As the political landscapes of Egypt and the Middle East and North Africa region evolve, corporate governance — the way companies direct and control their businesses — will be important to securing a bright economic future for the region.
Improved transparency, as well as sound risk management and compliance practices to navigate uncertainties and manage reputational risks as they arise, will be needed at both the macro level and at the individual company level to restore market confidence and ensure the continued flow of needed investment dollars.
IFC has been actively promoting good corporate governance in Egypt and across the MENA region for several years. Going forward, IFC remains absolutely committed to continuing this work with key partners and regulators to help address critical corporate governance issues and facilitate market resilience and growth during this historic period.
Chief among the corporate governance priorities in the MENA region will be improving market transparency and disclosure. Media stories, as well as the suspension of several firms from the Egyptian stock exchange for failing to meet disclosure requirements, show that investors are hungry for greater transparency in companies, a better understanding of their operations and a more accurate view of their investment risk.
Improving companies’ transparency and disclosure practices will help meet this challenge and aid regulators in the region who are now pushing for improved ‘Comply or Explain’ disclosures from firms in their published corporate governance codes. It will also help non-public companies — especially small and medium enterprises, as well as family-owned enterprises — provide much needed assurance to current and potential new investors.
In many ways, the recent political changes in the region have hastened the efforts of banking regulators and individual banks that were already applying lessons from the financial crisis. For example, several banking regulators are seeking to strengthen their corporate governance codes, raise disclosure standards across the sector, and strengthen compliance practices in financial institutions, including anti-money laundering and conflict policies. Likewise, many individual banks want to revisit their current practices to identify areas for improvement and take steps to reassure the market that they are practicing good governance.
While the financial crisis underscored the importance of risk management and control in the banking sector, it is crucial that all types of companies have structured processes in place to anticipate external and internal risks, assess their impact, and develop strategies and control frameworks to help mitigate them. Risk management and control is an integral part of overall corporate governance and it is critical that MENA region companies strengthen their practices in this area to navigate market uncertainties. This includes helping SMEs, which often struggle to establish even basic risk management and control practices in their organizations.
For many family-owned enterprises and small and medium businesses, present political changes present a threat to sustainability. Prospective investors carry more trepidation when considering these companies in uncertain times, plus these companies tend to have less of a financial cushion to absorb broad economic slowdowns. However, better governance in the form of strong board stewardship, sound risk management and control frameworks, and improved transparency, will help mitigate these risks.
Additionally, as political changes in the region are cemented, there will likely be a need to help state-controlled and former ruling-family controlled entities unwind their controlling interests and transition to other corporate forms, either to private entities or from ruling-family-controlled to state-owned. These changes will necessitate setting up proper governance structures — in particular independent boards, shareholder rights, and proper disclosures — to help strengthen stewardship, control, transparency, and mitigate concerns from investors and public stakeholders as to how their funds are being used.
Finally, improving the rights of women, including the provision of better economic opportunities, is a crucial part of the socio-economic changes taking place. From a corporate governance perspective, this means improving gender diversity in MENA boardrooms where the absence of female representation is especially acute. The percentage of female board directors in the Gulf countries, for example, is 1.5 percent.
While much of the problem begins ‘upstream’ with a low percentage of women entering the workforce to begin with (in Jordan women make up more than 60 percent of college students, but less than 30 percent of the workforce), there are opportunities in particular sectors and markets across the region, including Egypt, to help females in management positions take the next step into the boardroom. Further, there is a need to help female directors of family-owned enterprises better understand their roles and responsibilities as professional directors.
Sound corporate governance practices are an evolving phenomenon in Egypt and across the Middle East and North Africa region. However, enshrining them as a natural and necessary part of doing business is crucial to creating stable markets and investment climates that support the kinds of strong firms the region needs.
J. Chris Razook manages the IFC Corporate Governance Program for the MENA region. Based in Cairo, he has worked with companies, regulators, and other intermediaries across the region to help advance the principles of good governance. He holds an MBA in International Finance and an LLM in Corporate Law. This commentary was written exclusively for Daily News Egypt.
The findings, interpretations and conclusions expressed in this article are the author’s own and do not necessarily reflect the views of IFC, a member of the World Bank Group.
