Boardroom Overhaul in the Middle East

By Bradley Hope, © The National 2009. Available at http://www.zawya.com/story.cfm/sidZAWYA20090624050302/Boardroom%20Overhauls

Under pressure from the economic downturn, companies across the country are shaking up their leadership structures to ensure they are able to survive in the coming months, and are better protected against future shocks. In the past few weeks alone, chief executives at some of the country’s largest property companies have stepped down or been replaced. These include Simon Azzam, the chief executive of Union Properties for 23 years, and Sulaiman al Fahim, the founding chief executive of Hydra Properties, who was replaced as the director general of Dubai’s Department of Finance, has resigned from board positions at Deyaar Development, Dubai Islamic Bank, National Bonds Corporation and Taaleem. No reasons were given publicly for any of these changes, but analysts say that in times of trouble shareholders like to turn to new faces. As companies come to grips with changes in the marketplace, management shifts are likely to increase.

“At the beginning of this slowdown, there was a pause, but we are now seeing signs of a determination to recruit for positions at a very senior level,” says David Johnson, a partner with the executive recruitment firm Whitehead Mann. “There is a growing sophistication now for who they need. In the past, it was ‘I need another five people or another 10 people’.” Companies are particularly focusing on positions such as chief financial officer as they struggle with a pronounced lack of liquidity and difficulties in collecting outstanding payments. “It’s a new world,” says Charles Willson, a recruiter in Dubai. “You’ve got to make income in places you weren’t making income last year. There is a need for people who can drive businesses in different ways.”

Even more profound is the shake-up taking place on the boards of directors of companies as regulators take a harder stance on the way they are set up, Mr Johnson says. Board members are supposed to be a company’s watchdog on behalf of shareholders: they prevent chief executives from making bad decisions, offer guidance as the company develops and approve budgets. “If there’s anything we’ve learned from the global financial crisis, it’s that there was a failure on the level of the boards,” says Nasser Saidi, the chief economist of the Dubai International Financial Centre. “They were not listening to what their risk management committees were telling them.”

Mr Saidi says the role of an independent director is now even more important. “The ability to say ‘no’ is the single most important characteristic of an independent director,” he says. “He needs to be an impartial judge, someone who can face up to the chairman if he doesn’t agree with him. These are crucial times on a global level. Boards need to be much more involved than ever before. “Risk management is a critical factor. We need much more knowledgeable and effective boards than at any other time in history.” Banks are the priority right now, according to Mr Saidi. “Corporate governance of banks is, in my mind, more critical than that of listed companies,” he says. “The bottom line is they are using other people’s money all the time.”

Last week, the Central Bank issued a new set of recommendations for good governance at banks that could lead to major changes at the helm of financial institutions. The guidelines cover a range of topics, from how a board meeting should be run to the need for independence and the importance of attending all meetings. One of the recommendations is drawing the most attention. It says: “There are limits on the number of external appointments you can accept and you should not accept an appointment to be a director of more than one bank.” The idea behind this is straightforward. If a director is devising strategies for two competing organisations, there is a conflict of interest. Also, if a director is overstretched between too many boards, it will be harder to devote due attention.

Several powerful bankers are in direct conflict with this recommendation. Ahmed Humaid al Tayer, for instance, is the chairman of the Emirates National Bank of Dubai and the Commercial Bank of Dubai, along with a number of other chairmanships and senior positions around Dubai.

A representative of his office said Mr al Tayer was still reviewing the new recommendations. The tendency of a smaller group of Emiratis to be on many boards of companies is known as the “superman effect”, says Jassem Busaibe, the chief executive of the property investment firm Arady. “It exists because there is a limited pool of nationals here that senior government officials trust,” he says. “I think it is changing. Only very recently were chief executives being invited to the board as full members. There is an incentive now to maybe have more oversight at the board level.”

Mr Johnson says he is advising several large conglomerates on the best ways to comply with international good governance guidelines. These companies will have to prove they have the necessary checks and balances in place before they can make a public offering of stock or borrow funds from the international capital markets, he says.The Central Bank recommendations follow regulations that were submitted by the Emirates Securities and Commodities Authority that call for independence on the boards of all publicly traded companies, as well as transparency and disclosure of financial records.

“From a corporate governance perspective, this financial crisis is a perfect storm,” says Nick Nadal, the director of the Hawkamah Institute for Corporate Governance in Dubai. “The rulers, from high up, are putting in place the restructuring of many boards across the country. What you are seeing is the bringing in of independent expertise and assessment to see where the company stands and where it should be going.”Mr Nadal says the move to improve corporate governance preceded the crisis, but was coming at a faster pace because of the harsher economic conditions.

Best Regards
ZULKIFLI HASAN
KUALA LUMPUR

  • S4022953
  • With Professor Dr. Syed Khalid Rashid at Cape of Good Hope, Cape Town, South Africa.

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