MENA Corporate Governance Success Stories

8/6/2019 MENA Corporate Governance Success Stories

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Corporate GovernanceSuccess Stories

In partnership with the United States, the UnitedKingdom, Japan, the Islamic Development Bank,

Canada, Netherlands, Kuwait, France, Switzerland,Denmark, Yemen, Visa International, and the OPEC

Fund for International Development.

IFC Advisory Services in the Middle East and North Africa


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about iFC

IFC, a member o the World Bank Group, creates opportunit

or people to escape povert and improve their lives. We

oster sustainable economic growth in developing countries

b supporting private sector development, mobili ing private

capital, and providing advisor and risk mitigation services to

businesses and governments. This report was commissioned

b IFC through its Corporate Governance program which

helps improve access to capital and increase the operational

e fcienc and fnancial per ormance o amil -run enterprises

and fnancial institutions serving micro, small and mediumenterprises.

The conclusions and judgments contained in this report should

not be attributed to, and do not necessaril represent the

views o , IFC or its Board o Directors or the World Bank or

its Executive Directors, or the countries the represent. IFC

and the World Bank do not guarantee the accurac o the

data in this publication and accept no responsibilit or an

consequences o their use.

disClaimer and limitations to this report

IFC promotes sustainable private sector investment

in developing countries. IFC is a member o the

World Bank Group and shares its primar objective:

to improve the qualit o the lives o people in its

developing member countries b fnancing private

sector projects located in the developing world;

helping private companies in the developing world

mobili e fnancing in international fnancial markets;

and providing technical assistance and advisor services

to businesses and governments.

Corporate governance is a priorit or IFC because it

adds value to clients, and presents opportunities or

the institution to manage its investment and reduce

its reputational risks. Working to improve corporate

governance contributes more broadl to IFCs mission

to promote sustainable private sector investment in

developing countries.

IFC provides leadership in promoting good corporategovernance practices in developing and emerging

markets. IFC is now activel supporting corporate

governance re orms in the Middle East and North

A rica (MENA) region.

More in ormation on the IFCs Corporate Governance

services is available online at

www.ifc.org/corporategovernance.

For in ormation about this report, please contact:J. Chris Ra ook

IFC Advisor Services

Cairo, Eg pt

cra ook@i c.org


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Summar ..............................................................................................................................v I. Introduction ......................................................................................................................1

II. Common Themes ............................................................................................................5II. A. Common Themes: Board E ectiveness.......................................................5II. B. Common Themes: Management Control & Other Improvements........7II. C. Common Themes: Impacts Reported..........................................................9

III. Compan Summaries ..................................................................................................12Abu Dhabi Commercial Bank..............................................................................13Bank Audi...............................................................................................................16Butec Holding........................................................................................................19Cairo or Investment and Real Estate Development......................................22Dana Gas.................................................................................................................25Eg ptian Transport and Commercial Services.................................................28Kash ...........................................................................................................31Micro und or Women...........................................................................................34

SABIS.................................................................................................37Tourism Promotion Services Pakistan.............................................................40Wadi Holdings ......................................................................................................43

IV. Investor Perspective...................................................................................................47

V. Final Word....................................................................................................................51

Annex 1: Contributors....................................................................................................52Annex 2: About the IFC Corporate Governance Program..............................53

Contents


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Summary


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The purpose o this report is to help demonstrate thebusiness case or good corporate governance in MENA. Itshares the experiences o 11 companies that have madegovernance improvements over the past ew ears,

summari ing the changes the made and the impacts thereported.

Overall, companies reported highl positive impacts as aresult o their corporate governance changes. Companiesmade improvements at all levels o the organi ation romthe board level to the management level. Following are thecommon themes that emerged.

e c g g

. All but one o the companies made changesto their board composition, adding new skillsets and,in most cases, recruiting independent directors.

r c g g g

g . Man companies took steps

to clari the role between board and managementwhich, in man cases, was indistinct.

m x z g c c c

c .Most o the companiesmade substantial improvements to their board workprocedures in some orm (e.g., setting annual workplans, ormali ing board papers, improving agendasand proceedings).

a g g c . Nearl all o the companies made changes totheir committee structure, setting up more ormalcommittees with active agendas and proper workprocedures.

s c g

c .Most companies took action to put in placemore ormal nomination, appointment, and evaluationprocedures to continuousl ensure their board

composition is structured appropriatel and not simplhand-picked b ke investors.

Common themes: board levelimprovements

s g g k g

g k g .Nearl ever compan tookstrides to enhance their risk management practicesto improve monitoring and mitigation at all levels o

their organi ation. This was especiall crucial or mancompanies during the crisis.

u g g . Nearl hal othe companies did not have an active internal audit

unction and most o those that did required urtherimprovements. As a result, man companies strengthenedtheir internal audit b expanding its scope and ensuring itsproper independence in the organi ation.

e c g i - c g c c . Several rms required signi cant improvements in their

nance unction especiall in the areas o accountingand control, nancial statement preparation, and businessconsolidation and took appropriate steps to strengthentheir in-house expertise.

a g cc k - k. Management succession was an issue or all t pes ocompanies, but was especiall acute or ast-growing

companies that were transitioning rom one generation oleadership to the next. Thus, there were several exampleso companies taking action to address succession planningand mitigate over dependence on one to two ke persons.

i g g c . Man companies madesigni cant improvements to their internal managementanal sis and reporting capabilities, which supportede ective risk management and board oversight.

i g c . Nearlall companies in this report made signi cant strides toimprove organi ational transparenc through enhanceddisclosures (e.g., increasing the non- nancial in ormationin their annual report and on their websites). Severalcompanies took other actions to strengthen shareholderrelations, such as improving minorit shareholderprotection.

G g . Three o the

companies in this report had particular amil governanceissues that were addressed. The actions were t picallaimed at putting in place structures and policies to helpgovern the amil s role in the business and prepare theorgani ation or uture generations o leadership.

Common themes: manaGement Control& other improvements


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n c c g c

c cc c g

.The cited the impact that governancechanges had on instilling market con dence andproviding added assurance to investors, creditors or

other debtors. The changes have reportedl helpedthese rms access signi cant nancing the past two

ears, ranging rom $2.5 million in one compan to $1.5billion in another.

t c

c . The respondents noted signi cantimprovements in rm reputation based on eedback

rom various market actors, such as shareholders,investors, customers, business partners, and other

stakeholders.

t g c q , c

c .For example,several companies cited the actions taken to controlcosts and avert losses as helping improve their bottomlines.

a c g c

c g g c

g z c c .Companies mostl cited themanagement control improvements e.g., establishingmore ormal processes and controls, clari ing roles andauthorities, and improving the level o automation asleading to e cienc gains.

C g c c

c .The global recession and creditsquee e has had a pro ound impact on rms across theregion. Ke governance changes particularl relating

to risk management and board stewardship helpedman companies in this report better respond to thecrisis b controlling costs and managing liquidit .

s c g g

c . All rms rated the impact on sustainabilit(the compan s abilit to continue as a prosperous,operationall -viable entit over the long-term) as strongor substantial, highlighting the long-term bene tsassociated with good governance, particularl regarding

succession planning.

Common themes: impaCts reported

To help understand how important corporate governanceis to investors, we solicited input rom three regionalprivate equit rms. The investor eedback con rmedthat corporate governance is a crucial part o theirinvestment c cle, noting:

a c c k g

g c c g or else the will likel not invest.Following investment, c g c

k c c c,b establishing ormal board and managementstructures and enhancing rm transparenc .

Several examples were cited o companies bene tingrom improved per ormance and access to capital, as well

as valuation premiums (e.g., one investor citing a 40%k due to governance changes).

The collective evidence shared b companies and investorsleaves little doubt as to the potential impact o goodcorporate governance in MENA.

investor perspeCtive


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Corporate governance isabout shining a light through

the whole organization.

Roshaneh Zafar, ManagingDirector/CEO, Kashf


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Introduction


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t g c c g g.Goodcorporate governance can help companies improve theirper ormance and gain access to capital. In the past ew

ears, signi cant progress has been made in spreading thismessage across the Middle East and North A rica (MENA)region. This is due to the determined e orts o variousinstitutes, regulators, and other market participants that

have been activel promoting corporate governance in theregion. In Eg pt alone, or example, the Eg ptian Instituteo Directors (EIoD) has trained more than 1,300 boarddirectors and executives the past ew ears and attractswell over 500 people to its annual con erence. Similarresults can be witnessed across the region rom the Gulto the Maghreb, the Levant, and Pakistan (the PakistanInstitute o Corporate Governance has conducted morethan 50 workshops or directors the past ew ears). Forour part, IFC Advisor Services and our various partners

over the past our ears have helped launch our directorinstitutes, implemented 19 codes o corporate governance,and trained thousands o individuals rom all sectors o themarket, including private and public companies, regulators,investors, consultancies, and the press (see Annex 2 or moreon our program).

s c k , c .Despite themomentous e orts, substantial challenges remain. IFC andthe Hawkamah Institute in Dubai published a region-wide

corporate governance stud in 2008 (pre-crisis). Amongthe ndings, more than hal o companies (56%) do nothave a complete understanding o the de nition andbene ts o corporate governance. In addition, nearl allcompanies (95%) indicated that their governance practicesneeded to be improved in some capacit (Figure 1). Inparticular, companies cited the need to improve their boardstructures and roles, as well as ke control areas such as riskmanagement and internal audit.

The recent nancial crisis has escalated the need or changeb showing that good governance is no longer an option,but an imperative. Firms in all markets are rethinking andrein orcing their governance structures rom the boardroomto the management level. In this region in particular, therehas been a strong emphasis on improving organi ationaltransparenc to assure investors that the have a ullaccounting o the crisis impact.

d g mena c .In the MENA

region, the challenge remains in convincing companies toadopt a culture o change. Much o this lies in rein orcingthe business case or good governance with local evidence

rom the region. There have been numerous studies in

other regions that clearl demonstrate the e ects o goodgovernance; but little evidence has been accumulated inMENA thus ar.

This document aggregates the experiences o eleven ormerIFC Advisor Services clients that have embraced goodgovernance and reported substantial impacts. It also shares

some insight rom the Investors point o view, to betterunderstand their expectations and the premium the placeon well-governed companies.

The expectation is that these experiences will compelcompanies to take similar actions b showing that thebene ts o corporate governance are real and happeningnow across the region.

figure 1: Cg Survey: Need for improvemeNt

56 %iNComplete

uNderStaNdiNg

of Cg beNefitS

Cg praCtiCeS Need

improvemeNt95 %

We had one new investor tell usthat our corporate governancechanges pla ed a major actor

in their investment decision.Speci call , he noted the changes

we made at the board level andour e orts to prepare the compan

or its second generation o

leadership.

Source= IFC/Hawkama CG Surve , March 2008

MOHAMED EL KALLA,

CEO, CID


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C a c

This report provides summaries o eleven companies romacross the region. Each summar highlights ke corporategovernance changes made and the impacts reported b thecompan .

The companies represent various countries, sectors, t pes,

and si es (Figure 3). All o the companies included in thisreport are ormer IFC Advisor Services clients (some are alsoIFC Investment clients). 1 IFC conducted an in-depth corporategovernance assessment or each o these companies usingIFCs Corporate Governance Methodolog (ke dimensionssummari ed in Figure 2, more in Annex 2). This resultedin speci c recommendations to improve each compan sgovernance ramework and a plan or implementation.

The assessments were conducted at various points o time

over the past ew ears. The time taken to implementchanges and reali e bene ts varied. However, as pertestimon , governance changes are continuous and thecorresponding bene ts mani est themselves in di erent

orms over time. This report provides examples o companiesin various stages o change rom recent changes (e.g.,

MFW ) to ongoing, longer-term changes (e.g., Bank Audi ).

The report also includes testimon rom three MENA privateequit rms (all IFC Investment clients). Collectivel , these

rms have worked with 72 investee companies (past andpresent unds) and, there ore, o er learned insights as tothe importance o corporate governance rom an investorsperspective. The were selected based on their associationwith IFC and willingness to share their speci c insights andexperiences.

All o the eedback collected or this report was gatheredthrough individual interviews with each organi ation,resulting in well-considered responses. It should be noted

that the in ormation was collected in late 2009, when theregion was still under the stress o the crisis, making theachievements even more notable.

reportinG on impaCts

There is an Impact Report included or each compan toexplicitl demonstrate the reported bene ts. It should benoted that it is ver di cult to quanti impacts relatedto corporate governance in absolute dollar or percentage

terms. For example, while man companies reported asigni cant impact on pro tabilit , the were unable toprecisel quanti the impact (due to attribution andother extenuating actors that a ect rm per ormance).In light o this, companies were asked to rate impacts in

various categories using a scale ranging rom No Impactto Substantial Impact. The results are summari ed ona scorecard in each compan s Impact Report and anaggregate scorecard is provided in Section II.C. In additionto the ratings, companies were asked to provide speci cexamples and other evidence o impact to help demonstratethe results.

As shown in the ollowing sections, the collective evidencereported b the companies provides a compelling case orcorporate governance in MENA.

1-There were seven ormer IFC MENA corporate governance clients not included inthis report since the were either still in the process o making changes or chose not toparticipate otherwise.

figure 2: key dimeNSioNS of ifC methodology

Commitment to

CorporateGovernance

BoardEffectiveness

ShareholderRelations

ManagementControlEnvironment

Disclosure andTransparency

FamilyGovernance


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*FOE= Famil Owned EnterpriseAbu Dhabi CommercialBank (ADCB)

sector:location:

t pe:emplo ees:

IFC assessment date:

Bank Audi- Audi Saradar Group Butec Holding

Dana Gas

Eg ptian Transport andCommercial Services (Eg Trans)

sector:location:

t pe:emplo ees:


sector:location:

t pe:emplo ees:


sector:location:

t pe:emplo ees:


sector:location:

t pe:emplo ees:


SABIS

sector:location:

t pe:emplo ees:


Tourism PromotionServices Pakistan (TPSP)

sector:location:

t pe:emplo ees:IFC assessment date:

sector:location:

t pe:emplo ees:


FinancialUAEPublic2,600Oct. 2007

AgribusinessEg ptPrivate (FOE)3,100Jun. 2007

ConstructionLebanonPrivate (FOE)2,822Aug. 2008

FinancialPakistanPrivate1,000Jul. 2008

EducationEg ptPublic2,000

Jul. 2008

FinancialLebanonPublic4,300Oct. 2005

TransportEg ptPublic380Dec. 2007

FinancialJordan

Private (FOE)200Ma 2009

Wadi Holdings

sector:location:

t pe:emplo ees:


TourismPakistanPublic (Unlisted)1,370Aug. 2007

sector:location:

t pe:emplo ees:


EnergUAEPublic400

Apr. 2006

Micro und or Women (MFW)sector:

location:

t pe:emplo ees:IFC assessment date:

EducationLebanon

Private (FOE)4,500Oct. 2007

figure 3: CompaNieS iNCluded iN thiS report

Cairo or Investment andReal Estate Development (CID)

Kash


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CommonThemes


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ADCB

Bank Audi

Butec

Dana GasEgyTrans

Kashf

MFW

SABIS

TPSP

WadiHoldings

CID

committee structure(be ore)

committee structure(a ter)

audit

NomiNatioNS

remuNeratioN

other

audit

NomiNatioNS

remuNeratioN

other

II. Common themesThis section highlights common themes that emergedacross all o the companies. It rst highlights commonimprovement themes and then provides an aggregate viewo the impacts achieved.

II. A. board level improvementsEver compan reported signi cant changes at the boardlevel in some orm whether related to composition,structure, procedures, roles, or other practices. For example,Figure 4 summari es each compan s board composition andcommittee structure before and after governance changeswere made. The right composition and structure variesb compan , but in each compan , changes were made toimprove board stewardship and oversight. Following are

common improvement themes that emerged at the boardlevel.

e c g g . All but one o the companies made changes to their boardcomposition, adding new skillsets and, in most cases,recruiting independent directors. Several also reshu fed themix o executive and non-executive directors, especiall inthe case o Bank Audi , which used to be two-thirds executiveand now requires that at least hal o the board be non-

executive. Companies were seeking to improve stewardshipand oversight o the organi ation, which was especiallcritical or ast-growing entities expanding into newproducts and markets. MFW or example revised its boardcomposition b adding deeper micro nance skills to helpguide the compan as it diversi ed into new products andservices. Also, given that 96% o its customers are emale,

MFW has placed great emphasis on boardroom diversit andhas appointed 42% emale directors.

r c g g g

g . Several companies took steps toclari the role between board and management. This wasparticularl true or companies that were transitioning rombeing heavil ounder/owner-controlled to second or thirdgeneration leadership. In such cases, the division betweenboard and management was blurred with the board, and

t picall the Chairman, having active decision-makingroles at the management level. For example, in order totransition its Chairman rom his active operational role,

Butec set up a ormal Management Executive Committeeand de ned clear terms o re erence between thatcommittee and the board. The decision-making authoritieswere clari ed and the boards posture towards managementwas strengthened. In other cases, the separation betweenboard and management was unclear due to the boardstructure itsel . TPSP used to have a board-level executive

figure 4: Summary of board CompoSitioN aNd Committee ChaNgeS

0 9 (0) ADCB 1 10 (5)

9 3 (1) Bank Audi 5 7 (2)

2 1 (0) Butec 2 4 (3)

2 7 (0) CID 1 8 (2)

1 15 (8) Dana Gas 2 16(10)

3 4(0) Eg Trans 1 8 (2)

2 10 (10) Kash 1 11(11)

1 6 (3) MFW 1 6 (3)

8 0(0) SABIS* 7 2 (0*)

1 8 (0) TPSP 1 8 (2)

3 4 (0) WadiHoldings*

3 4 (0)

e x e C u t i v e

N o N

- e x e C u t i v e

( i N d e p e N

d e N t ) CompaNy Name

e x e C u t i v e

N o N

- e x e C u t i v e

( i N d e p e N

d e N t )

composition(a ter)

composition(be ore)

*SABIS & Wadi both have plans to a dd independentdirectors; SABIS is still making committee changes.

*


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committee consisting o an inner-circle o directors andexecutives that made man da -to-da decisions. This o tencon used the role between board and management, so TPSP eliminated this group to sharpen the distinction betweenthe two. ADCB had a similar issue whereb their board hadseveral working committees that were per orming certainmanagement-level tasks (e.g., related to loan recoveries).

ADCB modi ed their structure and terms o re erences tosharpen the board/management distinction.

m x z g c c c

c .Most o the companies madesubstantial improvements to their board work proceduresin some orm. The purpose was to add more structure toproceedings to make more e cient and e ective use odirector time. SABIS instituted a ormal board work planto ensure a balance o topics was covered during the ear

and now utili es more ormal agendas or each meeting.The also took steps to standardi e management reportsto the board to help ocus discussions on ke issues andrequire in ormation be distributed to members at least veda s in advance o each meeting. Dana Gas was also ableto improve overall board e cienc and e ectiveness bimproving the working procedures o its committees. The

ull board meets about 8-10 ten times per ear, but meetingshave been shortened, with a sharper ocus on ke issues dueto improved anal sis and reporting rom its committees and

standardi ed discussion papers.

a g g c .

Nearl all o the companies made changes to theircommittee structure. The most t pical committees setupacross all companies, were Audit, Nomination, andRemuneration, consistent with international practices.Companies cited board committees as a means to improvetime utili ation and depth o ocus. For example, the MFW board met nearl a do en times in 2008. A ter setting up

more active committees (Audit, Remuneration, and ProductDevelopment), the general board meets less requentl , etreports much greater depth o ocus due to its committees.In other cases, companies had o ciall designatedcommittees, but the were not activel unctioning. Forexample, both Butec and CID had designated an AuditCommittee, but it did not meet routinel or unction asintended. There ore, the both took positive steps toestablish new charters, authorities, and working procedures

or their Audit and other new committees to make them

active. At the same time, both companies took the urtherstep o adding new independent members to their boards,and assigning them to these committees to ensure thecommittees unction with proper independence.

Structuring board nomination and evaluation processes.Man o the companies had board directors that wereappointed b major shareholders and/or handpicked bthe Chairman and other members. Several also had long-serving directors (no set term limits) who had never beensubjected to routine per ormance evaluations. As a result,most companies took action to put in place more ormal

nomination, appointment, and evaluation procedures tocontinuousl ensure their board composition is structuredappropriatel . For example, TPSP introduced term limitso three ears or its directors, with a maximum o ten

ears in total. At the same time, it adopted an annualevaluation process o its members to assess per ormance(both group and individual per ormance) and identi areas

or improvement. This in ormation eeds into the annualnomination and appointment process overseen b their newNomination Committee.

o n : G d

MFW considers gender diversit a business imperative.The note that it helps them better relate to theircustomers (96% o which are women), and in some casesis necessar to gain access to a emale clients home.Studies have demonstrated the positive correlation

between gender diversit and rm per ormance. 1 In theUS and Europe, approximatel 10-15% o board directorsare emale, 2 while in the MENA region, percentages aremuch lower. For example, in the Gul countries onl 1.5%o directors are emale 3 and across the region, about 90%o companies have either one or ero emale directors. 4 B comparison, MFWs board is 42% emale. Be ond theboardroom, MFWs work orce is 70% emale, including80% o its branch managers, and its top three executives(GM, COO, and CFO).

1-Women in the Boardroom and Their Impact on Governance and Per ormance

Renee Adams & Daniel Ferreira, 2008; 2- Ibid.; 3-TNI Market Insight, Ma 2008; 3-IFC/

Hawkamah CG Surve , March 2008


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ADCB

Bank Audi

Butec

Dana Gas

EgyTrans

Kashf

MFW

SABIS

TPSP

WadiHoldings

CID

b establishing a management-level Risk Committee toaggregate risk management at the top o the bank andimprove enterprise-level monitoring. As a result o the crisis,

Kashf sharpened their ocus on liquidit risk management inparticular, taking steps to secure alternative unding sourcesand strengthen their balance sheet.

u g g .Nearl hal o thecompanies did not have an active internal audit unctionand most o those that did required urther improvements.The two primar changes made were to: 1) expand therole o the internal audit unction to go be ond nancialcontrols and into operational areas; and 2) ensure that theinternal audit unction reports directl to the board and notto the CFO or CEO as was the case in man companies. Butec setup a new internal audit unction to ocus on all t pes oactivities including a close look at the risks in its construction

projects and provide consolidated risk reporting directl tothe Audit Committee. MFW engaged an outside rm (Big4 audit rm) to co-source with its in-house unit, in orderto strengthen its ocus on nancial and port olio risks and,at the same time, help develop their in-house capabilities.

MFW s Audit Committee now approves the annual internalaudit plan, which is in ormed b a ormal risk assessment otheir operations to ensure the audit activities are ocusedon the highest risk branches, product t pes, and processes.Several other companies e.g., Egytrans , Bank Audi , and

CID strengthened the independence o their internal auditunctions b granting them un ettered reporting access to

the board.

Management Control is a crucial part o corporategovernance and relates to a wide scope o unctions,such as risk management, internal control, internal audit,external audit, compliance, in ormation technolog (IT),

human resources (HR), and nancial management (FM).Changes were made in var ing capacities across these

unctions, as well as in other areas including disclosure andtransparenc , shareholder relations, and amil governance.Following are common improvement themes that emergedin these areas (summari ed in Figure 5).

s g g k g g

k g .Risk management is important to ant pe o organi ation and was especiall crucial or thesecompanies since the region was still in the midst o thecrisis at the time o this report. Ever compan assessedsought to improve their risk management practices to

some degree. Some companies primaril the nancialinstitutions alread had relativel sound risk managementpractices in place, but sought to strengthen them urther.While others were more nascent, requiring undamentalprocesses to be implemented. Most o these companiestook a wider view and looked athow best to integrate theirrisk management, internalcontrol, and internal audit

rameworks to ensure the

are working together andin orming the right discussionsin the organi ation. Egytrans assigned a Chie Risk O cerand designated risk championsin each department to improverisk identi cation especiallin their transport businessactivities and increase riskdialogue at all levels o the

compan . Meanwhile, Bank Audi alread had sound riskmanagement practices in place,but strengthened them urther

We now have banks running a terus. The have noticed the governance

changes, and it has greatl aided our

access to credit. Also, our partners andcustomers have noticed the positive

change.

riSk mgt

iNterNalaudit

exterNalaudit

iNterNalCoNtrol

CompliaNCe

it

hr

fm

diSCloSureSShareholder

relatioNSfamily

goverNaNCe

management control improvement areas other improvements

figure 5: key maNagemeNt CoNtrol & other improvemeNt areaS

II. B. manaGement Control & otherimprovements

MONA AKL, VICE-

PRESIDENT, BUTEC

HOLDING


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m k g c g c

g .The abilit to attract, retain, and developthe right human capital is an ongoing challenge or mostcompanies in this region, especiall when their work orceis expanding rapidl . That was the case or man o thecompanies in this surve who have taken signi cant actionsto strengthen their HR unctions. For example, given the

signi cant expansion o its schools and the correspondingpersonnel needs, SABIS strengthened its HR unction bhiring a Group HR Director who is improving man o theHR and recruitment policies and processes. Importantl , itsHR unction is now more o a strategic partner to seniormanagement and the board b helping think through and

ormulate HR strategies needed to support the compan soverall business plans. ADCB took similar steps to attracttalented banking sector individuals, given its expansionarambitions into new markets (e.g., India). Meanwhile,

CID improved its sta retention and emplo ee morale baddressing particular HR issues.

i g g c .Man companies madesigni cant improvements to their internal managementanal sis and reporting capabilities. There were two primarareas o ocus: 1) Upgrading management in ormations stems to improve data capture and integration rom backto ront o ce; and 2) Upgrading in-house anal tical skillsto make better use o the data to support management

reporting and decision-making. Management reportingwas also ke actor in improving board e ectiveness, sinceboards o ten complained about getting lots o data, butlittle anal sis. Bank Audi has developed highl e ectiveinternal reporting capabilities, with the implementation onew MIS s stems capable o generating in-depth nancialand non- nancial anal tical reports or managementand the board. MFW improved its reporting b betteranal ing business trends b product, branch, customer,and other dimensions to strengthen strategic decision-

making and support new product development. The alsodeepened their cost o unds anal sis, which helped improvepro tabilit as the compan was able to benchmark theircosts against more competitive nancing o ers in themarket.

i g c .Mano the companies in this report made signi cant stridesto improve disclosures. This was particularl importantgiven the heightened emphasis on transparenc in the

region (in the wake o particular scandals and crises in theGul ). For example, Egytrans made substantial upgradesto its annual report and website, in line with internationaldisclosure standards. This resulted in a dramatic increase in

e c g - c g c c . Several rms required signi cant improvements in their

nance unction especiall in the areas o accountingand control, nancial statement preparation, and businessconsolidation. Man smaller companies that had expandedquickl needed to upgrade their internal processes andcontrols including the level o automation while other

companies relied too much on their external auditor toconsolidate accounts and prepare nancial statements.In general, the companies reali ed that a strong nance

unction was the ke to driving man other managementcontrol changes. SABIS, or example, made signi cantstrides in this area. The appointed regional controllers inthe US and Lebanon to improve oversight, help consolidateaccounts, and coordinate control activities. The alsoupgraded their accounting s stems to better integrate dataand improve reporting. Wadi made similar s stem upgrades

in their nance unction and other operational areas, whichenhanced their monitoring o Ke Per ormance Indicators(KPIs) and helped them implement a balanced scorecard

ramework. Bank Audi created a Group CFO unction tocentrali e all nance, accounting, strategic planning, andinvestor relations activities under one umbrella to improvecoordination. Several companies, such as SABIS, Dana Gas ,

TPSP , and others, adopted International Financial ReportingStandards (IFRS) especiall critical or companies such asthese working across several geographical markets.

a g cc k - k.Managementsuccession was an issue or all companies, but was especiallacute or ast-growing companies that were transitioning

rom one generation o leadership to the next. Thiscommonl resulted in ke -person risk, whereb a companwas highl dependent on one or two individuals toessentiall run the organi ation. Man companies tooksteps to develop ormal succession plans or ke executivesto prepare or the next generation o leadership and

address ke -person risk. For example, CID created a ormalmanagement executive committee and assigned the DeputCEO (the likel successor) as committee chair. Not onl hasthis committee helped mitigate ke -person risk, but it hasalso helped prepare the Deput CEO or his eventual CEOrole and allow other executives to grow accustom to hisleadership. Kashf has de ned a leadership pipeline with

ormal succession plans or the CEO and other ke executiveo cers. The have taken actions to help develop theirpotential successors b giving them explicit, high-pro le

assignments to manage as a wa to develop their leadershipskills.


17/64


18/6410

changes in 2008. The won citations recogni ing them ascorporate governance champions and compan with bestdisclosure practices in Eg pt and reported inquiries romman other companies seeking to learn rom their e orts.t g c c (53% c )

c g c .

Bank Audi, ADCB, and Dana Ga s all now regarded as

having best-in-class corporate governance practices in theirrespective markets reported similar positive experiences

ollowing their improved disclosure and transparencpractices. s c

cthat improved governance has had.Both CID and Kashf mentioned that the actions taken tostrengthen the organi ation have had a pro ound impacton emplo ee morale and culture, in essence rein orcing stacon dence in the compan s uture.

Most companies cited challenges in attributing corporategovernance explicitl to pro tabilit . The noted that is toodi cult to quanti in terms o precise dollar or percentageterms and there are man extenuating actors that a ect

rm pro tabilit (e.g., nancial crisis has severel a ectedall companies, even those with good governance practices).t g c q , c

c .For example, despitethe economic slowdown last ear, Wadi recorded strongpro tabilit growth (80% growth during 2008 and 60%

during the rst three quarters o 2009), reportedl aided bthe overall improvementsin organi ationale ectiveness. MFW cited their signi cantimprovements inmanaging their marketrisk and cost o undsas having strengthenedtheir bottom line.

Dana Gas cited theirtransparenc and controlimprovements at helpingavoid unnecessary losses . Similarl ,

Kashf noted that theirimproved liquidit riskmanagement, especiallduring the crisis, helpedavert potential losses and

bolster pro tabilit .

ADCB

Bank Audi

Butec

Dana Gas

EgyTrans

Kashf

MFW

SABIS

TPSP

WadiHoldings

CID

a c g c

c g g c

g z c c .Companies mostl cited themanagement control improvements e.g., establishingmore ormal processes and controls, clari ing roles andauthorities, and improving the level o automation asleading to e cienc gains. Companies noted that e cienc

gains mani ested themselves in di erent orms. Forexample, Butec noted that the various process changesin the organi ation have led to reduced rework, higherproductivit , and decreased backlog. Dana Gas reportsthat their various process changes have helped their oungcompan ( ounded onl in 2005) operate as an e cient,structured organi ation with ormal processes, clear lines oauthorit , and e ective decision-making. Man companiesalso noted that board-level procedural changes contributedto organi ational e cienc due to the improved decision-

Our brand recognition bothregionall and

internationall in the sector issubstantial. Banks took notice o our

governance improvements and itpla ed a ke actor in our nancing[about $1.5bn] the past two ears.

figure 6: aggregate impaCt SCoreCard

aCCeSS to

Capital

profitability

reputatioN

SuStaiNability

orgaNizatioNaleffiCieNCy

boardeffeCtiveNeSS

maNagemeNtCoNtrol

effeCtiveNeSS

SubStaNtialimpaCt

StroNgimpaCt

moderateimpaCt

No/miNorimpaCt

DR. MOHAMMED

NOUR EL TAHIR,

GENERAL COUNSEL,

DANA GASas


19/6411

figure 7: aCCeSS to fiNaNCe impaCt

investor perspeCtiveC G c K v C

Foursan Group, a private equit rm in Jordan, reportsthat corporate governance is a signi cant actor in theirinvestment and pricing decisions. The sa that it issimpl one o those things that an good compan should

have in place. The noted that amil -owned companies,in particular, are reluctant to setup proper boards becausethe do not want to relinquish control. Nor are theinclined to become more transparent, even with potentialinvestors. Foursan noted that most companies do notsu cientl appreciate the competitive advantage andvalue creation that governance can o er.

r c ex a c 40% p .Foursan cited a recentinvestment exit which attracted a 40% premium over the

market price, due largel to good corporate governance.The compan was a MENA insurance compan who hadtaken great care to put in place proper governancestructures, including a diverse, well- unctioning board,sound management control processes, and strongreporting and transparenc practices. Foursan noted thatthe changes were ver apparent to the investor, a NorthAmerican investment rm. It gave the investor a verhigh com ort level with the investee, which made the dealgo ver smoothl and helped attract a substantial market

premium (approximatel 40%).

making coming rom the board and its committees.

C g c c

c .At the time o this report, the region wasstill enduring the di culties o the nancial crisis. Theglobal recession and credit squee e has had a pro oundimpact on rms in all sectors. Ke governance changes

particularl relating to risk management and boardstewardship helped man companies in this reportbetter respond to the crisis. This was especiall true inthe nancial sector where man banks and other nancialinstitutions aced severe port olio risk. For example, Kashf smicro nance borrowers were hit b both the nancial crisisand infationar ood prices during 2008; nonper ormingloans sk rocketed and commercial lending dried up at thesame time. However, due to its improved board leadership(developed particular crisis response strategies) and

strengthened risk management practices, Kashf success ullminimi ed the impact on its loan port olio. Bank Audi ,who posted strong results in 2008, cited their governanceenhancements as a crucial part o their crisis management.Further, ADCB now plans to incorporate corporategovernance principles more rml into its own credit reviewprocesses as a means to urther mitigate port olio risk.

s g

c c g g

c . In this context, rm sustainabilit measures thecompan s abilit to continue as a prosperous, operationall -viable entit over the long-term. This was an especiall kechallenge or amil -owned enterprises (e.g., CID, Butec,Wadi, SABIS ) that were transitioning rom one generationo leadership to the next; or or other companies thatwere quickl expanding in si e and complexit (e.g., DanaGas, MFW ). In these situations, there is signi cant stressplaced on the organi ation and a ver real risk that the

rm ma not sustain itsel over the long-term. CID cited

the various improvements taken to add more structureto its operations and explicitl address succession issuesas having a substantial impact on sustainabilit . Theeven said that one investor took note o their actions toaddress sustainabilit , and was a ke actor in the investors

nancing decision. SABIS and Wadi both reported thattheir amil governance e orts have helped align therespective amilies interests and secure the next generationo leadership.

c x $ c g cc *

ADCB $1bn to $2bn past 12 mos.

Butec Holding $30m to $35m past 12 mos.

CID $8m past 12 mos.

Dana Gas $1.5bn past 24 mos.

Eg Trans $20m to $40m past 18 mos.

Kash $26m past 12 mos.MFW $18m to $22m past 9 mos.

TPSP $20m to $30m in 2008

Wadi Holdings $68m past 24 mos.

*Estimate o $ in nancing accessed in which CG pla ed asigni cant actor.


20/6412

CompanySummaries


21/6413

Abu Dhabi Commercial Bank (ADCB) is a nancial institution

operating in the United Arab Emirates (UAE) and India. It is majorit

controlled b the Abu Dhabi government, but also publicl traded

on the Abu Dhabi Stock Exchange. ADCB was estbalished in 1985,

subsequent to the merging o Emirates Commercial Bank, Khalij

Commercial Bank and Federal Commercial Bank.

In 2008, ADCB was the third largest bank in UAE based on its total

assets. In recent ears, areas o strategic ocus have included:

Expanding business in its consumer and wholesale client ranchises;

establishing an Islamic banking group; and expanding its business to

a market or markets similar to the U.A.E. market, where ADCB can

leverage its core assets and capabilities.

Abu Dhabi CommercialBank (ADCB)ownership

proFile

Abu Dhabi Govt: 64.8%

Public Float: 22.4%

Abu Dhabi Ro alFamil : 12.8%

why ChanGe?

ADCB had rst embraced the importance o corporate governance

several ears back. As part o a strategic review in 2003, ADCB

commenced a restructuring program assessing its products andservices, with the goal o making the bank capable o sustainable

growth in pro tabilit . The board and management structure was

reorgani ed, and revisions to the operational and nancial pro le o

the board were made. Furthermore, ADCB took signi cant steps in

improving its transparenc structure.

However, to keep up with the increasingl globalised and competitive

international landscape and to implement the nancial requirements

o the rapidl developing UAE, ADCB elected to re-assess its

corporate governance ramework and identi wa s to strengthen

it even urther. In this wa , the Bank hoped to sta current with

international best practices and serve as a model or the market.

what did they ChanGe?

IFC conducted a CG Assessment or ADCB in October 2007 (Nicholas

Krasno, consultant, supported IFC). While the Bank alread had in

place man strong governance practices, additional changes weremade to strengthen the overall ramework. At the board level,

changes were made to clari particular roles between the board

and management and revise the composition o its directors. Steps

were taken at the management level to improve the coordination o

risk management through the bank and restructure the board and

management committees. The Bank also made changes to particular

shareholder policies and improved their disclosures to put it on par

with the highest international standards.

business :loCation :

seCtor :2008 revenue (yr Growth) :

type :# employees:

# branChes :iFC assessment date :

Commercial banking, investment banking, asset management and Islamic banking.UAEFinancial$ 1.2 billion (+15%)Publicl Traded (Abu Dhabi)2,60048Oct 2007

The boards overall e ectivenessand the banks reputation or

governance has bene ttedsigni cantl as a result o the

improvements.

SIMON COPLESTON,

GENERAL COUNSEL &

BOARD SECRETARy,

ADCB


22/6414

Key ChallenGes Key ChanGes

C :Comprised nine directors, six o

which were Abu Dhabi government o cers and

no independent directors. Needed to strengthenboard skills in risk management and IT.

r : Board vs. Management roles were blurred

in some areas due to existence o an Executive

Committee that included reps rom both.

s c :Had several working committees,

though some were per orming management t pe

tasks (e.g., loan collections and recoveries).

t & a : Unclear terms o directors

and appointments were made b shareholders

directl without a ormal board nomination and

selection process.

C : Adopted target o one-third independent directors.

Appointed ve new members since the CG assessment was completed,

including the CEO and members with additional banking experience.

r : Clari ed distinction between Board and Management,

emphasi ing the Boards role to monitor per ormance o the latter.

Removed directors rom the combined Executive Committee.

s c :Adopted a revised committee structure including Audit, Risk,

Nomination/Remuneration, and Corporate Governance Committees.

Developed clear TORs or each, removed management duties (e.g., loan

recoveries), and ensured adequate independent composition.

t & a : Set three- ear terms with possibilit or

reelection to ensure health turnover o directors. Established a ormal

process or identi ing and nominating appropriate directors or approval

b the AGM, led b the Nominations Committee.

e & t g:Introduced a ormal annual evaluation process

(internal & external) to assess its per ormance and established more

ormal training programs on various subjects over the course o the ear.

boardeFFeCtiveness

manaGementControl

disClosure &transperanCy

shareholder& staKeholder

relations

Summary of Key Changes: ADCB

ex c C :Had an Executive

Committee including both board directors and

senior executives, which tended to con use roles

between board and management and undermine

other management authorities.

r k m g : Risk management needed

to be better coordinated centrall to improve

in ormation fow.

h r c : Bank aced great HR risk given

expanding business as it was experiencing high

turnover and had a short all o ke skillsets.

C c :The pro le o the compliance

unction needed to be elevated in the

organi ation and its scope expanded.

ex c C :Re ormed the committee to include onl executives

(no more non-executive directors). Clari ed roles and authorities o this

committee as the highest management-level committee.

r k m g : Established a management-level Risk Committee

(distinct rom the board) and reported regularl to the board Risk

Committee. Hired a Chie Risk O cer to oversee all Risk Management

activities in the bank and report to the board. Adopted more advanced

tools to help address market risk and operational risk.

h r c : Took steps to improve HR in the Bank to ensure

attraction and retention o good sta to support the changing needs o

the Bank and expansion into new markets.

C c :Raised the pro le o compliance creating a central

compliance unit embedded within the risk unction. Helps ensure

compliance with external laws and regulations and internal codes.

p c d c :While the Banks disclosures

were adequate through its Annual Report and

website, there were opportunities to better align

with international standards.

p c d c :The Banks disclosures have been improved

signi cantl including in its Annual Report and on their website.

Now include ample in ormation related to its per ormance and its

governance ramework.

d c s :The Banks articles

required board members to own a minimum number

o shares in the bank, which was prohibitive and not

conducive to minorit shareholder interests.

d c s :Requirement to own shares to be a director is

no longer part o the banks director nomination criteria.

m p c :Articles are now being updated to improve protectiono minorit shareholders.


23/6415

Impact Report: ADCB

C g c g c

g k cc c g ( $1 $2 12 .).

t g c c b k

g c c k .The added

disclosures are widel considered best in class among

peers and helped improved the Banks pro le and image.

t G C g

c b the Emirates Securities

and Commodities Authorit (ESCA) as a result o theirdisclosure and transparenc improvements.

t g

c .Reports that the board is more vigilant

and activel challenges management.

r k g c g g

g k. b g k g and improvements to the Audit Committee and

compliance unction have enhanced controls throughout

the bank.

p c c c c

g c due to the tightening o controls, use o more

automation, and clari cation o roles.

n c g g c

c c , b k k g x c c c .

This will help ADCB mitigate port olio credit risk.

ABU DHABI COMMERCIAL BANK REPORTED THE FOLLOWING IMPACTS ABOUT ONE yEAR AFTER EMBARKING ON THECHANGES.

IMPACT SCORECARD M I N

O R

M O D

E R A T E

S T R O

N G

S U B S

T A N T

I A L

ACCESS TO CAPITAL

PROFITABILITy

REPUTATION

SUSTAINABILITy

ORGANIzATIONAL EFFICIENCy

BOARD EFFECTIVENESS

MANAGEMENT CONTROL

$ FINANCING ACCESSED(WHERE CG WAS MAJOR FACTOR))

$1bn- $2bn over the past ear in the orm o new debt.


24/6416

Bank Audi Audi Saradar Groups histor dates back more than 175

ears. It is now a universal bank operating in Lebanon, the Middle

East, North A rica and Europe, o ering a ull range o products and

services that cover commercial and corporate banking, retail banking,

private banking and investment banking. It also provides insurance

services through its subsidiar , LiA insurance sal. Bank Audi has been

listed on the Beirut Stock Exchange and the London Stock Exchange

(through GDRs representing its shares) since 1997.

In recent ears, while strengthening its activities be ond traditional

commercial banking, Bank Audi undertook a signi cant local and

regional expansion. It is now the largest Lebanese bank and ranks

com ortabl within the top 20 Arab banking institutions in terms

o deposits. The Bank intends to continue pursuing expansion

opportunities hence ull integrating the inner circle o large regional

banks.

Bank Audi has long been considered the vanguard o best practiceamong Lebanese banks. It has per ormed consistentl well in recent

ears. Even during the global nancial crisis, the Banks net pro ts

increased b about 19% in 2008 (and another 18% during the 1st nine

months o 2009 compared to the corresponding period o 2008), total

assets b 18% (plus 21% in the rst nine months in 2009) and total

deposits b 21% (plus 24% in the rst nine months o 2009).

ownershipproFile

Public Float (UK & Beirut): 47% EFG Hermes: 22%Audi Families: 7%

Saradar Holding: 7%Al Homai i Famil : 6%Al Sabbah Famil : 5%

Sheikh Al Neha an: 5%

Provides Commercial, Corporate, Retail, Private and Investment Banking servicesin Lebanon, the MENA region, and EuropeLebanonFinancial$ 238 million (+19%)Publicl Traded (Beirut & London)4,300148Oct 2005

why ChanGe?

Despite its continuous success, Bank Audi reali ed that changes were

needed in its governance structures to keep up with international

best practices. Prior to its Corporate Governance enhancement

program initiated in 2005, its Board o Directors was largel a

validating bod or the main shareholders and resembled a mini-

shareholder meeting. With two-thirds o its members being

executives, the Boards abilit to independentl oversee the compan

was compromised. More importantl , the Bank understood that

better governance will bring added value. The understood

that value creation would come rom better management o

risks especiall given its anticipated expansion at the time. B

spearheading a review o its corporate governance the Banks

Management once again showed its proactive stance and oresight.


IFC in conjunction with Nestor Advisors in the UK conducted a

CG Assessment or Bank Audi in October 2005. The Assessment

con rmed that overall, Bank Audi was a well-run bank with

man highl capable individuals. However, the Assessment also

showed that crucial changes were required to recon gure its

Board o Directors. In particular, the Board took action to revise its

composition b changing the mix o executives and non-executives.

It also revised its structure b setting up ke Board committees and

took steps to clari the Boards role vis--vis Management, which

was somewhat blurred.

The Bank also made important changes at the Management-level,

including ormali ing and consolidating activities related to risk

management, nancial management, and compliance.

business :

loCation :seCtor :

2008 proFit (yr Growth) :type :

# employees:# branChes :

iFC assessment date:

Bank Audi


25/6417


boardeFFeCtiveness

manaGementControl



relations

Summary of Key Changes: Bank Audi

C :Comprised o two-thirds executives

and unctioned as a mini-AGM given low level o

independence. Man shareholder interests wererepresented b particular executives.

s c : There was no Audit Committee or other

t pes o ormal Board committees.

r :The had blurred division between Board

and Management given the large number o

executives on the Board.

C :The changed their composition, adopting a ormal polic

requiring at least hal the Board to be non-executives and at least two ull

independent.

s c :Developed Board committees or Audit and Corporate

Governance & Remuneration, as well as an Executive Committee.

r :Developed ormal CG Guidelines and a Board Charter to clari roles

between Board and Management and emphasi ed the important roles in

setting the Banks strateg .

e :Established an annual process to evaluate its per ormance and

identi areas or improvement.

s c :Organi ation structure required more

clarit ; it was con used b large number o

executives on the Board.

r k m g : Needed to ormali e Risk

Management coordination and setting o risk

polic and overall enterprise monitoring.

F c :There was no central CFO. Financial

Management oversight was per ormed b

di erent individuals.

i a :The IA reporting lines were blurredwith no direct, un ettered reporting to the Board.

mis: In ormation s stems were relativel un-

integrated with limited unctionalit .

s c :Created a more ormal Executive Committee chaired b the

CEO and including eleven senior executives to better coordinate planning,

monitoring, and management activities across the Bank.

r k m g : Established a management-level Risk Management

Committee to aggregate risk management at top o the Bank (e.g., setting

risk policies and risk appetite per Board approval) and improve enterprise-

level monitoring. The also limited board credit decisions to high value/

high risk transactions.

F c :Created a Group CFO and centrali ed all nance, accounting,

strategic planning, and investor relations activities under one umbrella to

improve coordination and oversight.

i a :IA now reports directl to the Audit Committee to help

ensure independence.

mis: Developed a more integrated MIS with improved reporting

unctionalit capable o generating in-depth nancial and non- nancial

anal tical reports or the Board and Management.

d c :The Banks Annual Report and

website had limited in ormation about ke non-

nancial in ormation.

d c :Established a management committee to coordinate all

disclosures and ensure compliance with all requirements and better

communicate the Banks man positive governance and management

practices. Improved non- nancial in ormation in the Annual Report,

including CG, vision and strateg , values, and risks. Improved the Banks

website to include more Investor Relations content, as described in the

Annual Report.

a n s :The Banks articles

required Board approval or new shareholders,

limiting the liquidit o common stock.

s p c :The Banks statutes were modi ed to allow or

unrestricted trading on all o the Banks shares.


26/6418

IMPACT SCORECARD M I N

O R

M O D

E R A T E

S T R O

N G

S U B S

T A N T

I A L

Impact Report: Bank Audi

C G c c g g c

b k c c cc c ,b providingadded assurances to investors and the market.

s g c g c k c g

b k a g c . i g

2008 ( c 19%) - - 2009

( 18% c ).

t b k g l

uK k cb demonstrating its

commitment to sound international best practices.

t b c c g

g c to the Bank.

b c g g k

c (e.g., Audit, HR) and separated oversight rom

management.

t b k c c ,

c , c g ,through the changes made in ke

management control unctions (e.g., risk management,

nance, compliance).

d c - k g b m g

g due to improved in ormation

and communication.

There is recognition among shareholders, the Board,

and Senior Management that the corporate governancechanges are critical to c g

.

BANK AUDI REPORTED THE FOLLOWING IMPACT AS A RESULT OF THE CHANGES. THIS WAS REPORTED ABOUT TWOyEARS AFTER IMPLEMENTING THE KEy CHANGES.

ACCESS TO CAPITAL

PROFITABILITy

REPUTATION

SUSTAINABILITy

BOARD EFFECTIVENESS

MANAGEMENT CONTROL



27/6419

Butec Holding, ounded in 1963, has expertise in design civil

engineering, installation o speciali ed plant and equipment, public

works and building construction. Butec ocuses primaril on oil &

gas, utilities, waste-water management and in rastructure projects,

which account or around 90% o its revenues. In its projects,

Butec partners with international contractors, such as Vinci, Sue -

Degremont, Siemens and others, where Butec provides generalcontracting services within the contract structure.

Butec is in the rst generation o leadership, but approaching the

second. Its ounder, Dr. younes, serves as the Chairman/General

Manager (GM), while his son, ziad younes, serves as a Deput GM.

Butec possesses a ver strong corporate culture, primaril stemming

rom the values and principles espoused b the Chairman and other

long-serving executives. As a result, Butec has a solid reputation in

the marketplace and has enjo ed nancial success the past severalears with revenues increasing rom $24 million in 2005 to $88

million in 2007 (266% increase). Much o Butecs success is a result

o its market diversi cation strateg (approximatel 73% o Butecs

revenues in 2007 came rom markets outside Lebanon).

Looking orward, Butec is positioning itsel as the pre erred local

partner or international engineering and contracting companies b

teaming up with them on large projects around the region.

why ChanGe?

Despite its success and promising outlook, the compan recogni ed

that it aced man signi cant governance challenges as it prepared

or the uture. Foremost, the compan had a limited board o

directors and little separation between the owners, directors, and

management o the compan . In addition, the compan had mostl

outgrown its management in rastructure and needed to strengthen

its control environment. The compan knew that it had to make

crucial changes to support its ast-expanding business and attract

new investment.


IFC conducted a corporate governance assessment o Butec in August

2008. The primar changes that Butec pursued were to improve

the unctioning o its board o directors. The moved rom a small,

limited unctioning board, to an expanded board that per ormsmuch stronger oversight and strategic roles or the compan . Butec

also made several changes in its management control environment,

especiall regarding risk management in its large project work. It

has also made signi cant improvements in its nancial management

and control processes. Butec is still in the process o making other

management-level changes, especiall in the area o human

resources.

ownershipproFile

younes Famil : 90 %Other Investors: 10%

Provides Engineering, Procurement and Construction operations in Lebanon, Algeria, Qatar and Abu DhabiLebanonConstruction$ 114 million (+33%)Famil -Owned2,822 sta & laborAug 2008

Butec Holding



type :# employees:



28/6420


boardeFFeCtiveness

manaGementControl

Summary of Key Changes: Butec Holding SAL

C & s c :Did not have a ull

unctioning board; Had onl three members

designated, o all which were executives.

p c :Meetings held in requentl and

proceedings were primaril per unctor with

topics ocused on basic issues.

s cc p g:The compan had not

speci call addressed the succession issue o the

Chairman/GM, leaving signi cant Ke -Person risk

in the compan .

C :Elected three new members to the board, all o which are

independent; one has nancial expertise to serve as chair o the Audit

Committee.

s c :Created an Audit Committee and planning to create an HR/

Nominations Committee. Audit Committee sta ed with independent

members and is designing ormal charters and procedures.

p c :Introduced ormal board schedule with more requent and

ormal meetings discussing a variet o topics. Audit Committee shall

adopt ormal procedures and report back to the board. Discussions more

in-depth and ocused on ke business issues.

s cc p g:The compan strengthened the senior management

team and developed a ormal Executive Committee, giving needed

support to the Chairmans son to soon take over the GM position. The son

is now overseeing the da -to-da management o the compan , allowing

the Chairman to ocus on more strategic issues.

i a :The compan had no internal

audit unction.

r k m g : Risks were considered

reactivel and not managed according to an

ormal process. The compan has signi cant

inherent risk in its large construction projects andrequired a more proactive approach.

m g s c : There was no

central management committee; decisions

were centrali ed with the Chairman/GM and

communication relied on in ormal channels.

F c m g :In-house FM capabilities

required upgrading as the relied on external

assistance to consolidate and prepare nancials.

h r c : Recogni ed as one o the

compan s biggest risk areas given anticipated

growth, rising labor costs, and increased

competition; the previous HR programs required

upgrading to address these issues.

i a :Established a new internal audit unction that will ocus

on all t pes o risks and controls, including nancial, operational, and

project risks, and report directl to the new Audit Committee.

r k m g : Improved risk management b escalating risk

discussions throughout the organi ation and embedding ormal risk

assessments in project decisions.

m g s c : Established a Management Committee consisting

o senior management sta to take ke decisions, coordinate activities,

and monitor overall per ormance across the compan .

F c m g :Hired well-quali ed CFO who made man

upgrades to the FM unction and is implementing more structured

planning, risk management, and control processes.

h r c : Searching or a new HR lead to oversee upgrade o

HR unction, including new bene ts and compensation schemes to attract

and retain quali ed sta ; improved sta training; and upgraded HR

management processes and s stems.


29/6421

Impact Report: Butec Holding SAL

acc c

k g c b c ;

cc $30 $35 , largel due to recognition o positive changes

b investors/banks and supported b better qualit o

in ormation provided to them both nancial and non-

nancial.

r , c k ,

g c as the are reassured about the current

management and stewardship o the compan and about

its uture sustainabilit to the next generation.

t c , ( .g.,

), c

c g g c c cin

Butec as a long-lasting partner.

o g z c c c

c ck gand cut down o rework;

man internal administrative processes are also beingautomated and streamlined.

t c c c k g

supported b more insight ul in ormation and better

discussion o issues.

b g g c g ;

c g g on particular issues and

requires better reporting and anal sis at meetings.

r k g g c through

the organi ation with more dialogue and discussion o

risk mitigation, especiall when assessing large projects.

BUTEC REPORTED THE FOLLOWING IMPACTS ABOUT ONE yEAR AFTER THE REVIEW.

IMPACT SCORECARD M I N O R

M O D

E R A T E

S T R O

N G

S U B S

T A N T

I A L

ACCESS TO CAPITAL

PROFITABILITy

REPUTATION

SUSTAINABILITy


BOARD EFFECTIVENESS

MANAGEMENT CONTROL

$ FINANCING ACCESSED(WHERE CG WAS MAJOR FACTOR)) $30m to $35m over the past ear.


30/6422

Cairo or Investment and Real Estate Development (CID) was

ounded in 1992. The compan s primar purpose is building,

owning, and operating schools throughout Eg pt.

CIDs fagship business is the Futures Educational S stem (FES). FES

is now the largest network o schools in Eg pt, with 18 schools andve international education s stems. The compan has plans to

urther expand its schools, including into the areas o special needs

education, and has began to o er a universit -level curriculum.

The compan was ounded with the intent o tr ing to improve the

educational standards in Eg pt. Until recentl , Dr. Hassan El Kalla

served as Chairman and CEO o the compan since its ounding. In

1993, the compan went public on the Eg ptian Stock Exchange

(EGX). From 2007 to 2008 alone, CIDs stock ownership changed

dramaticall going rom about 100 shareholders to over 1,000 (seechart below).

CID enjo ed nancial success in recent ears with its net consolidated

operating pro ts growing steadil rom about $0.5 million in 2004 to

over $5 million in 2008.

Builds and operates private schools (Futures Schools) in Eg ptEg ptEducation$ 5 million (+18%)2,0001813,000Publicl Traded (Cairo)Jul 2008

ownershipproFile

El Kalla Famil : 46 %Free Float: 28%

Other Investors:26%

why ChanGe?

Despite its recent success, the compan aced man signi cant

challenges as it prepared or the uture. The compan hadessentiall outgrown its governance ramework and management

in rastructure. In man wa s, the compan still ran itsel as a small,

closel -held business. Further, the compan was on the precipice o

transitioning to a new generation o leadership as its then Chairman/

CEO and other Board members were approaching retirement. In

light o this, crucial actions needed to be taken to strengthen CIDs

Corporate Governance ramework.


IFC conducted a CG Assessment or CID in Jul 2008. One o the

ke challenges or CID over the medium-term was to change the

composition and structure o its Board. CID adopted a Board with

independent directors, a more diverse set o backgrounds, and

improved nancial expertise. It also added unctioning committees,

which it did not have be ore.

Succession planning was another critical issue or CID over the

medium-term that the addressed. The then Chairman and CEO,

Dr. Hassan, was undoubtedl the heart and soul o the compan .As with man organi ations that have evolved in this manner,

the compan risked losing sight o its vision and diminishing its

cohesiveness once the current CEO departed. There ore, CID began

a ormal process o succession planning or the CEO successor. CID

also addressed important challenges at the management-level. Given

the increasing si e and complexit o its business, it was apparent

that the compan was experiencing growing pains and so made

ke changes to sta composition and unctional capacit . The took

other steps to strengthen the management in rastructure, such as

regarding internal control, internal audit, risk management, nancial

management, and other ke control unctions.

o n : e g K -p r k

Ke -Person Risk occurs when an organi ation becomes highl

dependent on one or two individuals to unction e ectivel . Thisis a common risk in man MENA companies, especiall in those

that have evolved rom a small, closel -held organi ation (e.g.,

FOE) to a larger compan , but still have a strong ounder/CEO that

makes all ke decisions.

This was the case or CID whose Chairman was also serving as CEO

and taking man da -to-da decisions. To mitigate this, CID set up

a Management Executive Committee to improve management-

level communication and coordination, but also to take ke

decision making responsibilities. The Chairmans son now chairs

the Committee, helping with his own succession plan. And the

Chairman has transitioned most da -to-da decisions to this group,

enabling him to take more o a strategic ocus in the compan .


seCtor :2008 proFit (yr Growth) :

# employees: #sChools:

#students:type:


Cairo for Investment andReal Estate Development


31/6423

Summary of Key Changes: CIDKey ChallenGes Key ChanGes

boardeFFeCtiveness

manaGementControl



relations

FamilyGoveranCe

C :Most o the nine members were

long-serving (10+ rs). The had no independent

directors and lacked nancial expertise.

s c :The had no sub-committees; the had

designated an Audit Committee, but it did not

unction.

r : There was unclear division between the

Board, especiall the Chairman, and Management.

p c :Met in requentl man ke

decisions taken b Chairman.

C :Added six new members, including two emale independent

directors and nancial expertise.

s c :Established committees or Audit, HR/Nomination, and Strateg .

Audit is chaired b an independent, nancial expert.

r :Clari ed distinction between Board and Management. Chairman

able to relinquish da -to-da management role.

p c :Meet on routine basis (at least quarterl , plus committees);

ormal agendas, structured brie ngs, ormal annual plan.

F c m g :The had no CFO

and required improved in-house nancial

management expertise.

i a :There was no internal audit

unction.

ex a :Had small, long-serving auditor

which was also providing advisor work.

K -p r k:The Chairman/CEO made all ke

decisions on da -to-da basis.

hr: There was high sta turnover and an

inabilit to attract high qualit candidates or ke

positions.

F c m g :Hired a new CFO, who has made man changes

to strengthen nance unction, including strengthening o controls and

redesign o processes.

i a :Established a new IA unction that is now producing

routine reports or senior management and the board, including

previousl unaudited areas.

ex a :Replaced long-serving auditor with new, reputable rm

to rein orce independence.

K -p r k:Setup an Executive Committee including ke senior

managers to share decision-making and coordinate activities. Chairman/

CEO relinquished man da -to-da activities and designated a new CEO.

hr: Hired a new HR lead, reviewed sta compensation, invested in statraining, and lowered turnover.

d c :The compan onl reported the ver

basic nancial statements (w/out notes) and had

no dedicated compan website or annual report.

d c :Improved the non- nancial in ormation disclosed to the

market each quarter be ond the basic nancials to include ke corporate

events and news; developing a dedicated web-site or the parent compan

and annual report.

C f c p c :The compan required ormal

conduct policies to sa eguard against potential

misconduct.

C f c p c :The compan now has documented and disclosed ormal

policies or insider trading and related part transactions along with a

Code o Conduct.

s cc p g:The compan had not

speci call addressed the succession issue o the

Chairman/CEO, leaving signi cant Ke -Person risk

in the compan .

s cc p g:The compan strengthened the Senior Management

team and developed a ormal Executive Committee, giving needed

support to the Chairmans son to soon take over the CEO position. The

son is now overseeing the da -to-da management o the compan ,

allowing the Chairman to ocus on more strategic issues.


32/6424

Impact Report: CID

acc C c g cc

$8 ( c g

cc x $20 q ). CIDreported that several investors have approached them

ollowing the changes.

m k . Word has spread

through the market about the improvements made and

preparations or the next generation o the compan .

o - c

.One private investor pointed to

governance improvements especiall Board changes as a major actor or the substantial valuation increase.

b c c - k g g c

.The Board now meets on a regular basis

and discussions are much better with issues presented

in a structured manner and decisions taken a ter open

and candid deliberations. Committees now unction as

intended with regular meetings and ormal procedures.

m g c c g , c g

c .New CFO has strengthened nancial processes

with improved internal controls. Management reportinghas also improved, leading to better transparenc in all

subsidiaries.

s

c c g

c g (i.e., strengthening the senior

management team, eliminating the ke -person risk

associated with the Chairman, and preparing the

Chairmans son or succession). Also, sta turnover has

decreased dramaticall resulting rom new training andcompensation schemes.

t x c g c c c g

c g c c g c

c k k.Processes have also been

streamlined to reduce a la er o management review.

CID REPORTED THE FOLLOWING IMPACTS ABOUT ONE yEAR AFTER EMBARKING ON THE CHANGES.

M I N O R

M O D

E R A T E

S T R O

N G

S U B S

T A N T

I A L

IMPACT SCORECARD

ACCESS TO CAPITAL

PROFITABILITy

REPUTATION

SUSTAINABILITy


BOARD EFFECTIVENESS

MANAGEMENT CONTROL

$ FINANCING ACCESSED(WHERE CG WAS MAJOR FACTOR))

$8m in debt over the past ear (currentl pursuingapprox. $20m in equit ; aided b CG changes)


33/6425

Dana Gas was ounded in 2005 and is the rst regional, private sector

natural gas resource enterprise established in the gul area. It was

started b Crescent Petroleum and other strategic investors to pursue

particular opportunities in the gas sector. Toda , the compan s

primar ocus is on upstream activities in the gas sector. In all, their

business ocuses on: Natural gas ownership through long term suppl

agreements; onshore/o shore gas transmission; gas processing;

sale o dr gas to Federal and State-owned utilities and other largeindustrial natural gas consumers in the UAE; and sale o associated

petroleum liquids and other related products in the international

markets.

Driven b the vision and leadership o its Chairman, Mr. Hamid

Ja ar, and its board o directors, Dana Gas, within a ver short time

o its ounding, became a listed entit (Abu Dhabi exchange) via

a success ul, oversubscribed IPO. The core ounders (comprised o

prominent individuals and institutions mainl across the Gul ) o Dana

Gas hold 40% o the Compan s equit .

Dana Gas currentl holds assets and contractual entitlements to the

largest private sector integrated natural gas suppl chain in the Gul .

Looking orward, the compan plans to expand throughout the

Gul as well as the wider Middle East, North A rica and South Asia

(MENASA) region.

Natural gas producer, ocusing on upstream activit .UAEEnerg$ 311 million (+10%)400Publicl Traded (Abu Dhabi)Apr 2006

ownershipproFile

Founding Investors: 40% Public Float: 35%

Private Investors: 25%

why ChanGe?

The leadership o Dana Gas had set as one o its goals the attainment

o best practice standards in corporate governance. Dana not onl

sought to separate itsel rom its ounding compan , Crescent, as a

ull independent and sel -sustaining organi ation, but it also wanted

to build a strong brand name in the gas sector. A urther push came

in 2007 when Dana Gas issued about $1bn in convertible bonds in

the UK market, increasing the need or a review o its governance

practices. This helped nance the acquisition o Centurion Petroleum

in Eg pt, which served as a major strategic milestone or Dana Gas.


IFC, in conjunction with Nestor Advisors, conducted an assessment or

Dana Gas in April 2006. The primar ocus o the changes pursued

b the compan were aimed at improving board e ectiveness,

strengthening elements o their control environment, and

bringing their transparenc and disclosure practices in line with

international standards. The made both composition and structural

changes at the board level and took steps to create more activecommittees. The made perhaps their most signi cant changes at

the management level, separating the Chairman/CEO position and

putting in place ke senior executives (e.g., CFO, IT, HR, Legal). These

changes have helped Dana Gas operate ull independentl o its

ounding compan in a ver short time.



# employees: :type:


Dana Gas


34/6426

Summary of Key Changes: Dana Gas


boardeFFeCtiveness

manaGementControl


C & r :Board had sixteen

members, with just one executive who is the

Chairman/CEO; all others were non-execs. Had

a good mix o skills on the board, but needed toclari its roles and responsibilities.

s c :Compan had established our

committees: Audit & Compliance, Executive,

Compensation, and Business Development.

The needed to re ne scope and unctioning o

committees.

p c :The Board met our times a ear as

a whole board, but committees did not activel

meet. The had extremel length agendas or

the meetings. Corporate Secretar was appointed,

but needed better de nition. There was no

annual evaluation o the board.

C & r :The added our new members to the board,

including two executives to total 18 members; 10 o which are

independent. The re ned roles o board and its committees in ormal

charters with clearer terms o re erence and director duties.

C /Ceo: The compan separated the role o Chairman/CEO with the

Chairman resigning his executive duties ( ocusing on his board chairman

duties). The compan has hired a new CEO.

s c : The now have three committees with Audit & Compliance,

Documents

MENA Corporate Governance Success Stories