Strong corporate governance is essential for any organisation, but it is particularly important in times of rapid change. For companies navigating business environments that are undergoing transformation and evolution, good governance is the anchor that holds firm among shifting tides. It’s not surprising, therefore, that the topic of governance is rising steadily up the corporate agenda in the boardrooms of Dubai, one of the world’s most dynamic and rapidly evolving markets.
Dubai’s growth and success story
The world is familiar with Dubai’s success story. From its origins as a small shipping post in the early 20th century, the discovery of oil in 1966 catapulted the country onto the global stage. Even prior to the oil discovery, the ruling family had shown itself to be entrepreneurial and visionary, undertaking infrastructure projects to safeguard the country’s future as a trading port. With the arrival of oil revenues, the country embarked on an ambitious programme of building and development that has seen it become a vibrant and dynamic business and tourism hub for the region, extending from Egypt to the Indian sub-continent and from South Africa to the Commonwealth of Independent States (CIS).
Over the past 40 years, the region has become one of the most lucrative places to trade in the world, with tax and business incentives designed to foster innovation and expansion generating a thriving commercial environment. A recent article in The Economist noted that: “free trade, openness, security and predictable rules have turned the pearl-fishing village into one of the world’s great entrepȏts.” Alongside this rapid growth has come the recognition that sound corporate governance and compliance is increasing in importance, not just as a way to ensure that companies are operating properly, but also as a competitive differentiator and as an essential element for organisations that are looking to expand their operations and seek partnerships and funding outside the region.
Expanding such partnerships and attracting investment beyond the existing Free Zones is a key priority for Dubai as it seeks to reduce its dependency on oil revenues and to diversify its specialisms beyond tourism and financial services. The country has shown that it is prepared to pivot dramatically to attract foreign direct investment (FDI). In early July, the surprise announcement was made that the requirement for businesses to have a local partner owning at least 51 per cent of the venture was to be repealed. At the same time, the new rules will allow for 10-year visas for professionals in scientific, technical, medical and research fields. The aim is to make building a business in the region easier and more attractive for overseas investors.
What does corporate governance look like in Dubai?
In 2016, in the first significant overhaul of company law since 1984, the country formally adopted Corporate Governance Rules in a bid to enhance the corporate transparency of Dubai businesses and bring them into line with international standards. The rules apply to all listed local public shareholding companies and differ from corporate governance measures in other countries such as the UK, as they are not based on a “comply or explain” principle. Instead, the Securities and Commodities Authority can impose a scale of penalties on organisations that are found to be in breach, ranging from formal warnings to fines and the initiation of criminal proceedings, if appropriate.
Underlining the responsibility of boards for ensuring compliance, the Commercial Companies Law (CCL) has introduced penalties of up to AED10 million on any company, directors, managers or auditors who contravene corporate governance rules.
The rules introduced new obligations relating to policies on corporate social responsibility and a requirement for companies to adopt international accounting standards and to appoint auditors. Furthermore, companies are now required to hold a minimum of four board meetings per year, and directors are prohibited from holding positions in competing companies, i.e., conflicts of interest.
In terms of diversity, at least 20% of board members must be female, and the company must disclose the reasons if this is not the case and record these in its annual report. This drive reflects a nationwide push for equality across the United Arab Emirates (UAE), which is led by the ruling family, with a stated ambition to become one of the top-25 countries for gender equality by 2021.
The rules also stipulate that at least one-third of board members must be independent and the majority of directors must be non-executive. The issue of overboarding is addressed with directors not being permitted to hold positions on more than five boards simultaneously.
Since the implementation of the corporate governance rules, there has been a welcome increase in reporting on non-financial and sustainability metrics, indicating that the code is beginning to have an impact on practices in the region.
Embracing technology to enhance governance
This increased focus on corporate governance is happening against a background of initiatives aimed at improving the quality of life and the effectiveness of business in the region. The Smart Dubai programme aims to embrace technological innovation to make citizens happier, enhance the economy and steward the state’s resources. So what practical impact will the twin drivers of heightened governance and the Smart Dubai programme have on the nation’s boardrooms?
Clearly, there is a drive to leverage technology to improve performance, and boards can do this effectively by adopting facilitating tools such as board portal software. Board portals enable secure, 24/7 access to confidential board portal material for directors. Board portals also answer the need for secure communication between directors via a bespoke messaging system that takes sensitive communications away from insecure networks and personal email accounts and servers.
A key tenet of the Smart Dubai programme is a bid to move toward paperless offices, and here Boards can take the lead by moving away from hard copy board materials and toward the digital alternative offered by board portals. The paperless boardroom is more secure and more effective, as going digital unlocks a host of efficiency benefits, such as the streamlined preparation and distribution of board materials and the straightforward creation of agendas and meeting minutes.
The boardrooms of Dubai have an important role to play in continuing to drive the success of the region as it anticipates its golden jubilee in 2021. By strengthening governance and embracing supporting technologies, Dubai’s board directors can foster innovation, advance diversity and drive business growth into the 2020s and beyond.
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