Enron was a failure in corporate governance, among other things. Are companies in the UAE shaping up for a similar corporate governance failure? If you haven't seen it, find the movie called "Enron: The Smartest Guys in the Room". It's very good.
There have been a number of articles recently about corporate governance, or lack of it, appearing these days. A good thing, if it makes a difference. I see more noises from the Abu Dhabi Securities Market (ADSM) than the Dubai Financial Market (DFM) though. Further reading (however, I don't think that ESCA's move about extending deadlines was a step in the right direction)...
Corporate governance shapes up in UAE
By Robert Ditcham, Staff Reporter
Dubai: The collapse of Enron in 2001 brought the issue of corporate governance into the spotlight in the US and set in motion tough regulations on auditing controls.
With many of the UAE's leading business leaders highlighting the possibility of at least one major corporate failure in Dubai this decade, the emirate faces some tough choices as to how it should shape its future corporate regulatory framework.
Should it introduce laws similar to the US Sarbanes-Oxley (SOX) Act of 2002, which introduced tough requirements for firms to report more information to the public, maintain stronger independence from auditors and have their financial internal control procedures audited? Or should it rely on a basic set of guidelines and depend on companies to set and abide by their own corporate values?
At a recent conference on internal auditing in Dubai, audit heads of companies including Emirates airline, HSBC, Majid Al Futtaim and Dubai Holding, said the existing environment of rapid business growth and "lagging" internal audit controls in Dubai make the emirate ripe for a significant control-driven failure to occur in the next three years.
No pressure
"Many listed companies in the UAE adhere to very high standards of corporate governance, but this policy comes from within. As yet, there is no external pressure forcing them," T. Raza Abdullah, vice-president, internal audit, Emirates airline, told Gulf News.
Experts agreed that a basic legal framework is needed, but highlighted the dangers of "over-regulation". America's "mindless compliance" with tough corporate governance law has caused more damage than it tries to prevent by forcing some companies to seek locations offering more relaxed laws, says Justice Mervyn King, who chairs the Steering Committee of eminent persons to review governance and oversight within the UN and heads the Global Reporting Initiative. "The UAE is very aware that good governance attracts capital. I am confident that it is moving towards a comply or explain regime. The introduction of SOX will not be the right answer."
External regulation does not necessarily guarantee that white collar crime will not occur in a company, according to Sherron Watkins, widely known as the whistleblower who helped to uncover the company's accounting scandal.
Watkins said the collapse happened in spite of Enron breezing through corporate governance checks.
"The company had great internal controls and for every corporate governors checklist, they would get an A+. But no internal control system is going to be effective if ethically-challenged employees are allowed to remain in the company."
Enron's downfall was a result of the company leadership failing to stand behind the controls and value the internal audit department, according to Watkins.
"Ken Lay [former Enron CEO and chairman] liked to tout respect, integrity, communication and excellence, but he didn't live up to it," she said.
She added: "It doesn't matter that there isn't so much regulation in Dubai as long as people put their organisation as first priority and Dubai as second. Their own personal ambition must be way down the list."
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