Corporate Governance - Quantity Versus Quality - Middle Eastern Perspective

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Saleh Hussain. Corporate Governance - Quantity Versus Quality - Middle Eastern Perspective

Author's Note

Corporate Governance Now More Important Than Ever. Introduction

Chapter One

Corporate Governance: Quantitative Versus Qualitative Issues

Impact of the current Crisis worldwide

Sub-prime Loans

Stock Markets

Banks and Financial Institutions

State & Government Aid

Oil Prices

Other Economic Sectors

Job Losses

Impact on the Gulf Cooperation Countries "GCC"

GCC State and Central Banks Actions & Support

Relevance of CG to the Crisis

CG Qualitative Issues

Corporate Governance Quality Principles

Board of Directors’ Duties - Leading Qualitative Issues

Duty of Good faith

Duty of Care

Duty of Skill

Duty of Diligence

Corporate Governance Qualitative Issues

Directors and Senior Executive Management

Regulators

Several questions that regulators can benefit from are

Qualitative Issues – Transparency & Disclosure

CG Qualitative Issues and Social Responsibility

Questions about Qualitative Issues

CONCLUSION

Chapter Two

Board Committees

Executive Committee

Committee Formation

Wording of the resolution

Committee's Key Responsibilities

Meetings

Membership

Other Issues

Comments

Audit Committee

Purpose

Committee’s Key Responsibilities

Committee Members' Qualifications

Significant issues to be handled by the audit committee (areas of focus) Financial Reports

External Auditors

Risk Management and Internal Control

Internal Control Department

Maintaining and measuring effectiveness

Communicating and reporting

Regulatory, compliance and ethical matters

Committee's Structure and Formation

Disclosures in Annual Reports

Committee's Agenda

FIRST QUARTER (JAN)

SECOND QUARTER (APRIL)

THIRD QUARTER (JULY)

FOURTH QUARTER (OCTOBER)

Other Issues/Comments

Issues to be raised with Executive Management:

Issues to be raised with External Auditors

Issues to be raised with InternalAudit

Update 2009

Nomination Committee

Formation

Key Duties and responsibilities

Frequency of Meetings

Authority

Comments

Compensation Committee

Formation

Main Duties and Responsibmties

Meetings

Authority

Comments

Chief Executive's Remunerations

Risk Management Committee

Formation and Membership

Main Duties

Committee Meetings

Comments on the Risk Management Committee

Other Committees:

Disclosure Relating to Board of Directors' Key Committees

Chapter Three

Compensation of Directors and Executive Management. Directors' Compensation

Board Directors' Compensation

Executive Managers’ Compensation

Methods of Corporate Management

Corporate Size

Various Views on the Senior Executives' Compensation

Disclosure of Compensation

In the case of senior executives, disclosure includes the following:

2009 Update

Chapter Four

Corporate Succession Plans

Succession Plans of Directors of the Board

Succession Plans for Senior Executive Management

In order for such plans to be effective, the following must be taken into account:

Succession Plans for Line Managers and Other Employees

Code of Conduct

Chapter Five

Corporate Social Responsibility "CORPORATIONS ARE SOCIAL INSTITUTIONS, IF THEY DON'T SERVE SOCIETY, THEY HAVE NO BUSINESS EXISTING" Henry Mintzberg

Clarity of Purpose

Formation

Target Stakeholders

Interest Groups' Role

Activity Reporting & Communication

Audit

Social Responsibility and World Financial Crisis

Role of CSR

Chapter Six

Corporate Governance and Democracy

Democracy

Corporate Governance and Democracy Stakeholders

Comparison between Stakeholders of Democracy and Corporate Governance

Chapter Seven

Corporate Governance Code

United Kingdom

Board of Directors and its Members. The Board

Code Provisions

Board Chairman and Chief Executive

Code Provisions

Board Balance and Independency

Code Provisions

Board's Appointment

Code Provisions

The UK code deals as well with many other issues which include:

Shareholders Relations

Disclosure and Transparency:

Belgium

a) Introduction

b) Board of Directors

Shareholders

c) Disclosure

Pakistan

Board of Directors

Board's Responsibilities and Powers

Number of Board Meetings

Members' Training

Company's Financial Officer

Board Committees

Internal Auditor

External Auditors

Corporate Governance in Bahrain

Bahrain Corporate Governance Code – Draft Update 2009

The eight CORPORATE GOVERNANCE PRINCIPLES contained in the code are:

Developments in other countries

Chapter Eight

Corporate Governance in Government Companies (State-Owned Enterprises)

Companies Owned 100% by Government

Companies Owned at Less than 100%

Regulatory and Government Authorities

Service Companies

Government Companies Stakeholders

The conflicting roles are

Important Issues to be Observed to Make CG More Efficient within Government Companies

Governance Impediments in Government Companies

Practices to Avoid within Government Companies. Day to Day Management

Government's Conflicting Roles

Directors and Executive Managers' Selection

Overwhelming Board Memberships

Compensation

Practices to Encourage within Government Companies. Clarity of Purpose

Ownership Role

Executive Management of the Company

Dealing with the Company as an Independent Commercial Entity

Directors' Selection

Non-Executive and Independent Directors Selection

Compensation and Appraisal of Directors

Disclosure and Transparency

Social and Economic Benefits of CG in Government Companies

In Summary

Chapter Nine

Corporate Governance: Family-Owned Businesses "FOBs" Introduction

Features of FOBs in the MENA Region

Benefits of Corporate Governance for FOBs

Benefits to FOBs. Increase in Efficiency

Improve Leadership within Board of Directors

Increasing the Chances of Obtaining Financing

Clarity on Interest of the Owners Versus That of the Family-Owned Business

Encouraging transparency and accountability

Long Term Gains

Going Public

Benefits of CG to the Country

Opportunities & Challenges to FOBs. Opportunities

Challenges. Segregation of Ownership and Management

Corporate Governance Policies

Absence of Internal Audit

Difficulty in Monitoring Growth and Attracting New Shareholders

Important Issues for Improving the CG Policies for FOBs. Succession Planning

Employment within FOBs

Equal treatment of other shareholders

Meetings

Specific Suggestions for Enhancing CG Practices within FOBs. Appointment of a Strong and Effective Board of Directors

Formation of High Level Policies

Formation of Family Councils and Advisory Boards

The role of the family council or the advisory board includes:

Chapter Ten

Islamic Banking and Corporate Governance

Islamic Banking and Accounting Standards

Islamic Finance and Corporate Governance

Suggestions for Improvement

Preliminary Stage:

Subsequent Stage:

Comments

Update 2009

Definition and scope of Shariah Governance System

References

About the Book

About the Author

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This is my fifth book. on the subject of corporate governance. The first three were in Arabic and the fourth was in English. The subject of corporate governance, on its own right, attracts the attention of many writers and researchers around the globe who publish studies and books. The subject itself evolves continuously and worldwide business developments accelerate such an evolution. I started to take an interest in the subject in 1998. In 1999, in collaboration with Henley Management College in UK, I started my first study entitled "Corporate Governance in Bahrain" which was completed in 2001. I followed that with another study also on corporate governance in Bahrain but with an emphasis on "Dynamics and Operational Process of CG".

As this book. was getting ready to go to the printing press, the state of the world amidst the financial crisis can be categorized as follows. We have seen world stock markets melt down , long-established banks and financial institutions disappearing and some rescued, nationalized and large multinational companies and organizations vanishing or being bought by investors at a fraction of their value before the start of crisis in 2008. These landslides were not limited to one economic sector but affected banking, insurance, motor industry, construction and real estate. Certainly the retail sector was not spared either. More about the crisis and its impact on the world can be found in various chapters of the book.

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•Provision for sub-prime loans in 2007 and 2008 for banks and financial institutions in the region were estimated at a figure close to US$10bn.

•The impact on investment banks is still unknown. There are two types of investment banks, those that operate within the principle of Sharia laws, i.e. Islamic banking financial institutions and those that handle traditional, conventional banking. Due to the way their balance sheets are structured, it might not be readily possible to know the impact of the crisis on their operations. Some of them are thinly capitalized and might be assuming responsibility for large transactions on behalf of their investors. The extent of their position and viability will only be established over the next two years.

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