The Dubai Declaration by Hawkamah's first MENA conference in Dubai formulates a road map and key corporate governance initiatives for the region, writes Bhaskar Raj

Good corporate governance is a key factor in sustaining economic growth and development in the Gulf region. Policy makers are taking the lead and committing to secure significantly higher standards of corporate governance in the member countries of the GCC.

Discussions at the recently concluded Corporate Governance conference in Dubai resulted in a road map and key corporate governance initiatives for the region.

Policy makers, regulators, representatives from regional and international organisations, and business leaders from across the Middle East and North Africa, representing countries of Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Morocco, Oman, Palestine National Authority, Qatar, Saudi Arabia, Yemen and the UAE, gathered in Dubai to issue the Dubai Declaration on Corporate Governance.

The declaration was agreed upon during the OECD-MENA Working Group session, which was held at the end of the Hawkamah Institute for Corporate Governance conference, as part of DIFC Week.

This was a landmark event for the region, entitled "Corporate Governance in the Middle East and North Africa Conference: Towards Sound and Efficient Financial Markets and Banking Systems".

Key initiatives

Key initiatives which were agreed upon included:

o The creation of two taskforces: one focusing on the corporate governance of banks; and a second focusing on the corporate governance of State-Owned Enterprises (SOEs).

o The issuance of two policy briefs: one for banks; and a second for SOEs; both to be approved by the relevant taskforces.

o The consideration of issues relating to the corporate governance of Shariah compliant banks and financial insitutions and the importance of ensuring that regional corporate governance frameworks and standards are in line with international codes and standards, whilst at the same time remaining consistent with Shariah rules.

o The preparation of a corporate governance survey of SOEs, to be developed on a consultative basis with the cooperation of key organizations and governments, and to be conducted during the course of 2007.

o The recognition of a need to tackle issues surrounding insolvency and corporate restructuring.

The OECD and Hawkamah will work with INSOL and the World Bank and invite ministries, financial institutions, the judiciary, representatives of OECD countries and other regional and international bodies, to meet to discuss these issues during the first half of 2007.

The purpose of the meeting will be to determine the necessary legal and regulatory frameworks relating to corporate restructuring and insolvency and the enforcement of insolvency proceedings.

Improved insolvency regimes increase the efficiency and performance of the credit and capital markets, improve the investment climate, and enhance the region's ability to attract investors during times of high economic growth as well as prepare for potential corporate restructuring in the future.

* Hawkamah, the OECD and their partners will increase their work and focus on the corporate governance of family-owned enterprises and small and medium enterprises.

A series of workshops and case studies, will address key issues and an action plan will be formulated for establishing corporate governance frameworks relevant to the SMEs and family-owned businesses of the MENA region.

* Hawkamah, the OECD and the MENA CG Working Group will utilise the recently developed codes of corporate governance, (by Lebanon, Saudi Arabia and others) as templates for the development of a harmonised regional CG regime, with workshops to develop and expand these country specific guidelines.

Critical objectives

Executive Director of Hawkamah Nasser Saidi outlined the successful outcome of the event and the importance of these initiatives: "This conference, and in particular MENA OECD Working Group session, allowed us the opportunity to confer on critical objectives and challenges relating to corporate governance across the MENA region.

"Whilst there is still a need for raising awareness and capacity building in this field, we have made significant headway in terms of taskforces, policy briefs,addressing corporate governance in Islamic banking and finance, corporate restructuring and insolvency, family-owned enterprises and small and medium enterprises. We now move towards concrete actions and direction resulting from these principles, facilitating the design of a comprehensive roadmap for corporate governance in our region. This will enable us to achieve our ultimate goals of encouraging investment, project finance, job creation and the development of sound financial markets."

Progress relating to the implementation of the principles outlined in the Dubai Declaration will be reviewed at the next annual conference held by Hawkamah in cooperation with the MENA OECD Working Group on Corporate Governance and its partners.

The Hawkamah initiative

Hawkamah, the Institute for Corporate Governance, is a regional entity whose mission is to assist countries and companies of the wider MENA region in developing sound and globally well-integrated corporate governance frameworks and practices. It supports regional and international initiatives to develop open and transparent markets and sound corporate governance regimes.

The conference was hosted by Hawkamah Institute for Corporate Governance and supported by its regional and international partners: OECD; International Finance Corporation; World Bank Global Corporate Governance Forum; Centre for International Private Enterprise; Union of Arab Banks; ISACA-UAE; INSOL International; Institute for International Finance; Egyptian Banking Institute; Egyptian Institute of Directors; and Financial Services Volunteer Corps, in cooperation with the countries participating in the OECD MENA Investment Programme.

The Working Group was co-chaired by Rainer Geiger, Deputy Director for Financial and Enterprise Affairs of OECD and Dr.Nasser Saidi, Executive Director of Hawkamah.

Earlier, the institute had said in its survey, the Hawkamah/IIF report, had said that downward corrections in GCC stock markets and increased corporate activity by GCC corporations in Western markets are driving improvements in corporate governance standards.

The report, 'Corporate Governance in the GCC -- An Investor Perspective', was the first study to benchmark standards in the region. It was the result of a series of meetings held with senior officials from capital market authorities, central banks and stock exchanges, local fund managers, lawyers, experts, accountants and management consultants involved in corporate governance in the GCC.

Corporate governance practices across the GCC are lagging behind global standards in a number of areas. However, there appears to be considerable agreement that a stronger equity culture needs to be fostered and that high priority should be assigned now to programs to enhance corporate governance. We are encouraged by the determination of Hawkamah, the DIFC and national authorities in this area."

Managing Director of Institute of International Finance (IIF) Charles Dallara said that developments have been largely driven by four key factors:

Capital market regulators are using the recent price correction in GCC stock markets to upgrade corporate governance frameworks. While authorities recognise that price corrections were not directly related to poor standards of corporate governance, there was public pressure to intervene, due to their past encouragement of widespread public participation in IPOs. Corporate governance codes are being drafted and introduced by capital market authorities in the GCC. The Muscat and Abu Dhabi exchanges introduced codes in 2003 and 2006 respectively, while regulators in the UAE, Saudi Arabia, Bahrain, Qatar and Kuwait have draft codes that are expected to be implemented in 2007.

Increased corporate activity by GCC corporations in international markets is contributing to improvements in private sector standards, in-line with international best practice. GCC corporations have conducted $25.9 billion of acquisitions in the UK, Europe and North America so far this year, according to Bloomberg. This trend is expected to continue as the private sector in the GCC continues to expand through the acquisition of foreign assets.

The banking sector in the GCC has made a significant contribution, following undertakings by central banks to comply with Basel I and II requirements. Central banks in all six GCC countries have amended their banking regulations to include corporate governance-related requirements such as establishing transparency and disclosure in financial statements, establishment of a board level audit, nomination and compensation committees and improved risk management.

The opening of GCC stock markets to foreign investors is expected to improve standards in GCC-listed companies, due to higher expectations from these investors.