GCC Board Directors Institute surveys create regional picture (page 1 of 2)

The overriding lesson of the global financial crisis was that strong and effective directorships are integral to a company's success, but in many instances this was lacking in the region. The 2009 survey showed many board directors were overstretched and unable to devote sufficient time to any one company due to sitting on numerous boards.

The survey also highlighted that there was a lack of independent and international expertise on GCC boards leaving opportunity for conflicts of interest to arise, and that formal evaluation processes for boards were largely absent.

The 2011 survey found that progress had been made in tackling some of these weaknesses, with fewer overcommitted board members and a higher number of independent directors in the GCC. It also revealed efforts had been made to improve board structures, with more sub-committees in existence.

However, respondents felt that board members had become less engaged and were less prepared for meetings than had previously been the case. The survey also found transparency was a challenge for GCC corporates, with even what should be publicly available information difficult to access.

The findings of the BDI's latest survey were published in April. They show a continued improvement in the awareness of the importance of strong corporate governance in the GCC. Board members are also becoming more mindful of their roles and responsibilities, and appreciative of the contribution that effective and professional boards can make to the performance of a company. But as the previous two surveys concluded, board composition and directors' capabilities remain the chief obstacles to effective corporate governance.

Company boards slow to allow new talent

The survey found that the average board in the GCC has six directors, with two independent directors and an estimated four non-executive directors. Although this is below the European average of 12, there is general satisfaction with the size of regional boards. This is probably because the number of board members varies greatly between companies, with some having as many as 10 and others as few as one or two. The latter figure is mostly a trend at privately held firms, which do not have to comply with capital market regulations.

While it was felt that the tenure of board members is long enough to ensure accountability, survey respondents believed members are not rotating sufficiently quickly to allow new talent to enter.
This finding ties in with perhaps the biggest change in attitudes compared with the previous two surveys - the growing belief that ineffective board members need to be replaced. This represents a seismic shift in a region where linkages between business and family are closely intertwined. Board directorships and particularly chairmanships in the GCC have traditionally been considered prestigious ceremonial roles to be held by familial figureheads or a few distinguished members of society. The effect of this has, in some cases, been to neuter the power of the board and its members.

That the idea of replacing ineffective board members is becoming more palatable is a sign of the lessons being learnt from the financial crisis, which brought several GCC corporate scandals in its wake.