Adequate and effective corporate governance (CG) is critical in supporting boards and management to navigate uncertainty in the international business arena.
Yet, a joint study by ACCA and KPMG reveals a wide divergence in CG requirements across 25 markets, including the UAE.
ACCA and KPMG recently analysed the characteristics of corporate governance instruments across 25 markets, falling in 3 economic zones and geographic regions. This study also looked at the common 4 pillars of corporate governance across the markets.
In the study UAE is classified as a developing market, falling in the Europe, Middle East and Africa (EMA) economic region.
The study shows that the UAE has a unitary style of corporate governance, meaning that it is centralized and emanating from a central agency. The UAE uses a code to promote Corporate Governance requirement, it is mandatory and was introduced in 2009. The study suggests that the corporate governance code requirement should be well defined; this provides clarity to the market and raises confidence of those enterprises seeking to adopt. The UAE was ranked above some developed markets like Canada and Japan.
The study also shows that the UAE code is aligned with the OECD principles of corporate governance, meaning that more than 50% of the UAE CG code incorporates the OECD principles.
Speaking about the study, Lindsay Degouve de Nuncques, Head of ACCA in the UAE, said: “The UAE is aiming to be home to global enterprises. In addition to its vast capital reserves to invest and attract, the state appreciates their stewardship role and is constantly looking to evolve its legal frameworks to build and sustain investor confidence and position itself as a commercial and capital global hub. Together with the Association of Accountants & Auditors (AAA) we want to ensure that the UAE profession has a clear and robust position on the corporate governance agenda.”
Ahmad Darwish, Board Member and Secretary General of the Accountants and Auditors Association, and chair of ACCA’s Members’ Advisory Committee in the UAE, said: “This report provides us with some guidance about the UAE code which we can share with other important local stakeholders. This is important to raise the awareness in the UAE, and add public value through having strong regulatory frameworks that sustain economic growth and financial stability in the UAE.”
Other key findings:
1. While CG Codes provide clarity, they are not a ‘one-stop shop’ for CG requirements, as additional requirements exist in other instruments.
2. At the same time, there is a risk that utilising multiple CG instruments to capture more details can lead to inconsistencies and misalignment among different requirements.
3. More support is required for developing markets and emerging economies to raise CG standards.
4. Well-defined CG requirements on paper may lack enforceability in practice – 56 percent of the 1,800 requirements reviewed were principles-based while the remaining were mandatory.
5. ‘Structural’ CG requirements are better defined than ‘behavourial’ ones such as performance evaluation and board diversity.
About Balancing Rules and Flexibility
Directors are increasingly required to understand CG requirements across jurisdictions where they sit on boards operating across markets. This report is intended to stimulate discussion on how CG requirements can be best defined and enforced to attract capital and instil confidence in investors, particularly as emerging markets seek to grow their economies and capital markets. It also hopes to raise awareness and standards of CG requirements globally.
The study reviewed 109 CG instruments, containing approximately 1800 requirements across 25 markets. The research relied on information available as at 30 September 2014. The 25 markets studied are: UK, India, China, US, Brazil, Indonesia, Australia, Thailand, Vietnam, Singapore, New Zealand, Cambodia, Russia, Korea, Japan, Malaysia, Philippines, Myanmar, Hong Kong, UAE, Brunei, South Africa, Canada, Laos and Taiwan. The study was first announced at the 12th World Congress of Accounting Educators and Researchers on 14 November in Florence, Italy.