Doha Abdel-Hamid* offers a viable equation for corporate governance in Egypt Corporate Governance (CG) has become a new term in Egypt's business lexicon. It is also a key topic in the country's evolution towards institutional development and the boosting of foreign and local investment. CG does not live in isolation, however, but is directly linked to aspects such as national and public sector governance (government apparatus: structure, procedures and services), social governance (social safety nets and the poor), and political governance (the adoption of socialist or free- market principles, etc). Many might interpret the term "governance" as "government". The misconception could be partially attributed to the fact that CG does indeed hold many definitions worldwide. In a nutshell, corporate governance can be defined as the "system by which corporations and institutions are directed, controlled and held to account. It is connected to the social, political and legal environment where the corporation operates". CG, therefore, is the sum of institutionalised systems and practices, both formal and informal, that govern a corporation. The term corporate governance encompasses the manner in which these procedures are implemented and facilitate the development of knowledge, people and resources, enabling a corporation to meet its objectives." CG holds great significance for domestic and foreign-based companies. Massive-scale corporate scandals (e.g. the Asian financial crisis; Enron; WorldCom; & Parmalat), in addition to globalisation and shareholder activism, were key factors which led to a growing awareness of the need for CG. There is good evidence that investors worldwide value companies that exercise good CG. In 2002 McKinsey Consulting surveyed over 200 institutional investors (IIs) with results showing that 80 per cent of respondents were ready to pay a premium for well- governed companies. These ranged from 11 per cent in Canada up to 40 per cent in Egypt. CG is also perceived as enhancing corporate returns, building investor confidence, and bringing greater oversight over operations and decisions. This boosts the value of a firm. The implementation of corporate governance also leads to societal gains, such as increasing corporate ownership by means of privatisations, preempting corruption, training workers and boosting competitiveness. All this eventually enhances economic performance. It promotes restructuring, when tough decisions must be made to face global competition. CG also offers fairness to shareholders in the form of ownership for all, when it helps evolve capital markets and domestic stock exchanges. Egypt, like many other countries, underwent two diagnostic exercises that were made by joint missions from the World Bank (WB) and International Monetary Fund (IMF) in 2001 and 2004 respectively. These missions tested the alignment of Egypt's CG system with internationally-accepted norms. In 2001, six areas warranted the attention of the government and private sector. These were the disclosure, ownership and control structures; and the disclosure of financial and non-financial information. A third area where CG was required was training and capacity-building for regulators and the private sector. CG was also needed to enhancing the role and effectiveness of shareholders' meetings, in addition to boards of directors' practices and auditors' professional conduct. The WB and IMF updated their assessment of CG implementation in Egypt in 2004. This resulted in building a centre for directors that would develop a code of CG monitoring corporations' boards and creating director- training capability. This code would also help enforce new listing rules and disclosure provisions. Accompanying this would be continued emphasis on the review of content, and the implementation of legislative reform in order to bring the policy framework into greater compliance with the OECD principles. A number of positive steps have been implemented since then. The Egyptian Institute of Directors (EIOD) was formed and is currently receiving generous technical assistance and expertise from international donors. EIOD is also working on designing CG training programmes. The guidelines for CG were widely disseminated in 2005 to empower public companies' management and enhance the role of the general assemblies (GAs) in appraising management decisions. In this respect, every public company's chairman had two deputies from the younger generation appointed, who had the technical and financial background needed to assist in the implementation of the code. The minutes of annual general meetings (AGMs) are now posted on the Internet, and a Conflict of Interest Code was presented in February 2006 to the Cabinet of Ministers. Last but not least, a CG manual has been prepared which is currently in draft form. The countries which preceded Egypt on the road to CG have taken several steps towards implementation. These consisted of undertaking diligent legal and policy reforms, while developing strong CG monitoring and evaluation compliance and incentives systems. Supervisory arrangements were adopted that effectively place risk management responsibility with boards of directors instead of passing them on to regulatory agencies. Well-regulated, well- functioning and competitive capital and financial markets were established. Legal, judicial and tax systems were updated and strengthened. Advocacy was adopted to upgrade the capabilities of business leaders. The next generation of professionals is also being prepared by introducing CG into educational programmes at all levels. Initiatives such as CG forums were launched to facilitate cooperation and best practices exchange throughout the country, region, continent and globe. Working relationships were developed between initiatives that focussed on CG, and institutions with which CG shares common interests such as professional associations. EIOD is also facing many challenges. Foremost amongst these is the evolving of research and policy advice. This would study how current systems operate nationally and worldwide, and offer one-on-one policy advice to decision- makers and corporations. A second challenge is to launch a public dialogue on the degree to which public institutions and private businesses implement good CG, and to assess its impact on national efficiency and competitiveness. An additional step is to monitor and evaluate the extent to which both public and private enterprises implement good CG principles and practices and contribute to wealth and employment creation (an important component in the recent presidential electoral programme and campaign). I see that the impact of the CG programme in Egypt must be directly reflected in a socially responsible investment environment which has faith in good CG culture. This would encourage global corporate citizenship, in tandem with national economic, social and political reform programmes. Once we realise the above-mentioned objectives, success in adopting good corporate governance will have been attained. * The writer is associate professor of finance at the American University in Cairo and an economic and financial expert.
