Better to govern
A new initiative hopes to improve Corporate Governance in Lebanon
It bears repeating that being decoupled from every other market is not a win-win. At best it makes you a functional zero, irrelevant to all but yourself. The truth of this was reinforced again at the end of last month. When global securities markets shook, from China to developed economies on top of a shrinking oil price, bourses in the Middle East and North Africa region’s main markets were engulfed.
Benchmark indices in Egypt, Qatar, the United Arab Emirates and Saudi Arabia started the last week of August with severe drops; Bloomberg’s regional index of 200 top equities in the Gulf Cooperation Council by market cap and liquidity, the GCC 200, had a ten-session slide to August 24 at the end of which was more than 30 percent down when compared with a 52-week high in September 2014.
The Beirut Stock Exchange (BSE) was not part of the turmoil. The daily bourse comment by BLOM Bank reported a “negative performance” of the Blom Stock Index to the tune of 0.13 percent on August 24, followed the next day by a “lackluster” showing of the exchange as only $1.2 million worth of shares were traded. Note to trader self: a comatose market does not break out into any run, never mind whether bull or bear.
The BSE’s long-standing irrelevancy is a noted impediment to investment and private sector economic development in the Lebanese market. Many proposals and initiatives have been launched in efforts to fire up capital markets as an economic engine; from drafting lists of companies that the government could privatize via IPOs, to new legislation and the ongoing enhancement of capital markets regulation and supervision.
A NEW HOPE
Now, a new initiative is tackling the issue from a different angle by trying to spur on listed companies toward improving their corporate governance. The shareholder-rights. com initiative by Beirut-based consultancy Capital Concept bases its reasoning on the notion that investors, with other factors being equal, will prefer to put their money in companies with well-structured and accountable boards, with a high degree of financial transparency, integrity and ethics, and with substantive shareholder rights.
The whip that shareholder-rights. com cracks in order to make listed companies trot faster in adopting top-notch corporate governance is called Governance Integrity Ratings (GIR), a 100-point checklist for best disclosure practices in five corporate governance categories. The grades assigned on the basis of this checklist are straightforward; they range from A – representing real excellence and almost impossible to achieve at the first try – to D for inadequate performance and F for failed.
“A growing body of evidence demonstrates today that corporate governance is essential to the protection of shareholder rights,” Capital Concept reasons in describing its approach, arguing further that “adherence to strict corporate governance principles in a country’s primary and secondary equity markets is a precondition for attracting investors and to achieve vibrancy of capital flows, which are crucial for any country that has a direct interest in improving its competitiveness.” Under this reasoning, Capital Concept has developed a methodology to monitor listed companies’ disclosure on an ongoing basis and says it will publish frequent ratings reports called Corporate Governance Assessments beginning with large corporations in the Middle East and North Africa plus the Lebanese market in a standalone report.
BOTTOM OF THE CLASS
Executive obtained an advance copy of the first report, covering BSElisted companies. According to these GIR rankings, half of the publicly traded Lebanese companies are to be sent home with a report card showing an F in corporate governance up to the summer of 2015. Add to that two companies that got Ds, including market cap leader Solidere, and a 70 percent majority of the ten listed companies in the sample – which covers all corporations traded on the BSE – got corporate governance grades that you wouldn’t want to show to your parents.
These findings also pushed the average corporate governance rating for all BSE-listed companies way down, according to the report. “The overall level of governance practices in Lebanese listed companies is inadequate, expressed in an average rating score of 27 percent or a flat D,” it says, adding, “The average governance score improves to 39 percent when the view is narrowed to the banking sector, which represents the largest number of listed companies on the BSE. Three
THE BSE’S LONG
STANDING IRRELEVANCY IS AN IMPEDIMENT TO INVESTMENT
AND PRIVATE SECTOR ECONOMIC
DEVELOPMENT