In the past three years, some of the Gulf’s leading companies, including Abraaj, Drake & Scull, Arabtec, Al Mojel, and most recently NMC Healthcare, have been stung by problems that highlighted unaddressed governance risks.
These occurred after an increase in corporate governance regulations, introduced after a domestic equity-market crisis in 2005. Market manipulation had been prevalent and capital market regulators were brought in to repair confidence.
Foreign investors are surprised that, in some respects, corporate governance regulations now are tougher here than in emerging-market peers. In some countries, regulators have unusual powers that include attending board meetings of listed companies. Combining the roles of chair and CEO is allowed in listed companies in the US, but not the Gulf.
But following these bold corporate governance reforms, the spirit of these regulations and corporate practice differ. The resulting gap has implications for economic stability and even the delivery of essential services. NMC, the largest private healthcare provider in the UAE, became embroiled in a governance scandal just as the coronavirus pandemic was taking off.
As regulators examine the lessons of these events, they must clarify and enforce the rules for companies operating across jurisdictions. They must also agree on their respective oversight and enforcement obligations. This is critical for companies such as NMC, which is listed in London but regulated in the UAE, as well for those offering cross-border financial services, as Abraaj did before the private equity firm’s collapse in 2018.
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