A significant number of new requirements were placed on companies listed on the Abu Dhabi Stock Exchange and Dubai Financial Market when the SCA corporate governance guidelines became effective on 30 April 2010. Tim Travers explores the concept of committees, using best practice examples from Abu Dhabi Commercial Bank (ADCB).

The corporate governance code issued pursuant to the "Security and Commodities Authority's Chairman's Decision No. 32/R for 2007 on Corporate Governance Code" (the Code) was superseded and amended by the "Ministry of Economy's Decision No. 518 of 2009".

The Security and Commodities Authority (SCA) Chairman's Decision, as amended by the Ministerial Decision (the Decision), requires companies and institutions that have securities listed in any securities market in the UAE and members of their boards of directors to adopt corporate governance rules that aim to:

  • create an internal control system within their company; and
  • encourage such companies to adopt the principles of good corporate governance and establish an effective framework for the protection of shareholder rights, fair treatment of shareholders, strengthening transparency and openness with and within the company and for specifying the duties of the board of directors.

In February 2010, Tarik El-Bakri, Head of Corporate in Hadef & Partners' Abu Dhabi office, explained the new corporate governance regulations and highlighted ten practical considerations for UAE listed companies .

One key practical consideration, and now a requirement, is the need to establish two permanent committees:

  • audit committee
  • nomination and remuneration committee.

The Code requires that these committees have as members at least three non-executive directors, two of whom at least, must be independent directors, including its head. The chairman is not permitted to be a member of these two committees. Committees must submit written reports to the board regarding their actions, findings and recommendations.

In practice, the governance of an organisation may break down into a larger number of constituent parts, which such committees need to cover within their terms of reference. Notwithstanding the SCA guidelines, there is nothing which prevents an organisation from having more committees to reflect this and to concentrate on narrower terms of reference.

For example, the UK's Combined Code (which has acted as a model for many jurisdictions) mandates three committees (audit, and then nominations and remuneration, which are separate), but for banks and financial institutions regulated in the UK, following the 2009 Walker Report recommendations, those three committee become four committees, because the risk function needs to be split out from the audit function.

By comparison with the UK's Combined Code regime, Abu Dhabi Commercial Bank (ADCB) is a useful local UAE reference point, primarily because it has already won several awards for its corporate governance practices, most recently the World Finance Awards, which recognised ADCB's corporate governance as the best in any company in the UAE.

ADCB's Corporate Governance Report dated 31 December 2009, which includes its SCA compliance return, contains a lot of useful information for investors and prospective investors, written in clear and plain language. ADCB's 2010 Annual Report, when published, will also be worth a close read to see what further developments the bank has made in the area of corporate governance.

ADCB has established four committees of the board of directors:

  • Audit & Compliance
  • Corporate Governance
  • Nomination, Follow-up & Remuneration
  • Risk & Credit.

In addition to these committees, the office of the Company Secretary should also be highlighted. It is not a committee as such, but the Company Secretary (or its legal equivalent) is a critical part of any good corporate governance structure and provides much of the glue, which binds the work of the various committees together and the human relationships of the various executive and non-executive directors with each other, especially the organisation's Chairman, and also the outside shareholders.

It is noteworthy that a topical governance story at the end of last month saw the appointment of a number of new outside directors to the board of directors of Damas, the jewellers. These include ADCB's General Counsel & Company Secretary, Simon Copleston. To the outsider, this clearly suggests that industry benchmarking is already in operation and that the hard work which ADCB's Company Secretary must have put in to the bank's many corporate governance documents and practices will be rewarded through peer recognition and the sharing of best practices for the greater good. It is of note that, in ADCB, Mr Copleston has the combined role of legal counsel and company secretary.

The legal function can ensure that the role of company secretary is, and is seen to be, more than just an administrative function. Other UAE listed entities have similar officeholders with this joint role.

Corporate governance in the UAE continues to grow in importance and depth.

You may also wish to read:

Corporate governance – SCA's 10th Anniversary February 2010

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