Saturday, November 7, 2009

Corporate Governance in the GCC - The BASIC Score

What's the current state of corporate governance in the GCC?

Is the trend in the right direction?

How are companies being encouraged to do more than the minimum?

Harking back to my earlier post today about the key role played by research and professional institutions in market development, I'd like to answer the above questions by reporting on the efforts of three local institutions to analyze and further corporate governance in the GCC:
  1. The National Investor Abu Dhabi, a privately owned investment and merchant bank
  2. Hawkamah, an institute devoted to corporate governance
  3. Mudara, an institute focused on developing the professionalism of board members
Rather than use more electrons to describe them, I'll let them speak for themselves.  This link  provides a short "bio" of each of them as well as contact details.
 
They have devised an analytical process to analyze the liquidity (trading), volatility, and transparency of some 607 companies listed on the GCC stock exchanges.  Regional companies' performance against 43 data points are benchmarked against eight international companies to anchor results to best international practice.  Final summary results are expressed in a single number - the Behavioral Assessment Score for Investors and Corporations ("BASIC").    The effort began in 2008 with BASIC 1 and has now been expanded in 2009 with BASIC 2. 

BASIC is a tool that investors can use to make more informed decisions.  It is also a guide to rated corporations on how they might improve their score.  It is also (or should be) a highly useful device for regulators, stock exchanges and auditing firms.

Access to the BASIC report is via this link.

Some of the key findings:
  1. There has been improvement in the average BASIC score since 2008.  The trend is favorable.
  2. Despite their size, Bahrain and Oman tend to dominate in the aggregate averages as well as the top ten rated companies (each has 3 listed).  
  3. Given greater regulatory requirements on the financial sector, as a general matter companies from this sector tend to score well.
  4. Kuwait has the weakest overall score at 2.95 compared to the GCC average of 3.87 and as well has the dubious distinction of being the home of 7 of the bottom ten rated companies.
  5. Rankings are:  Oman (5.05), Bahrain (4.62), Abu Dhabi (4.38), Qatar (4.36), Dubai (4.16), Saudi Arabia (3.06),  and Kuwait (2.95).  For those not familiar with the GCC, trading volumes on the Kuwaiti and Saudi stock exchanges are high relative to the rest of the GCC. 
As with any analytical tool, one might want to tweak this or that aspect, but what is more important is the work that these three institutions are doing and the salutary impact it apparently has and will have on the GCC.

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