CAIRO: Having recently published its voluntary guidelines for corporate governance, the Egyptian Institute of Directors (EIoD) will begin a training program for corporate board members next month in cooperation with the International Finance Corporation. The training course includes 24 modules covering methods for implementing the guidelines and leads to a certification for directors. Corporate governance has been a major emphasis in developed countries following colossal fraud cases such as Enron, Parmalat and WorldCom. Legislators in the United States have implemented the strictest response relative to other countries with the passage of the Sarbanes-Oxley Act in 2002. This act mandates stringent disclosure and increased management accountability with severe penalties for non-compliance. Meanwhile, the OECD has taken the lead internationally on establishing a generic set of corporate governance guidelines that have been adapted for use in several countries, including Egypt. The promulgation of good corporate governance practices in emerging markets is particularly important to attracting foreign investment. The California Public Employee Retirement System, for example, with its $200 billion of assets of which $40 billion are outside the U.S., does not invest at all in Egypt because of its assessment of the poor general quality of corporate governance. The situation in Egypt is illustrated by an example from Financial Consultant Sameh Makram Ebaid. What I have seen in the general assemblies of large corporation[s] is a two-page annual report, says Makram Ebaid, and if you want to ask a question you re not allowed to because you did not present your questions 48 hours ahead of the general assembly. Usually, the chairman of the general assembly is a bully. A study by McKinsey in 2002 also found that investors will pay a premium of 11 to 41 percent for well-governed companies. This premium varies from country to country and amounted to 39 percent for Egypt in the study. While Egypt s guidelines are voluntary, EIoD General Manager Ashraf Gamal El-Din explains that most of its points are already part of the listing requirements of the stock exchange. Nevertheless, Alkan Chairman Mohammed Nosseir believes that the guidelines need to be made mandatory in order to encourage their adoption by all types of companies, whether they are publicly-held or otherwise. I am for the idea of even making it in the form of a law to enforce it on corporates, family and listed companies, says Nosseir. Nosseir, who sits on the boards of several listed companies as well as a family business, adds that the enforcement of good corporate governance is particularly important for Egypt given its current stage of economic development. We are in the stage of infancy in the industrial evolution, explains Nosseir. We are in the stage of infancy in the free economy as well . The truth of the matter is that we need [legal enforcement] more because for one reason or another it s not respected. The issue of enforcement, however, remains contentious, and some businesspeople contend that forcing the private sector to comply with guidelines is counterproductive. If you have too many laws and too many sticks, you won t get compliance and people will find a way to get out of it, says Adel Bishai, chief financial officer of Orascom Construction Industries. So unless the company is convinced that it is in its benefit to have a good corporate governance approach, I don t think it will work. Bishai is in favor of the present method of guidance complemented by occasional gentle persuasion with laws. He adds that the guidelines issued by the institute provide a good framework for implementing the mechanics of corporate governance but lack the underlying principles that are necessary as a starting point. Such principles include a code of conduct for the board and management, outlining the responsibilities of each. The ultimate objective of all this is to uphold the rights of a company s stakeholders in a systematic manner by establishing sufficient oversight of its activities. Good management, however, is distinct from good corporate governance. I would argue that you can find companies that are very well managed, very profitable and [yet] have zero governance, explains Makram Ebaid. They have no [proper] board of directors, their shareholders meeting is a farce, yet they re very well managed because it's a one-man show. What will happen to that company when the man dies? This is where corporate governance comes in.
