S&P report on the Gulf Corporate Governance

By: Nicolas Parasie, The Wall Street Journal

According to the latest report by S&P corporate governance among Gulf companies is weak and improving it will be a slow process.

Only 2 or 6.3%, of the 32 companies in the Gulf Cooperation Council (GCC) region that S&P rates have earned “strong” management and governance points. That compares with an average of 9.5% in the wider Europe and Middle East region and 7.5% globally.

The main problems are weak transparency and disclosure practices, as well as the lack of independence of management boards.

The prevailing ownership structure in the Gulf region is either governments or powerful local families which is one of the main reasons for poor governance record.

Tommy Trask, an analyst from S&P said that government-related entities tend to make decisions that serve the interest of state policies rather than minority shareholders or creditors.

Similarly, in the case of family-owned businesses, one person often holds both the chairman and CEO position, which combined with a strong appetite for investments, risks creating diversified companies “that are based more on opportunism than a clearly articulated strategy,” S&P said.

Businesses lacking top corporate governance practices face higher funding costs while their access to capital markets is more limited. It could also turn off international investors who are on the prowl for opportunities in the region.

On the positive side, the ratings agency says corporates in the region are increasingly aware of the need for better management structures but that the process to change will take time.

To read more go to The Wall Street Journal article

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