Passion for corporate governance

Nasser Saidi had concerns about the standards of governance in the Middle East and started an institute to improve them.

 Nasser H. Saidi, chief economicst of Dubai International Financial Centre  Courtesy DIFC?
Powered by automated translation

When he was the vice governor of Lebanon's Central Bank in the late 1990s and early 2000s, Nasser Saidi noticed a disturbing trend. Even at large, well-established firms, corporate boards were not up to the same ethical standards as those in developed markets. Conflicts of interest were rife, as was insider trading, and there was a paucity of independent directors. In 2003, Mr Saidi, who is now the chief economist at the Dubai International Financial Centre (DIFC), left the central bank and went out on what is referred to as "gardening leave". Lebanese officials who resign their posts are barred from taking jobs in the private sector in the industry they regulated for a period of three years.

With the luxury of time to reflect on his 10-year tenure, he decided to voice his concerns about standards of governance in the Middle East. "Since gardening was never one of my fortes, and I was never a man to be kept idle, I got involved in something called the Lebanon Corporate Governance Task Force," Mr Saidi said, from one of the DIFC's plush meeting rooms. "The idea behind it was to promote better corporate governance in Lebanon, which I thought was a need. I had just come out of the banking sector and I could see what international trends were and what we needed to do to move ahead."

But as Mr Saidi soon found, corporate governance was also a regional priority. Lebanon's underdeveloped governance structures were mirrored throughout the developing countries of the Middle East and North Africa. Around the same time, the Organisation for Economic Co-operation and Development (OECD) was increasing its corporate governance efforts in the Middle East and looking for a partner. As the region's aspiring financial centre, Dubai seemed like a good fit, as did Mr Saidi, with his contacts and knowledge of companies and economies. So in 2006, Mr Saidi, with backing from the OECD, the Union of Arab Banks, the UAE's Ministry of Finance and Industry and an assortment of other high-profile partners, started a regional institute for corporate governance, called Hawkamah. "You need corporate governance that takes into account the realities of the region," Mr Saidi said. "You can't take a corporate governance code from, say, the US and impose it here. You need to take into account local laws and regulations and the institutional framework here. This is where the idea of having Hawkamah came from." The name, Hawkamah, is a combination of three Arabic root words meaning "government, judgement and wisdom". Mr Saidi became its executive director, supported by a staff that has grown to six people. Two years on, the organisation has made waves, drawing from sponsors including Mastercard, AIG and Korn/Ferry International to pay for its research, seminars, awards and publications. The three-year sponsorship deals it has secured - along with membership dues from companies and individuals who attend its workshops and seminars - cover virtually all costs for the institute, which is run like a non-profit organisation. Among its most significant accomplishments to date are its surveys, which for the first time have documented the composition of corporate boards throughout the region. Earlier this month, Hawkamah teamed up with the International Finance Corporation to produce a sweeping report from the region showing that, while awareness of good corporate governance is high, in practice companies rarely conform to the strict standards that have been spurred on in the West by the Enron and WorldCom scandals. About two-thirds of publicly-listed companies in the region ranked corporate governance as either "important" or "very important", the survey found. At the same time, 53 per cent of companies were unable to even define corporate governance properly, and few recognised why good governance is good for business. Countless studies have shown that good corporate governance brings emerging-market companies into better contact with the rest of the world, both by drawing inward investment and allowing domestic companies to expand into regions where solid governance has a long tradition. It also lets them borrow money more cheaply. A survey by the consulting firm McKinsey in 2002 revealed that institutional investors saw accounting disclosure and shareholder rights - both hallmarks of good governance - as critical to investment decisions in emerging markets. Another survey found that more than 80 per cent of such investors considered bad corporate governance a dealbreaker. Mr Saidi was well aware of this economic calculus when he started Hawkamah, having spent years studying and teaching economics at the University of Chicago, the American University of Beirut and the Université de Genève. He also spent from 2000 to 2006 serving on the UN's Committee for Development Policy, having been appointed by Kofi Annan, the former secretary general of the UN, and wrote a book about governance in the Middle East and North Africa. "Good corporate governance can make a big difference in companies that are looking to get access to international markets," said Jeffrey Garten, a professor of international finance at Yale University. "In the end good corporate governance cannot guarantee good results, but it will bolster the confidence of the supplier of funds, particularly those without a long history with the company, that it has good discipline and that they, the providers of money, are exercising their own fiduciary responsibility in investing in the company." When they are well-run, corporate boards function as a check on management by approving business plans, executive salaries and serving as a voice for shareholders. Convincing firms in the Middle East to move towards such sophisticated structures has not been difficult, Mr Saidi said. The challenge is simply raising awareness that corporate governance is crucial to building a successful company. And that has been Hawkamah's primary message in its educational ventures. "I think they've made a lot of progress attracting attention and giving guidance to companies that is both descriptive and prescriptive," said Oliver Schutzmann, the head of investor relations for Shuaa Capital, an investment bank in Dubai. "They saw that corporate governance would become an important topic, and I think initiatives like these help position GCC companies on par with international companies." If Mr Saidi has his way, that is what Hawkamah will accomplish in a few years' time. For now, the strategy is to target the banks, listed companies and family businesses that are the lifeblood of the region's economic community. Helping local capital markets to grow and compete internationally is "fundamentally important" if the region is to thrive in the post-oil era, and getting governance right is a crucial piece of that puzzle, Mr Saidi said. "Why should we take our money and go and invest it via institutions that are in London or New York or elsewhere so they can go do what they want with it, whereas we can build our own institutions and our own markets in accordance with the best international standards?" he said. "We have that ability. We have the people, we have the technology and we have the knowledge. That seems to me strategically the right direction to go, and corporate governance is a major building block for that."

afitch@thenational.ae