"Corporate governance" and "transparency" are much bandied about, but rarely does the absence of those safeguards lead to the startling outcomes seen in the case of Damas International. The jewellery company's Dh1.9 billion (US$517.3 million) loss is likely to be a much-needed reminder to executives that a lapse in controls at a corporation can lead to major financial losses. Ibrahim Belselah, the executive chairman of Damas' board of directors, put it best in saying the losses were caused by the "failings of the then board of directors and, in particular, the actions of the executive directors, the Abdullah brothers".
Of course, the rising cost of gold and the global financial crisis contributed to Damas's losses, but the company's descent last year can easily be traced back to the unauthorised transactions carried out by the Abdullah brothers. The more than Dh600m they owe directly is just the start. Companies to which they lent gold are defaulting, non-core investments have soured and the cost of financing gold loans has increased.
All told, the lack of proper corporate governance by the top executives and board members led to more than Dh1bn of losses. And the pain is not over. Damas is still negotiating for a debt standstill before a painful restructuring. Damas has come clean about the extent of its liabilities thanks to NASDAQ Dubai's strict disclosure requirements, but the revelations came too late for shareholders. Other companies in the region, listed and privately held, should learn from this sorry tale and strengthen their oversight at the board level.