Ali Rashid Ahmed Lootah, the chairman of Nakheel, has been credited with steering the company through difficult circumstances.Randi Sokoloff for The National
Ali Rashid Ahmed Lootah, the chairman of Nakheel, has been credited with steering the company through difficult circumstances.Randi Sokoloff for The National

View of chief affects company's value



On August 24, Steve Jobs, Apple's co-founder, announced he was stepping down as chief executive. The company's shares then fell 7 per cent in after-hours trading.

Jobs, who cited his inability to carry on his duties, died less than two months later of complications from pancreatic cancer.

While a company's leadership is often perceived to have considerable impact on its share price, there is not much data available on the issue.

In a survey of analysts in the United Kingdom, the United States, China, India, Japan and Brazil, Deloitte tried to quantify the effect. The financial advisory firm says analysts attach a premium of as much as 16 per cent to a company's equity value if the business is seen to have effective leadership. But a company's valuation can decrease by as much as 20 per cent when its leadership is viewed as weak.

An effective leader steers a company well in a culture of innovation and delivers good results. More than the ability to think outside the box, leadership that runs a company effectively and delivers results with transparency is important to institutional investors, said Saleem Khokhar, the head of equities at the National Bank of Abu Dhabi's Asset Management Group.

"Leadership is one of the top five qualities we look at," Mr Khokhar said.

Some experts say a less formalised corporate structure in the Middle East compared with the US and Europe gives business leaders the flexibility to be effective.

In these kinds of structures, personal relationships are as crucial as positions in the company hierarchy, and executives can address problems through informal consultations, said Rodney Wilson, an emeritus professor at Durham University and a visiting professor at the Qatar Faculty of Islamic Studies.

"The adaptability of Nakheel in Dubai is an example [of good leadership], given its drastic restructuring," Prof Wilson said, adding that Ali Rashid Ahmed Lootah and Sanjay Manchanda have done a good job in steering the company during difficult circumstances.

Mr Lootah was named the chairman of Nakheel in March 2010, four months after the Dubai Government announced plans to restructure Dubai World's $24.9 billion (Dh91.46bn) debt. At the time, Nakheel was a unit of the Dubai World conglomerate.

Last month, Nakheel, which was transferred to Dubai Government ownership last year, announced a profit of Dh362 million for this year's first quarter versus a loss of Dh36m inlast year's first quarter, after it completed several property projects and cut costs.

"This is the benefit of restructuring, and more profitability means more liquidity," Haissam Arabi, the chief executive and a fund manager at Gulfmena Investments, told Kipp Report in April.

On the other side of the spectrum was Deyaar Development, a Dubai property developer.

Between 2008 and 2010, the years of greatest distress for the property sector, some of the top executives of Deyaar were accused of corruption, which they denied. The company's share price dropped from a high of Dh2.96 in January 2008 to just30 fils in December 2010.

Even as Deyaar announced that it would hand over projects worth $327m by early last year, analysts remained sceptical of its recovery.

And its profit continues to slide. Deyaar's first-quarter net profit this year was down 64 per cent from last year's first quarter.

A representative for Deyaar could not be reached for comment. A spokeswoman for Nakheel declined to comment.

So, does reliance on a leader undermine a company's future valuation after that leader's departure?

A good leader always has a succession plan in place, Mr Khokhar said.

Fadi Ghandour, who founded the logistics group Aramex in Amman after graduating from college, will step down as its chief executive this year after three decades at the helm.

Control will be handed over to Hussein Hachem, who was the head of Aramex's Middle East and Africa operations. He had been in the wings for 20 years.

Meanwhile, at Apple, the jury is still out on whether Tim Cook, Jobs' successor as chief executive of the technology giant, can continue the past performance of the $526bn company.

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