Category Archives: Corporate Governance

Trust but verify: a deeper dive into the UAE’s latest business news

March 14, 2017 By in Oil, Finance, Corporate Governance, Economy Tags: , , , 1 Comment

Etisalat’s preliminary 2016 financial statements are available at the Abu Dhabi Securities Exchange. Earnings per share for 2016 operations? Dh0.97. Proposed dividends per share? Dh0.80. This gives a payout ratio of 82 per cent. Rationally, your payout ratio is high when you do not believe that there are any opportunities to invest in and so return cash generated to the shareholders.

Etisalat’s dividend policy would suggest that it does not see growth opportunities and therefore expects to simply be a yield play. This refers to business operations and not market price movements. Whether Etisalat is being rational in expecting the economy to stagnate, or worse, and is therefore taking a defensive cash position, or on the other hand is in denial and simply continuing to pay a historical dividend even though the payout ratio is high will be revealed by its stated strategy that it presents at the shareholders’ meeting.

If the strategy is defensive, closing certain operations or at least remaining steady, then the stated strategy will be consistent with the dividend strategy. If, on the other hand, Etisalat presents a transformation strategy or even an expansionary strategy, then this will be inconsistent with its dividend policy.

The suspense is unbearable.

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On governance and denial, from the UAE to Wall Street

March 7, 2017 By in Corporate Governance, Economy Tags: 3 Comments

Last week Arabtec announced a recovery plan, as detailed in a stock market filing. There was no report on how corporate governance would be enhanced for a company that had a loss of Dh2.3 billion in 2015 and Dh3.4 billion in 2016. It is my humble opinion that if things keep going wrong and neither the shareholders nor the board seem to change then changing executive management every couple of years isn’t a strategy, it is random action.

More fascinating was that on the same web page of The National was an article on how Expo 2020 would improve the job market this year. It would seem to me that the sector that would benefit the most from Expo 2020 is construction. And yet Arabtec is saying it will stabilise in 2017, prepare in 2018 and grow only in 2019 – which is really too late to be getting construction orders for the massive project that is Expo 2020.

So the recovery plans – one for a company, one for the economy – seem inconsistent with each other.

Denial isn’t just a river in Egypt folks.
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A whirlwind tour of Gulf corporate governance …

February 28, 2017 By in Corporate Governance Tags: , ,

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.

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Moral Hazard: The Achilles Heel of Corporate Governance

September 22, 2015 By in Corporate Governance Tags:

When companies fail, the investigative eye of audit usually looks at fraud issues, scenarios whereby executives or other stakeholders benefit financially. The key issue investigated is conflicts of interest. The company in which you serve as Chairman entered into a transaction with a company in which you have beneficial interest? Well, let us take a look into that!

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State-owned enterprises can learn from family businesses

June 9, 2015 By in Corporate Governance Tags: , ,

State-owned enterprises (SOEs) are controlled subsidiaries of a government which undertake commercial activities. SOEs are globally common and are involved in a wide variety of activities such as mail services, telecommunications, airlines, airports, railroads, natural resources, broadcasting and healthcare.

Sometimes it is easy to forget that SOEs form an important component of the economy. Just think of the UK’s BBC, Manchester airport, London Underground and London Rail. SOEs are usually connected to natural monopolies and infrastructure thus giving them an even greater influence over the economy.

Since SOEs are expected to act with their commercial interests as their main goal they can learn a lot from the private sector. There is one area though that does not crossover well from the private sector to the SOEs and that is corporate governance. Being a fully owned subsidiary of a government creates unique challenges not least because a government does not hold commercial interest as its overriding goal.

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Trust the System not the Person

March 17, 2015 By in Corporate Governance Tags:

The whispers in the global business corridors when it comes to dealing with emerging markets are “Is he trustworthy?” As proof of why such whispers are necessary one need look no further than the recent revelations about Alstom, the French power company that paid the US Department of Justice a USD 772 million penalty for charges that it bribed government officials around the world.

How should governments and businesses deal with such trust issues? They can continue to allow the US DoJ to deal with it. Why a government would want a foreign justice department intervening in its affairs is not clear. Why a business would want the burden of double regulation is also unclear. The only other way forward is for local stakeholders to manage their issues locally.

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What the Board Should Expect of a Management Presentation

February 2, 2015 By in Corporate Governance Tags:

In a previous article I discussed how to conduct an effective board meeting. One of the main elements discussed in making board meetings effective was management presentations. In this article I will explain why most management presentations to the board are less than useful and how the board can help change that. It is a continuation of my discussion on operational corporate governance.

The first misunderstanding is assuming that a management presentation means a PowerPoint presentation. It doesn’t. PowerPoint presentations can certainly be part of the management presentation, but cannot be the sole document as PowerPoint, or any other visual slide presentation software, does not have the ability to present the full depth and breadth of information needed. For this reason it is better to call it the management pack so as avoid any confusion.

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Conducting an Effective Board Meeting

December 2, 2014 By in Corporate Governance Tags: ,

In espousing deployment of corporate governance frameworks it is not enough to discuss principles only, details of how to effectively operationalise these principles are just as important. One of the crucial operational aspects of corporate governance is managing board meetings. Board meetings are the focal point for dissemination of performance information, discussion of major issues and strategic decision making. Since there are usually only four to six board meetings per year it is critical that these meetings are conducted effectively as there is little room to make up for delays. Continue reading →

Shareholder Activism Requires Shareholder Networking

November 26, 2014 By in Corporate Governance Tags: , ,

Shareholder activism has acquired a bad name being associated more with corporate raiding than it is with concepts of introducing corporate governance by the shareholders. This is a shame as shareholder activism is the best way to ensure effective corporate governance of a company. The current model gives shareholders the semblance of control at annual general meetings when they get to ask questions about the financials and vote in directors of the board. The reason that this is not real control is that any disparate body of people that does not communicate and internally discuss matters in advance of a group decision will invariably make a bad decision.

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My Zawya Story: The Importance of Independent Board Members

November 3, 2014 By in Corporate Governance Tags: ,

This post is part of the My Zawya Story series.

I have written extensively about corporate governance (both on the board and on management) and will not repeat myself here. What might be useful is to talk a little bit about the human dimension and my Zawya experience provides a perfect opportunity. In the initial years the Zawya board was a mix of the Zawya founders and Saffar executives and appointees. As the company grew and matured two new directors joined: Steffen Schubert and Anthony (Tony) Mallis. They added tremendous value to the Zawya board and to the company itself. Continue reading →