The Cass MBA Perspective: Corporate Governance

A big welcome to this special corporate governance edition of the Cass MBA Perspective eNewsletter – all the way from Dubai. In this issue, we tackle many of the current disputes surrounding corporate governance, with features and articles from students, lecturers and alumni.

There’s a great feature by Santiago, one of our London students who took part in the UAE International Study Tour. This tour offers MBA students an opportunity to visit Dubai and Abu Dhabi, giving them the opportunity to enjoy all it has to offer, while finding out more about how business operates differently compared to the UK.

The tour has a financial focus and includes meetings at the Dubai International Financial Centre. At these meetings, several influential speakers cover the historical and cultural context of Dubai, along with an economic and political overview of the region. On this year’s tour, Nick Nadal, Head of Hawkamah (Institute for Corporate Governance in Dubai) gave an excellent overview of corporate governance in Dubai.

Corporate governance, in short, is the system that oversees and directs any large company. In this edition, Tim Travers (Cass EMBA Dubai alumus) examines the Shariah governance systems of Islamic financial institutions in different countries – and how they work in practice.

The Cass network helped Tim get his Business Mastery Project recognised by one of the leading Islamic Financial Institutions regulators, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). His highly relevant and informative research led to an invitation to sit on the subcommittee of the AAOIFI, responsible for corporate governance.

The Cass Executive MBA in Dubai prepares students for business in the Middle East and its neighbouring regions – allowing students to tailor their studies to match their career goals. They can choose from specialist streams, including Leadership and Change Management, Islamic Finance, Mainstream Finance, Entrepreneurship and Energy. The qualification offers excellent grounding for business in Dubai and the wider region.

I hope you enjoy this edition of the Cass MBA perspective newsletter. Don’t forget to comment and share your views on articles you find interesting.

Ehsan Razavizadeh 

Regional Director, MENA & Head of Dubai Centre

Shari'ah governance systems: An international comparative study

Shari’ah corporate governance, in its broadest terms, is the single most important current issue for the Islamic finance and insurance industries. There are many current drivers towards further developments. The global financial system continues in a state of flux and is not without further threats and stresses. Infrastructural changes to the way such a system works, and should work, have been, and remain, a source of major debate. An alternative, or parallel, financial system based on Islamic economic principles is one option. 

Corporate governance is generally in a constant state of change as graphically demonstrated by the trends in country and pan-country governance codes and guidelines issued over the last 20 years. 

Shari’ah corporate governance has special features in addition to the commonly accepted components of corporate governance as applied to conventional banking and insurance businesses, namely the ultimate stakeholder, Allah, the Investment Account Holders and observance of the Maquasid Al-Shari’ah (which is that the goals and objectives of Shari’ah law are to support five essential benefits to human and community life on earth). It also contains inherent overarching features derived directly from the core principles of Islamic economics. Finally, Shari’ah corporate governance has a further defining overarching feature, which is that Islamic Financial Institutions (IFIs) continue to operate within the institutional framework of a conventional financial system. Mirakhor and Krichene (2009) argue this is completely inappropriate as a regulatory and supervisory framework and challenge the industry to aspire towards a single global regulatory-supervisory framework for Islamic finance and insurance. 

Not only does good corporate governance require the existence of available models of good practice, but more importantly, corporate governance requires organisations to have a good stock of human resource capital throughout the organisation in order to be able to implement the corporate governance framework and execute in operational practice.

To read more on my report examining the different components of Shari’ah governance systems of IFIs in different countries and how they operate in practice please take a look at the following:

PDF - Download Shari’ah governance systems study (Part 2 Executive Summary)

PDF - Download Shari’ah governance systems study (Part 18 Survey and Analysis)

Tim Travers
Cass EMBA Dubai Alumnus

*Please note the context of this article is based on Tim’s report completed 1st November 2010.

Jubilee Scholarship

4 x £10,000

In celebration of the Diamond Jubilee year, Cass Business School is delighted to announce the release of four new awards available to Full-time MBA candidates.

Application deadline: 30 May 2012 (scholarship and complete MBA application)

To find out more and apply for the Jubilee Scholarship http://www.cass.city.ac.uk/courses/mba/full-time-mba/fees-and-funding/scholarships

For more information about the application process for the Full-time programme, please contact Viola Polakowska viola.polaskowska.1@city.ac.uk

Cass and corporate governance

In the last ten years since the corporate scandals at Enron and WorldCom, corporate governance has developed from an issue that was mainly (if not entirely) of interest only to compliance and audit professionals into a topic that has almost daily media coverage. Since the beginning of the financial crisis in 2008 public awareness has grown even more, and issues such as board behaviour and ethics are now regular discussion points in financial and popular media. Fortunately not all the current issues in corporate governance are defensive and negative: alongside the outrage and reaction to unethical and self-centred management practices are very positive and constructive initiatives to innovate and renew management principles and practices across the world.

Cass has long been a strong advocate of corporate governance, and it has been a central part of our MBA programme for many years. During this time both academics and students have carried out ground breaking research into the key issues that managers in all types of enterprise need to address. Two major themes that have emerged recently; are how businesses should react to the financial crisis and be better prepared for the future, and the development of the body of knowledge of governance and Islamic finance.

It is clear in hindsight that while there was no single cause for the financial crisis; it follows that there will also not be a single solution. But some clear issues can be identified as helping to create the conditions that were necessary for systems to break down as catastrophically as they did. These issues can be placed in both organisational and personal contexts: poor or ignored corporate governance principles, and a low appreciation and acceptance of ethical principles. This is not to say that enterprises deliberately set out to act unethically or illegally, rather that core principles of trust and respect for stakeholders were placed behind personal gain. A very positive investigation into how the problem of trust among businesses was initiated by the Lord Mayor of London last year, and several Cass academics were actively involved in a major survey of city institutions and individuals from some of London’s best known companies. Our findings will contribute to how individuals and companies can raise the profile of ethical standards and the recognition that actions do not take place in a moral vacuum.

Our research into Islamic financial systems, and in particular the related corporate governance issues has grown massively since we established our MBA programme in Dubai. For several years now collaboration between students, local and regional businesses and Cass academics has been examining the infrastructure and implementation issues of Islamic finance. This research has led to contributions to the knowledge and guidance that professionals from all over the world need to understand in order to understand this important area. Recent activities include practical guidance to support Sharia compliant financial practice, development of corporate governance codes for Islamic financial services, Corporate Social Responsibility (CSR) initiatives in the Middle East and the governance of sovereign wealth funds in the Gulf. There has never been a more important, nor as interesting a time to be involved in corporate governance research.

Professor Rob Melville

UAE: Desert, tallest building in the world, greatest marble Mosque and now corporate governance regulations

As part of the Full-time MBA programme I travelled to the United Arab Emirates (UAE) for one of the electives introducing us to the complex and exciting world of investing in the MENA Region. One of the lectures left a rather significant lasting impression. Nick Nadal, Head of Hawkamah, the Institute for corporate governance spoke of the challenges, improvements and the road ahead for corporate governance in the region. The lecture was given in the Dubai International Finance Centre (DIFC), which is a financial free zone area with exponential growth: from a starting point of 19 firms, the DIFC now host beyond 800.

This growth has captured the imagination of the businesses of the world both inside and outside the DIFC drawing particular interest in a rather touchy and often complex subject- corporate governance. Lately, corporate governance has attracted much attention due to two big corporate scandals- Japan’s Olympus and Murdoch’s News Corporation, the parent company of The News of the World involved in the hacking scandal in the UK.

Despite its recent fame, corporate governance is usually a key issue for investors such as Private equity firms and Hedge funds, and a robust governance framework helps enormously to increase foreign direct investment in any region. Nick Nadal estimates that only 33% of the companies in the region comply with the corporate governance code. Corporate governance is also perceived only as a “compliance” issue whereas in other countries such as the UK, corporate governance is perceived as lowering the cost of capital to the business and therefore increasing efficiency.

The key message from Nick Nadal was that corporate governance is in a current evolving state in the region and although major steps have been attained, the path is still long. Furthermore, whilst it is desirable that international regulations are firmly implemented in the region, certain idiosyncrasies must be respected. Savvy investors need to be aware that cultural differences do not become an obstacle for business deals.

Exploring the UAE was an eye-opening experience. Dubai and Abu Dhabi have a very concrete plan to diversify their economy and be at the forefront of the technological advancements in the world. From the very moment I stepped into one of Emirate’s A380, passing through the jaw-dropping real estate developing in the region which boasts, among other things, the tallest building in the world, an artificial palm island, and one of the largest Mosques in the world (Sheikh Zayed Grand Mosque), UAE is a great example of how a region can use its resources and decrease its liabilities to insert itself into the twenty first century. Robust corporate governance, although not as fancy as a USD 20 billion plus development in the sea, is important for the region and its future development.

Santiago Fontiveros

FT MBA 2011-2012.

MBA launches a new website

In response to your feedback the Cass MBA programme has launched a new and exciting space for MBA candidates, who want to find out what the London MBA programmes have to offer. 

Our new cassmba.com website is a place designed specifically with you in mind, filled with video and written interviews from students and alumni sharing personal stories of what life at Cass is really like, the experiences they enjoyed most, the challenges they faced and their dreams for the future.

Cassmba.com is the ideal space for those who want more in depth information about Cass. There are dedicated ‘ Why Cass’ and ‘Meet Cass’ sections which highlight what makes Cass so unique and the different ways that you could meet us . 

Visit www.cassmba.com and experience it for yourself.

Corporate Governance update - UAE

Code of corporate governance for the real estate developers

Hawkamah the Institute for Corporate Governance was commissioned by the Real Estate Regulatory Agency (RERA) to develop a Code of Corporate Governance for the Real Estate Developers.

The real estate prices and rentals fell significantly during the recent global financial crises, leading to a large reduction in yields on real estate investment and the correction was more pronounced in Dubai, where prices had risen more sharply. Lack of transparency and disclosure and in essence lack of effective corporate governance framework and practices can be identified as one of the reasons for this sharp decline, which ultimately led to decrease in investor confidence.

While lower real estate prices and rentals are leading to a new equilibrium in the market through increase demand, they are not a substitute for structural reforms and new policy initiatives. What is needed is an upward shift in the demand curve in order to absorb the new supply coming on the market. Effective corporate governance practices are required to maintain the integrity of businesses, financial institutions and markets.

Dubai’s Real Estate Regulatory Agency, the regulator for the Dubai’s real estate industry, has issued a number of laws and policies aiming towards improved transparency and strengthening investors’ confidence in the market. The issuance of this ‘Code of Corporate Governance for Developers’ (the Code) is one of such initiatives.

The objective behind developing this Code for real estate developers is to increase transparency and disclosure, increase professionalism, improve oversight of the company and functioning of the governing body which would lead to strengthening investors’ confidence in the real estate market. UAE’s Ministerial Resolution No. (518) of 2009 concerning governance rules and Corporate Discipline Standards for listed companies was issued in 2010, however, RERA felt the need to issue a CG Code specifically for the Real Estate Developers who are one of the major players in the real estate industry. This Code is the first Code in the world developed and tailored specifically to the dynamics of the real estate industry of UAE.

The Code explains the role of the various governance players in an organization laying emphasis on the role of the board of directors or the governing body in particular, and laying equal emphasis on the fact that shareholders have a role to play in shaping the corporate governance practices and policies of companies in which they invest.

Dubai SME code

SMEs make a significant contribution to the economy of Dubai in terms of their employment, sales and innovation activities. According to Dubai Economic Department, SMEs comprise up to 90% of the businesses in Dubai and are crucial for Dubai’s future economic development. It is for this reason that the Dubai SME, an agency of the Dubai Economic Department, commissioned Hawkamah Institute for Corporate Governance to develop a Corporate Governance Code for SMEs in Dubai.

This Corporate Governance Code is a voluntary framework which provides recommendations to support an enterprise’s corporate governance journey as well as a benchmark of best practices. This approach is particularly apt in Dubai considering that Dubai’s SMEs are far from being homogeneous entities – companies do not only vary in terms of size, maturity, ownership structure, and sponsorship requirements, but also because of the on-shore/off-shore duality in Dubai which allows companies the freedom to set up business in the numerous free zones in the Emirate, each with their own regulatory frameworks.

The Principles laid out in this Code present that best practices and are applicable to all SMEs in Dubai, while bearing in mind that the implementation of these Principles will have to be adapted to the individual circumstances of the companies taking into account their stage of growth and development.

The Code sets out 9 key principles of corporate governance for Dubai SMEs covering the following areas:

- Formalizing corporate governance policies and procedures

- Board of Directors

- Control environment (internal controls, audit and risk management)

- Transparency and Disclosure

- Stakeholder relations

- Family Governance

A parallel Dubai government initiative to this code is Dubai’s SME 100 which aims to identify the top 100 high growth potential SMEs in Dubai and supporting them in their growth through workshops, access to financing, advocacy, etc. Part of the vetting process for the SME 100 companies is the extent that the company is incorporating good corporate governance practices, as defined in the 9 principles above.

UAE federal decree on corporate governance of state-owned and government related entities

The UAE federal government took a significant step in corporate governance of state-owned enterprises when Federal Decree no. (5) of 2011 was issued on July 18th 2011 and the Cabinet Resolution no. (29) of 2011 issued on July 19th 2011 relate, inter alia, to the governance of the board of directors of entities, institutes and corporations owned by the federal government, including those that are non-profit.

The decree lays out framework on the composition of Boards of Directors, the mechanism for selection of its members by the Council of Ministers, and highlights the importance of experience and diversity of skills as part of the board selection process. The Council of Ministers will conduct an annual assessment of board performance in accordance with the performance standards specified by the Cabinet.

The decree prohibits for a board member to be a member in more than four boards and not to serve as president in more than three federal institutions at the same time.

It is not permissible for the members of the boards of nonprofit federal institutions, who regulate or oversee companies with shares listed on the stock markets in the country, to be members of the boards of these listed companies.

The decree obliges the boards of profit and nonprofit federal institutions to form an Audit Committee to monitor risks and safety of the financial statements of the institution, in addition to evaluation of risk management policies, internal control and effective Internal Audit Department and cooperate with the Audit Bureau in accordance with the rules and accounting principles in practice.

The decree also articulates the principles and rules of professional conduct and ethics of public office to be adopted by the federal institutions, especially by the board.

According to the resolution, a special system on disclosure of all matters relating to the establishment of the institution, including the Federal financial position, performance, ownership and governance style of the institution, and submit it to the Council of Ministers, will be prepared.

Corporate governance in Islamic banks and Financial Institutions

Hawkamah recently issued a Policy brief on Corporate Governance for Islamic Banks and Financial Institutions in the Middle East and North Africa (MENA) region in Arabic (available in English as well) http://www.hawkamah.org/files/Islamic%20Finance%20Policy%20Brief%20FINAL%20May%2025%202011.pdf

which highlights the improvements required in the corporate governance frameworks of Islamic Banks and Financial Institutions in MENA taking into consideration International practices and standards developed by various Islamic Finance Standard setting bodies.

The Policy Brief is addressed to policy makers, Islamic banking regulators, banking associations and Islamic banks and Financial Institutions in the MENA region. The publication of this policy brief is the first step towards bridging the corporate governance gap in the Islamic Finance Sector in the MENA region. This policy brief identifies the corporate governance implementation gaps in the Islamic Financial Institutions industry in region and lays out specific recommendations to bridge this gap.

The Policy brief is a by-product of Hawkamah’s Task Force on corporate governance for Islamic Banks and Financial Institutions. The Task Force members consist of experts in the area of corporate governance in Islamic Finance, Islamic Finance standard setting bodies, and IFIs across the MENA region.

To find out more visit www.hawkamah.org


Nick Nadal
Head Hawkamah-Mudara IOD

Join the debate

Corporate disasters/scandals/fraud - who is responsible? The auditor, the individual directors, the employees who ignored dealings?

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Cass Talks

Want a good example of Corporate Governance? Look East. 

Professor of Internal Auditing, Rob Melville gives an enlightening overview of corporate governance in the Gulf.

 

 Watch now >

News

Under the patronage of H.H. Sheikh Maktoum, third cohort of Executive MBA students graduate from Cass Business School Dubai  

 

Dubai, UAE; May 1, 2012: The third cohort of students from the Cass Business School Dubai Executive MBA (EMBA) programme have graduated in a ceremony held at the Dubai International Financial Center (DIFC) under the patronage of H.H. Sheikh Maktoum Bin Mohammed Bin Rashid Al Maktoum, Deputy Ruler of Dubai and President of DIFC, and attended by H.H. Sheikh Ahmed bin Saeed Al Maktoum.

The Cass EMBA is a flexible part-time course aimed at managers in the Gulf region who wish to accelerate their career development while remaining in full-time employment. The course has the same content as Cass’s London-based Executive MBA, which in 2011 was ranked third in the UK and seventh in Europe by the Financial Times, with classes delivered by Cass academics who visit Dubai over a long weekend once a month.

This year’s cohort of students hail from a variety of industries, including energy, engineering, commerce, manufacturing, finance, legal and government. A total of 23 different countries are represented in this year’s graduating class, including students from as far away as Argentina, Australia, China and the USA.

His Excellency Abdulla Mohammed Saleh, Governor of DIFC, said: “I wish to take this opportunity to congratulate the Executive MBA programme students graduating from Cass Business School today. DIFC is proud to support educational programmes with Cass’s quality that build up human capital for the financial services sector in the region, and help us deliver on our mandate to place Dubai and the UAE in the top league of international financial centres. These programmes provide professionals with the opportunity to access the very best of global management thinking, research and practice, equipping them with the analytical tools and knowledge to face the rapidly evolving business world. We wish the new graduates the best of luck and look forward to their contribution towards the growth of the regional financial services industry.”

“It is with enormous pride that we celebrate the graduation of the third cohort of EMBA students from our DIFC campus,” said Professor Paul Curran, Vice Chancellor of City University London, of which Cass Business School is a part. “Since opening in 2007, the Cass Dubai Centre has established itself as a dynamic hub for business education in the Middle East, offering regionally relevant electives delivered by world-class academics. The class of 2012 join hundreds of fellow alumni who have earned the prestigious Cass EMBA degree and are now forging careers at the very top of the global business community.”

“Consistently ranked among the best in the world, the Cass EMBA programme is designed to unlock the potential of outstanding individuals and create an accelerated career path,” said Ehsan Razavizadeh, Regional Director, MENA of Cass Business School, part of City University London, and Head of Cass Dubai Centre. “I extend my congratulations to all our students on successfully completing the rigorous 24-month course, and I look forward to hearing about their progress at one of our frequent alumni events across the world.”

As the first EMBA programme in the world to offer specialisations in Islamic Finance and Oil and Energy Economics, the Cass EMBA is regionally-relevant, offering electives in Entrepreneurship, Leadership and Change Management, Advanced Corporate Strategy, Islamic Economics, Islamic Law of Business Transactions, as well as Mergers and Acquisitions, Advanced Corporate Finance and Private Equity. The Cass EMBA continues to increase in popularity, with student admissions to the programme in Dubai growing by 80 per cent since 2007.

News

Cass’s Dubai Centre targets potential entrepreneurs

Dubai, UAE; April 17, 2012: Cass Business School’s Dubai Centre today announced the introduction of an Entrepreneurship stream to its Executive MBA programme. The stream comprises three modules: New Venture Creation, Private Equity, and Innovation and Entrepreneurship, which Cass EMBA students can choose to pursue during the 24-month course.

Cass’s Entrepreneurship stream aims to provide students with knowledge and understanding of how new products, services and technologies are brought to the market. The module also covers the process for creating new ventures, including feasibility testing, marketing financial forecasting and securing finance.

“With the focus in the region so firmly on entrepreneurship, we are delighted to introduce the new stream to our EMBA programme,” said Ehsan Razavizadeh, Regional Director, MENA of Cass Business School, part of City University London, and Head of Cass Dubai Centre. “Here in the region, almost nine out of ten businesses are small and medium size enterprises, yet many often reach a plateau. Our new entrepreneurship stream has been designed specifically to overcome this and to help the next generation of the region’s business leaders turn their great ideas into successful ventures.”

The Entrepreneurship stream, available to students from April 2012, will be taught by Cass Professors of Entrepreneurship Vangelis Souitaris and Julie Logan and Cass Senior Fellow Guy Fraser Sampson. Students will travel to London for the New Venture Creation module, taught by Professor Logan.

“I’m very excited to be here in the UAE which has a true entrepreneurial spirit at its core,” said Professor Souitaris. “The timing of this new module could not have been better. As pro-business reforms take effect across the Middle East, I foresee a sharp rise in start-ups in the region. This, in turn, will lead to increasing demand for entrepreneur-focused business programmes at a level and scale never seen before in the Middle East.”

“There are wonderful opportunities for young business leaders in the UAE and in the wider Middle East region,” said Fraser Sampson. “Entrepreneurship remains a buzz word across the Middle East region and we at Cass Business School are confident that the newly launched module will help enormously to groom business leaders of tomorrow.”

Prof Logan continues: “This EMBA stream provides would-be entrepreneurs the grounding they need to flourish. With the New Venture Creation module taught in London, candidates will have opportunities to exchange ideas and network with a diverse cohort of similarly entrepreneurially-minded individuals.”

Dr. Ahmed Mokhtar, an EMBA student, who is graduating in April 2012 said: "The pitfall with most EMBA courses is that the modules are designed keeping in mind the business needs of large organisations. This does not help if you work in a small company or have an intention to start your own business venture. I’m glad that Cass Business School EMBA programme has introduced a module on ‘Innovation and Entrepreneurship,’ which will undoubtedly prove to be a great advantage.”

During the two year Cass EMBA programme, students pursue between three and six electives, as per their areas of interest. Students can choose a General Management stream, a specialist Islamic Finance stream, Mainstream Finance, Energy or the new Entrepreneurship stream.

News

Singapore elective gets underway

Cass students have flown in to Singapore for an intensive weekend elective that gets underway today. MSc and EMBA students have travelled to Asia's wealth management capital for a four day elective on monetary policy.

The elective, which was launched last year, is run jointly by Cass and Singapore Management University's (SMU) highly-rated Lee Kong Chian School of Business. This year will also see students from Cambridge University's Judge Business School join the elective for the first time.

MSc Programme Director Susan Roth, said: "Singapore is a key pin in our international strategy. We are delighted to be working with SMU and Judge to create new learning and networking opportunities for our students in such an important financial region. Given that many of the students on this elective are in full-time employment, they often find the trip is as important for their companies as it is for them."

Almost 50 students from Cass, SMU and Judge will take part in a series of lectures delivered by Cass Professor of Asset Management, Andrew Clare, and SMU Economics Professor, Kim Song Tam.

Among the topics they will cover include an overview of the Asian markets, the role money plays in a modern economy, the operation of monetary policy and the current challenges monetary policy faces across the globe.

The lectures will be blended with a series of seminars from top executives at two of Asia's leading financial institutions, OCBC and UOB, together with visits to their offices on Shenton Way, Singapore's equivalent of Wall Street.

Students will also get the chance to put theory into practice with a computer simulation where they play the role of an Asian monetary authority, making a series of interest rate decisions for their virtual economy.

Dominic Loureda, from the Cass MSc in Finance and Investment, said: "This elective is an important networking opportunity given Singapore's huge financial importance. There's a possibility that we could be making money in this region or even working here which is why it's good to get to meet new contacts and exchange information and ideas."

The monetary policy elective is open to students on Cass's part-time MSc in Finance and Investment and Executive MBA courses.