Mideast needs to follow effective corporate governance practices

DUBAI - Effective corporate governance practices are essential for the region to combat the incorrect perception created about it in overseas markets due to geo-political problems, according to Mike Rake, International Chairman of KPMG.

By A Staff Reporter

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Published: Tue 6 May 2003, 7:11 PM

Last updated: Wed 1 Apr 2015, 9:11 PM

Speaking at the third session on the third day of the International Investment Summit, Rake said that the UAE should create good corporate governance by incorporating global best practices. It should adopt international accounting standards at the earliest opportunity and enhance trust in the banking system. He also called on the UAE corporate community to work on effectively solving issues like money laundering.

The session discussed the crisis in corporate governance created as a result of the Enron financial scam that involved corrupt accounting practices.

"There was a complete collapse in the confidence of the operations of capital markets following the Enron scandal. This created severe economic damage and affected the trust that people had even in good companies and accounting firms," Rake said.

He also cautioned against hysteric knee-jerk reactions of the sort witnessed in the wake of the Enron scandal and attributed these to public statements of politicians and media coverage contributed to this over-reaction to the scam.

To resolve the crisis, he called for reform of the capital markets and appropriate regulation that would assist but stay away from interfering with entrepreneurial initiative. He also suggested independent checks and balances to improve the governance system and redeem the faith of the public. Increased accountability for non-executive directors and auditors, he said, was a key step. A balance between enhanced accountability and promotion of business initiative is the appropriate response to the situation, he added.

From a global perspective, Rake said that the corporate community should agree on a global standard of accounting protocols. Such a global standard should take the best of both the US accounting rules, which show great attention to detail, and the principle-based international accounting standards.

Akel Biltaji, chief commissioner of the Aqaba Special Economic Zone of Jordan detailed the Zone's experience with corporate governance issues in his presentation. Corporate governance, he said, played a role in encouraging sustained development that brought in $ 1.5 billion of investment to the Zone.

He outlined five elements of effective corporate governance - a basic legal system, appropriate corporate regulations, effective judiciary and law enforcement system, fiscal reform and public-private partnership.

Biltaji pointed out that there was clear evidence of the value-destroying potential of weak corporate governance. Good corporate governance enhances the efficiency of the existing governance mechanism in market economies.

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