Corporate governance improves with the inclusion of women on company boards, as reported by the International Finance Corporation. So what happens to corporate governance when a woman is appointed to head a stock exchange? We will soon find out, as Saudi Arabia has just appointed Sarah Al Suhaimi to head its stock exchange. Ms Al Suhaimi comes well prepared for this job as the chief executive of NCB Capital, the investment banking and asset management arm of the largest bank in Saudi Arabia and the second largest bank in the Middle East. A few days later Samba, the fourth largest Saudi bank, appointed Rania Nashar as its first female chief executive. I look forward to what I expect to be a positive impact because of this gender diversity.
Author Archives: Sabah al-Binali
Compensation Foundations: Designing an Effective Incentive Plan
This week’s column is the second in a series that I co-author with Ray Everett, the chief executive of Aon Hewitt in the Middle East. In the first article we discussed job identification, job grading and linking it to pay.
While people are paid salaries to do their job, incentives encourage them to do their job well. Nothing is more emotive in people management than communicating incentive numbers – people can be upset, happy or (as is often the case) neutral.
My Zawya Story, 2nd Edition
In 2012, Zawya, a UAE-based business media company, was sold to Thomson Reuters for a 20 times cash return by Saffar, a low-profile private equity company. I am the founding chief executive of Saffar and became chairman of Zawya after we acquired it, between 2001 and 2011. This is my story of how I bought a bankrupt, London-based company with five employees, moved it to the UAE, built it into a profitable company with more than 200 employees and then sold it to a global competitor, thus generating a 35 per cent annual rate of return over an 11-year period.
Venture capital as a substitute for oil in driving economic growth
Venture capital is critical to the future success of not only the UAE but also the GCC. To understand this we first need to understand the historic formula for our success – oil leads to financial capital, which leads to real estate development, which creates social and business communities that attract people. Repeat.
Even if oil prices had not collapsed, sooner or later the size of the economy would reach a level at which oil alone could not deliver growth. We have not reached a point of reckoning because oil prices halved, that only accelerated the inevitable.
The conventional argument is that SMEs are the engine for growth in any economy. Some might argue that the global conglomerates coupled with global trade are the engines for growth. Whatever idea you subscribe to, in the end one has to accept that whether you believe SMEs drive economic growth or whether it is large companies, the first step is starting that company. Put simply, without start-ups an economy cannot normally achieve sustainable growth.
Venture Capital Lessons from India, Lebanon and Ireland
In a recent article I pointed out the failure points in the UAE’s venture capital ecosystem, in particular the lack of support for entrepreneurs and start-ups. In this article I’d like to review some of the initiatives other countries have launched that could be useful in upgrading our ecosystem.
Given the recent visit to India of Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, let us start with that government’s efforts, and in particular the Startup India initiative. This initiative is comprehensive, starting with a streamlined registration process. Importantly, it has a streamlined bankruptcy process that seems to be fair – no extra-judicial imprisonment if an entrepreneur cannot financially meet a liability. There are also tax breaks for the company as well as investors in the company.
Compensation Foundations: Grading and Job Evaluation
This week’s column is the first in a series that I co-author with Ray Everett, the chief executive of Aon Hewitt in the Middle East, a position that he has held for the past year, and Asia-Pacific and Middle East and Africa regional head of McLagan (a division of Aon Hewitt focusing on financial services). Aon Hewitt is one of the world’s pre-eminent human resources consulting companies and I have worked with it in the past to help me unravel one of the toughest issues that I have faced in building and managing various businesses: how to think about compensation when recruiting and promoting or awarding raises and bonuses.
This area of business haunts many managers, starting with how much to offer when recruiting. The widespread approach of simply asking for a salary receipt from the candidate’s employer is simply an admission that the hiring company has little idea on how to think about pay. The extension of this ad hoc approach to raises can lead to unfair pay differentials that are not based on merit, which harms morale and the company.
In short, the more opaque or uncertain a decision-making process is, especially with regards to human capital, the greater the damage to the company, most notably via low morale and difficulty in hiring and retaining top talent. The answer is a transparent, well-defined approach.
Ray Everett of Aon Hewitt on Compensation Foundations
Compensation is a difficult management issue, not least due to the human element to it. Ray Everett. chief executive of Aon Hewitt in the Middle East, a position that he has held for the past year, and Asia-Pacific and Middle East and Africa regional head of McLagan (a division of Aon Hewitt focusing on financial services). Aon Hewitt is one of the world’s pre-eminent human resources consulting companies and there is a lot to learn from them in this series.
Oil, Opec, Economic Reform and Venture Capital
Last week the Minister of Energy for the UAE was reported in an article as saying that it is too soon to extend the oil supply deal, and then shortly afterwards there was a report that Saudi Arabia’s minister of energy had said the deal could be extended after the first six months. I am known to be pessimistic about Opec cooperation, but given the close relationship enjoyed by Saudi and the Emirates, I thought about the perceived discord in communication and was led to an intriguing idea.
As described in an article in The National on Monday, Norway is facing challenges in diversifying away from oil. If Norway, with its more developed economy, is facing challenges then clearly diversification for a less developed oil-exporting country must be even more challenging. This would lead to the idea that differing challenges faced by each country could lead to different strategies and signalling of these strategies with regards to oil production.
Kick-start the UAE’s venture capital ecosystem to boost the economy
So why, if everyone is telling us that the oil price is going up, are rental taxes, sorry fees, being applied? Don’t get me wrong, fiscal reform is necessary, but if oil is going back up, let us give the common man a breather. Here’s an idea – let’s start with taxing everyone who has a monopoly agency. You know, the rich.
Speaking of announcements, I would like to introduce a new statistic, similar in importance to GDP, CPI (inflation), the unemployment rate, etc. I call this statistic the Reality Based Ratio. It is the ratio of the number of projects announced to the number of projects completed. Of course this needs to be adjusted for size of project and time needed to complete, but you get the idea. The higher the ratio, the lower the reality basis of the economy. People need to stop applauding projects announced and start applauding projects completed. Well, they don’t need to, they just should if they want any sort of economy in the future.
A challenge we can meet
A vision for what the coming year will bring should include scenarios and actionable ideas. My vision will focus on what might affect the UAE and the wider GCC the most. These are forward-looking statements that can be wrong.
The factor that affects our economy the most is the price of oil and our level of production. The change in our level of production is unlikely to be material, even if one considers the agreed Opec cut decisions of late November. The question is the price of oil.
The main influence in 2017 on the price of oil is unlikely to be demand, which anyway will probably soften if America turns inward, but supply. In late November Opec and non-Opec countries agreed to oil production cuts that are unprecedented in breadth, depth and cooperation. It is that last bit that is the problem. If Russia breaks from the agreement, a likely scenario signalled by Rosneft and its chief executive, Igor Sechin, or if Saudi-Iran tensions flare up and cause a rift then we will see oil drop to between US$30 and $45. Shale oil will never allow the oil price to go over $65, probably lower. That means that our economic contraction will at best slow down in terms of the effect from oil.
Our economy will continue to show cracks in its ability to function without massive government spending.