Good faith not enough to move mountains

Good faith not enough to move mountains

With the rising number of corporate corruption scandals hitting Dubai, experts believe that it is time for companies to stop trusting and start checking.

September 11, 2008 10:27 by kippreport

CL Jose

The last six months have seen Dubai frantically running a combing operation in the corporate world to fix corruption and other forms of wrongdoings. While some may view this as damaging to Dubai’s reputation, the majority of corporate leaders and legal experts The Business Weekly spoke to believe that this has sent the right message to the world.

It was in the late 1990s that the Madhav Patel scam took the GCC’s banking sector for a ride by looting more than $350m from several banks, including foreign institutions. But the new wave of corporate crimes that Dubai witnessed since April this year has its roots within the institution itself.

It was in April that Dubai’s second-largest listed property developer, Deyaar, said that its former CEO had been detained by the authorities pending investigation into alleged financial irregularities. Responding to the development, Deyaar’s chairman Nasser Al Shaikh was quoted as saying, “From our side, we saw a few things that raised our concern, and we are now going through the legal system for the benefit of our company and our shareholders.”
Nothing has been officially heard about it since then.

In June, a former vice-president of Dubai Islamic Bank (DIB), the first and the largest Islamic bank in the region, was detained as part of a fraud investigation. Rifaat Othmani, the Pakistani national, was said to have been questioned over bribery allegations and for receiving kickbacks from clients in return for favors.

In August, the high-profile former chief executive of Tamweel, and the then vice-chairman of Istithmar World, Adil Al Shirawi, was taken away to be quizzed for alleged financial irregularities. Incidentally, Deyaar, Tamweel and DIB enjoy close connections, as DIB still holds substantial ownership in both Deyaar and Tamweel.

The next in line was the news about a top Nakheel official being investigated over allegations of bribery. “Nakheel regularly conducts internal audits as part of its corporate governance process and it is part of this exercise only,” is what a Nakheel spokesperson had to say on the development.

And recently, Tamweel’s deputy CEO, Abdulla Nasser Abdulla, has become the subject of an investigation, even as company officials insist the arrest will have no adverse effect on the operations and financial strength of the company.

Internal audit
No corporate can live on ‘good faith’ in certain individuals or groups of individuals, and experts in the field point fingers at the lack of internal audits or absence of audit committees in most corporate houses, including the listed ones.

“Interestingly, many closely held companies such as Emirates Airline and Dubai Holding follow much better systems and corporate governance than many of their listed counterparts,” said the managing partner of a leading audit firm based in Dubai.

“The relevance of an independent director is more pronounced in a country like the UAE, which has a very short corporate history and young public ownership system. There is a higher chance of the board of a company being hijacked by members of a like-minded group,” explained a corporate analyst.

Better disclosure
Another Dubai-based businessman highlighted the need for transparency in the widespread system of sponsoring businesses of non-nationals. While the government has been promising to allow 100 percent foreign ownership for a while now, the UAE’s Company Law (which requires local sponsorship) is yet to be modified.

In the meantime, there are those who say top government officials who sponsor private businesses should disclose details of these arrangements. “We need better disclosure standards on this as there could be issues of serious conflict of interest emanating from this,” said an observer.

“There could be chief executives, board members or even chairpersons of government entities or large corporate houses, who function as sponsors of other businesses run by expatriates by taking a huge annual fee,” he added.

Shareholders’ role
Analysts also say that shareholders need to start playing a greater role in managing the companies. The annual general meetings should include more than just talk of stock dividends and cash dividends. After all, if news of corruption hits the market, there may not be too much cash to talk about.

First seen on The Business Weekly