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Corporate Governance will Restore Investors’ Confidence

As a result of the crisis, investors need reassurance that companies are addressing risks such as environmental and social impacts of their operations. The ability of companies to manage these risks and opportunities affects the value of investments in them, said Dr. Nasser Saidi, Chief Economist of the Dubai International 
Financial Centre.

“The key point is that investors do not buy the past, but the future, and therefore they need to know how the companies are managed to allay their fears and bring confidence to the market,” he said.

Saidi, speaking at a business workshop, argued that responsible investment practices can be part of the solution to current financial hardships and can help to rebuild trust.

Good corporate governance leads to lower capital costs, increased attractiveness to foreign direct investment, greater financial stability and long-term growth. It is likely that in the aftermath of the credit crunch, markets that fare best will be those in which fundamental investor concerns are identified and addressed by regulators and companies, he said.

There is much to be done to provide basic information to investors, as 20 per cent of publicly listed companies in the Gulf do not have web sites and most of the companies in Saudi Arabia and Kuwait do not publish their financial results in English. However, the region’s banks, financial institutions, telecom companies and utilities are well regulated, Saidi said.

More investors are becoming aware that they didn’t pay adequate attention to corporate governance concerns before making their investments, he added. Financial markets can play a crucial role in channeling resources to their most productive use, and markets in which investors trust companies will help the Gulf region achieve more sustainable growth. A survey conducted by Hawkamah, the institute for corporate governance in DIFC, found that a majority of companies saw corporate governance as either important or very important for their business. Fewer than half of the companies surveyed could define corporate governance, and only a minority understood the benefits of corporate governance in lowering the cost of capital and enhancing access to funds. After the workshop ended, Hawkamah endorsed the U.N. Principles for Responsible Investment and formally became a UNPRI signatory as a professional service partner. Hawkamah is the first institution in the Middle East to join UNPRI.

Since the U.N. codified these investment principles in 2006, over 500 financial institutions from around the world have adopted them. These signatories have $18 trillion in assets under management.

· abdulbasit@khaleejtimes.com