A central pillar of corporate governance is to share authority. At the board level, directors have no individual authority unless the board assigns it to them. It is the board as a body that has authority. This authority is too often circumvented by the creation of an executive committee (exco) of the board. Although the existence of an exco does not mean that there will be corruption, when there is corruption it can usually be traced to the existence of an exco. The reason is that an exco effectively takes over the role of the board and the chairman of the exco becomes the de facto chairman of the board, replacing the elected chairman of the board. This is frightening.

This holds true at the executive level. The board must ensure that long-term strategic decisions are made by competent committees, not solely by the chief executive. A simple example is that you don’t want the chief executive to have sole authority over investments. That’s a one-man hedge fund. There is a balance between efficiency and governance, but that balance clearly isn’t an all-powerful chief executive.

I have seen different attempts at managing these issues. One unfortunate one that I’ve seen in this region is rejecting executives who want to be paid at the higher end of the market. The idea is that this way the executives hired are not greedy and will not commit fraud. This idea has several flaws.

The simplest flaw is that a dishonest executive is not going to care about his formal compensation as he will supplement it via the fraud. A more subtle but far more dangerous flaw is the idea that the only alternative to someone who prioritises financial compensation is one whose incentive is to do a good job. In this region I have seen that the much greater percentage are those who prioritise power and those who prioritise publicity. Both of those incentives corrupt as much as, if not more than, financial incentives. I’m not sure people stuffing their friends into jobs or people using their positions to get on the front page are any better than people who think high performance should be rewarded with high pay.

Sabah al-Binali is an active investor and entrepreneurial leader with a track record of growing companies in the Mena region. You can read more on his Twitter feed or for deeper analysis on LinkedIn and al-binali.com.

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 →

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 →