Corporate Governance in Egypt

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Corporate Governance in Egypt

• Dr. Khaled Dahawy
• The American University in Cairo

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Agenda

• Main Goals
• What is Corporate Governance
• Benefits of Corporate Governance
• Legal Framework
• Early Developments
• New Developments
• Methodology
• Results
• Analysis
• Conclusion

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Main Goals

• Provide a brief overview of recent developments
  in corporate governance in Egypt
• Present and analyze the results of the 2006
  survey of corporate governance disclosure
  practices in Egypt.

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Corporate Governance

• Set of processes, customs, policies, laws and
  institutions affecting the way in which a
  Corporation is directed, administered or
  controlled.
• Includes the relationships among the stakeholders
  and the goals for which the corporation is
  governed.
• The principal Stakeholders are
• Shareholders
• Management
• Board of Directors
• Other stakeholders include
• employees,
• suppliers,
• customers,
• banks and other lenders,
• regulators,
• the environment and the community at large.
• (www.Wikipedia.org)

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Corporate Governance

• It is a multi-faceted subject.
• An important theme of corporate governance deals
  with issues of
• Accountability and Fiduciary Duty
• Essentially advocating the implementation of
  guidelines and mechanisms to ensure good behavior
  and protect shareholders.
• Another key focus is the Economic Efficiency
  view, through which the corporate governance
  system should aim to optimize economic results,
  with a strong emphasis on shareholders welfare.
• Other Aspects such as the Stakeholders View,
  which calls for more attention and accountability
  to players other than the shareholders (e.g. the
  employees or the environment).

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Benefits of Corporate Governance

• Realize high and sustainable rates of growth.
• Increases confidence in the national economy
• Deepen capital market and increases its ability
  to mobilize savings
• Raise investment rates.
• Protects the rights of the minority shareholders
  or small investors.
• Encourages growth of private sector by supporting
  its competitive capabilities, helping to secure
  financing for projects, generating profits, and
  creating job opportunities.

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Is it Worth the Effort

• Firms with stronger shareholder rights had
  higher firm value, higher profits, higher sales
  growth, lower capital expenditures, and fewer
  corporate acquisitions
• Investors who bought firms with the strongest
  democratic rights and sold those with the weakest
  rights "would have earned abnormal returns of 8.5
  percent per year during the sample period."
• Corporate Governance and Equity Prices by Paul
  Gompers of Harvard and Andrew Metrick of the
  University of Pennsylvanias Wharton School

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Is it Worthwhile?

• 80 of the respondents were ready to pay a
  premium for well governed companies.
• The study further indicated that this premium
  amounted to 40 in the case of Egypt.
• Mckinesy Corporation2002 Survey

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Special Concerns - Egypt

• Small and Medium Enterprises
• Family Owned Enterprises
• State Owned Enterprises
• The issue of enforcement and implementation

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Corporate Legal Framework

• French civil law
• Primary source of the corporate legal framework
  in Egypt.
• Anglo-American common law
• The Capital Market Law
• Central Depository Law.

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CG and Laws in Egypt

• Companies Law (CL 159/1981)
• Investment Law (IL 8/1997)
• Public Business Sector Law (PBLS 203/1991)
• The Capital Market Law (CML 95/1992)
• The Central Depository Law (CDL 93/2000)

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CG in Egypt Early Developments

• Late 1990s, a well-tailored economic reform
  program
• ROSC 2001
• 2002 CASE New Listing Rules
• Egyptian Institute of Directors (EIoD), 2003
• ROSC 2004

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CG in Egypt New Developments

• CMA Restructure, 2005
• Egyptian Code of Corporate Governance, 2005
• Scope
• General Assembly,
• Board of Directors (BOD)
• Internal Audit Department
• External Auditor
• Audit Committee
• Disclosure of Social Policies
• Avoiding Conflict of Interest,
• Corporate Governance Rules for Other Corporations

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CG in Egypt New Developments

• Code of Corporate Governance for State Owned
  Companies, 2006
• CMA auditors registry, 2006
• Auditors Code of Ethics, 2007
• Efforts of NGOs
• Corporate Governance Manual for Family Businesses
  
• CASE New Listing rules, Forthcoming

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Methodology

• Guidance on Good Practices in CG Disclosure
• UNCTAD
• Technical aid for
• Regulators
• Companies
• particularly in developing countries and
  transition economies

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Survey Tool

• UNCTAD Questionnaire
• Manual Analysis of
• Financial Reports
• Websites
• Five Sections
• Ownership Structure and Exercise of Control
  Rights
• Financial Transparency and Information Disclosure
  
• Auditing
• Corporate Responsibilities and Compliance
• Board and Management Structure and Process

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Problems/Hurdles

• Closed/family companies
• Lack of Awareness of Corporate Governance
• Lack of Knowledge of Benefits of Corporate
  Governance
• Lack of Implementation Manuals
• Small Boards of Directors

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Conclusion

• Major developments in the legal framework
• Need for progress in implementation

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Conclusion

• We are still starting
• Educate as you Enforce
• There is a need for development
• Awareness of Corporate Governance
• Awareness of Importance and Benefits of Corporate
  Governance
• Training Courses
• Manuals and Implementation Tools

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Thank You!