The Lebanese Transparency Association (LTA)

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The Lebanese Transparency Association (LTA)The
Lebanon Corporate Governance Task Force (LCGTF)


Chadia El Meouchi Board Member of LTA, Head of
the Legal and Regulatory Committee of LCGTF
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The beginning Survey on the Status of CG in
Lebanon, May 2004

• LTA LCGTF launched a survey-questionnaire to
  assess the quality of CG in Lebanon and also to
  establish the need for CG codes.
• We took an initial list of 1,265 companies
  located in the Greater Beirut area which
  accounts for some two thirds (2/3) of economic
  activity in Lebanon and retained a sample of
  298 companies and their CEOs. The sample included
  half of the listed companies in Lebanon (at the
  time 7)
• Survey showed Small and Medium Enterprises
  (SMEs) form 95 percent of Lebanese companies and
  58 of these SMEs are FOEs.

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Survey on the status of CG in Lebanon

• The results of the survey also showed
• CEOs want institutional change and reform
• they favor tax and financial disclosure, and the
  application of IAS.
• They also favor regulatory reform and the
  creation of monitoring bodies to ensure
  compliance with CG principles.

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The Lebanese Context

• - Based on the survey, and discussions in the
  task force, we recognized the need in Lebanon for
  two Codes, one for Lebanese companies (SMEs) and
  one for Listed Companies
• - Opted for small drafting committee with large
  consultation process. Background research for the
  two Codes was granted to 2 drafters each with a
  heavy consultation process once the first drafts
  were circulated.

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The Lebanese Context Benchmarking

• Lebanon is a Civil Law Country like many
  countries of the region
• Authors paid more attention towards codes
  developed in other Civil Law systems
• Commercial law in Civil Law systems is
  characterized by far less flexibility than in
  Common Law systems

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Lebanese Code of Corporate Governance for SMEs
FOEs

• Benchmarks used
• OECD Principles
• Ensuring the basis for an effective CG framework
• The rights of shareholders key ownership
  functions
• The equitable treatment of shareholders
• Disclosure and Transparency
• The responsibilities of the board

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Lebanese Code of Corporate Governance for SMEs
FOEs

• The authors concentrated their efforts on
  identifying the CG priorities facing SMEs and
  FOEs in Lebanon
• Shareholders Rights and Obligations and
  equitable treatment
• Board of Directors Structure, Responsibilities
  and Prerogatives
• Auditing and Related Aspects of Corporate
  Transparency and financial disclosure

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The Lebanese Context Benchmarking Challenges for
both Codes

• The Lebanese law causes obstacles to implement
  several CG Best Practice principles cannot be
  applied in Lebanon today
• Example Lebanese law grants double voting rights
  for registered shares that have been owned by the
  same shareholder for more than 2 years and some
  authors consider that the rights cannot be waived
• The CG Code recommends that LCC be amended to
  allow the possibility to waive the double voting
  right.
• Example Lebanese law does not provide for the
  separation between the functions of Chairman and
  General Manager
• The CG Code recommends that LCC be amended to
  allow separation and in the meantime for
  companies to appoint a Deputy manager that
  reports to the board

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The Lebanese Context

• Example The Lebanese law does not enable
  adoption of mechanisms of cumulative voting for
  the protection of minority shareholders as it
  violates the one share on vote principle.
• The CG code for SMEs FOEs provides that a
  minority shareholder should be able to ensure
  election (to the board) of an appropriate number
  of members of their choice. Every 10 should be
  entitled to one board member

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Lebanese Code of Corporate Governance for SMEs
FOEs

• Target Companies
• SAL Joint Stock Companies.
• The principles contained in this code are also
  relevant to SARL limited liability companies.
• A special section (appendix E) was included for
  FOEs, describing the required structure in such
  companies (survey results show that FOEs
  represent 58 of Lebanese companies).
• As this code is voluntary, target companies have
  the option of adopting and adapting the code to
  their context and particular needs.

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Lebanese Code of Corporate Governance for Listed
Companies

• LTA and LCGTF are currently drafting a CG code
  for Listed companies in Lebanon.
• Characteristics of the Beirut Stock Exchange
• Small Size - only 17 companies Banks,
  Construction, Trading and Industrial companies
• Not an active market
• Not tightly regulated- no modern and effective
  capital markets law in Lebanon

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Lebanese Code of Corporate Governance for Listed
Companies

• There is a need for a CG code for listed
  companies in Lebanon because it is widely thought
  that this will give greater credibility to the
  Beirut Stock Exchange and to the companies that
  are listed, as well as promote its long term
  growth and ability to attract investors.

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Lebanese Code of Corporate Governance for Listed
Companies

• Benchmarks used
• OECD Principles
• Many codes and recommendations for listed
  companies worldwide (from France, Belgium,
  Germany, Poland, Finland, Lithuania, Columbia,
  Japan, Thailand, China ,the UK combined code and
  of course from the region Saudi Arabia and
  Egypt)

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Lebanese Code of Corporate Governance for Listed
Companies

• Reports used
• The European Union Comparative Study on Codes
• International Comparison of Codes (by Weil,
  Gosthal Manges), which focuses on developing
  and emerging markets.
• The Bouton Report, which is specific on better CG
  for listed companies.

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Engaging stakeholders

• Every draft in the development phase of each
  code has been circulated to the relevant
  stakeholders for their comments and feedback.
  This ensures that whatever benchmark you use,
  they are practical and can be applied by the main
  stakeholders
• Companies
• Business Associations
• Chambers of Commerce
• Academics
• Stock Market Regulators
• Bank Regulators

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• THANK YOU