How Good Corporate Governance Can Help Save Middle Eastern Economies in Crisis

By John Sullivan, 30th June 2013, The Huffington Post

Weak corporate governance can be linked to financial collapses, the inability to attract investment, persistent corruption, privatization failures, weak property rights, and many other development challenges faced by countries around the world. These challenges are particularly relevant in the Middle East, where many countries are trying to transition to free-market economies. Corporate governance needs to be a central part of this transition.

Only a decade ago, no agreed-upon phrase for corporate governance existed in Arabic, which made debate and reform difficult. If an issue cannot be clearly defined, it cannot be appropriately addressed. To that end, an effort led by the Arabic Linguists Council, supported by the Center for International Private Enterprise (CIPE), resulted in the first standardized term for “corporate governance” in the Arabic language: hawkamat ash-sharikat. Developing a common term opened the door for broad-based dialogue on corporate governance in the Arab world.

At the core of strong corporate governance is the separation of ownership and control. This is of particular interest in the Middle East, where many companies are family-owned. As the business passes from generation to generation, the governance challenge changes completely. And as it becomes a major corporation or grows further, the governance challenges continue to multiply. If you look at Germany, the United States, and other countries that have put into place family councils and other institutions, the survival rate of family firms increases markedly. Once a group of people, including investors, have bought into the company, they have an interest in the governance of that company – helping establish the essential separation between ownership and control. Continue reading…

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