COR­PO­RATE GOV­ER­NANCE

Fam­ily businesses must be­come more trans­par­ent for bet­ter prof­itablity and longevity.

Gulf Business - - CONTENTS - TEXT BY AARTI NA­GRAJ

Fam­ily businesses must be­come more trans­par­ent for bet­ter prof­itabil­ity.

WHILE COR­PO­RATE GOV­ER­NANCE in the GCC is evolv­ing, fam­ily businesses are yet to join the fray. Ex­perts say this needs to change since many of these businesses have a ma­jor im­pact on re­gional economies.

The con­cept of cor­po­rate gov­er­nance is evolv­ing in the GCC re­gion, with com­pa­nies and lead­ers un­der­stand­ing the im­por­tance of is­sues such as trans­parency and reg­u­lated ac­count­ing stan­dards.

In 2007, a study by Hawakamah, the In­sti­tute for Cor­po­rate Gov­er­nance, found that only two per cent of MENA com­pa­nies and banks fol­lowed best in­ter­na­tional stan­dards.

How­ever, the fi­nan­cial cri­sis in 2008/2009 high­lighted the need for strict gov­er­nance prac­tices across the world, in­clud­ing in this re­gion, and sev­eral new reg­u­la­tions have been for­mu­lated since then.

In the UAE, the Se­cu­ri­ties and Com­modi­ties Author­ity (SCA) is­sued a new code to pro­vide a com­pre­hen­sive set of cor­po­rate gov­er­nance reg­u­la­tions for pub­li­cally traded com­pa­nies in the UAE.

Cur­rently all the listed com­pa­nies in the coun­try strictly ad­here to gov­er­nance reg­u­la­tions, con­firmed Sul­tan Bin Saeed Al Man­soori, the coun­try’s econ­omy min­is­ter.

“Vi­o­la­tors are be­ing pun­ished,” he told re­porters on the side­lines of a re­cent cor­po­rate gov­er­nance con­fer­ence in Dubai.

Ma­jid Ja­far, the CEO of Abu Dhabibased Cres­cent Petroleum, agreed that the re­gion has been adopt­ing bet­ter gov­er­nance mea­sures in the last few years.

“There’s been a lot of progress in the re­gion in these ar­eas of cor­po­rate gov­er­nance and trans­parency and bring­ing in in­ter­na­tional best prac­tices.

“But there’s still a long way to go, it’s a jour­ney,” he added.

“It shouldn’t just be just about ful­fill­ing reg­u­la­tory re­quire­ments; it should be how these prac­tices and poli­cies and in­sti­tu­tions can ben­e­fit your busi­ness.

“It’s re­ally about adding value to the or­gan­i­sa­tion, en­hanc­ing sus­tain­abil­ity for that or­gan­i­sa­tion in the short and long term,” he ex­plained.

But de­spite the re­gion’s gov­er­nance land­scape rapidly trans­form­ing, not all busi­ness stake­hold­ers are in­volved in this change. Around 90 per cent of re­gional com­pa­nies are fam­ily-owned and un­listed, which means they are not legally obliged to com­ply with any reg­u­la­tions.

Ex­perts say this needs to change since many of these businesses have a ma­jor im­pact on re­gional economies.

“Some of these firms are very large and im­por­tant and con­flicts or dis­rup­tions within those businesses can cause dis­rup­tions in the econ­omy,” said Ja­far.

“There have been some high pro­file cases in the re­gion, where dur­ing a fam­ily con­flict, even the govern­ment has had to step in to cre­ate an am­i­ca­ble out­come be­cause the dam­age to the econ­omy is se­vere,” he stated.

Al Man­souri con­curred, stat­ing: “Cor­po­rate gov­er­nance is too of­ten as­so­ci­ated with listed com­pa­nies, cor­po­rate scan­dals, and with com­pli­ance and con­trols. It is time to view cor­po­rate gov­er­nance as an en­abler of sus­tain­abil­ity of com­pa­nies.

“And as such it af­fects fam­ily businesses, state-owned en­ter­prises, fi­nan­cial in­sti­tu­tions, sub­sidiary com­pa­nies as much as it af­fects listed com­pa­nies.” He also con­firmed that the govern­ment was study­ing the is­sue and that the UAE may have gov­er­nance laws for fam­ily businesses “very soon”.

A new law will be very use­ful, as this would as­sist fam­ily businesses to at­tract ex­ter­nal in­vest­ments, and as­sist in their busi­ness con­ti­nu­ity, growth plans and sus­tain­abil­ity, said KPMG’s Janaki­ra­man Harikr­ish­nan, di­rec­tor, con­sult­ing KPMG Lower Gulf.

Ja­far added: “When it comes to the is­sue of suc­ces­sion in fam­ily businesses, it’s very im­por­tant to have the right gov­er­nance sys­tems put in place to man­age that process well.

“Also in terms of or­gan­i­sa­tion re­newal, in­no­va­tion and in-com­pany en­trepreneur­ship, you need to keep rein­vent­ing yourself and have out­siders and fresh think­ing at the board level.”

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