Dubai, 06 October 2022
Ms Samia El kadiri is Advisor & Head of Research at Hawkamah, Dubai International Financial Center, and has almost a decade of experience working with private and government owned entities in areas of Regulatory Compliance, Corporate Governance, Sustainability, quality assurance and organizational excellence. She has successfully proven positive impact and lead business transformation.
In her current role as the CG Advisor and Head of research at Hawkamah, the Institute of Corporate Governance, Middle east, she is in charge of leading entities advisory engagements, where she works closely with clients in assessment and development, advisory and succession planning across multiple industries.
In an exclusive interview with The Wealth Today, she discusses about corporate governance in the region with focus on the UAE corporate sector, Hawkamah’s role in ensuring companies implement the best practices, subsidiary governance among others.
Best corporate governance, risk and compliance (GRC) is vital for a company’s success and how the businesses and financial institutions in the region, especially in the UAE and GCC, have been implementing them?
GRC can be defined as a management system that integrates governance, risk and compliance functions into the processes of each department within an organization. GRC promotes continuous collaboration and enhances a business’s ability to better manage and respond to risks strategically. When a governance, risk and compliance strategy is well planned and effectively implemented, GRC can deliver many other benefits in all industries not only financial.
Earlier devising a GRC strategy used to be a manual process, today, we have modern GRC systems, which is a technology-enabled integrated process that takes a comprehensive look at risk management and compliance across the organization. It enables automation of processes, accurate risk assessment, cost efficiency and provides a single source of information for the whole organization.
As we all know, UAE always comes within the top innovative countries when it comes to providing better and efficient services. At the moment, I can’t provide you with an exact number of companies who has been implementing GRC but all in all, from our work with local companies, several companies from public and private sectors has already integrated GRC within their business activities.
How Hawkamah is guiding the companies and board of directors in their better management and what are your plans to improve it further?
Since 2006, Hawkamah have been working with government, companies, regulators, and financial institutions in the region to improve the level of governance understanding and application. Because of our commitment and high professional and ethical standards, we are proud to say that Hawkamah has been a key player affecting governance practices in the region.
The Board of Directors plays a pivotal role in corporate governance. The tone from the top and the promotion of the highest standards of integrity, transparency, and corporate governance are established by the board. For that, Hawkamah provides a range of services for the boards such as the Board evaluation, Board briefing, Board appointment services and the board progression matrix.
Our first aim is to be the reference of good governance for all enterprises in the public and private sectors throughout the MENA region. For that reason, we regularly seek to build dynamic partnerships with complementary capabilities to provide the best governance solutions. For example, we have partnered with Nasdaq and the Independent Audit ‘(IA)’ the UK’s Leading Board Evaluation Consultants to provide a range of board technologies solutions that enable boards and leadership teams to work efficiently.
Explain the services Hawkamah is providing for conventional banks and also Islamic finance? What are the challenges for these institutions where the interests of investors are involved?
Corporate governance of financial institutions is of paramount importance to the wider economy as well as the financial institutions themselves. There are two key differences that distinguish the governance of financial from that of the nonfinancial firms. Firstly, financial institutions have many more stakeholders than non-financial ones, and the interests of these stakeholders may diverge substantially from one another. Secondly, the business of financial institutions is opaque, increasingly complex and it can shift quickly, which places higher demands to their boards, executives and on key functions such as risk management.
Building on Hawkamah’s policy work on the conventional banking sector as well as on Islamic finance, Hawkamah has developed services specifically tailored to the needs of the banking sector such as:
• Corporate Governance Assessment
• Board Evaluation
• Benchmarking and gap analysis of corporate governance practices
• Drafting corporate governance manuals with key policies
• Formulating corporate governance development plans
• Developing a Shari’a governance framework
• Training bank directors Training Corporate Secretaries
The challenges facing the investment banking industry revolves mainly around higher capital charges, market electrification & digitalisation, stuck cost base, inflexible and layered technology with increased complexity of regulation and reporting.
What is “Subsidiary Governance” and how it will benefit the family-owned businesses?
Developing a comprehensive group-wide corporate governance strategy is difficult as subsidiaries are very heterogeneous. Firstly, they come in all sizes, ranging from special purpose vehicles to multinational corporations.
Secondly, subsidiaries are established for a variety of reasons. Sometimes the reasons are legal: for example, companies with fixed assets (over which they want full control) in foreign jurisdictions are required to follow the national company law and set up separate legal entities. Other times subsidiaries are set up for tax reasons, risk management reasons, fiscal reasons, brand name, license to-operate reasons, group operational reasons… etc.
Subsidiary governance is emerging as one the key topics in the theory and practice of corporate governance, yet very few best practice principles have been developed in this important topic. This is mainly because of the complexities and variables involved.
Family governance starts from the recognition that both the business and the family have their own needs and goals, which are sometimes contradictory, and the degree to which a firm is capable of balancing the contradictory demands of family and business determines its success.
Some global companies are facing many administrative problems and can we attribute this to the reluctance of these entities in non-disclosure of policies? How the UAE companies have set an example to the world in this regard?
Over the past few years, key regulators in the UAE have enhanced the regulatory scene with further laws, guidelines and decrees. Listed companies and financial institution in the UAE are required to submit financial and non-financial information on a regular basis.
Will having internal controls help the UAE’s corporate sector in attracting foreign investments?
Good internal controls are essential to assuring the accomplishment of the company’ goals and objectives. They provide reliable financial reporting for management decisions. They ensure compliance with applicable laws and regulations to avoid different type of risks including the risk of public scandals. Proper implementation of internal controls will protect the reputation of the company and increase trust between its different stakeholders including investors.
As per a recent report published by The UAE’s Ministry of Economy, the UAE was ranked first in 2020 in the West Asia region in terms of Foreign Direct Investment (FDI), accounting for 37% of the total FDI inflow to the region, which amounted to $55.5 billion.
Investment also drives demand for ICT products and services, in sectors such as healthcare, space, aviation, defence, transportation, retail, financial services and those sectors linked to the UAE’s economic diversification plans.
To attract foreign companies and develop human capital resources, the UAE government has launched several policies to promote the use of open data. In September 2021, the UAE published their federal decree law regarding Personal Data Protection. This law applies to any data subject who resides in or has a business in the UAE. It is an integrated framework to ensure the confidentiality of information and protect the privacy of individuals in the UAE.
What are the potential risks the GCC companies face and what should be done to avoid/minimise them?
The digitisation, sustainability, environmental, social and governance trends have already been shaping the future regulatory environment prior to the pandemic, but the pandemic has accelerated them by increasing regulators’ expectations around the need for resilient systems and controls in the face of a faster adoption of digitised solutions. In this case, institutions are highly exposed to enforcement and litigation risks.
In current circumstances, geopolitical risk is identified as an emerging risk for financial institutions, as of course it is for the wider economy. Both political and economic rivalry is increasing, as are disputes over sovereignty that risk affecting trade and investment. There are no easy answers to managing such uncertainties, but financial institutions must identify their vulnerabilities and assess the likely impact on their business models.
At the same time, we see sanctions being weaponised by states as instruments of policy. Businesses need to have the right systems and controls to effectively screen against sanctions lists and asset-freeze targets, as well as to identify when licences are required to permit activity otherwise prohibited.
Saudi Arabia has initiated Nazaha, Oversight and Anti-Corruption Authority and the UAE has enacted a Federal Decree holding Ministers and officials responsible for any wrong doings including acts of corruption and bribery. What regulations exist in other countries in the GCC region about the same?
All Gulf countries have ratified or acceded to the UN Convention against Corruption. They have all signed the Arab Convention against Corruption. Yet when it comes to domestic regulation for example we have Qatar, Kuwait, and the UAE criminalise bribery in their penal codes.
In Bahrain, for example, bribery and corruption are prohibited under four separate laws and Saudi Arabia has enacted a law specifically focused on bribery.
How are the region’s companies responding to the anti-corruption measures initiated by their respective governments?
In a region where the laws and regulations are different, relatively slim and diverse in comparison to the world’s key global markets, keeping track of any changes is essential in order to update a company’s legal database.
Companies need to commit to an Anti-Bribery and Corruption policy that must be reviewed and updated on a regular basis. They should implement a legal risk framework and effective internal auditing controls to assist in preventing corruption or miss-conduct in general.
In its survey, Global consultancy firm Kroll found that most executives in Saudi Arabia and the UAE have perceived bribery and anti-corruption risk will increase in the near future and what should be done to allay such fears?
Corruption threatens good governance, sustainable economic development, democratic process, and fair business practices. This fear does not only exist in our region but globally as well, The World Bank Group considers corruption a major challenge to its twin goals of ending extreme poverty by 2030 and boosting shared prosperity for the poorest 40 percent of people in developing countries.
Countries capable of confronting corruption use their human and financial resources more efficiently, attract more investment, and grow more rapidly. The World Bank Group’s approach to fighting corruption combines a proactive policy of anticipating and managing risks in its own projects. The Bank Group subjects all potential projects to rigorous scrutiny and works with clients to reduce possible corruption risks that have been identified.
In order to effectively fight corruption – both locally and beyond – transparency, accountability and integrity in the public and private sectors are necessary.
Do you think that the role whistle blowers are important in improving transparency in the companies?
Whistleblowing promotes a transparent and accountable work environment which helps the company be more efficient by preventing both illicit activities and undesirable behaviour.
It generates a sense of comfort among the different stakeholders, allowing them to communicate their concerns and feel valued and encouraging open communication. Fostering a transparent work environment is an essential part of a company’s success. We see today many governments and companies are actively encouraging a speak-up culture.