Last month, the first Corporate Governance and Responsibility (CGR) Forum organized by Schema, a division of RAZORView specialized in corporate governance and responsibility, was held at the Dead Sea. The forum concluded with calls for government support, increased awareness of CGR and the need to implement good practices for sustainable development. Dana Baradei reports.

Experts last month warned that unless immediate action is taken to develop a sustainable environment of development that creates jobs and enhances living conditions for the Middle East’s rapidly growing population, specifically by implementing good CGR practices, the region’s long term economic growth will suffer.

According to Schema’s Chairman Majied Qasem, there are roughly 380 million Arabs living in the region, two-thirds of whom are below the age of 25, making up about 250 million of the region’s population. In Jordan, around 30% of the population is below the age of 10. In around 10 years, the youth population in the region will have grown by 11% and jobs by only 2%.

Opinions are divided on whether CGR should be a public- or private-led initiative and on the importance and relevance of reporting, one of the key practices needed to establish corporate transparency with the aim of implementing sound CGR practices. Despite the differing viewpoints, all participants of the forum agreed that the issue of sustainable development for the region can no longer be overlooked.

Better understanding
Corporate governance spans all aspects of a company, from the board of directors to internal audits and sustainability reporting, also known as triple bottom line reporting. The board of directors needs to be trained and qualified for the role. Internal audits should clearly define the role, scope and function of each part of the corporation. The triple bottom line report addresses the economic, social and environmental impacts of a company.

Some corporations still have their reservations as to why they need to adopt good corporate governance practices. “Responsible investment dedicated to development and growth should be the motivation for corporate responsibility,” explained Graham Minter, co-chair of the steering group of the MENA-Organization for Economic Cooperation and Development (OECD) investment program, which aims to improve the investment climate in the region through economic governance reforms. “Other motivations include reducing risk in order to gain a competitive advantage, or simply out of personal conviction.”

Corporate responsibility essentially means that companies should operate in a coherent and consistent framework. Its mandate is to provide equitable rights to all shareholders, disperse information in a timely manner to all stakeholders, and ensure that their boards are held accountable.

The road ahead
A change in behavior is required in order to successfully apply the best practices of corporate governance, but there are several challenges to consider. One of the forum’s participants, Bedri El Meouchi, co-executive of the Lebanese Transparency Association and project manager of the Lebanon Corporate Governance Task Force (LCGTF), explained, “There is a need to raise awareness as corporate governance is still new. For example, 95% of the private sector in the region is comprised of family-owned enterprises, and these businesses do not necessarily feel the need to be transparent as they are accustomed to handling things internally.”

Another challenge is that the region hardly boasts any homegrown enthusiasts about the concept of CGR. Two such companies created to meet this gap are Hawkamah, a Dubai-based institution established to advance CGR reform that assists the corporate sector in the development of good governance practices, ultimately leading to financial market development, investment and growth in the region.

The other is Jordan-based Schema, which was established to address private sector needs to raise awareness and drive CGR concepts forward along with the public sector. Maali Qasem, head of the organization, believes that “Corporations that are enthusiastic about the concept of corporate governance and responsibility have no framework for implementing it. The tools needed to assist both the public and private sectors in MENA are virtually non existent.”

With an estimated 100 million jobs required for the region within the next few decades, there is definitely a need to act quickly.

Taking the lead
With a need to create a localized framework for CGR and no current methodology in place, controversial issues were brought up during the forum in order to raise awareness on the available options for implementation. One such issue was whether this initiative should be spearheaded by the public or private sector.

In general, the argument is that private initiatives are not enforceable and government initiatives are not always applicable. While some feel the public sector should, at least initially, be taking charge, others are in favor of a private sector approach for fear of government over-regulation. However, with no current standards or criteria for CGR the issue of over-regulation is debatable. “It is pointless to have a code for corporate governance if it’s made voluntary; there must be some enforcement,” said Stephen Vink, head of group risk management for Global Investment House, one of the larger financial services companies in the region based in Kuwait.

Many others shared the same sentiment. “In Lebanon, corporate governance is not mandatory and only 10 companies have come on board,” Mr. El Meouchi explained.  
Issam Issa, a lawyer in the Arab Bank legal department, explained, “Companies have not reached a level where a representative from the private sector would step up and say ‘we have a problem’.” This, he said, has been particularly the case for family businesses. “Why would they want to be a part of something with higher compliance laws?” he asked.

The government can significantly help with mandating laws of corporate governance, facilitating and creating an environment where businesses can thrive, endorsing good practices and standards, and encourage partnering with multilateral agencies and civil societies. The general consensus is that no one party can implement this initiative on its own, and putting corporate governance into practice should be a combined effort of the public and private sector with the help of NGOs and specialists who have the expertise.

Private affair
One of the major concerns expressed at the forum is the lack of initiative to invest in CGR from the private sector in the region. However, OECD’s Graham Minter feels differently: “There is a demand to improve the investment climate and influence business decisions, specifically from the private sector.”

According to Mariam Al-Foudery, head of the CGR department at Agility, a Kuwait-based logistics company, some companies in the region have been practicing CGR without knowing it. One local example is Jordan Telecom Group, who under the “Orange” initiative started by the mother company France Telecom Group, has donated JD10 million to various social activities under the umbrella of corporate responsibility and has supported programs in education, poverty alleviation, music and culture. Other companies that have taken CGR initiatives include Nuqul Group and Fastlink.

Unsustainable trends
Sustainable development is essential; however, keeping up with the rapidly changing worlds of technology and globalization is posing a challenge of considerable proportions. Yet with half the global population living on less than $2 a day, continuing with current global trends is not an option.

One way to promote sustainable development is to address education and health issues as well as poverty, explained Jason Perks, director of Sd3, a business sustainability advisory corporation. Mr. Perks went on to explain that the empowerment of women is also necessary, as studies have shown that educated women have lower fertility rates as a result of proper family planning. In Jordan, educated women will have four children versus 5.1 children for uneducated women. In Yemen, educated women will have 5.1 children versus 7.5. Therefore, at the current rate, labor in the region is growing two to three times more than that of developing countries. According to several global reports, statistics show that unemployment rates will reach 75%. The ratio in Saudi Arabia is even more alarming, with eight potential job seekers for every one job opening.

Political reform is also necessary; with an increase in economic disparity and a shrinking middle class in Jordanian society, current political systems will collapse. As one expert participating in the forum explained, “Disparity will lead to all kinds of havoc and a failure of the system.”

The situation is somewhat different for GCC nations, where incomes have tripled in over a year. Oil money has enabled Gulf countries to postpone reforms, but experts feel their current policies are also unsustainable. Olivia Dubreuil, a senior project associate at Dubai Centre for Corporate Values, explained, “For Dubai, the challenge is to work on introducing the culture of CGR to ensure sustainable development. We are making some progress but a lot of work still needs to be done.”

Government dependence is another factor; some feel that in Jordan the challenges for sustainable development are predominantly behavioral. This is especially the case with unskilled labor. One example is Tikiyet Um Ali, a non-profit organization that provides underprivileged families with food in exchange for an agreement to nominate one family member for vocational training, but the outcome has been less than promising.
Tikiyet Um Ali started out with 90 trainees but now the number is down to 42 because many of the nominees simply do not want to work, said one employee of the organization.

The importance of reporting
With the adoption of sound corporate governance practices and achieving transparency comes the need to report, and experts recommend using the Global Reporting Initiative (GRI). GRI’s vision is that triple bottom line reporting will become as routine as financial reporting.  Nearly 1,000 organizations from over 60 countries, from business, civil society, labor, auditing, investors, academics, governments and others, disclose their sustainability performance with reference to the GRI guidelines. Worldwide, almost 35% of the 250 leading companies have adopted GRI. In October 2006, GRI formed a strategic alliance with UN Global Compact, an initiative that covers citizenship “implementation” through its 10 universal principles in the areas of human rights, labor standards, the environment and anti-corruption. Despite its numerous advantages, such as protecting the company’s image, developing trust with consumers and creating a platform for communication, it is not supported by all. Due to the level of detail GRI demands, successfully reporting can be both a costly and time-consuming process.