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Survey of Bank and Corporate Governance Practices in the MENA region

Survey of Bank and Corporate Governance Practices in the MENA region. Transparency & Disclosure Annual International Conference June 18-19th, 2007 in Cairo. Purpose and Outline. Outline Survey rationale and background Survey results Board practices Control environment

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Survey of Bank and Corporate Governance Practices in the MENA region

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  1. Survey of Bank and Corporate Governance Practices in the MENA region Transparency & Disclosure Annual International Conference June 18-19th, 2007 in Cairo

  2. Purpose and Outline Outline • Survey rationale and background • Survey results • Board practices • Control environment • Disclosure and transparency • Shareholder rights • Special focus on Banks, FOEs and SOEs • Next steps and recommendations Purpose: Present a MENA-wide survey of corporate governance practice and help shape ensuing discussion and conference outcome

  3. Why Conduct a Regional Survey on Corporate Governance? • Mandate received from OECD MENA Initiative • Purpose: • Raise awareness of best practices and gaps in local practice • Offer recommendations on how to close gaps • Serve as a baseline for reform efforts

  4. Survey Background • Carried out by IAAG & PFK on behalf of IFC & Hawkamah • Scope: Listed companies and banks • 11 IFC member countries with stock exchanges: • Magrheb: Morocco and Tunisia • Mashrek: Egypt, Jordan, Lebanon and West Bank • GCC: Bahrain, Kuwait, Oman, Saudi Arabia and the UAE • Statistical margin error: To date <8% Survey results statistically relevant • Final report expected by July 2007

  5. 49.3%ofRespondentsCitedCorporateGovernanceasImportantorVeryImportant49.3%ofRespondentsCitedCorporateGovernanceasImportantorVeryImportant 63.9% of banks 34.3% of listed companies

  6. Nota Bene: 59.2% of Respondents Were Unable to Define Corporate Governance % % % % %

  7. Board Composition May Be Inadequate for Independent Control & Strategic Guidance • Strength: Majority of boards consist of non-executives • Weakness: Executive and independent elements • 68% have one or no independent directors • 54.7% have one or no executive directors

  8. Being a Shareholder Key Criteria for Board Seat, Over Experience and Integrity

  9. While 79.1% of Boards Have an Audit Committee, Only 22.4% are Independent

  10. Position of CEO and Chairman Often Combined … Against Best Practice • Board is hindered in providing independent oversight • Lack of outside perspective in terms of strategic guidance • Role are fundamentally different: • CEO runs the business • Chairman runs the board.

  11. “When you sweep the stairs, you always start from the top” … German proverb Percentage of respondents conducting board evaluations

  12. Disclosure of Financial Information Appears to Be Well Above Par Strengths Weaknesses • Financials often based on ‘outdated’ IAS, which have not been updated • However, only 32.9% of annual reports contain a MD&A or corporate governance (27.1%) section • 75.7% of the respondents cited that they prepare their accounts according to IFRS • 73.9% of respondents disclose financials in the annual report, and post this on their website

  13. On the Other Hand, Non-Financial Info.is Lagging Behind Best Practice

  14. Many Companies do not Have Policies on Related Party Transactions Companies and banks that require board members to disclose conflicts of interest

  15. On the Other Hand, Banks Are Much Better at Informing Their Shareholders Information provided to shareholders before the general assembly

  16. Control Environment: Companies With Passing Grade, Banks …

  17. Special Focus on Bank Governance • 82% state that they are familiar with the 2006 Basel Committee Guidelines on Corporate Governance! • However, flawed reporting lines for key control functions:

  18. Special Focus on Corporate Governance for Family-Owned Enterprises • Does your company/bank have a • succession plan? Is the Board composed of a majority of family members? Are family members required to comply with requirements for being a director? • Does the company have a family council?

  19. Recommendations • Conduct benchmarking of legal and regulatory framework … • But do not forget to raise awareness of what good corporate governance is, and why it ‘pays’! • Drafting national codes—based on int. reference points but rooted in local context—are a good means to achieve this end: • But do not forget that companies will, at the end of the day, have the difficult task of implementing corporate governance ... • And so build local training & consulting capacity to meet demand

  20. Thank you

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