Tag Archives: Corporate Governance

Some listed firms need a sensible talk on governance

April 18, 2017 By in Corporate Governance Tags: 1 Comment

In shocking news, this month Bahrain introduced common law for limited liability partnerships without having to create a free zone.
All the legal protection without artificial costs. What a concept.

Meanwhile, there are some decisions being made in listed companies – firms in which the public are investors – that do not seem to be in line with the best standards of corporate governance.

I will cover three – Shuaa, Arabtec and Drake & Scull – and then discuss what this means to our economy.

For Shuaa, the corporate governance journey started with the announcement last month that it was acquiring two companies from a major shareholder. This created a possible conflict of interest and as a listed company regulated by the Central Bank of the UAE and the SCA, the market regulator, you would expect that as part of the announcement a plan to mitigate any possible conflict of interest would be released so that small shareholders can decide if it is fair. The chief executive of the seller is the chairman of the buyer, Shuaa. Will he and other board members appointed by the major shareholder, Abu Dhabi Financial Group, recuse themselves from voting? How will the deals be priced? Who decided that this was a good deal for Shuaa?

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Do US Airlines compete? ADIA becomes active. Does Arabtec make sense?

March 31, 2017 By in Finance Tags: , 2 Comments

When the “no laptop” ban on flights was announced by the US government there was a lot of discussion as to whether there was a commercial driver to that decision. I decided to investigate and with the help of the staff of The National, I was surprised to find that we could not identify any American airlines operating planes out of the UAE, only codeshares with other airlines.
So why was I surprised? Well, as people in the region are well aware, some of the largest American airlines have been complaining about Etihad, Emirates and Qatar and in particular they have accused them of unfair competition. Now, for there to be unfair competition there needs to first be competition. For there to be competition the airlines have to be doing the same thing. The three Gulf airlines focus on super long-haul routes, that is they don’t fly between American cities. I therefore assumed that since the American airlines were accusing the Gulf carriers of unfair competition then they must also be flying the non-stop long haul routes that Etihad, Emirates and Qatar are famous for.

It turns out that the Americans don’t in actual fact fly these routes. So the accusations are dishonest as presented. Why are the American airlines engaging in this subterfuge?
One thought that occurs is that they don’t have any airplanes cap­able of super long-haul flights. These airlines are so old that their fleets have short ranges, while the newer airlines bought Boeing 777 ER and Airbus A380 super long range airplanes.

If this analysis is correct then basically the American airlines failed to plan for technological advancements, saddled themselves with an obsolete fleet and are now trying to legislate their customers into using their inferior products and services. The UAE’s Telecommunications Regulatory Authority must be relieved that they are not the only ones using this tactic, as in their banning of Skype.
As an aside I am unhappy that American Airlines is the name of an airline as it means I’ve been wrestling with my autocorrect to type “American airlines”.
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Trust but verify: a deeper dive into the UAE’s latest business news

March 14, 2017 By in Finance, Corporate Governance, Economy, Oil 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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Ipic-Mubadala merger does not have to follow a template

July 19, 2016 By in Strategy Tags: , , 1 Comment

Ipic and Mubadala, two major Abu Dhabi investment funds, have been mandated to merge. The outcome does not have to be a single company. In this article I will look at an innovative option for the Ipic-Mubadala merger to result in more than one company and how such a multi-result merger can support Abu Dhabi’s Economic Vision 2030.

I recently wrote in detail on what strategies the NBAD-FGB merger could take and in a subsequent article I delved into a major challenge such a merger might face. The detail was possible because both NBAD and FGB are listed companies and have strong disclosure requirements.

When discussing Ipic and Mubadala, we are talking about two privately held institutions and as such there is less public information at this time. This does not stop us from conducting a thought experiment, if you will, to try to understand the options available.

The key issue we will look at today is that a merger does not have to be about acquiring market share or new business lines. A merger can be about rationalisation and refocus.

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NBAD and FGB's Merger Challenge: Work Culture

July 12, 2016 By in Leadership Tags: , , , 1 Comment

In my last article I talked about the two main paths that the merger of FGB and National Bank of Abu Dhabi could take. The first is simply extending the current business of each by using the path of acquisition rather than organic growth. The second is to trigger a radical redesign of the business model. I concluded that it made strategic sense for FGB and NBAD to take the second path. In this article I touch on how that can happen.

FGB and NBAD are banks and banks, in the end, are predominantly about service. The product part is simple. Money: you can deposit it with them and you can borrow it from them.

The price part, interest rates, is also simple. It has nothing to do with the cost of manufacture as banks don’t manufacture money and besides it is mostly electronic. No, price is driven by the human resources running the banks as well as market supply and demand of money. Since this is driven by people, we can conclude that banks are in the services business.

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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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