160416CGSSFAQs EnglishLR

CORPORATE GOVERNANCE FREQUENTLY ASKED QUESTIONS.
In partnership with Japan’s Ministry of Finance

and Spain’s Ministry of Economy
About us.
IFC, a member of the World
Bank Group, is the largest global
development institution focused
on the private sector in emerging
markets. Working with more than
2,000 businesses worldwide, we use
our capital, expertise, and influence,
to create opportunity where it’s
needed most. In FY15, our long-term
investments in developing countries
rose to nearly $18 billion, helping the
private sector play an essential role
in the global effort to end extreme
poverty and boost shared prosperity.
IFC provides leadership in promoting Corporate governance also contributes

good corporate governance practices to development. Increased access to
The material in this work is copyrighted.
Copying and/or transmitting por tions or all in developing and emerging markets. capital encourages new investments,
of this work without permission may be a
violation of applicable law. IFC encourages Good corporate governance helps boosts economic growth, and provides
dissemination of it s work and will normally
grant permission to reproduce portions of the companies operate more efficiently, employment opportunities. Businesses
work promptly, and when the reproduction is
for educational and non-commercial purposes, mitigate risk and safeguard against that operate more efficiently tend
without a fee, subject to such attributions mismanagement, and improve access
and notices as we may reasonably require.
to allocate and manage resources
to capital that will fuel company more sustainably. Better stakeholder
IFC does not guarantee the accuracy, reliability
or completeness of the content included in growth. Further, companies become relationships help companies address
this work, or for the conclusions or judgments
described herein, and accepts no responsibility more accountable and transparent to environmental protection, social, and
or liability for any omissions or errors (including,
investors, which gives them the tools labor issues.
without limitation, typographical errors and
technical errors) in the content whatsoever or to respond to stakeholder concerns,
for reliance thereon. The boundaries, colors,
With strong donor support, IFC
denominations, and other information shown on including implementation of good
any map in this work do not imply any judgment continues to strengthen corporate
on the part of The World Bank concerning the environmental and social practices.
legal status of any territory or the endorsement governance programs in underserved
or acceptance of such boundaries. The findings,
interpretations, and conclusions expressed in regions, particularly in Sub-Saharan
this volume do not necessarily reflect the views
of the Executive Directors of The World Bank Africa, Latin America, and the Middle
or the government s they represent.
East and North Africa, by closely
The content s of this work are intended for integrating its investments and advice,
general informational purposes only and are
not intended to constitute legal, securities, and focusing on capacity building of
or investment advice, an opinion regarding
the appropriateness of any investment, or a intermediaries, resulting in improved
solicitation of any type. IFC or its affiliates may
have an investment in, provide other advice operational efficiency.
or ser vices to, or other wise have a f inancial
interest in, certain of the companies and parties
(including named herein.
All other queries on rights and licenses, including

subsidiar y right s, should be addressed to
IFC’s Corporate Relations Depar tment, 2121 More information on the IFC’s Corporate
Pennsylvania Avenue, N.W., Washington, D.C.
20433 . Governance services is available online at
ifc.org/corporategovernance
International Finance Corporation is an
international organization established by
Ar ticles of Agreement among it s member © International Finance Corporation
countries, and a member of the World Bank
Group. All names, logos and trademarks are 2016. All rights reserved.
the proper ty of IFC and you may not use any
of such materials for any purpose without the 2121 Pennsylvania Avenue, N.W.
express written consent of IFC. Additionally,
“International Finance Corporation” and “IFC” Washington, D.C. 20433
are registered trademarks of IFC and are
Internet: www.ifc.org
protected under international law.
Introduction. 1
A Commitment to Corporate Governance. 3
1. What is corporate governance? 5
2. Why is corporate governance relevant to me? 8
3. How do I implement an effective corporate governance system
within my company? 13
B Corporate Governance for Small and Medium Enterprises. 15
4. How can good governance improve the performance of
SMEs in emerging markets? 18
5. Why should corporate governance matter to SMEs? 19
6. Do international corporate governance standards
apply to emerging markets? 22
7. Is corporate governance “costly”? 23
C The Board of Directors’ Role and Composition. 25
8. What is commonly regarded as a well-constituted board? 27
9. What is the board’s role? 30
10. What is an independent director? 31
11. What value can an independent director bring to my company? 32
12. How do I trust independent directors with confidential information? 33
13. What is the role of the chair of the board of directors? 35
14. Why should we split the roles of chair and CEO? 36
D Functioning of the Board of Directors. 37
15. How many times a year should a board meet? 39
Contents.
16. How are non-executive board members compensated? 41
17. What is an appropriate tenure and term of service
for members of the board of directors? 42
18. Should we have board committees? What are their duties? 43
E Control Environment. 43
19. I have heard the term “internal control”, but what does it mean? 47
20. How should we review our system of controls? 49
21. What is the role and preferred composition of the audit committee? 50
22. How can the board of directors ensure that appropriate
procedures are followed within the company? 51
23. How can we manage risk? 53
F Shareholder Issues. 55
24. What governance issues do investors look at before investing
in my business? 57
25. Why is the equitable treatment of shareholders important? 60
G Disclosure Issues. 61
26. Disclosure and transparency may harm my competitive position
in the market, so why should I disclose more information? 63
27. What are related party transactions and why do they matter? 66
H Corporate Governance for Family-Owned Businesses. 67
28. Do family-owned companies need corporate governance? 69
29. How does a good board of directors help a family-owned business? 73
30. Our board meets around the family dinner table,
why do we need formal board meetings? 74
Annex 1. 75
Annex 2. 77
IFC Program Results. 79
Bibliography. 81
This guidebook is designed to address common questions
on corporate governance that are frequently asked by
owners and managers of companies in the Middle East
and North Africa (MENA) region. It familiarizes readers
with the basic concepts of corporate governance,
providing a comprehensive overview of the subject matter,
using case studies as practical examples of corporate
governance application in a commercial context. Overall,
it demonstrates the value of corporate governance for
businesses and for the region as a whole.
The guidebook is designed to either be read in its entirety,

as a complete work, or in sections, according to the
reader’s interest. For ease of reference, the guidebook
is organized into the following eight sections:
A Commitment to Corporate Governance.
B Corporate Governance for Small- and Medium-Sized

Enterprises.
C Board of Directors’ Role and Composition. The approach of the guidebook is to explain technical
concepts using plain language to help the reader
D Functioning of the Board of Directors.
Introduction.
become familiar with concepts that may sound new
E Control Environment. and unusual but are, in fact, part of the way business is
commonly conducted, organized, and controlled. The list
F Shareholder Issues.
of questions presented is not exhaustive, but provides a
simple introduction to corporate governance, which can
G Disclosure Issues.
help improve business practices and assist the reader in
H Corporate Governance for Family-Owned Businesses. understanding complex corporate governance guidelines.
Acknowledgments.
We would like to thank all the companies and individuals Amira El Saeed Agag
who shared their invaluable experience; the information Corporate Governance Officer
received from our clients was indispensable for the
Middle East and North Africa
formulation of this publication.
Corporate Governance Program
Our appreciation extends to all the peer reviewers who Transactional Risk Solutions Department
graciously provided their review and feedback; and to Environment, Social, and Governance
Nestor Advisors and Linda Clark of the IFC Corporate
Governance Group for their valuable contributions
towards this report.
1 2
A Commitment
to Corporate
Governance.
3 4
1 What is corporate governance?
The term “corporate governance” refers
to the structures, rules, and processes
through which companies pursue their
objectives. In other words, “corporate
governance is the system by which
companies are directed & controlled.” 1
good Corporate
Governance.
It encompasses a variety of issues,
Benefits of
ranging from shareholder rights to a
company’s internal decision-making
processes and control systems.
What is
Checks & Balances Address good Corporate
Framework Concerns Governance?
Ensures that the company’s management Addresses the concerns of all
operates within a framework of types of stakeholders.
checks and balances that make them
accountable to their owners.
We came into a market that nobody believed in.

So we structured ourselves and had good governance
Clarity & Facilitate Access in place to give our shareholders the comfort
Transparency To Capital and faith that while they were absorbing a lot of
Promotes clarity and transparency, Facilitates your company’s access to capital, market uncertainty, at least the company from
which is important to investors and since good corporate governance is important an operating perspective or from a governance perspective
other capital providers. to both equity and debt investors.
can mitigate that risk to the best of our abilities. 2
Emile Cubeisy, Vice President,
Accelerator Technology Holdings, Jordan
1 Committee on the Financial Aspects of Corporate Governance and Gee and Co. LTD “Report of the Committee on the Financial Aspects of Corporate Accelerator was founded by Dr. Fawaz Zu’bi in Jordan in 2005.
Governance,” Gee, December 1992, accessed September 1, 2015, http://www.icaew.com/~/media/corporate/files/library/subjects/corporate%20
Backed by a diverse group of institutional and individual investors
governance/financial%20aspects%20of%20corporate%20governance.ashx
from around the world, Accelerator was established with the aim of
2 Center for International Private Enterprise Global Corporate Governance Forum, “Advancing Corporate Governance in the Middle East and North
Africa,” Center for International Private Enterprise Global Corporate Governance Forum, February 2011, accessed on September 1, 2015, http://www. investing in technology in the Middle East. In doing so, Accelerator
ifc.org/wps/wcm/connect/c50638804d97d579904db548b49f4568/MENA_CaseStudies_web.pdf ?MOD=AJPERES, p. 35. was one of the region’s first institutional venture capital investors.
5 6
This checklist can guide your
Commitment to corporate
preliminary assessment of your
governance.
company’s governance practices.
✓ Board takes responsibility for corporate
governance. Good board practices.
✓ Corporate governance is regularly reviewed ✓ Board role and authority are clearly deﬁned.
and improvements are planned accordingly.
✓ Duties and responsibilities of directors are
✓ Appropriate resources are committed to understood.
corporate governance.
✓ Board is well structured.
✓ Policies and procedures are formalized and ✓ Board has an appropriate composition and
distributed to relevant staff. mix of skills.
✓ Corporate governance code and/or guidelines

✓ Appropriate board procedures are in place.
are developed.
✓ Director remunerations are in line with best
✓ Company is publicly recognized as a practices.
corporate governance leader.
✓ Board self-evaluation and training are
1. conducted.
2.
Appropriate control
environment.
✓ Independent audit committee established.
What is ✓ Risk management framework/structure is
present.
good Corporate
Governance? ✓ Internal control procedures are in place.
✓ Internal audit function is in place.

✓ Independent external auditor conducts
regular audits.
3. ✓ Management information systems are

established.
5.
6. Disclosure and transparency.
Shareholder Rights. ✓ Financial information is disclosed.
✓ Minority shareholder rights are formalized ✓ Non-ﬁnancial information is disclosed.
and protected. ✓ Financials are prepared according to
✓ General Assembly meetings are conducted International Financial.
and are well organized. ✓ High-quality annual report is published.
✓ Related party transactions policies are in ✓ Web-based disclosure and investor site is in
place. place.
✓ Extraordinary transactions polices are in In the event of a family owned company,

place. it is also assessed on the existence of
✓ Dividend policies are precise and clearly appropriate mechanisms to help govern
the involvement of the family in the business
defined.
and address other family matters.
2 Why is corporate governance relevant to me?
Corporate governance is relevant to companies of any size and in
any market. In fact, good corporate governance has a number of
widespread benefits. The below outlines some of these benefits,
from the point of view of MENA Private Equity Investors.
Improved
Performance
MENA Private Equity Investors
Technology investee company
on the Impact of improved profitability by 20% over
Good Corporate Governance two-year period due to improvements
Improved at board level and several changes
on their Investee Clients.
Valuation in management control.
One investor cited recent strategic
sale exit which attracted 40%
premium over market price, due
largely to good corporate governance.
Improved Risk
Management
& Cost Control
Improved Access Improved Stewardship One investor cited an energy
to Finance Changes to board structure, including services investee where there was an
Governance improvements were improved strategy setting and approximate 30% risk factor in new
a significant factor (attributed at oversight led company to drop projects due to poor governance. This
about 80%) in helping an energy unprofitable products and re-focus was eliminated due to improvements
company secure capital of $4.5 on its core, high-value products, in project risk management activities
million. Company is now seeking taking them to new markets. Change and increased board oversight and
additional $16 million, where again helped turn around company from control. Improvements also led to
good governance is reportedly playing net loss of 5% to net profit of 10% better decision-making and 20%
a key factor. in three years. improvement in process efficiency.
Source: IFC, “Corporate Governance Success Stories,” IFC, 2015, accessed September 1, 2015, http://www.ifc.org/wps/wcm/connect/6fd9498048ec689da2c9fe1b17326f85/
CG_success_stories_MENA062015.pdf?MOD=AJPERES
We expect that our governance efforts Two of the most significant benefits of good corporate governance frameworks outperformed those with poor
will allow SABIS ® to continue on its impressive governance are that it stimulates performance improvement or deteriorating governance practices by about 19 percent
growth path by creating the necessary corporate and and facilitates access to capital. over a two-year period. 3
family structures to support that growth.
Performance Improvement Research on corporate governance is a new and emerging
Building robust governance structures will ensure
Corporate governance best practice is ultimately directed area of study and the pool of literature is still developing.
the long-term sustainability of the company and
at ensuring that your business’ activities and strategic In spite of that, the majority of scholars are already able
help guide future generations to continue
planning are conducted effectively and that risk is managed to draw a link between corporate governance and a firm’s
to contribute to the SABIS ® success story.14
properly. This will serve to enhance your company’s value operational and market performance. As Inessa Love
Joe Achkar, Board Member,
over the long term, as well as increase your company’s states in her 2011 study published in the World Bank
SABIS® Educational Holding S.A.L., UAE
ability to access and retain crucial human resources. Research Observer: “[Most] research supports the positive
A study by Deutsche Bank of the S&P 500 companies correlation between firm-level corporate governance
shows that companies with strong or improving corporate practices and different measures of firm performance.” 4
SABIS® is a global education network that operates on four continents serviced
through three independent corporations headquartered in the United States,
Lebanon, and the United Arab Emirates. Schools in the SABIS® Network operate
3 Renato Grandmont, Gavin Grant, and Flavia Silva, “Beyond the Numbers - Corporate Governance: Implications for Investors,” Deutsche Bank,
in 15 countries and educate close to 65,000 students. Corporate governance
April 1, 2004 as cited in IFC, “The Irresistible Case for Corporate Governance”, September 2005, http://www.ifc.org/wps/wcm/connect/
changes positively impacted SABIS’ board effectiveness, management control, and c6b3750049585fa9a052b519583b6d16/FMS-CorpGov.pdf?MOD=AJPERES
family governance. This also had the effect of improving company sustainability, 4 Inessa Love, “Corporate Governance and Performance around the World: What We Know and What We Don’t,” World Bank Research Observer,
enhancing board stewardship, and increasing organizational efficiency. Volume 26, Issue 1, page 42-70, February, 2011.
7 8
Access to Capital company made several changes to its corporate governance
Having a good governance framework can help with practices. Once these changes were implemented, BUTEC S&P/Hawkamah ESG Pan Arab Index TR S&P Pan Arab Composite (TR)
financing as it can increase your company’s transparency reported that access to capital had improved substantially 200
and accountability to investors and credit institutions, with many banks offering it credit on more favorable 180
which can enhance its financing capabilities. In other terms. Accordingly, good governance practices assisted
160
words, good governance puts potential investors in a BUTEC in accessing $30 million to $35 million, which was
better position to understand how things work within largely due to banks’ and investors’ recognition of positive 140
your company and can provide assurance that investors’ changes within the company. 5
120
interests will be protected. For example, instituting
Today, an increasing number of investors include corporate 100
corporate governance best practices can reduce the
governance criteria as part of their investment process. 80
risks associated with the abuse of power by controlling
Investors expect companies to implement certain corporate
shareholders or management to seek inappropriate gains. 60
governance practices and want to be sure that corporate
40
BUTEC Holding S.A.L. presents a good example of how governance is prioritized. For example, MENA Private
good governance practice facilitates a company’s access Equity Industry Association members have identified 20
to capital. BUTEC is a company located in Lebanon that corporate governance as one of the top three challenges
0
provides engineering, procurement, and construction for the industry. 6 It is increasingly clear that private equity
2013 2014 2015
operations in Lebanon, Algeria, Qatar, and Abu Dhabi. After investors analyze carefully the corporate governance of
IFC conducted a corporate governance assessment, the investee companies ahead of finalizing any deal. Figure 2:
Performance of the Hawkamah/S&P Pan Arab ESG Index vs the S&P Pan Arab Composite Index from 2012-15.
Source: McGraw Hill Financial, Chart Source: “S&P Dow Jones Indices,” McGraw Hill Financial, accessed September 1, 2015, http://eu.spindices.com/indices/
Micro Small Medium Large
equity/sp-hawkamah-esg-pan-arab-index
10 5
14 11
Furthermore, the importance of corporate governance is difficulties for small and medium enterprises (SMEs) in
28 recognized by banks in their credit analyses. Credit agencies many countries in the region to access finance. Figure 1
35 Egypt 17 Syria Yemen
9 such as Moody’s and S&P also take corporate governance shows the notably lower rate of usage of credit services
19
50 into account when rating a company; corporate governance by SMEs compared to larger firms in Egypt, Syria, Yemen,
12 factors such as board and management effectiveness, Morocco, Jordan, and Lebanon.9
15
transparency of financial information, and related-party
Good corporate governance is considered by banks and
transactions are included in their rating criteria.7
investors alike as critical to reducing the risk associated
5 Finally, in developed markets, academic studies found with providing capital to a company. Banks typically cite the
21 34
36 25 62 evidence that companies – especially small companies lack of company transparency and a weak infrastructure
40 – with better corporate governance have significantly as the main obstacles to investment. 10
Morocco Jordan Lebanon
55 higher credit ratings. 8
Many investors are willing to pay a premium for well-
37 Good governance practices can increase investors’ governed companies. This is reflected in the Hawkamah/S&P
42 60
confidence in a company. This correlation between good Pan Arab ESG Index, which tracks listed companies in 11
governance and access to capital is of critical interest markets within MENA that have superior performance
to companies in MENA, as they often face difficulties in according to environmental, social, and governance
Figure 1:
raising funds either from banks or capital markets. This (ESG) criteria. As Figure 3 illustrates, the ESG Index has
Percentage of Firms with a Loan for Selected Countries.
is reflected in a World Bank study that highlights the outperformed other indexes in the market every year
Source: Nasr and Pearce, “SMEs for Job Creation in the Arab World, Middle East and North Africa Region.”
9 Nasr and Pearce, “SMEs for Job Creation in the Arab World, Middle East and North Africa Region.”
10 Sahar Nasr and Douglas Pearce, “SMEs for Job Creation in the Arab World, Middle East and North Africa Region,” The International Bank for Reconstruction
5 IFC, “Corporate Governance Success Stories.” and Development / The World Bank, 2012, accessed September 1, 2015, http://www.ifc.org/wps/wcm/connect/1115c70045539e51af04afc66d9c728b/
6 MENA Private Equity Association, “2013 Annual Report”, MENA Private Equity Association, accessed September 1, 2015, http://www.menapea.com/ SMEs+for+Job+Creation+in+the+Arab+World.pdf?MOD=AJPERES
research-association.php?fileid=2013-Annual-Report2.pdf 11 Hawkamah Institute, “Environmental, Social and Corporate Governance Practices in the MENA region 2007-2012: Review of the Hawkamah/S&P
7 Moody’s Investors Services, “Corporate Governance of Banks: A Credit Rating Agency’s Approach,” Moody’s Investors Services, accessed September Pan Arab ESG Index,” Hawkamah Institute in association with Ernst and Young, 2013, accessed September 1, 2015, http://hawkamah.org/wp-content/
1, 2015, http://www.ebrd.com/downloads/legal/corporate/moody.pdf uploads/2014/10/ENVIRONMENTAL.SOCIAL.AND_.CORPORATE.GOVERNANCE.PRACTICES.IN_.THE_.MENA_.REGION.2007-2012.pdf
8 See for example: Fatima Alali, Asokan Anandarajan, and Wei Jiang, “The effect of corporate governance on firm’s credit ratings: further evidence 12 Mark Fulton, Bruce Kahn, and Camilla Sharples, “Sustainable Investing: Establishing Long-Term Value and Performance,” SSRN, June, 2012, accessed
using governance score in the United States”, Accounting & Finance 52, no. 2 (2012): 291–312. September 1, 2015, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2222740
9 10
since 2009. This demonstrates that companies with suggests that companies can affect market opinion by
Case Study. 13
11
higher performance in the areas of environmental, social focusing on their corporate governance systems. 12 Further
and governance issues have enjoyed higher valuations examples of the premiums paid by investors for higher
over the period considered. In fact, governance has been corporate governance practices are presented below.
Majid Al Futtaim is a company that owns
identified as the single most important factor, which
shopping malls, supermarkets, hotels, cinemas,
entertainment centers, and fashion stores in the
Willingness by Investors to Pay a Premium for a Company
United Arab Emirates. The business grew rapidly
with Strong Corporate Governance.
from its inception in the 1990s. The founder, Mr.
Majid Al Futtaim, ensured sustained growth and
control through the creation of an efficient and
Western Europe transparent corporate governance framework
North America
within his company.
78%
76%
Middle East India
EU 13% 25% China
14% US 77% 22% Asia Corporate Governance Measures.
78%
UAE 22% The governance system was based on international
best practice, which was adapted to fit local needs
22% Malaysia
Singapore 21% and then applied in a step-by-step process. For
Latin America
example, a strong board of directors with clear
76% 25% delegation of authorities was created both at
Indonesia the holding and subsidiary level. Moreover, a
sophisticated system of internal controls permitted
20% Global Average real accountability and ensured growth and
management motivation. These efforts, among
others, promoted clarity of roles and process, and,
Are you willing to pay a premium for strong corporate governance? How much premium are you willing to pay ?
ultimately, changed the way in which Majid Al
Futtaim was seen by the market.
Source: McKinsey and Company, McKinsey Global Investor Opinion Survey on Corporate Governance 2002: Key Findings, 2002, http://www.mckinsey.com/
clientservice/organizationleadership/service/corpgovernance/pdf/globalinvestoropinionsurvey2002.pdf
Impact.
How Important is Corporate Governance
By establishing a good corporate governance
in Investee Companies? Absolute necessity. system and having this system communicated to
High the market, Majid Al Futtaim solidified its excellent
Has to become
key part of strategy.
reputation, became a sought-after employer in the
Importance of Corporate Governance
region, and secured high caliber board members

Commitment and top talent for its management team. This
is important
also helped its business reputation with banks
and the listing of debt instruments on the local
and international stock markets. Majid Al Futtaim
was awarded the highest credit rating (BBB) of
privately held entities in the region by both S&P
and Fitch Ratings.
Low 13 Tharawat Family Business Forum and Pearl Initiative, “Good

Entry. Development /Growth Exit. Governance in Family Firms, five case studies from the Middle
Initial Strategic sale East,” Tharawat Family Business Forum and Pearl Initiative,
Investment or IPO 2014, accessed September 1, 2015, http://www.pearlinitiative.
org/tl_f iles/pearl/img/Jiana%20Folder%202014/Good%20
Governance%20in%20Family%20Firms%202014_Final_English.
Source: IFC, “Corporate Governance Success Stories.”
pdf
11 12
3 How do I implement an effective corporate
governance system within my company?
To successfully implement an effective corporate governance
framework, it is important to secure the support of leaders
in the company. The next step is for you to identify the
areas of governance in which your company may need
4.
to improve its practices in order to enhance its business
Compare current corporate
performance. A full corporate governance review would
governance practices against
be the ideal way to conduct this assessment. best practices in your
sector and region, as well as
international best practices.
Steps to take when

conducting a corporate governance
3.
review of your company: Identify where gaps may
exist and prioritize according
to your specific company
needs and goals using IFC
corporate governance tools.
1. 2.
Review documents and other Brainstorm with key people
pertinent materials within within your company to fully
the company. understand the challenges
Steps for
Corporate
at all levels. This includes
decision makers, top
5.
Governance managers and staff members
responsible for financial and
review. other controls.
6.
Identify people responsible Set targets and lay out a
for achieving each target and plan to achieve them in a
reward success accordingly. predetermined time frame.
In addition, there are a number of tools and resources Over and above these tools and resources, a company
available for free online that can guide your initial can seek formal advice. Advice offered by IFC and other
assessment. IFC offers corporate governance tools that qualified specialists can provide you with an independent
We had one new investor tell us that
can be downloaded to guide a corporate governance and professional diagnosis, with the added advantage of
our corporate governance changes played
review. IFC also provides a progression matrix, which can comparing your individual situation with that of your peers.
a major factor in their investment decision.
be used to identify how a company is performing in various This advice includes recommendations for improving your
Specifically, he noted the changes we made at
areas of governance. 15 It is important to remember that corporate governance framework and an action plan for
the board level and our efforts to prepare the
these tools apply to companies of all sizes and sectors implementation. It should be noted that implementation
company for its second generation of leadership.16
and, therefore, may need fine-tuning and tailoring. In is critical since a review without implementation is like
Mohamed El Kalla, Chief Executive Officer,
other words, there is no “one size fits all” approach, and a bicycle without wheels.
Cairo Investment and Real Estate Development (“CIRA”), Egypt
all governance solutions must be customized.
15 IFC, “Corporate Governance Success Stories.” CIRA operates 15 schools with a combined enrolment of 14,000 students. CIRA
16 IFC, “Corporate Governance Success Stories.” was established in 1992 and is now listed on the Egyptian Stock Exchange.
13 14
B Corporate
Governance
for Small
and Medium
Enterprises.
15 16
4 How can good governance improve the
performance of SMEs in emerging markets?
Staff motivation and retention are affected by fairness,
transparency, and accountability – key corporate
governance values. The implementation of these values
can be more effective than monetary incentives when
Good corporate governance assists in formalizing strategic trying to retain employees. This is especially true in smaller
planning, budgeting, and other key processes. It focuses companies where average salaries are usually lower than
the business and its key people who have to deliver certain they are in larger ones. Fairness and transparency of rules
results within a prescribed timetable. It also guides and responsibilities are powerful motivational tools for
manager and employee expectations. For example, an attracting and retaining the best staff.
advisory board or a board of directors, which is an integral Increasing Transparency
component of good governance, improves the strategic and Accountability
planning process by scrutinizing the company’s strategic
plans and subjecting it to a vigorous debate. This process
brings additional perspectives and ideas to the table.
Formalizing Processes 4.
2.
3.
Defining 1. Establishing a Consistent

Roles Clearly Approach to Risk Management
A cornerstone of good governance is to clearly define roles Corporate governance practices aid in the adequate
and outline the rights and responsibilities of managers, management of risk, an indispensable element for achieving
board members, and owners. Among other things, strategic objectives. While all successful companies manage
this creates a transparent decision-making process their risk, smaller companies have an advantage, as their
Corporate governance is a core risk can be more easily controlled and managed by a few
that facilitates accountability, resulting in increased
component of our value creation strategy. key people. However, once the company grows larger, a
efficiency and, ultimately, better performance. It also
We generally target early stage SMEs, with the structured approach that relies on systematic procedures
permits streamlining the operations and, therefore,
goal of increasing revenue five-fold in two years. is needed to avoid or mitigate unwelcome surprises. Risks
better use of time and resources. Clearly defined roles
About 20 – 30 percent of that value creation become clearer in an environment of explicit rules. They
and responsibilities also minimize friction between the
is from improved corporate governance.18 are better managed when there are regular reviews of
various parties involved in the business, such as those
Ennis Rimawi company objectives and strategic plans, and when there
between owners and managers, and/or between board
Catalyst Private Equity
members and management. are clearly defined roles with staff members accountable
for the risks they manage. 17
Catalyst Private Equity is an Arab region Investment Company that

specializes in the energy and water sectors. It is uniquely structured 17 See Question 22 for more.
to have a positive strategic and financial impact on the region. 18 IFC, “Corporate Governance Success Stories,” p. 149.
17 18
5 Why should corporate governance
2% Saud
Qatar 0.5%
matter to SMEs?
1% Bahrain
2% K
i Arabia
2%
uwa
maO
it
4%
While public attention mostly focuses on governance of lending goes to SMEs across MENA, and even less in
%
UA
24
for larger and listed companies, many business leaders Gulf Cooperation Council (GCC) countries. These results
co
E
oc
4%
of smaller companies understand that the fundamental are comparatively low when compared to middle- or
or
Sy
M
ria
principles of corporate governance such as transparency, high-income country averages, as Figure 4 shows. 21 The
responsibility, accountability and fairness are beneficial survey also reveals that 95 percent of MENA banks find 5%
Eg
yp
to all companies, regardless of listing status or size. the lack of transparency among SMEs a ‘very important’ t
or ‘important’ obstacle to financing (Figure 3). 22
This
Corporate governance is crucial for increasing an SME’s
may have, in part, contributed to MENA SMEs’ inability
ability to attract funding from both direct investment 6% P
to easily obtain funding. alest
ine
and credit institutions. Good governance is particularly GCC 2%
important to shareholders of unlisted SMEs. In most cases,
Very Important Important Other
these shareholders are less protected by regulators, have
limited ability to sell their shares, and are dependent on MENA 8%
controlling shareholders. Accordingly, the higher risk implicit

in owning a stake in an unlisted company increases the
rdon
demand for a good governance framework. 10% Jo
Non GCC 13% Yem
en 2
For example, Tourism Promotion Services (Pakistan) 0%
Limited, a subsidiary of The Aga Khan Fund for Economic
Development, and an unlisted company, underwent
corporate governance reform in 2007. This included
changes to board effectiveness, management control,
disclosure and transparency, and shareholder/stakeholder
Figure 3:
sia
ni
relations. These positive corporate governance changes SME transparency importance for MENA banks.
Tu
%
had the impact of improving access to credit, allowing
15
Leban
Source: Rocha, Farazi, Khouri, and Pearce, “The Status of Bank Lending to
the company to access facilities of approximately $20 SMEs in the Middle and North Africa Region: The Results of a Joint Survey
million to $30 million in 2008. There has also been the
on 16
of the Union of Arab Banks and the World Bank.”
additional impact of helping the company position itself
%
for an eventual IPO, as the changes helped send a signal
to the market about the company’s emphasis on good Figure 4:
governance. 20 Lending benchmark demonstrating percetnage of lending by country/region.
One critical enabling factor for
Source: Saleem, “Overcoming Constraints to SME Development in MENA Countries and Enhancing Access to Finance.”
SMEs, in general, also find it difficult to obtain credit SME development is corporate governance.
from financial institutions. A recent survey by the Indeed, practicing good governance will help
World Bank and Union of Arab Banks of over SMEs establish robust business processes
130 MENA banks shows that only 8 percent and prepare them for future expansion.
In short, corporate governance lays the foundation
for SMEs to be more accountable and transparent
in their operations, thus enabling them
to be more bankable and investable.19
19 Mohammed Bin Rashid Establishment for SME Development, “Corporate Governance Code for Small and Medium Enterprises: Building the
H.E. Sami Dhaen Al Qamzi, Director General Foundations for Growth and Sustainability,” Mohammed Bin Rashid Establishment for SME Development, accessed September 1, 2015, http://
The Department of Economic Development, Dubai hawkamah.org/wp-content/uploads/2014/10/Dubai-SME-CG-Code-En.pdf
20 IFC, “Corporate Governance Success Stories.”
21 Qamar Saleem, “Overcoming Constraints to SME Development in MENA Countries and Enhancing Access to Finance”, IFC Advisory Services
in the Middle East and North Africa, accessed September 1, 2015, http://www.ifc.org/wps/wcm/connect/1e6a19804fc58e529881fe0098cb14b9/
IFC+Report_Final.pdf?MOD=AJPERES
Foreword in the Corporate Governance Code for Small and Medium Enterprises:
22 Roberto Rocha, Subika Farazi, Rania Khouri, and Douglas Pearce, “The Status of Bank Lending to SMEs in the Middle and North Africa Region: The
Building the Foundations for Growth and Sustainability, Mohammed Bin Results of a Joint Survey of the Union of Arab Banks and the World Bank,” World Bank and Union of Arab Banks, June 2010, accessed September 1,
Rashid Establishment for SME Development (2011) (“Dubai SME Code”). 2015, http://siteresources.worldbank.org/INTMNAREGTOPPOVRED/Resources/MENAFlagshipSMEFinance12_20_10.pdf
19 20
6 Do international corporate governance
standards apply to emerging markets?
According to the Center for International Private Enterprise, These principles are reflected in the corporate governance
“Successful development efforts demand a holistic approach, codes adopted in many countries around the world, including
in which various programs and strategies are recognized for in the MENA region. 24
A corporate governance code is
their important contributions to progress and prosperity. a set of non-mandatory guidelines that companies are
In this regard, linkages between corporate governance and encouraged to follow. Notably, in some MENA countries,
development are crucial… Yet, corporate governance and multiple corporate governance codes exist. In fact, some
development are strongly related. Just as good corporate MENA countries have a code that is solely directed to
governance contributes to the sustainable development small and medium enterprises, as is the case in the United
prospects of countries, increased economic sustainability Arab Emirates, Morocco, and Lebanon. 25
of nations and institutional reforms that come with it
Your local code should be the first resource to compare
provide the necessary basis for improved governance in
when it comes to your company’s corporate governance
the public and private sector. Alternatively, corporate
practices. Since the publication of the Oman Corporate
governance failures can undermine development efforts
Governance Code in 2002, almost all countries in MENA
by misallocating much needed capital and resources and
have introduced a corporate governance code. 26 In general,
developmental fallbacks can reinforce weak governance in
corporate governance codes are a non-mandatory
the private sector and undermine job and wealth creation.” 23
instrument that provides guidelines and recommendations
Globalization of finance and trade has supported the to companies in any given market. In many instances,
widespread adherence to common underlying corporate companies are given the option of either complying with
governance principles. They are not country-specific and the code or explaining why other solutions work better
have been applied in various and diverse emerging markets, for their situation, as no one prescription is correct in
adjusted for local regulations and business traditions. all circumstances.
Corporate Governance Principles:
Your company will need to decide how to adapt and modify
the general governance principles in its market in line
Responsibility Accountability with its current needs and aspirations. IFC can provide
expert advice to suggest which governance solutions
may be better suited for your specific company.
Corporate
Corporate governance is not something that Governance
has to be imposed on corporations from outside. Principles:
I can tell you in my case what developed and
what evolved in Nuqul Group was done in response to
challenges and actual needs on the ground - and it
turned out to be what you call corporate governance. 27
Ghassan Nuqul, Vice Chair, Transparency Fairness.
Nuqul Group, Jordan
23 Center for International Private Enterprise, “Corporate Governance - The Intersection of Public and Private Reform”, Center for International Private
Nuqul Group runs different investments and industries led by 5,100 team Enterprise, 2009, accessed September 1, 2015, http://www.cipe.org/sites/default/files/publication-docs/CG_USAID.pdf
24 See Annex 1 for a full list of corporate governance codes adopted in MENA.
members spanning several continents. It embodies two major holding
25 See Question 6 for more details.
entities; FINE Hygienic Holding (FHH) being the umbrella for paper mills, 26 See Question 1 for more details.
FINE hygienic paper companies and supporting industries; and The Promise 27 Center for International Private Enterprise Global Corporate Governance Forum, “Advancing Corporate Governance in the Middle East and North
Holding which includes diverse investments in different sectors and modes. Africa.”
21 22
7 Is corporate governance “costly”?
Corporate governance reforms involve the use of time and
resources; however, these costs should be considered as
an investment in the future of your company. Setting up
a board of directors, for example, will require attracting
respected, credible, independent directors; which may
involve considerable effort to identify the right people,
and costs in terms of their fees. This cost, however, is
incredibly worthwhile since a board’s presence is likely
to offer credibility in the market and help your company
obtain credit approval from banks.
Another area where potential benefit exceeds cost is risk

management; the proper management of risk inevitably
involves various expenditures. However, such a system
prevents losses in the face of undesirable events and
circumstances. 28 For example, managing cash flow volatility
is vital to ensure your company can cover its debt on time.
This requires the establishment of certain practices, which
will vary depending on the nature of your business, to
minimize the risk of not being able to deliver products
or services (e.g. relationship with suppliers), not being
paid time by customers (e.g. customers’ credit check), or
having inadequate internal accounting (e.g. punctuality
of accounting records).
While there is a certain cost involved in preparing

documentation and establishing tools of governance,
these represent only a fraction of the potential costs that
could arise from disputes with partners and employees
due to of the lack of internal transparency or poorly
One cannot think in terms of ‘costs’
defined roles and responsibilities. Overall, it is important to
when it comes to governance systems. It is
remember that implementing good governance practices
more appropriate to talk about an investment
is a flexible and gradual process. Start by governing
(in time and effort), the returns one will get
your company around good governance principles,
from this investment, and whether one can ensure
and you will soon find that costs can be controlled
long-term success without such an investment.
and assessed against benefits.
Carl Bistany, President,
SABIS® Educational Holding S.A.L.
SABIS® is a global education network that operates on four

continents serviced through three independent corporations
headquartered in the United States, Lebanon, and the United
Arab Emirates. Schools in the SABIS® Network operate in 15
countries and educate close to 65,000 students.
28 See questions 19 and 20 for more on internal controls and question 40 on risk management.
23 24
C The Board
of Directors’
Role and
Composition.
25 26
8 What is commonly regarded as
a well-constituted board?
There is no such a thing as a typical board of directors, since
Defining Different Types
size and composition will vary according to a company’s
of Board Directors:
needs. Board size can range from five to eighteen board
members, though the average board size across MENA
stands at about nine members. 29
Regardless of board
size, there are certain practices that should be followed
to achieve optimal results.
Overall, it is important to establish the desired board

profile for your company by identifying the types of
directors needed in relation to your business goals. To
Independent
do this, many companies regularly review the list of Directors:
Executive Non-executive
skills that are desirable on the board and match them
Directors: directors:
with board members’ profiles. Directors’ “softer” skills
and personalities should not be forgotten as they are
instrumental in establishing appropriate board dynamics. Executive directors: Directors simultaneously
serving as members of the company’s executive
When deciding on the composition of your board of management.
directors, you should keep in mind the balance between
the number of executive directors (board members who Non-executive directors: Board members who
are part of the company’s executive team) and non- are not part of the company’s executive team, but
executive directors (board members who are not part are somehow related to the company; examples
of the company’s executive team). You may also want being previous employment or family ties.
to consider having independent non-executive directors
Independent Directors: Board members who
on the board. 30 On average, 49 percent of board seats in
have no material relations with the company’s
MENA are held by independent, non-executive directors.
management, owners, or other stakeholders that may
31
Such directors can bring real value to your company
influence the independence of his or her judgment.
by providing new business opportunities and more
independent, objective advice. They also can provide
constructive criticism, to an extent which is unlikely to fresh ideas. Generally common convention suggests that
come from within the company. a board size of between seven to 10 directors is optimal
for most companies.
A major milestone in the project was the definition of
When thinking about your board’s profile, you should the roles of the board of directors and senior management.
keep in mind the practicalities related to the size of the Equally important is the issue of gender balance. This issue By implementing board composition regulations and detailed
board. In other words, consider that the effectiveness has received a lot of attention recently, since women tend procedures, for example concerning meeting frequency,
of the discussion is impaired when there are too many to be under-represented on boards. In MENA, in particular, SABIS ® was able to improve decision-making structures and
people around the table. Larger boards of directors are this issue is pertinent, since only about 12 percent of executive control. The board currently comprises eight family
not always the best source of constructive challenge or boards have a female board member. 32 members (some of whom are non-executive) and one
non-family director. The plan is gradually to increase
the number of independent board members while maintaining
the number of family members at a minimum of 50 percent. 33
29 Hawkamah Institute, “Environmental, Social and Corporate Governance Practices in the MENA region 2007-2012: Review of the Hawkamah/S&P
Pan Arab ESG Index.”
30 See Questions 10 and 11 for further discussion.
SABIS® is a global education network that operates on four continents serviced
through three independent corporations headquartered in the United States,
Pan Arab ESG Index.” Lebanon, and the United Arab Emirates. Schools in the SABIS® Network
33 Tharawat Family Business Forum and Pearl Initiative, “Good Governance in Family Firms, five case studies from the Middle East.” operate in 15 countries and educate close to 65,000 students.
27 28
Case Study. 34 9 What is the board’s role?
With all the emphasis on corporate governance and with rules that do not fit your company. If the focus is
Nuqul Group is a Jordan-based conglomerate of the increased responsibilities being placed on boards, on meeting the letter of the law, there is a definite risk
30 companies operating in manufactured goods it is important that your directors remain conscious of that the real issues behind your company’s governance
production. the important role that they play. It is critical that they becomes obscured.
understand their role and responsibilities within the
Notably, if the focus on governance processes leads the
company, which will help maintain a balance between
Corporate Governance Measures. board being too slow or overly risk-adverse in making
running the business and supervising how the business
decisions, your company or shareholders may not benefit.
Thirty years after the Group’s creation, Ghassan is run. While the board needs to actively participate in
Business is never about a “sure thing,” and bold moves
Nuqul took over from his father as leader of the strategy and be well-informed about the company’s
are never without risk. If your board’s focus on process
company. At the time, he realized that an excessive activities, it needs to refrain from interfering with day-
overcomes its willingness to take risk, shareholders will
concentration of power existed at head office to-day management.
not be better off. In the end, your board must take more
level, and that there was a lack of accountability
Due to the increased focus on regulatory requirements into account than strict compliance to the code. It is
at subsidiary levels. This made Nuqul less attractive
and other best practice guidelines your company will important that the board be responsible for the overall
to investors.
experience, your board can easily fall victim to complying performance of the company.
The Group established a strong board of directors
comprised of both family and non-family members. The Board Role in Management Decisions.
This addressed the insufficient delegation of
authorities and institutionalised processes, job
description, and increased accountability at all levels.
Nuqul’s board profile has been carefully selected

and includes non-executive directors independent
from the Group, family members, executive directors
and directors with relevant expertise.
Board.
Impact.
A better system of ensuring accountability permitted Management.
a more efficient delegation of authorities and
redefined roles and responsibilities. Nuqul Group
benefited from the institutionalization of the process
by setting a long-term strategy that followed global Approves strategic Develops effective
direction. executive board or
best practices. This led to continuous growth both
mgmt. team.
in terms of size and net profits.
Approves business
plans and budgets. Develops/recommends
business plans and
budgets.
Organizes work of
the board.
Develops/recommends
strategic direction.
Monitors and
guides managerial
Carries out corporate
performance.
34 Arab Business Review, “Case Studies: Corporate Governance in activities to achieve
the Middle East,” Arab Business Review, accessed on September corporate strategy and
1, 2015, http://www.arabbusinessreview.com/en/article/case- business plans.
studies-corporate-governance-middle-east
29 30
10 What is an independent director? 11 What value can an independent director
A director is considered independent when he or she has Shareholder nominated directors are considered bring to my company?
no material relations with the company’s management, independent as long as they:
owners, or other stakeholders that may influence • are not paid by these shareholders;
the independence of his or her judgment. In general, • do not have any material connection with the nominating
shareholders, business partners, clients, and family members shareholder(s);
tend not to be considered independent. National codes, • do not report directly to the nominating shareholder(s);
listing requirements, and individual companies define and
when a relationship should be considered “material”. • cannot be asked to resign by the shareholder(s) who
Though the criteria for independence varies in different nominated them. 35
countries, the main principles defining independence
In the MENA region, the proportion of independent
remains the same.
board members is on the rise, becoming more widely
Directors nominated by one or more shareholders, namely accepted. According to one survey, the proportion of Constructive Criticism and External Perspective Accountability and Transparency
shareholder nominees, who serve in their individual capacity independent board members in GCC countries increased Independent directors contribute to a company’s success Investors often request that independent directors sit
and not as a representative of the shareholder(s), also from 46 percent in 2009 to 64 percent in 2011, 36
which by providing innovative opinions and creative perspectives, on a board, as their presence promotes accountability
have characteristics defining their independence. is aligned with best practice. and by constructively challenging management. These and transparency. Placing independent directors on
directors can provide valued contributions and a fresh the board is also a necessary step to attract external
perspective to board discussions, which may be lacking funding, or when planning to list a company on local or
Criteria defining in the closed circle of owner and employees. When there international stock exchanges. Formal independence is
a director’s independence: are shareholder representatives sitting on the board, an useful as an indication to outsiders of the willingness of
Director must not have been independent director can also present a critical, unbiased, your company to address potential conflict and comply
employed by the company in the and non-affiliated perspective. At the end of the day, the with widely accepted norms. Since effective independence
recent past;
quality of the contribution of a director is not a function and willingness to speak up on issues is what brings
2. of his formal independence, but of his/her competence real value to the board, careful selection of directors
and courage in challenging prevailing opinions and widely through a formal and objective process is important.
1. 3. accepted views. It is also important to note that for listed companies in

certain jurisdictions, it is mandatory to have independent
Director does not receive any other Director has no other close links
compensation from the company to the management or its major directors sit on certain board committees such as the
in addition to his or her board fees; shareholders; audit committee.
“SME owner-managers, even those that choose to set up a
“SME owner-managers, even those that choose to set up a “In emerging markets where external governance mechanisms
board, may view the board as a threat to their control and, are weaker, boards’ ability to effectively monitor managers
therefore, decide to appoint family members or friends, who on behalf of shareholders has been crucially important for
are unlikely to ask hard questions, as non-executive directors. corporate governance. However, this board function may be
Such a board will provide little value to the company. As undermined if shareholders and managers (ownership and
companies evolve, it is important for companies to appoint control) are not fully separated. This is a particular concern
4. 5. “outside” or independent non-executive directors to their for minority shareholders in emerging market companies.
Director has not provided Director has no actual or potential
significant services to the company conflict of interest with the boards.” 37
Therefore, corporate governance codes commonly recommend
(especially audit and legal services) company, including employment – Dubai SME Code (2011) a high level of board independence—especially independence
in the recent past. or other service on the board of the
from management.” 38
company’s affiliates or competitors;
35 More details examples of definition of independence can be found here: IFC, “Indicative Independent Director Definition,” IFC, 2012, accessed 37 Mohammed Bin Rashid Establishment for SME Development, “Corporate Governance Code for Small and Medium Enterprises: Building the
September 1, 2015, http://www.ifc.org/wps/wcm/connect/9d10d4804091a9a7b3f4b3cdd0ee9c33/Independent+Director+IFC+Definition+2012. Foundations for Growth and Sustainability,” p 18.
pdf?MOD=AJPERES 38 Harvard Law School Forum on Corporate Governance and Financial Regulation, “Corporate Governance in Emerging Markets,” Harvard Law School
36 GCC Board Directors Institute, “Embarking on a Journey – A Review of Board Effectiveness in the Gulf,” GCC Board Directors Institute, 2011, accessed Forum on Corporate Governance and Financial Regulation, 2011, accessed September 1, 2015, http://blogs.law.harvard.edu/corpgov/2011/08/24/
September 1, 2015, http://gccbdi.org/wp-content/uploads/2013/09/embarkingonajouney_2011_english.pdf corporate-governance-in-emerging-markets/
31 32
12 How do I trust independent directors
with confidential information?
Having only “insiders” on your board would ensure
confidentiality, but this also means missing out on the “The duty of loyalty includes a duty […], not to disclose
benefits of a more lively debate and external points of views confidential information of the company or use it for his
provided by independent directors. 39 However, in order for personal profit, not to take business opportunities of the
independent directors to contribute meaningfully to any company for himself, not to compete in business with
discussion, they need access to confidential information. the company, and to serve the company’s interest in any
transactions with the company in which he has a personal
Most jurisdictions condemn the divulgence of non-public interest.” 41
information received by board members while serving – Corporate Governance Code, Kingdom Of Bahrain (2010)
on a board of directors. However, many MENA region
jurisdictions have imprecise definitions of board members’
duties and obligations, which can undermine potential Confidentiality Policy
legal liability with respect to the disclosure of confidential Notably, while a confidentiality policy may not be easily
information. 40 Therefore, in addition to legal and other enforceable on legal grounds, it serves the dual purpose of
statutory protections, it is advisable for your company educating board members and motivating their behavior,
to protect itself by having a board code of conduct, and through the creation of a moral obligation.
a confidentiality policy.
Private companies usually take a while to become open
Code of Conduct with outside directors, so access to confidential information
Upon appointment, non-executive directors should might be gradual.
be asked to sign a code of conduct, to be incorporated

into their contractual obligations. Your board code of
conduct that directors are bound by a duty of loyalty to
the company, which includes the duty not to disclose
non-public information and bans directors from using
such information to conduct any transaction for their
own personal interests or gains.
39 See Question 10.

40 Alissa Amico, “Corporate Governance Enforcement in the Middle East and North Africa: Evidence and Priorities”, OECD Corporate Governance
Working Papers, No. 15, OECD Publishing: http://dx.doi.org/10.1787/5jxws6scxg7c-en
41 Central Bank of Bahrain, “Corporate Governance Code – Kingdom of Bahrain,” Central Bank of Bahrain, accessed September 1, 2015, http://www.
moic.gov.bh/En/Commerce/DomesticTrade/Corporate%20Governance/Documents/bb9903e050a24fc6b65190cfcd637cd1BahrainCGCodeEN.pdf
33 34
13 What is the role of the chair of the 14 Why should we split the roles of chair and CEO?
board of directors? The roles of chair and CEO are intrinsically different and, example, Growthgate Capital, a MENA-focused private
depending on the circumstances, you should consider equity house, reports that one of its portfolio company’s
In the MENA region, the role of the chair varies. In some Leading the Board separating. The chair leads the board in carrying out doubled its revenues and earnings before interest, taxes,
companies, it is an honorary position, while in others the By managing the board’s agenda, the chair can influence its duties of monitoring, remunerating, and replacing depreciation, and amortization in five years “by taking steps
chair retains considerable power and an active managerial how the board tackles crucial topics such as strategy, management. Due to the CEO’s management position, like separating the role of chair and the CEO, empowering
role if the chair is also the Chief Executive Officer (CEO). risk management, senior executive appointments and there is an intrinsic conflict if the CEO were to lead the and incentivizing key members of the senior management
This section examines the role of a non-executive chair remuneration. Furthermore, with the assistance of the board in its duties to oversee management. This would team, and making restructuring initiatives such as defining
and his or her main responsibilities. The chair’s powerful company secretary, the chair can ensure the timely flow be like a football referee also being a player in the same adequately the senior officers’ roles...” 46
and complex position is well reflected in this quote from of information to the board. match. The problem is partially addressed by the creation
However, there are circumstances when one person in
a study that focuses on MENA countries, in particular, of certain committees, such as a remuneration committee
Through his or her leadership, the chair can inspire the dual roles of chair and CEO is beneficial. Such unity of
Egypt and Saudi Arabia: that objectively assesses the pay and performance of the
trust among board members and assist in developing command might be especially helpful in the early stages of
CEO and other management.
“In summary, the findings from this study indicate that, the appropriate dynamics at board meetings. To this business development or in periods of crisis and transition.
contrary to the norms in most developed countries and end, the chair needs to be a facilitator and a moderator. It is important to note that a key mission of the board is Like many good governance practices, every company
many developing ones, the chair rather than the CEO In particular, the chair should make sure that different to productively challenge management. It is very difficult should be mindful about applying a solution that is tailored
holds the most powerful position in the board of directors, views and constructive criticism can be freely expressed to achieve that if its leader is at the same time the person to their situation. Whether you should split the role of
although this is frequently the same person (Lorsch and throughout any decision making process. However, the to be challenged. The practice of splitting the two roles CEO and chair depends on your company’s needs and
MacIver 1989; Prowse 1994; Conger and Lawler 2001). This chair must, at the same time, make sure to manage has also been adopted not only by listed companies, but circumstances.
finding is common across both countries [Saudi Arabia dissent in order to have a productive and efficient group by successful private family owned companies.
and Egypt], and across different companies regardless of discussion. A good chair aims to leads the conversation
Another reason for splitting the roles is time availability. “Large companies should consider separating the roles of
the ownership structure. Moreover, the study confirms so that the board makes decisions by consensus, and not
CEOs are very busy people, and their executive duties the chairman and the chief executive.
that the chair is the company’s highest authority and the simply through a majority vote.
usually take priority over board leadership duties. The For the board oversight over management to be truly effective,
boards’ main source of information because of his ability
Evaluation and Succession Planning of the Board board is a critical organ of any well-structured governance the roles of the chairman and the chief executive should be
to expend personal resources on gathering information
As the board leader, the chair also has the task of system and requires dedicated leadership and commitment separate. In smaller companies, such a separation may not
and formulating company strategies. This phenomenon is
supervising the evaluation of the board’s effectiveness that only a non-executive chair can provide. always be possible or feasible.” 47
more pronounced in family companies, but is nevertheless,
and the succession planning of its members and that of – Dubai SME Code (2011)
also present in other company types including state and The clear and transparent division of roles at the top of
the board’s committees, if any. Notably, about 13 percent
foreign-owned companies in both countries.” 42 the company is one of the cornerstones of good corporate
of listed companies in MENA conduct board evaluations. 44 According to a 2008 Hawkamah-IFC survey covering
governance, so it should not be surprising that many
MENA corporate governance codes favor the separation MENA, 65 percent of interviewed companies stated
“The chair should take an active lead in promoting mutual
of these roles. These include the codes in Bahrain, Oman, that the positions of chair and CEO are held by different
trust, open discussion, constructive dissent and support
Qatar, Saudi Arabia, and the United Arab Emirates. In individuals. Notably, 72.2 percent of banks followed
for decisions after they have been made.” 43
fact, the roles of chair and CEO in MENA countries are corporate governance best practices in this respect. In
– Corporate Governance Code, Kingdom Of Bahrain (2010)
separate over 80 percent of the time. 45 contrast, 42.3 percent of listed companies combined the
functions of CEO and chair.
In SMEs with many shareholders, the split of the roles of
chair and CEO is more common and often required. For
42 Jenifer Piesse, Roger Strange, and Fahad Toonsi, “Is there a distinctive MENA model of corporate governance?” Journal of Management and Pan Arab ESG Index.”
Governance 16, no. 4 (2007): 645-681. 46 Samer Kallas, Elie Nammar, Sheharyar Malik, “Doing Well While Acting Good, Benefits of Good Governance, Insights from MENA”, Harvard Business
43 Central Bank of Bahrain, “Corporate Governance Code – Kingdom of Bahrain.” School and GrowthGate Capital, 2013, accessed September 1, 2015, http://www.growthgate.com/imagesadmin/articles_pdf/14012807051848.pdf
44 Hawkamah Institute, “Environmental, Social and Corporate Governance Practices in the MENA region 2007-2012: Review of the Hawkamah/S&P 47 Mohammed Bin Rashid Establishment for SME Development, “Corporate Governance Code for Small and Medium Enterprises: Building the
Pan Arab ESG Index.” Foundations for Growth and Sustainability,” p. 18.
35 36
D Functioning
of the Board
of Directors.
37 38
15 How many times a year should a board meet?
There is no magic number as to how many times a year videoconference, and use written approvals when urgent
a board should meet. However, even in small businesses, matters arise at short notice. Do not forget that the
a board of directors should meet at least quarterly, with number of meetings reflects the board’s relative power.
additional meetings determined by specific circumstances. The more power management has, the less likely the
For larger companies, it is common to schedule around board will need to meet.
eight meetings a year and sometimes more.
Attendance is also worth pointing out; every director
Before the beginning of the year, your board chair, with should be encouraged to attend meetings to promote a
the support of the board secretary, should develop an full and dynamic dialogue, as well as continuity. A study
annual work plan that defines which matters should be that includes 150 of the largest companies listed on the
discussed at particular times in the board of directors’ stock exchanges of 11 markets in MENA 48 shows that of
annual cycle of meetings. This will provide you with the the 41 percent of companies that provided disclosure on
list of necessary meetings and principal issues designated this topic, only 11 percent of boards had full attendance
to be covered at each of the meetings in the annual cycle. at more than 75 percent of meetings. 49 This, indeed, is a
cause for alarm, especially since only 2 percent of boards
If meeting this frequently is difficult or too expensive,
had full attendance at more than 90 percent of meetings. 50
your company should make full use of modern means
of communication to organize meetings by phone or
Through experience, we have found

that holding four full Board Meetings
per year is optimal for the Board to
fulfil its strategic and oversight role.
Joe Achkar, Board Member,
SABIS® Educational Holding S.A.L.
SABIS® is a global education network that operates on four

48 These markets included Bahrain, Egypt, Jordan, Lebanon, Kuwait, Morocco, Oman, Qatar, Kingdom of Saudi Arabia, Tunisia, and the UAE.
continents serviced through three independent corporations
headquartered in the United States, Lebanon, and the United
50 Hawkamah Institute, “Environmental, Social and Corporate Governance Practices in the MENA region 2007-2012: Review of the Hawkamah/S&P Arab Emirates. Schools in the SABIS® Network operate
Pan Arab ESG Index.” in 15 countries and educate close to 65,000 students.
39 40
16 How are non-executive board members 17 What is an appropriate tenure and term of
compensated? service for members of the board of directors?
Non-executive board member compensation varies Committee fees are often not the same; audit and risk Term of Service Tenure
dramatically according to the size of the business, the management committees receive larger fees due to the The period for which non-executive directors are elected There is no maximum length of tenure for board members
sector in which it operates, and local business traditions higher time commitment required of their members. to serve on the board (their term of service) varies by imposed by law or suggested as governance best practice.
and workload. While it is not possible to determine a figure Individuals with more responsibilities, such as board country and by company. When deciding what best suits However, boards with long tenures tend to be more aligned
that can be applied to everyone, the pay structure and the and committee chair, vice-chair, and senior independent your case, you should consider the two most popular with management and may suffer from “groupthink”: a
rationale for diverse compensation within the same board directors, also receive higher fees. In some countries, it is options are a three-year term or a one-year term. The phenomenon that happens in cohesive groups of people
applies to the majority of privately held companies. In order customary to give an attendance fee per board meeting latter is normally adopted by companies with dispersed whereby, to maintain harmonious relations, decision making
to structure your non-executive director remuneration or committee meeting as an incentive to participate. ownership, usually listed companies with no individual becomes skewed as group members want to minimize
policy, you should take into account international best large shareholder. It ensures prompt accountability to controversies and criticism.
Unfortunately, very few companies in MENA disclose
practice, as well as the local business culture and traditions. the owners who vote on all board members once every
their remuneration policies. However, there have been If an independent director sits on the board for many
year. The three-year term, on the other hand, provides
Directors are not employees of the company but are still improvements in recent years and some companies are years, he or she may develop a biased view and his or her
a more stable board composition and continuity as it
remunerated for their services. According to corporate starting to disclose executive pay structures. 51 capacity to independently judge management proposals
allows for a better understanding of the business and
governance best practice, non-executive directors receive can decrease. In order to foster constructive criticism of
an institutional memory at board level. If you opt for a
Some publicly listed companies require non-executive
only ‘fixed’ remuneration. Normally, non-executive directors management proposals by the board, it is considered best
three-year term or another multi-year option, you should
directors to also become shareholders in order to align
receive an annual fixed fee for their participation on the practice to avoid renewing the position of an independent
consider whether you prefer to have your directors elected
their interests to those of other shareholders. These shares
board, and additional fees for each committee membership. director for too long. There is a widely held belief that
or re-elected all at once, or if staggered elections are a
are usually paid for by the non-executive director and are
Additionally, any out-of-pocket expenses incurred while after serving for a period of between nine to 12 years,
more beneficial option.
deducted from him or her through an appropriation of
performing duties are covered by the company. It should depending on the country, a formerly independent director
part of their director’s fees. One relatively simple formula
be remembered that if you are looking for highly qualified According to best practices, executive members of the is no longer considered independent. Consequently a
to use is shown below.
non-executive directors who will make a real contribution board (managers of the company) are subject to the same decision may be required from the director to step down
to the business, it is in the company’s best interest to re-election process as non-executive directors. This makes from the board.
ensure that they are fairly and properly compensated. managers directly accountable to the shareholders. In
some countries, there is a practice that requires executives
“[To] appoint independent directors by the founding general
to remain throughout the duration of their appointment
assembly or by the ordinary general assembly for a maximum
as an executive without having to stand for re-election,
period of three years renewable only once. The appointment
and only the non-executive directors are required to
Board Remuneration of independent directors and the renewal of their mandate
retire by rotation.
– Sample Schemes for Non-Executive Directors. should be carried out according to clear, objective and
transparent criteria.” 52
– Tunisia, Code of Best Practice of Corporate Governance
Components of a non-executive remuneration plan How much should the annual fee be?
(2008)
Additional Travel Annual fee can be comprised of cash

Costs or shares and will vary by
country/market. However, here is a
very simple formula that can be
Chair / Chair /
Additional Commitee Commitee used:
Member Member 1. Multiply the approximate CEO
daily rate times the number of
expected work days for the Director.
Additional Fees per Fees per Fees per (e.g., 1,000$/day X 10 days/year =
meeting meeting meeting
10,000$ fee).
2. Then you can add the
Annual Annual Annual Annual
supplemental fees (e.g., meeting
Minimum fees, travel costs, etc) on top of that.
Fee Fee Fee Fee
45 Hawkamah Institute, “Environmental, Social and Corporate Governance Practices in the MENA region 2007-2012: Review of the Hawkamah/S&P 52 Institut Arabe des Chefs d’Entreprises, “Code of Best Practice of Corporate Governance,” Institut Arabe des Chefs d’Entreprises, accessed September
Pan Arab ESG Index.” 1, 2015, http://www.eiod.org/uploads/Publications/Pdf/tunisia_2008_en.pdf , p. 12.
41 42
18 Should we have board committees? Common Types of Board Committees in SMEs.
What are their duties?

A board committee is a smaller team of directors created
to support the board in performing its duties. The “The board shall establish an audit committee of at least
committee structure, being smaller than the full board, three members of which the majority should be independent
facilitates in-depth discussion and benefits from regular including the Chairman”.
management participation and input. Committees are – The Corporate Governance Code, Kingdom of Bahrain
Audit Committee. Nominations Committee. Remunerations Committee.
also created to address conflict of interest issues, such (2010)
as management auditing its own accounts or setting

✓ To provide financial oversight and ✓ To ensure for appropriate board
✓ To help set remuneration policy
ensure for appropriate control composition. and structure to attract, retain and
its own remuneration. However, it is important to note
that the existence of a committee does not relieve the
directors. Furthermore, it may be important for committee
structure ✓ Ideally, all independent; at motivate directors
board of directors from its responsibilities from the issues

members to have an expertise present, such as an
accounting expert on an audit committee. Overall, the
✓ Board chairman not a member; minimum, chairman independent,
✓ Composition: Ideally, all
nor are executives; Should consist remaining directors non-executive independent; at minimum,
addressed by the committee. These are generally advisory
committees that make recommendations to the full board
number and types of committees should be determined
exclusively of independent directors ✓ Focus Areas: chairman independent, remaining
for final decisions.

by the needs of your board, keeping in mind that smaller
boards tend to have fewer committees, and that these
✓ Focus Areas: • Nominations: Chooses the directors non-executive
committees increase business efficiency.

• Accounting issues and policies; candidates for director and CEO;
✓ Focus Areas:
review of financial information reviews and approves other senior • Considers matters relating to
“The Board of Directors shall set up a committee to be • Risk management, internal appointments non-executive and executive
named the “Audit Committee”. 53 controls and audit procedures • Evaluation and training: remuneration
– The Corporate Governance Code, Kingdom of Bahrain • External audit issues and report Organizes or carries-out board • Approves changes to incentive
(2010) • May also consider legal matters evaluation; conducts performance and benefits plans applicable to
and compliance appraisals of directors and senior senior managers
Audit committees are the most common type of committee management
and are mandatory in certain countries and for certain • Succession planning: For CEO,
companies. Audit committees are often established even chairman and other key directors
in smaller, non-listed companies in order to ensure that • Increasingly handles “corporate
time-consuming activities, such as the review of the governance” issues
company’s accounts, are performed more efficiently and

that a company benefits from the experience of board
members who have financial expertise.
Committees that deal with corporate governance and

remuneration issues are standard among listed companies. One of the things that make us unique,
These committees are rarer in SMEs, where such tasks compared to many other institutions, is that we have
are carried out by the whole board or by the chair alone. a board committee devoted to corporate governance.
We regularly review our corporate governance at least
It is important that the roles and responsibilities of the a few times a year. The board committee oversees the
committees are clearly defined and reviewed by the board implementation of our action plan, stays abreast of
on a regular basis. These rules and responsibilities are developments in the market, continuously reviews our
often delineated in a committee charter, which may also policies, as well as updates on best practices, development of
include rules with regard to committee composition. In training programs or evaluations to improve our governance. 54
certain committees, such as the remuneration committee, Sonya Santolin, Corporate Secretary,
all members should be non-executive and independent Abu Dhabi Commercial Bank (ADCB), United Arab Emirates
53 Capital Market Authority, “Corporate Governance Regulations in the Kingdom of Saudi Arabia,” Board of Capital Market Authority, 2014, accessed ADCB was formed in 1985 as a result of the merger of Emirates Commercial
September 1, 2015, http://www.cma.org.sa/En/Documents/CORPORATE%20GOVERNANCE%20REGULATIONS-2011.pdf , p. 26. Central Bank of
Bank and Federal Commercial Bank with Khaleej Commercial Bank. The
Bahrain, “Corporate Governance Code – Kingdom of Bahrain,” p. 15.
54 Center for International Private Enterprise Global Corporate Governance Forum, “Advancing Corporate Governance in the Middle East and North Government of Abu Dhabi, through the Abu Dhabi Investment Authority,
Africa,” p. 47. holds 65 percent of ADCB shares.
43 44
E Control
Environment.
45 46
19 I have heard the term “internal control”,
but what does it mean?
In smaller or newer businesses, founders or managers usually provide reasonable assurance about the achievement
control all operational processes, and all expenditures of objectives in the following categories:
are approved by them. However, as the company grows, • Effectiveness and efficiency of operations;
some decisions need to be delegated, making it crucial • Reliability of financial reporting; and
to establish more formal processes and corresponding • Compliance with applicable laws and regulations. 55
controls.
Internal controls usually prevent undesirable actions
The term internal control encompasses the procedures from occurring and can detect when things are about
that your company has established, or needs to establish, to go awry. Internal controls are usually comprised of
so that management and the board can ensure that work preventative controls and detective controls. Examples of
done within the company is completed as intended. In preventative controls include the requirement of having
other words, internal controls are a set of processes that dual signatures on checks or having password-protected
guide all employees’ actions, permit effective oversight, and files. These types of controls both protect and limit access
prevent things from going wrong. It provides reassurance to business assets.
that the decisions taken are properly executed and helps
Detective controls include reconciling the bank or inventory
managers be effective, while avoiding problems such as
counts. Typically, these internal controls are performed
overspending, operational failures, and legal violations.
periodically to find out if there are any errors that require
Internal controls can relate to any aspect of your business
correcting. They often detect internal errors or problems,
- from human resources to information technology (IT) -
as well as external errors such as bank errors.
and are designed to address risks that have been identified.
A typical control measure instituted by many companies is

Good internal controls are a critical component of good
the segregation of tasks to avoid errors or malicious actions.
governance. Flawed or poor information resulting from
Therefore, the authority of making certain decisions should
inadequate internal control systems can compromise any
be clearly mapped and documented, which is particularly
meaningful board decision relying on such information.
important in businesses where a large number of people
According to international corporate governance best
can take decisions that are binding with third parties.
practice, the system of internal control is designed to
Our turning point was when our team

experienced the change, and finally saw that
improving our corporate governance was worth
all the time, effort, and money invested in it.
They realized that having the team and resources
in place without a system to direct it was like
having a computer without an operating system. 56
Islam Mahdy, Chief Executive Officer/Chair,
Credence, Egypt
55 COSO, “Internal Control Integrated Framework, Executive Summary,” COSO, May 2013, accessed September 1, 2015, http://www.coso.org/
documents/990025p_executive_summary_final_may20_e.pdf Founded in 1983, Credence is a real-estate developer. It owns and manages
56 IFC, “Corporate Governance Success Stories,” p. 78. integrated hotels, attractions, innovative food concepts, and real estate.
47 48
20 How should we review our system of controls? 21 What is the role and preferred composition
In a small business the owner-manager controls everything. According to international best practice, your review of the audit committee?
This is unlikely to continue once the business begins to of internal controls should, at a minimum, assess the
expand. That is why there is a need for a system of controls appropriateness of the following elements: The primary role of the audit committee is to assist the Given its role, the audit committee should be staffed with
within a company. Without these controls, the risk to the board of directors in ensuring the integrity of financial non-executive directors, who are financially literate and
business, for example, from fraud or mismanagement, Reviewing of internal controls as per reporting prepared by management. In other words, the typically independent. If possible, at least one member
becomes too high. Internal controls should continuously international best practice. audit committee must ensure that the financial reports should possess accounting expertise through professional
evolve with your company’s operations and should be fairly represent the company’s financial situation. accreditation or working experience. Members with risk
subject to regular review. As your company grows in size management experience or knowledge of internal controls
The audit committee performs the following tasks:
Reviewing
and complexity, the controls will need to be amended are an added advantage. Executives often attend part of
controls.
internal
accordingly to ensure proper practices are applied without • Reviews financial results prior to formal announcement
audit committee meetings, but should not be permanent
creating a bureaucratic burden. to shareholders;
members. In any case, it is good practice to conduct
• Challenges management on the adequacy of the financial
part of the meeting, usually the beginning, between
To this end, effective monitoring of the internal control reporting process;
committee members only, with no guests attending. The
system needs to be performed by management on a • Reviews accounting policies and compliance with
audit committee, like all board committees, should only
continuous basis. Corporate governance best practice relevant accounting standards and regulations;
be an advisory committee and make its recommendations
advocates that a comprehensive review of the system • Ensures that key financial reporting staff are competent
to the full board for consideration.
should be conducted annually and its results discussed by and ethical; and
the board of directors and audit committee, if there is one.
1. • Oversees internal auditors – whether in-house or
“The most important features of this relationship [between
outsourced – and supervises the relationship with
the audit committee and the board, the management, and
external auditors to safeguard their objectiveness.
the internal and external auditors] cannot be drafted as
• Review the adequacy of control systems by using internal
Your top managers’ attention to guidance or put into a code of practice: a frank, open working
audits (if present)
the system of internal controls; relationship and a high level of mutual respect are essential,
• Acts as authority in certain sensitive control areas,
particularly between the audit committee chairman and
such as those for related party transactions
the board chairman, the chief executive and the finance
director. The audit committee must be prepared to take
2. a robust stand, and all parties must be prepared to make
information freely available to the audit committee, to listen
to their views and to talk through the issues openly.” 58
How management ensures that The way risks are identified – Financial Reporting Council,
their directives to mitigate risk
are carried out; and
3. and managed; Guidance on Audit Committees, London (2012)
4.
For us corporate governance is
about shining a light through the whole
The timeliness, reliability, and organization. It gives us a clearer picture
clarity of information and on how we are performing and where
communication. we can improve. At the same time, it provides
assurances to our key stakeholders. 57
Roshaneh Zafar, Managing Director/CEO,
Kashf, Pakistan
Source: Center for International Private Enterprise Global Kashf is one of the leading microfinance institutions in Pakistan.
57 IFC, “Corporate Governance Success Stories,” p. 14.
Corporate Governance Forum, “Advancing Corporate
Kashf was set up in 1996 and is now ranked among the top 5 percent 58 Financial Reporting Council, “Guidance on Audit Committees,” Financial Reporting Council, September 2012, accessed September 1, 2015, https://
Governance in the Middle East and North Africa,” p. 62.
of microfinance institutions worldwide in terms of outreach. www.frc.org.uk/Our-Work/Publications/Corporate-Governance/Guidance-on-Audit-Committees-September-2012.aspx
49 50
22 How can the board of directors ensure that Case Study. 62
appropriate procedures are followed within the
Commercial Insurance is a family-owned insurance
company? company based in Lebanon and founded in 1962
by Roger Zaccar. The company is currently led by
the second generation of the family.
The internal audit function provides assurance that a reporting to the CEO for administrative and procedural
company’s policies and processes are appropriate and are matters.
being followed in the everyday course of the business. Corporate Governance Measures.
The board of directors should decide whether an internal
Each internal audit review should follow a well-defined
audit function is completed internally or whether such Commercial Insurance focused on improving its
annual schedule that is prioritized on the basis of risk.
reviews are outsourced, meaning not performed by a risk management, in accordance with international
The internal audit function is a powerful tool for the CEO person within the company. Setting up a full-fledged governance best practice. In particular, the company
and the board to oversee internal control systems 59
, internal audit function internally can be excessively costly realised the need to better define roles, standardize
risk management 60 and governance of an organization or too complicated for small companies. It may be hard to procedures, and add an internal audit function.
through systematic reviews. Notably, the effectiveness of dedicate internal resources with the appropriate skillset
an internal audit depends on its independence from the to conduct internal audit reviews, which is why so many Following the establishment of the new risk
company’s management. The internal audit function is companies decide to outsource this function. If a company management procedure, the management felt
usually structured in such a way that the head of internal decides to outsource the internal audit function, it is a the need to be reassured on how much they were
audit is accountable to the chair of the audit committee corporate governance best practice to choose a provider being followed. The management adopted a step-
for the mandate and priorities of the internal audit, while different from the external auditors of the company. by-step approach to introducing internal audit in
the company. Initially only two interns were hired
to conduct the first internal audit review (in order
to avoid the threatening effect of the inspection).
Impact.
The impact of the better risk management system
and appropriate internal audit function has been
Strong corporate governance and felt on all levels of the company, and has resulted in
prudent risk management are crucial for sustainable the more efficient use of management’s time and
growth. This will remain a priority for Capital Bank, increased motivation of employees. Furthermore,
as it focuses on maintaining its unique positioning in the many decisions that were previously made at the top
market and implementing its expansion plans in Iraq. 61 level could be delegated with minimal managerial
Basem Khalil Al Salem, Chair, review required. The processes that determine
Capital Bank, Jordan all decisions are now standardized, while more
responsibility can be assigned at different levels in
the company’s pyramid and effective accountability
Since its inception in 1995, Capital Bank has grown to become one of is ensured.
the top financial institutions in Jordan, offering the Jordanian market a
comprehensive set of commercial and investment banking services tailored
to the needs of individuals and corporate clients alike. The Bank’s major
shareholders include the Social Security Corporation, IFC, the Darwazeh
Group, the Nuqul Group, the Al Salem Group, the Abu Jaber Group, and
shareholders from several other countries that include Saudi Arabia, the
United Arab Emirates, and Iraq.
59 See Questions 18 and 19 for more on internal controls. 62 For more information: Center for International Private Enterprise
60 See Question 22 for more on risk management. Global Corporate Governance Forum, “Advancing Corporate
61 IFC, “Corporate Governance Success Stories,” p. 73. Governance in the Middle East and North Africa.”
51 52
23 How can we manage risk? Case Study. 65
Risk is an integral part of any business endeavor: without insurance or outsourcing an activity, or it can be shared
Sorouh Real Estate PJSC is one of the largest real
taking risks no profits would be generated. Taking risks with others through a joint venture arrangement. Finally,
estate developers in the United Arab Emirates.
is an integral part of exploiting strategic opportunities in a risk can be consciously accepted.
any kind of business. To maximize returns, entrepreneurs
There also needs to be communication with staff at all
need to adequately understand the risk associated with
levels to ensure that individual and group responsibilities Corporate Governance Measures.
their ventures. A business that decides to protect itself
are understood, and that everyone understands who is
against all risk is unlikely to generate much upside for its Sorouh went through considerable corporate
responsible for the management of each risk. Furthermore,
owners, but a business that exposes itself to the wrong governance changes, including improving its
risk management is not a one-off event but a dynamic
types of risk may be even worse off. Therefore, decisions internal control and risk management systems
process ensuring that new risks are addressed as they
on how much risk to take and what type of risks to take such that they were in compliance – ahead of the
arise. Sound risk management is also cyclical, in the sense
are critical to the success of a business. compliance deadline – with the UAE Securities
that it is necessary to establish how previously identified
and Commodities Authority’s standards.
In fact, the most successful businesses have risen to risks may have changed, and whether the risk response
the top by finding particular risks that they are better is still relevant. The governance changes involved a revamped
at exploiting than their competitors. Companies of all whistle-blower mechanism, empowered by
Controls that mitigate risks are usually periodically
sizes that want to be successful in the long run have to better internal disclosure and transparency. An
assessed by internal audit, when this function exists in
take a systematic approach to managing risk. Given the Insider Share Dealing Policy was approved and an
a company. 63 Ongoing functions such as compliance, risk
strategic importance of risk, overseeing risk is one of the enterprise-wide risk management system, which
management, financial control, and quality control play an
main responsibilities of top management and the board formalized existing risk management practices,
important role in ensuring the adequacy of controls and
of directors. Boards are important when it comes to risk, was implemented.
of overseeing risks. However, in any organization, risks are
because day-to-day management sometimes weakens
primarily owned and managed by operational managers
executives’ capacity to contend with the company’s risks.
It just takes a question or two from the board for the
who are responsible for implementing corrective actions Impact.
to address process and control deficiencies. Corporate
executives to recognize risks that would have otherwise
governance best practice provides guidance on how to According to Sorouh’s Chief Corporate Officer, Afshar
been obscured.
structure your company’s decision-making process in Monsef, “The actions we took for our corporate
Companies can’t capitalize on risks they are not aware relation to certain risks, depending on the complexity governance had a direct impact on the rating we
of; if you do not know certain risks exist, then you cannot and size of the business. received for our Sukuk [Islamic certificates] and
manage or take advantage of them. That is why risk ultimately the interest rate premium, which resulted
management starts with risk identification. Identifying in paying a lower premium compared with other
risks may rapidly lead to a long list of risks that needs to companies in the region.”
be organized and analyzed in order to be valuable. Risks
Sorouh issued more than $1 billion worth of
are not always of the same nature, have the same impact,
securitized Islamic certificates, which met a
or have the same likelihood of occurrence. In fact, some
favorable market reaction thanks to its corporate
risks change more rapidly than others and require closer Managing the company’s risks in
governance practices. This saved millions for the
monitoring. Assessing risks helps to spot which ones a better way is one of the major reasons
company. Moody’s rated the majority of the notes
are critical to the business. It also helps to determine we felt the need for better
“AA3” while S&P rated them “A”.
the adequate treatment of each risk. Responses aim at corporate governance practices. 64
lessening the likelihood of an undesirable event occurring Max Zaccar, Chair,
or lessening its impact. For example, a risk can simply be Commercial Insurance
rejected by terminating an activity, or it can be mitigated
with a control by restricting access or setting-up an alert.
Established in 1962 by the late Roger Zaccar, Commercial
Risk can also be transferred to a third party, by buying
Insurance offers both life and non-life insurance services.
63 Please refer to Question 21 for more information.

64 Center for International Private Enterprise Global Corporate Governance Forum, “Advancing Corporate Governance in the Middle East and North 65 Arab Business Review, “Case Studies: Corporate Governance
Africa,” p. 31. in the Middle East.”
53 54
F Shareholder
Issues.
55 56
24 What governance issues do investors look at
before investing in my business?
As part of their pre-investment due diligence, investors in
emerging markets tend to carefully assess the corporate
governance of companies. In fact, there is evidence that
Very Important Moderate Importance
corporate governance plays an important role in the
decisions of emerging market-investors. 66 The outcome
of a governance analysis often influences the financial and
non-financial conditions of the investment transaction. IFC’s
methodology for evaluating corporate governance risks
and opportunities has been distilled into the “Corporate Very Important
Governance Development Framework.” This approach

has been adopted by thirty-three Development Finance
Institutions (DFIs) for use in their investment processes,
though this approach has yet to be adopted by investors
across the board.
Governance practices
Typically, investors analyze the company’s governance,
Disclosure
including the strength of management, the quality of
succession planning, clarity of disclosure on the company’s Related party transactions
Governance practices
financials, presence and structure of the board of directors, Board structure/board independence Little Importance
and how related party transactions are managed. Investors Disclosure in general
Shareholder rights, such as tag-along rights
will be particularly interested in the existence of measures Disclosure in English
Board process
that protect minority shareholders; for example, specific Quarterly disclosure
voting rights, or rights in connection with changes in Separate Chair and CEO
Willingness of senior management to meet
control of the company.
Motivations of controlling group/management Figure 6:
In 2012, IFC conducted an Emerging Market Investor Importance of Governance Practices for
Succession planning and compensation structure
survey, 68 which shows that lack of transparency is a red Emerging Market Investors.
flag for emerging market investors and that investors
Figure 5:
do not often invest in emerging market companies with
Specific Governance Practices of Importance to
poor corporate governance. The study also identifies the Emerging Market Investors.
degree to which certain governance practices are deemed
important by investors. A summary of the findings is
presented in Figures 5 and 6 on the right.
As part of our due diligence, we carry out a
detailed review of the Corporate Governance
of target investee companies and make sure that
we have a corrective action plan approved by
all stakeholders before we make a commitment… If we
don’t fix these issues early on, it will hamper growth
and, at the end of the day, our return on investment. 67
Skander Oueslati, Senior Partner,
Africinvest
66 See: Vikramaditya Khanna and Roman Zyla, “Survey Says...Corporate Governance Matters to Investors in Emerging Market Companies,” IFC,
AfricInvest was founded in 1994 and is part of Integra Group, an
2012, accessed on September 1, 2015, http://www.ifc.org/wps/wcm/connect/dbfd8b004afe7d69bcb6bdb94e6f4d75/IFC_EMI_Survey_web.pdf
investment and financial services company based in Tunisia. AfricInvest
?MOD=AJPERES
67 Skander Oueslati, e-mail correspondence to Nestor Advisors. has dedicated investment teams focused on North Africa and Sub-
68 Khanna and Zyla, “Survey Says...Corporate Governance Matters to Investors in Emerging Market Companies.” Saharan Africa, and employs 50 professionals based in six offices.
57 58
25 Why is the equitable treatment of shareholders
important?
Equitable treatment of shareholders is a cardinal principle of regulations. Showing goodwill by strengthening shareholder
corporate governance and crucial to building shareholders’ rights can go a long way, particularly in countries where
trust. 69 Equitable treatment does not mean equal treatment. the enforcement of legal provisions is weak. Examples of
This is an important distinction, since in many countries, shareholder rights are numerous. These include, among
companies are permitted to have different classes of others, obtaining qualified majorities in a shareholder
shareholders with different rights: not all shareholders are meeting for decisions of exceptional importance, and
created equal. However, measures directed at granting ensuring pre-emptive rights when you want to raise
an unfair advantage, such as disproportionate control capital by issuing new shares.
to specific shareholders, raise concerns and likely hinder
If you want to attract international investors, it is crucial
the capacity of your company to raise funds from the
that you consider practical solutions that ensure that
capital market. For example, as the universally accepted
national shareholders do not have any real or perceived
principles of corporate governance of the Organization
advantage over foreign ones. To guard against such an
for Economic Cooperation and Development (OECD)
unfair advantage, a company can, for example, ensure
declare, “Within any series of a class, all shares should
timely disclosure in English and make extensive use of
carry the same rights. All investors should be able to
its website to communicate with shareholders.
obtain information about the rights attached to all series
and classes of shares before they purchase.” In other
words, not all shares must have the same rights, but
the differences must be clear and any change should be
subject to approval by those classes of shares which are
negatively affected.
The existence of minority shareholder rights tends to raise

investors’ level of comfort when it comes to investing in a
company. This means that you may want to consider non-
mandatory corporate governance best practices in addition
to the mandatory minimum rights recognized by local
The actions we took for our corporate

governance had a direct impact on the rating we
received for our Sukuk and ultimately the interest rate
premium, which resulted in paying a lower premium
compared with other companies in the region. 70
Afshar Monsef, Chief Corporate Officer,
Sorouh Real Estate PSJC, Abu Dhabi
Sorouh Real Estate (P.S.J.C) is one of the largest real estate developers
in the United Arab Emirates, and currently has over AED 70 billion ($19
billion) worth of projects under development. Sorouh is now one of the
largest real estate developers on the Abu Dhabi Securities Exchange.
69 This concept was first introduced by the OECD Principles and is now accepted in virtually all best practice codes of corporate governance.
70 Arab Business Review, “Case Studies: Corporate Governance in the Middle East.”
59 60
G Disclosure
Issues.
61 62
26 Disclosure and transparency may harm my
competitive position in the market, so why
should I disclose more information?
Sufficient transparency is at the forefront of investors’ However, among listed companies in MENA, the culture
agenda and is often a necessary condition for investment of full disclosure and transparency is developing. Listed
in a company. Better information promotes stakeholders’ companies are subject to enhanced disclosure obligations
confidence in your company, not only attracting investors in order to ensure the efficient and fair functioning of
but also promoting your business’ image with customers capital markets.
and regulators.
Financial and business information disclosure is crucial
Local business practice and traditions may influence in order to attract capital. While there might be some
how much information your company discloses to the moderate loss of competitiveness by making it easier
public. Despite having regulatory frameworks that are on your competitors to find out about your company’s
comparable to other emerging markets, existing MENA position, your willingness to disclose signals strength to
corporate governance practice is perceived as not promoting both lenders and the market, including your competitors.
sufficient transparency. 71
An OECD paper identifies the Furthermore, it is rare to find competitive information
widespread opaqueness of MENA markets as a crucial of high value disclosed in annual accounts. Disclosure of
impediment to attracting investment. An example of corporate governance information will not harm your
this is that only 15 percent of companies in the United competitive position, but rather it improves your company’s
Arab Emirates published a corporate governance report. reputation with investors and other stakeholders, which
72
In another example, in a survey of 200 publicly-listed eventually lowers your cost of capital.
companies in the GCC, 42.5 percent provided an annual
report on their website or a copy upon request. 73
As is the case for all companies,

but especially in our industry, it is
important to have a sustained flow of
capital and highly competent manpower.
To do that, creditors need to trust the information
you provide them. For us, our commitment to
serious auditing allowed us to gain that trust. 74
Mona Akl, Vice President and Corporate Secretary,
BUTEC Group Holding S.A.L.
Founded in 1964, BUTEC is a leading contractor in MENA, with

projects in areas such as water treatment, electrical installations,
oil, gas, and industrial fields. BUTEC Holding company is family
controlled (IFC has a 16.6 percent stake).
71 Amico, “Corporate Governance Enforcement in the Middle East and North Africa: Evidence and Priorities.”
72 Amico, “Corporate Governance Enforcement in the Middle East and North Africa: Evidence and Priorities.”
73 GCC Board Directors Institute, “Embarking on a Journey – A Review of Board Effectiveness in the Gulf.”
74 Center for International Private Enterprise Global Corporate Governance Forum, “Advancing Corporate Governance in the Middle East and North
Africa,” p. 24
63 64
Case Study. 75 27 What are related party transactions
and why do they matter?
Abu Dhabi Commercial Bank (ADCB) is a UAE bank
formed in 1985. After a period of sustained growth,
Related party transactions are business transactions Authorities recently conducted a survey covering related
the financial crisis of 2008 hit hard and ADCB
between parties that have a pre-existing relationship, party transaction practices in MENA. The results show
suffered considerable losses. The bank’s share
such as a subsidiary and a mother company. The way a that further development is needed across the region, from
price was negatively impacted as a consequence.
company handles related party transactions has significant a review of definitions and procedures to an increase in
consequences on its reputation, especially with investors. reinforcement of the corporate governance and securities
Corporate Governance Measures. Related party transactions create the possibility for abuse law breaches. 76
to the detriment of certain shareholders.
The leadership of ADCB reacted to the unexpected To ensure your company complies with best practice, you
downturn by adopting global best practice in Related party transactions are the main way to undermine should fully disclose related party transactions, including
governance, transparency, and reporting standards. the necessary separation between a company’s best interest whether these transactions have been conducted at arm’s
The Bank’s CEO also adopted a culture of openness, and the best interest of stakeholders, which may conflict. length and according to normal market terms. The timeliness
both internally and externally, and the highest If this separation is not clear, no one will invest in the of disclosure is also important. Disclosure should be periodic
level risk management practices. company, fearing that assets, cash flows, or even talent for recurrent transactions, and is communicated on an
can be channeled to someone else’s pockets, usually ongoing basis for exceptional transactions.
an insider. Legislators in different countries tackle this
If your company has a board of directors, then company
Impact. challenge in various ways, mostly focusing on imposing
policy should ensure that related party transactions are
a specific approval process and increased transparency
Such commitment ensured staff retention and reviewed and approved by the board. In particular, related
pertaining to these types of transactions.
high motivation levels. It also supported the bank’s party transactions should be discussed and decided
fast recovery while global economic conditions Related party transactions disclosure is included in the upon by board members who are non-conflicted by the
remained challenging. rules set by the International Financial Reporting Standards transaction in question. Requiring shareholder approval
(IFRS), which currently applies in nearly all MENA countries. for related party transactions is a common practice in
More transparency actually strengthened ADCB’s These rules clearly define who is considered a “related the MENA region. These approvals are obtained before or
competitive position by conveying an image of party,” and require the disclosure of transactions with after the transaction, although according to the OECD,
an established, well-structured, and organized related parties, as well as outstanding balances with prior approvals are more effective. 77
company. Internally, transparency greatly motivated such parties. The OECD and the Union of Arab Securities
ADCB staff and was a source of pride for them.
The bank did not try to “hide” losses on its balance
sheet, and management and staff were motivated
to make their best effort to cut costs and ensure
a superior service to their customers.
Markets with poor corporate governance practices

are less attractive to investors because of a heightened risk.
The majority of companies in the Middle East and North Africa
are family businesses. For those companies to thrive,
they need to adopt better corporate governance practices,
to create businesses that perform well, employ more people, and
contribute to the overall good of each nation’s economy. 78
Mouayed Makhlouf, Regional Director,
IFC, Middle East & North Africa
75 A detailed case study can be found at: Stephen Mezias and

Jane Williams, “From Stressed to Success: A Middle East Bank’s
Turnaround,” INSEAD Knowledge, December 5, 2013, accessed 76 Alissa Amico, “Corporate Governance Enforcement in the Middle East and North Africa: Evidence and Priorities.”
September 1, 2015, http://knowledge.insead.edu/business- 77 OECD, “Guide on Related Party Transactions in the MENA Region”, OECD, 2014, accessed on September 1, 2015, http://www.oecd.org/corporate/
finance/from-stressed-to-success-a-middle-east-banks- GuideonRelatedPartyTransactionsMENA2014.pdf.
turnaround-3037 78 IFC, “Corporate Governance Success Stories,” p. 156.
65 66
H Corporate
Governance
for Family-
Owned
Businesses.
67 68
28 Do family-owned companies need
corporate governance?
The governance of family businesses, the most common the family. The bigger the family group involved in the
type of business organization in the world, can be very business, the more value is derived from formalizing family
complex. The additional layer of family relationships and business governance.
the multiplicity of roles and responsibilities of family
Family governance institutions strengthen family harmony
members—where family members can simultaneously
and the relationships within its business by, for example,
be owners, managers, employees, and board members—
increasing the communication link between the family
complicate matters and reinforce the need for clarity
and the business and providing opportunities for family
and structure. Such clarity is essential not only for the
members to network. One common family governance
business, but also for harmonious relationships among
institution is the family assembly, which is a forum that
family members in the long run.
allows family members to stay informed about business
In an article entitled “Leadership Lessons from Great issues and opportunities, and helps in avoiding potential
Family Businesses,” published in the April 2015 edition conflict by promoting discussion. Some family businesses
of the Harvard Business Review, establishing a baseline also make use of a family council, which is a working
of good governance is identified as one of four key things governing body that is elected by the family assembly.
in which every family-led company should engage. 79 The The family council, among other things, is the primary link
article also highlights the alarming statistic that only 30 between the family, the board, and senior management,
percent of family businesses last into the second generation, and deals with important matters to the family. 81
while just 12 percent last until the third. Establishing a
Family-owned companies tend to have a longer term
good governance framework can assist in maintaining
vision, as it is important that their business remains
a strong family business. 80
profitable from one generation to the next. Corporate
The implementation of good governance assists in governance can help you in achieving this goal by developing
formalizing the relationship between family members proper succession planning, which is among a number
and the business, for example, by forming institutions such important issues that can be resolved by implementing
as a family assembly or a family council. This formalization good governance practices. Further information about
allows for an orderly and transparent representation of specific best practice is available in the IFC Family Business
family interests and can help in avoiding conflict inside Governance Handbook. 82
We couldn’t have managed our

fast growth if we did not implement
a sound policy of corporate governance
centered on transparency and a structured
communication strategy with various
stakeholders, including the family. 83
Slim Othmani, CEO,
79 Claudio Fernández-Aráoz, Sonny Iqbal, and Jörg Ritter, ‘Leadership Lessons from Great Family Businesses,’ Harvard Business Review, April 2015, Nouvelle Conserverie Algérienne-Rouiba, Algeria
https://hbr.org/2015/04/leadership-lessons-from-great-family-businesses .
80 Fernández-Aráoz, Iqbal, and Ritter, ‘Leadership Lessons from Great Family Businesses.’
81 IFC, “IFC Family Business Governance Handbook,” IFC, 2011, accessed on September 1, 2015, http://www.ifc.org/wps/wcm/
connect/6a9001004f9f5979933cff0098cb14b9/FamilyBusinessGovernance_Handbook_English.pdf ?MOD=AJPERES.
The Nouvelle Conserverie Algérienne – Rouiba specializes
82 IFC, “IFC Family Business Governance Handbook.”
83 Center for International Private Enterprise Global Corporate Governance Forum, “Advancing Corporate Governance in the Middle East and North in the production of fruit juices and other fruit based drinks.
Africa,” p. 2. It was listed in June 2013 on the Alegi Stock Exchange.
69 70
Case Study. 84
Business
make up
Family
In Emerging The W.J. Towell Group is a family-owned
80%
of companies
worldwide conglomerate based in Oman in its sixth generation.
Markets
$1 Billion-plus
40%
of Fortune 500
businesses
85%
companies
South-East Asia has Corporate Governance Measures.
19%
of Fortune Global
75%
500 companies Over time, this diverse and multi-generational
Latin America has
business grew increasingly complex. The owners
40% of the major listed companies
recognized that more formality was needed in the
65%
in Europe
The Middle East has
corporate governance system in order to deal with
80% of Middle Eastern companies
outside the oil sector
the growing business. This meant an intervention
both on the governance of the Group and of the
one of the family. The Group adopted a board,
where family representatives could sit, and it
Family Businesses play a key role in re-structured its internal organization ensuring
Economic Growth & family control, but also giving non-family CEOs the
freedom and power to take decisions and lead their
Workforce Employment businesses. The family complexity was managed by
~ However ~ structuring the relationship between the family and
the business, ensuring transparency, and avoiding
only inequality between the various family members.
/ /
Family Businesses last into the “Being successful in a family business comes with
last into the
3% 4
last into the th
12% 3rd
sacrifices and family members have to be aware of
30% 2nd generation
generation generation this.” – Hussain Jawad, Chair of the Towell Group.
& beyond
Impact.
The governance framework and family policies
mitigate the potential for family conflicts. In fact,
these policies actually strengthened the family’s
Good Corporate culture of equality. The new policies established
Governance proper and orderly succession planning, and allowed
has been identified as one of the the company to maintain the stability necessary to
top 5 things maintain its long-term commercial relationship with

large multinationals such as Nestle and Unilever.
a Family Business can do to ensure
sustainability
Sources: “Business in the blood,” The Economist, November 1, 2014, http://www.economist.com/news/business/21629385-companies-controlled-founding-

families-remain-surprisingly-important-and-look-set-stay
Claudio Fernández-Aráoz, Sonny Iqbal, and Jörg Ritter, “Leadership Lessons from Great Family Businesses,” Harvard Business Review, April 2015, https://
hbr.org/2015/04/leadership-lessons-from-great-family-businesses
McKinsey & Company, “The five attributes of enduring family businesses,” McKinsey & Company, January 2010, http://www.mckinsey.com/insights/organization/
the_five_attributes_of_enduring_family_businesses
McKinsey & Company, “Perspectives on Founder- and Family-Owned Businesses,” McKinsey & Company, October 2014, http://www.mckinsey.com/~/media/
mckinsey/dotcom/client_service/Private%20Equity/PDFs/Perspectives_on_founder_and_family-owned_businesses.ashx
84 Tharawat Family Business Forum and Pearl Initiative, “Good
Lisa Wirthman, “Handing It Down: The Changing Dynamics Of Family Businesses,” Forbes, September 25, 2013, http://www.forbes.com/sites/
Governance in Family Firms, five case studies from the Middle
northwesternmutual/2013/09/25/handing-it-down-the-changing-dynamics-of-family-businesses/
East.”
71 72
29 How does a good board of directors help a 30 Our board meets around the family dinner table,
family-owned business? why do we need formal board meetings?
The board of directors helps the management in making When a family business is managed by a sole owner and Most families run their businesses in an informal way at the meetings, and track the board’s discussions and decisions.
better decisions and simultaneously ensures that the family member, he or she may be reluctant to accept the initial stages of development, but as the business or family For example, Wadi Holdings Company SAE is a family-
interests of all shareholders are considered. In businesses idea of working with a board of directors. The owner/ grows larger, this informality may put the sustainability owned company that is owned and managed by three
where more than one family member owns shares, the family member is likely to believe they know what is best of the enterprise at risk. Formality has the key benefit of generations of family members. Wadi’s board of directors
family owners are best represented, and their interests for the company and does not want any interference tracking the board’s progress and creating accountability. suffered from infrequent meetings, no committees, and
better protected, when there exists a board of directors. with his/her decisions. In this respect, having a board of It keeps discussions focused, and keeps family interests an unclear division of roles. Wadi reformed their corporate
directors plays a crucial role in ensuring that management and company matters separate. If board meetings take governance practices, including how they handled board
A board is often an instrument of succession planning.
is making optimal decisions. Having to report to the place around the dinner table, there exists an increased effectiveness. This included implementing a schedule so
Younger members of the family are often non-executive
board, internally, and obtain board approval for certain likelihood for family interests and business matters to be that the board met on a routine basis and planned meetings
directors, especially when they are in their formative years
key decisions helps build discipline and accountability at conflated and confused. Furthermore, in a more developed in advance with formal agendas; establishing an audit
and gaining experience by working outside the family
various levels of the company. Furthermore, a board of business where non-executive directors who are non- committee; and clarifying the distinction between those
company. Trusted outsiders also bring a fresh perspective
directors brings about a fresh perspective by way of its family members sit on the board, it is not possible to that sit on the board and management. These changes
to the table, and their presence reinforces discipline. In
members’ experience, expertise, and innovative thinking organize board meetings in an informal manner. contributed to significant improvements in the efficiency
the words of a family member who sits on the board of
when making critical strategic decisions. and functioning of the organization, a better handle on
a construction company in the UAE: “[trusted advisors] At a minimum, the board needs to have an agenda that
risks and control mechanisms across subsidiaries, and
are the reason the board does not become the family is shared in advance of the meeting and minutes of the
increased sustainability of the group for the next generation
dinner table.” meeting circulated afterwards. The time and effort spent
of leaders. 85
on these formalities allow for orderly and informed
This type of decision-making

[at family lunches during week-end]
was not sustainable because the
business was growing fast. It also
meant that issues that were
not pressing just dragged on. 86
Ramzi Nasrallah, Vice President and CFO
Wadi Group, Egypt
Wadi Group is an Egypt-based agribusiness conglomerate,

privately owned by two Lebanese families.
85 IFC, “Corporate Governance Success Stories.”

86 Heba Saleh, “Family businesses: sons, daughters and outsiders,” Financial Times, October 21, 2014, accessed on September 1, 2015, http://www.
ft.com/cms/s/0/c41b0648-3a61-11e4-bd08-00144feabdc0.html?siteedition=intl#axzz3McMJVhbx
73 74
Annex 1 lists the corporate governance codes for each The annex also determines whether or not a “comply
country in the MENA region, as well as some particulars for or explain” system is in place. This is a system where a
each code. In addition to the general corporate governance company has the option of complying with the corporate
codes, the table identifies other codes or guidelines governance code or, if the company does not comply,
pertaining to specific sectors or type of companies such it must explain why it has opted not to do so. All of
as financial institutions and state-owned enterprises. the codes that specifically pertain to SMEs are in bold.
MENA Corporate Governance Codes.

General corporate
Comply
Country governance code’s Issuing Entity Other Codes or Guidelines
or explain
date of issuance
Corporate • State-owned enterprise code under development

Algeria 2009 No governance
institute
• Guidelines for banks
Bahrain 2010 Yes Central bank • Guidelines for directors on state-owned
enterprise boards
• Code for state-owned enterprises
2005, 2011 Corporate
• Code for banks
Egypt (currently under No governance task
• Rules for governance of securities companies
revision) force
• Principles and guidelines for hospitals
Corporate • Code for banks
Jordan 2008 Yes governance task
force
Still not Capital market • Guidelines for banks
Kuwait 2013
in force Authority
Annex 1.
Transparency • Code for small and medium enterprises
Lebanon 2008 No
association • Guidelines for banks
Libya 2007 No Stock exchange • No corporate governance codes exist
Corporate • Code for small and medium-enterprises
Morocco 2008 No governance task • Code for state-owned enterprises
force • Code for banks/credit institutions
2002 (under Capital market • Guidelines for banks
Oman Yes
Revision) authority • Code for insurance companies
• Guidelines for banks
Capital market
Qatar 2009 Yes • Qatar Financial Centre Regulatory Authority
authority
Guide for Qatar Financial Centre authorized firms
Yes • Guidelines for financial institutions
2009 (amending Capital market
Saudi Arabia (partially
2006 first code) authority
mandatory)
• Corporate governance guidelines for traditional

Capital market and Islamic banks
Syria 2008 No
authority • Corporate governance act for insurance
companies
Corporate • State-owned enterprise code under development
Tunisia 2008 No governance • Guidelines for financial institutions
institute
• Code for small and medium enterprises
• Code for financial institutions
United Arab Capital market
2009 Yes • Code for real estate companies
Emirates authority
• Dubai International Financial Centre Markets Law
• Dubai Financial Services Authority Market Rules
Corporate • Code for financial institutions
West Bank
2009 No governance task
and Gaza
force
Yemen 2010 No Corporate • Guidelines for banks
governance task
force led by Yemeni
Business Club
75 76
Program Purpose and Objectives • Management controls: The presence of an environment
The IFC MENA Corporate Governance Program aims to enabling the achievement of organizational objectives,
drive best corporate governance practices across the management of risk, and the integrity of assets and
MENA region. The program has been active since 2005. financial information.
The goals of the program are to help MENA companies: • Disclosure and transparency: The availability of
• Improve access to affordable financing, leading timely, accurate, relevant, complete, and actionable
to greater investment, higher growth, and more information equally to shareholders and, as appropriate,
employment. to other stakeholders, including regulators.
• Improve performance through better strategic decision • Treatment of shareholders and stakeholders: The equal
making and managerial oversight, leading to more treatment of all shareholders, including protection
efficient management and better asset allocation. from abuse by company insiders.
The intended developmental impact is to stimulate Family-owned companies are also assessed on the
private sector development, to spur job creation and existence of appropriate mechanisms to help govern
alleviate poverty. the involvement of the family in the business and address
other family matters.
To achieve these goals, the program has the following
objectives: The methodology is tailored to each company’s needs.
i. Build the business case for corporate governance The primary outputs of each assessment are a list of
among banks and companies and help them implement recommended changes to improve corporate governance,
good corporate governance practices; alongside a plan for implementation.
ii. Assist investors in improving corporate governance
practices of investee companies; Specialized services to IFC Clients
iii. Build capacity of key market intermediaries, including The program also provides help to IFC clients in:
Annex 2.
regulators, advisors, institutes, educators, and the • Improving board effectiveness
press, leading to sound market systems; • Improving family business governance
iv. Help create sustainable corporate governance • Improving the control environment
institutes, and institutes of directors.

Capacity building in intermediaries
Program Activities We help build capacity in market intermediaries–from
Company assessments regulators, corporate governance institutes and centers
A key part of our program is working with individual for directors to consultancies, educational institutions,
companies and banks in MENA to assess their corporate and the media—to enhance best corporate governance
governance practices and identify opportunities for practices sustainably across the region. We provide training
improvement. The goal is to demonstrate the impact to these varied groups on board practices, shareholder
of good corporate governance to the market by rights, risk management and control, transparency and
providing actual company experiences. When conducting disclosure practices, and family governance.
assessments, we follow IFC’s Corporate Governance

We also advise regulators on the development of codes
Methodology (for more go to ifc.org/corporategovernance).
and rules related to corporate governance. Through these
Broadly, the methodology considers these dimensions: various activities, we help promote diversity and gender
• Commitment to good corporate governance: participation. In addition, we work closely with SMEs,
Demonstrating a clear focus on effective structures and with an SME Governance Toolkit designed specifically
processes to achieve the benefits of good corporate with the governance needs of SMEs in mind.
governance.
• Board functioning: The existence of a competent,
legitimate, well-structured, and effective board, with
proper composition, structure, and work procedures.
77 78
35
recommended
laws, regulations,
amendments or codes
were enacted with IFC support.
161
companies & banks
were reached through
123 in-depth advisory services.

10
entities reported an corporate governance
IFC MENA
improvement in their institutes of directors were
company’s performance launched in Egypt, Pakistan, Lebanon,
resulting from IFC assistance. Jordan, UAE, Yemen, Tunisia, Morocco,
and Algeria with IFC support.
PROGRAM
$577 6,477 23
million in financing
was facilitated by entities received corporate governance
companies’ improved
advisory services through training codes were launched in 15
RESULTS.
and awareness-raising events. countries with IFC’s assistance.
governance practices.
82 60
entities received financial journalists
investment and/or
financing due to IFC’s
24,586 and more were trained in 4
corporate governance workshops
assistance. in Egypt, the UAE, and Morocco.
participants from
over 10 countries attended
the program’s workshops, training
events, seminars, and conferences.
39
new training
modules were developed
and 565 people were trained
on corporate governance.
(Includes efforts of partners)
79 80
Alali, Fatima, Anandarajan, Asokan, and Jiang, Wei. “The effect of corporate governance on firm’s credit ratings: further evidence
using governance score in the United States”, Accounting & Finance 52, no. 2 (2012): 291–312
Amico, Alissa. “Corporate Governance Enforcement in the Middle East and North Africa: Evidence and Priorities”, OECD Corporate
Governance Working Papers, No. 15, OECD Publishing: http://dx.doi.org/10.1787/5jxws6scxg7c-en
Arab Business Review, “Case Studies: Corporate Governance in the Middle East,” Arab Business Review, accessed on September
1, 2015, http://www.arabbusinessreview.com/en/article/case-studies-corporate-governance-middle-east
Capital Market Authority, “Corporate Governance Regulations in the Kingdom of Saudi Arabia,” Board of Capital Market
Authority, 2014, accessed September 1, 2015, http://www.cma.org.sa/En/Documents/CORPORATE%20GOVERNANCE%20
REGULATIONS-2011.pdf
Central Bank of Bahrain, “Corporate Governance Code – Kingdom of Bahrain,” Central Bank of Bahrain, accessed
September 1, 2015, http://www.moic.gov.bh/En/Commerce/DomesticTrade/Corporate%20Governance/Documents/
bb9903e050a24fc6b65190cfcd637cd1BahrainCGCodeEN.pdf
Center for International Private Enterprise, “Corporate Governance - The Intersection of Public and Private Reform”, Center
for International Private Enterprise, 2009, accessed September 1, 2015, http://www.cipe.org/sites/default/files/publication-
docs/CG_USAID.pdf
Center for International Private Enterprise Global Corporate Governance Forum, “Advancing Corporate Governance in the
Middle East and North Africa,” Center for International Private Enterprise Global Corporate Governance Forum, February
2011, accessed on September 1, 2015, http://www.ifc.org/wps/wcm/connect/c50638804d97d579904db548b49f4568/MENA_
CaseStudies_web.pdf?MOD=AJPERES
Committee on the Financial Aspects of Corporate Governance and Gee and Co. LTD “Report of the Committee on the Financial
Aspects of Corporate Governance,” Gee, December 1992, accessed September 1, 2015, http://www.icaew.com/~/media/corporate/
files/library/subjects/corporate%20governance/financial%20aspects%20of%20corporate%20governance.ashx
COSO, “Internal Control Integrated Framework, Executive Summary,” COSO, May 2013, accessed September 1, 2015, http://
www.coso.org/documents/990025p_executive_summary_final_may20_e.pdf
Bibliography.
The Economist, ‘Business in the blood,’ The Economist, November 1, 2014, http://www.economist.com/news/business/21629385-
companies-controlled-founding-families-remain-surprisingly-important-and-look-set-stay
Fernández-Aráoz, Claudio, Iqbal, Sonny and Ritter, Jörg, “Leadership Lessons from Great Family Businesses” Harvard Business
Review, April 2015, https://hbr.org/2015/04/leadership-lessons-from-great-family-businesses
Financial Reporting Council, “Guidance on Audit Committees,” Financial Reporting Council, September 2012, accessed September 1,
2015, https://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/Guidance-on-Audit-Committees-September-2012.
aspx
Fulton, Mark, Kahn, Bruce., and Sharples, Camilla. “Sustainable Investing: Establishing Long-Term Value and Performance,”
SSRN, June, 2012, accessed September 1, 2015, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2222740
GCC Board Directors Institute, “Embarking on a Journey – A Review of Board Effectiveness in the Gulf,” GCC Board Directors
Institute, 2011, accessed September 1, 2015, http://gccbdi.org/wp-content/uploads/2013/09/embarkingonajouney_2011_english.pdf
Grandmont, Renato, Grant, Gavin, and Silva, Flavia. “Beyond the Numbers - Corporate Governance: Implications for Investors,”
Deutsche Bank, April 1, 2004 as cited in IFC, “The Irresistible Case for Corporate Governance”, September 2005, http://www.
ifc.org/wps/wcm/connect/c6b3750049585fa9a052b519583b6d16/FMS-CorpGov.pdf?MOD=AJPERES
Harvard Law School Forum on Corporate Governance and Financial Regulation, “Corporate Governance in Emerging Markets,”
Harvard Law School Forum on Corporate Governance and Financial Regulation, 2011, accessed September 1, 2015, http://blogs.
law.harvard.edu/corpgov/2011/08/24/corporate-governance-in-emerging-markets/
Hawkamah Institute, “Environmental, Social and Corporate Governance Practices in the MENA region 2007-2012: Review of
the Hawkamah/S&P Pan Arab ESG Index”, Hawkamah Institute in association with Ernst and Young, 2013, accessed September
1, 2015, http://hawkamah.org/wp-content/uploads/2014/10/ENVIRONMENTAL.SOCIAL.AND_.CORPORATE.GOVERNANCE.
PRACTICES.IN_.THE_.MENA_.REGION.2007-2012.pdf
Institut Arabe des Chefs d’Entreprises, “Code of Best Practice of Corporate Governance,” Institut Arabe des Chefs d’Entreprises,
accessed September 1, 2015, http://www.eiod.org/uploads/Publications/Pdf/tunisia_2008_en.pdf
IFC, “Corporate Governance Success Stories,” IFC, 2015, accessed September 1, 2015, http://www.ifc.org/wps/wcm/
connect/6fd9498048ec689da2c9fe1b17326f85/CG_success_stories_MENA062015.pdf?MOD=AJPERES
IFC, “Corporate Governance Tools,” IFC, accessed September 1, 2015, http://www.ifc.org/wps/wcm/connect/Topics_Ext_Content/

IFC_External_Corporate_Site/Corporate+Governance/Investments/Tools/
IFC, “IFC Family Business Governance Handbook,” IFC, 2011, accessed on September 1, 2015, http://www.ifc.org/wps/wcm/
connect/6a9001004f9f5979933cff0098cb14b9/FamilyBusinessGovernance_Handbook_English.pdf?MOD=AJPERES
81 82
IFC, “Indicative Independent Director Definition,” IFC, 2012, accessed September 1, 2015, http://www.ifc.org/wps/wcm/
connect/9d10d4804091a9a7b3f4b3cdd0ee9c33/Independent+Director+IFC+Definition+2012.pdf?MOD=AJPERES
Kallas, Samer, Nammar, Elie, Malik, Sheharyar, “Doing Well While Acting Good, Benefits of Good Governance, Insights from MENA”,
Harvard Business School and GrowthGate Capital, 2013, accessed September 1, 2015, http://www.growthgate.com/imagesadmin/
articles_pdf/14012807051848.pdf
Khanna, Vikramaditya, and Zyla, Roman, “Survey Says... Corporate Governance Matters to Investors in Emerging Market Companies,”
IFC, 2012, accessed on September 1, 2015, http://www.ifc.org/wps/wcm/connect/dbfd8b004afe7d69bcb6bdb94e6f4d75/IFC_EMI_
Survey_web.pdf?MOD=AJPERES
Love, Inessa, “Corporate Governance and Performance around the World: What We Know and What We Don’t,” World Bank
Research Observer, Volume 26, Issue 1, page 42-70, February, 2011
McGraw Hill Financial, Chart Source: “S&P Dow Jones Indices,” McGraw Hill Financial, accessed September 1, 2015, http://eu.spindices.
com/indices/equity/sp-hawkamah-esg-pan-arab-index
McKinsey and Company, McKinsey Global Investor Opinion Survey on Corporate Governance 2002: Key Findings, 2002, http://
www.mckinsey.com/clientservice/organizationleadership/service/corpgovernance/pdf/globalinvestoropinionsurvey2002.pdf
McKinsey & Company, ‘The five attributes of enduring family businesses,’ McKinsey & Company, January 2010, http://www.mckinsey.
com/insights/organization/the_five_attributes_of_enduring_family_businesses
McKinsey & Company, ‘Perspectives on Founder- and Family-Owned Businesses,’ McKinsey & Company, October 2014, http://
www.mckinsey.com/~/media/mckinsey/dotcom/client_service/Private%20Equity/PDFs/Perspectives_on_founder_and_family-
owned_businesses.ashx
MENA Private Equity Association, “2013 Annual Report”, MENA Private Equity Association, accessed September 1, 2015, http://
www.menapea.com/research-association.php?fileid=2013-Annual-Report2.pdf
Mezias, Stephen, and Williams, Jane, “From Stressed to Success: A Middle East Bank’s Turnaround,” INSEAD Knowledge, December
5, 2013, accessed September 1, 2015, http://knowledge.insead.edu/business-finance/from-stressed-to-success-a-middle-east-
banks-turnaround-3037
Mohammed Bin Rashid Establishment for SME Development, “Corporate Governance Code for Small and Medium Enterprises:
Building the Foundations for Growth and Sustainability,” Mohammed Bin Rashid Establishment for SME Development, accessed
September 1, 2015, http://hawkamah.org/wp-content/uploads/2014/10/Dubai-SME-CG-Code-En.pdf
Moody’s Investors Services, “Corporate Governance of Banks: A credit Rating Agency’s Approach,” Moody’s Investors Services,
accessed September 1, 2015, http://www.ebrd.com/downloads/legal/corporate/moody.pdf
Nasr, Sahar, and Pearce, Douglas, “SMEs for Job Creation in the Arab World, Middle East and North Africa Region,” The International
Bank for Reconstruction and Development / The World Bank, 2012, accessed September 1, 2015, http://www.ifc.org/wps/wcm/
connect/1115c70045539e51af04afc66d9c728b/SMEs+for+Job+Creation+in+the+Arab+World.pdf?MOD=AJPERES
OECD, “Guide on Related Party Transactions in the MENA Region”, OECD, 2014, accessed on September 1, 2015, http://www.oecd.
org/corporate/GuideonRelatedPartyTransactionsMENA2014.pdf
Piesse, Jenifer, Strange, Roger, and Toonsi, Fahad, “Is there a distinctive MENA model of corporate governance?” Journal of Management
and Governance 16, no. 4 (2007): 645-681.
Rocha, Roberto, Farazi, Subika, Khouri, Rania, and Pearce, Douglas, “The Status of Bank Lending to SMEs in the Middle and
North Africa Region: The Results of a Joint Survey of the Union of Arab Banks and the World Bank,” World Bank and Union of
Arab Banks, June 2010, accessed September 1, 2015, http://siteresources.worldbank.org/INTMNAREGTOPPOVRED/Resources/
MENAFlagshipSMEFinance12_20_10.pdf
Saleem, Qamar. “Overcoming Constraints to SME Development in MENA Countries and Enhancing Access to Finance”, IFC Advisory Services
in the Middle East and North Africa, accessed September 1, 2015, http://www.ifc.org/wps/wcm/connect/1e6a19804fc58e529881fe0098cb14b9/
IFC+Report_Final.pdf?MOD=AJPERES
Saleh, Heba, “Family businesses: sons, daughters and outsiders,” Financial Times, October 21, 2014, accessed on September 1, 2015,
http://www.ft.com/cms/s/0/c41b0648-3a61-11e4-bd08-00144feabdc0.html?siteedition=intl#axzz3McMJVhbx
Tharawat Family Business Forum and Pearl Initiative, “Good Governance in Family Firms, five case studies from the Middle East,”
Tharawat Family Business Forum and Pearl Initiative, 2014, accessed September 1, 2015, http://www.pearlinitiative.org/tl_files/
pearl/img/Jiana%20Folder%202014/Good%20Governance%20in%20Family%20Firms%202014_Final_English.pdf
Wirthman, Lisa, ‘Handing It Down: The Changing Dynamics Of Family Businesses,’ Forbes, September 25, 2013 http://www.forbes.
com/sites/northwesternmutual/2013/09/25/handing-it-down-the-changing-dynamics-of-family-businesses/
83 84
Regional Hub: Cairo, Egypt
Khawar Ansari
Corporate Governance Program Manager
Middle East and North Africa
2005 C Cornich El Nile

Nile City Towers, North Tower, 24th floor.
Phone: + 20 (2) 2461-9140 / 45 / 50
Fax: +20 (2) 2461-9130 / 60
Ifc.org January, 2016

160416CGSSFAQs EnglishLR

Uploaded by

Copyright:

Available Formats

160416CGSSFAQs EnglishLR

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

160416CGSSFAQs EnglishLR

Uploaded by

Copyright:

Available Formats

CORPORATE GOVERNANCE FREQUENTLY ASKED QUESTIONS.

In partnership with Japan’s Ministry of Finance

IFC provides leadership in promoting Corporate governance also contributes

All other queries on rights and licenses, including

The guidebook is designed to either be read in its entirety,

A Commitment to Corporate Governance.

B Corporate Governance for Small- and Medium-Sized

We came into a market that nobody believed in.

✓ Corporate governance code and/or guidelines

✓ Internal audit function is in place.

3. ✓ Management information systems are

✓ Extraordinary transactions polices are in In the event of a family owned company,

region, and secured high caliber board members

Low 13 Tharawat Family Business Forum and Pearl Initiative, “Good

Steps to take when

Defining 1. Establishing a Consistent

Catalyst Private Equity is an Arab region Investment Company that

controlling shareholders. Accordingly, the higher risk implicit

additional impact of helping the company position itself

Another area where potential benefit exceeds cost is risk

While there is a certain cost involved in preparing

SABIS® is a global education network that operates on four

Overall, it is important to establish the desired board

Nuqul’s board profile has been carefully selected

1. 3. accepted views. It is also important to note that for listed companies in

“SME owner-managers, even those that choose to set up a

Code of Conduct with outside directors, so access to confidential information

Upon appointment, non-executive directors should might be gradual.

be asked to sign a code of conduct, to be incorporated

39 See Question 10.

Through experience, we have found

SABIS® is a global education network that operates on four

Additional Travel Annual fee can be comprised of cash

What are their duties?

as management auditing its own accounts or setting

board of directors from its responsibilities from the issues

for final decisions.

committees increase business efficiency.

Audit committees are the most common type of committee management

in smaller, non-listed companies in order to ensure that • Increasingly handles “corporate

time-consuming activities, such as the review of the governance” issues

company’s accounts, are performed more efficiently and

Committees that deal with corporate governance and

A typical control measure instituted by many companies is

Our turning point was when our team

63 Please refer to Question 21 for more information.

Governance Development Framework.” This approach

The existence of minority shareholder rights tends to raise

The actions we took for our corporate

As is the case for all companies,

Founded in 1964, BUTEC is a leading contractor in MENA, with

Markets with poor corporate governance practices

75 A detailed case study can be found at: Stephen Mezias and

We couldn’t have managed our

top 5 things maintain its long-term commercial relationship with

Sources: “Business in the blood,” The Economist, November 1, 2014, http://www.economist.com/news/business/21629385-companies-controlled-founding-

This type of decision-making

Wadi Group is an Egypt-based agribusiness conglomerate,

85 IFC, “Corporate Governance Success Stories.”