Flip through the latest issue of Gulf Weekly.
In a presidential address to the nation in October 2002, George W Bush called for jail sentences for business executives convicted of fraud to be extended to the maximum term of 10 years.
He also announced the creation of a Corporate Fraud Taskforce - a "financial crime Swat team" - which would operate under the umbrella of the Justice Department (the agency responsible for probing Enron, Andersen and WorldCom).
The Swat team's leader? Deputy Attorney General Larry Thompson. The problem? Thompson, who had served on the board of directors of Providian Financial Corporation, had recently been sued by Judicial Watch (a public interest group which investigates and prosecutes government corruption and abuse) for securities fraud involving misleading accounting practices and insider trading.
"The Providian scandal is especially egregious because it highlights this incestuous relationship in perhaps its clearest form," Judicial Watch chairman Larry Klayman declared: "A director who allegedly participated in and profited personally from alleged securities fraud is appointed to a key government position where he is alleged ... to have abused his official office to block appropriate government enforcement action." Providian later paid $478 million to settle three cases. This shows that graft and bad governance do get easily hauled up in the West.
But in the Gulf, till recently, the idea of corporate governance was virtually unknown. Of late, however, governments and corporations have started realising that good governance helps economies. What were the factors that brought about the change in approach?
Among the causes was the surge in banking and finance in the region. Also firms in the Gulf are discovering that there is competitive advantage in being seen to meet a generally accepted standard of governance. And there are tangible benefits for those who do it well. Companies that have excelled in corporate governance have seen increases in their share prices.
As capital markets grow, sound governance is seen as essential if companies in the region are to enhance their businesses and sustain them for the long term.
That is probably the reason why Saudi Arabia's bourse made it mandatory for all listed firms to disclose directors' reports. Behind the decision are efforts by the Saudi Capital Markets Agency to introduce a minimum standard of corporate governance by 2009.
Dubai has taken the initiative too by the establishment in 2006 of Hawkamah (from the three Arabic root words for government, judgment and wisdom). Executive director Nasser Saidi says there is need for a home-grown, yet integrated approach to the promotion of disclosure, transparency and accountability.
He says good governance also makes it easier to tap external capital as well as lowering the cost of debt and equity.
According to a study of corporate governance in the Middle East and North Africa by Hawkamah and the International Finance Corporation, a majority of the 1,044 participating banks and listed companies could not even define the concept of corporate governance.
Most confuse it with corporate social responsibility or even with corporate management. The difference is that while corporate governance is the framework under which a company is managed and administered, corporate social responsibility, by contrast, is the way corporations accept responsibility for the effect that their activities have on customers, employees, suppliers and the environment.
While in the West, much of the discussion revolves round whether firms should go beyond compliance by adopting stricter standards on, say, pollution or refraining from doing business in countries that violate human rights, in the Gulf, most companies struggle even to comply with the basic standards.
A low three per cent of firms surveyed follow good practice, and none follow what is regarded as best practice, the study found. Some 56 per cent of boards have no more than one independent director, making oversight difficult. And 42.3 per cent of companies still combine the roles of chairman and chief executive when, ideally, such positions should be separated. A trivial 12 per cent of those surveyed provide information on executives' compensation.
Most companies view governance - particularly disclosure - as a matter of compliance rather than as a tool for managing their relations with stakeholders or of adding value to their business.
To overcome such reluctance, companies, especially family-run ones, should increase the number of independent directors who sit on their boards. Banks should also strengthen their compliance.
Yet governance should not be viewed as a solution to all problems. No board can control all the transactions, even sizeable ones, of a big financial institution.
