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In practice, however, removing long-serving yet ineffective board members is easier said than done and survey respondents said most companies preferred to wait for ineffective members to stand down voluntarily.
Support for adopting global best practices
When it comes to committees, the region performs well on a global level. On average, GCC boards have three committees, and the survey says this is in line with the European average. The most prevalent committees are audit and remuneration committees, and again this fits with global best practices. The good performance in this area is the result of corporate governance legislation in the region that in some jurisdictions dictates how many committees a publicly listed firm must have. The committees have an average of two non-independent and two independent committee members.
Appropriately, given the need for integrity, independent chairmen are most prevalent on remuneration and audit committees. There is a general satisfaction with the frequency of board committee meetings and average attendance is high at 92 per cent. Attendance rates have improved steadily since the first BDI survey, from 82 per cent in 2009 and 88 per cent in 2011, and this reflects that board members are less overcommitted and also taking their responsibilities more seriously.
The survey found considerable and increasing support for appointing members from outside the GCC, with 71 per cent believing non-nationals add value to the board, both in assisting overseas diversification and enhancing corporate governance, compared with 40 per cent in 2011.
Respondents said international board members bring more formality to the table, enhancing discussions and preparations for meetings.
In terms of delivering on roles and responsibilities, the survey respondents felt boards should devote more time on strategy development, talent management and ensuring the integrity of accounting and financial reports.
There is also a desire to see more time spent on risk management, nomination processes and communication with shareholders and less emphasis on budget approvals and capital expenditure. The latter areas are where boards are perceived to be most effective.
Formal evaluation still lacking
The best ways to improve board members' capabilities, the survey respondents said, was through participation in local and international workshops and joining professional bodies. Generally, there is a strong understanding of the benefits of exposure to global best practices, evaluation and benchmarking. But despite this self-evaluation continues to be an area of significant weakness, with just 23 per cent of boards conducting a formal evaluation process. Although this is higher than the 16 per cent seen in 2011, it is a glaring gap in the region's corporate governance regime. In Europe, the survey says, 75 per cent of boards undertake an evaluation.
Also noted for its absence in the GCC boardroom is gender diversity. Women continue to be under-represented, accounting for on average less than 1 per cent of board members. While the social and religious traditions of the Arab world mean that the number of female directors will continue to remain low for the foreseeable future, it sets the region against the global trend to promote gender diversity on boards. Several European governments have set quotas requiring 30-40 per cent of board members to be women.
Despite the good progress made in certain areas since 2009, the survey shows robust corporate governance processes are still lacking at many GCC companies. The challenge is changing boardroom mentality from mere compliance with market regulations to striving for effective corporate governance. An understanding of the benefits of effective governance is growing, but as so often is the case in the region, translating this into action is slow.
This article is part of the GCC Board Directors Institute report, for more information please visit their website
Staff
