standards, especially considering that the application
of most of this penalty was suspended. The governance
breaches that this penalty intended to address were
serious. The controlling shareholders used the accounts
and goods of Damas as their personal assets, despite the
fact that the holding company under which it operated
was listed.
The Saudi CMA is perhaps the most rigorous in the
region in publishing their enforcement actions against
listed companies, which in 2011 exceeded 300 cases,
most of them related to corporate governance breaches,
particularly the failure to disclose market-sensitive
information. Other regulators, some of which recently
established (e.g. Lebanon, Kuwait), are only now starting
to experiment with their enforcement powers and soon
will be making steps down the same road as they establish
the relevant departments and expertise. But is regulatory
forbearance enough to motivate companies to implement
deep-seated governance changes?
The stick without the carrot approach can only go so far –
incentives are needed for companies to look at governance
beyond compliance. And yet, the fact remains that MENA
investors have been largely passive, beyond injecting
and withdrawing funds in capital markets in response
to geopolitical developments. Individual investors can
technically lodge complaints with regulators, however
their power to affect governance is generally insufficient
in controlled companies. In many cases, they might
simply be tempted to “bet” on the success of a controlling
shareholder based on family reputation or proximity to
the elites.
This leaves sovereign wealth funds and a few private
players which have large enough exposures to capital
markets in the region to act as the agents of change. The
Saudi Kingdom Holding alone is estimated to administer
over $25 billion USD of assets, a significant part of
them invested in the region. Sovereign wealth funds are
estimated to have large stakes in over 130 GCC listed
companies. The state itself is a direct shareholder in 32
of the largest 100 largest listed companies in the region,
which account for 45% of total market capitalisation of
Arab exchanges. And yet, the impact of these sovereign
and private investors on governance and transparency is
largely unknown since they are not required to disclose
their voting record or their voting policy.
Family offices and other large private investors maybe
making some governance advances behind the scenes,
but little evidence of this is available. The dialogue
between these investors and companies in which they
invest appears to be placid and generally centered
around disclosure-related items. Governance of stateowned listed companies is evolving but greater credit
Shareholder Spring in the Middle East?
Article by Alissa Amico
Hawkamah issue02 56pages.indd 29
can be given to the effect of their listing than to engaged
ownership. This is happening against the backdrop of
some improvements in the investor relations function in
MENA-based companies, which is getting established as a
key corporate function in most listed firms.
A fundamental challenge to effective investor activism
in the region is that it has no platform and therefore no
coherent voice. Greater shareholder collaboration is
necessary to address this vacuum, so that better corporate
governance is not seen as a distant objective promoted
by the regulators. Large investors in MENA, whether
local or foreign, could draw inspiration from models
of institutional investor co-ordination existing in the
Netherlands (Eumedion), Australia (ACSI) or Switzerland
(Ethos) that spread monitoring and engagement costs
and amplify investor voice.
Today, it is virtually unheard of for an AGM of a MENA
company to vote against management remuneration
or to reject a board candidate. It is equally rare for
investors to use exit as their voice. As the complacency
before the outbreak of the global financial crisis has aptly
demonstrated, this is not necessarily an indication of the
house being in order but more likely a sign that nobody
is home to do anything about it. Greater shareholde ?)???????????????????????????????????????????)?????????????????????????????????????????????)????????????????????????????59???????????)?????????????????)????????????????????=
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