Corporate Governance in Egypt

1. Corporate Governance in Egypt Dr. Khaled Dahawy The American University in Cairo

2. Agenda • Main Goals • What is Corporate Governance • Benefits of Corporate Governance • Legal Framework • Early Developments • New Developments • Methodology • Results • Analysis • Conclusion Dr. Khaled Dahawy

3. Main Goals • Provide a brief overview of recent developments in corporate governance in Egypt • Present and analyze the results of the 2006 survey of corporate governance disclosure practices in Egypt. Dr. Khaled Dahawy

4. Corporate Governance • Set of processes, customs, policies, laws and institutions affecting the way in which a Corporation is directed, administered or controlled. • Includes the relationships among the stakeholders and the goals for which the corporation is governed. • The principal Stakeholders are: • Shareholders • Management • Board of Directors • Other stakeholders include: • employees, • suppliers, • customers, • banks and other lenders, • regulators, • the environment and the community at large. (www.Wikipedia.org) Dr. Khaled Dahawy

5. Corporate Governance • It is a multi-faceted subject. • An important theme of corporate governance deals with issues of: • Accountability and Fiduciary Duty • Essentially advocating the implementation of guidelines and mechanisms to ensure good behavior and protect shareholders. • Another key focus is the Economic Efficiency view, through which the corporate governance system should aim to optimize economic results, with a strong emphasis on shareholders welfare. • Other Aspects such as the Stakeholders View, which calls for more attention and accountability to players other than the shareholders (e.g.: the employees or the environment). Dr. Khaled Dahawy

6. Benefits of Corporate Governance • Realize high and sustainable rates of growth. • Increases confidence in the national economy • Deepen capital market and increases its ability to mobilize savings • Raise investment rates. • Protects the rights of the minority shareholders or small investors. • Encourages growth of private sector by supporting its competitive capabilities, helping to secure financing for projects, generating profits, and creating job opportunities. Dr. Khaled Dahawy

7. Is it Worth the Effort • “Firms with stronger shareholder rights had higher firm value, higher profits, higher sales growth, lower capital expenditures, and fewer corporate acquisitions • Investors who bought firms with the strongest democratic rights and sold those with the weakest rights "would have earned abnormal returns of 8.5 percent per year during the sample period." • Corporate Governance and Equity Prices by Paul Gompers of Harvard and Andrew Metrick of the University of Pennsylvania’s Wharton School Dr. Khaled Dahawy

8. Is it Worthwhile? • 80% of the respondents were ready to pay a premium for well governed companies. • The study further indicated that this premium amounted to 40% in the case of Egypt. Mckinesy Corporation2002 Survey Dr. Khaled Dahawy

9. Special Concerns - Egypt • Small and Medium Enterprises • Family Owned Enterprises • State Owned Enterprises • The issue of enforcement and implementation Dr. Khaled Dahawy

10. Corporate Legal Framework • French civil law • Primary source of the corporate legal framework in Egypt. • Anglo-American common law • The Capital Market Law • Central Depository Law. Dr. Khaled Dahawy

11. CG and Laws in Egypt • Companies Law (CL 159/1981) • Investment Law (IL 8/1997) • Public Business Sector Law (PBLS 203/1991) • The Capital Market Law (CML 95/1992) • The Central Depository Law (CDL 93/2000) Dr. Khaled Dahawy

12. CG in Egypt – Early Developments • Late 1990s, a well-tailored economic reform program • ROSC 2001 • 2002 CASE New Listing Rules • Egyptian Institute of Directors (EIoD), 2003 • ROSC 2004 Dr. Khaled Dahawy

13. CG in Egypt – New Developments • CMA Restructure, 2005 • Egyptian Code of Corporate Governance, 2005 • Scope • General Assembly, • Board of Directors (BOD) • Internal Audit Department • External Auditor • Audit Committee • Disclosure of Social Policies • Avoiding Conflict of Interest, • Corporate Governance Rules for Other Corporations Dr. Khaled Dahawy

14. CG in Egypt – New Developments • Code of Corporate Governance for State Owned Companies, 2006 • CMA auditors registry, 2006 • Auditors Code of Ethics, 2007 • Efforts of NGO’s • Corporate Governance Manual for Family Businesses • CASE New Listing rules, Forthcoming Dr. Khaled Dahawy

15. Methodology • Guidance on Good Practices in CG Disclosure • UNCTAD • Technical aid for: • Regulators • Companies • particularly in developing countries and transition economies Dr. Khaled Dahawy

16. Survey Tool • UNCTAD Questionnaire • Manual Analysis of: • Financial Reports • Websites • Five Sections • Ownership Structure and Exercise of Control Rights • Financial Transparency and Information Disclosure • Auditing • Corporate Responsibilities and Compliance • Board and Management Structure and Process Dr. Khaled Dahawy

17. Dr. Khaled Dahawy

18. Dr. Khaled Dahawy

19. Dr. Khaled Dahawy

20. Dr. Khaled Dahawy

21. Dr. Khaled Dahawy

22. Problems/Hurdles • Closed/family companies • Lack of Awareness of Corporate Governance • Lack of Knowledge of Benefits of Corporate Governance • Lack of Implementation Manuals • Small Boards of Directors Dr. Khaled Dahawy

23. Conclusion • Major developments in the legal framework • Need for progress in implementation Dr. Khaled Dahawy

24. Conclusion • We are still starting • Educate as you Enforce • There is a need for development: • Awareness of Corporate Governance • Awareness of Importance and Benefits of Corporate Governance • Training Courses • Manuals and Implementation Tools Dr. Khaled Dahawy

25. Thank You! Dr. Khaled Dahawy