East family businesses
The bigger long-term challenge is to ensure the corporate governance message reverberates through the family-owned business sector. These make up an estimated 80 per cent of the GCC private sector, but tend not to be influenced by modern corporate governance standards. For example, few of these companies deign to disclose their financials to the public.
But even in this sector, change is afoot. According to Imelda Dunlop, executive director of the Pearl Initiative, a private sector-led, not-for-profit organisation set up to improve transparency, accountability and business practices in the Arab world, the family business sector is at a tipping point.
"The driving force for change is the feeling that the next generation of family firms is always more complex, with more people involved, so it becomes a question of survival to somehow codify the company values, or the way things are done in the firm," says Dunlop. "If the founder has set up a firm with a strong set of values and wants to pass these on to the next generation, they need to be written down and understood by everybody as more people get involved. There's a very strong sense that if they don't do that, the family firm is not going to thrive and grow through the transition of the generations."
Al-Morished also sees change starting to bed in among family firms. "The smart ones are now moving to publicly list themselves and have the children as shareholders or majority shareholders, but they are also bringing in outside investors and professional boards."
If the region's family firms do take up the corporate governance challenge, the BDI's mantra of boardroom effectiveness will gain added heft.
This article is part of the GCC Board Directors Institute report, for more information please visit their website
Staff
