Corporate Governance in Qatar - Essay Example

Corporate Governance in Qatar Corporate Governance in Qatar The articles reviews or provides an overview outlook and a comparative analysis approach on the compliance of the framework of Qatar corporate governance with the OECD Principles of Corporate Governance 2004. A number of recommendations are also formulated by the article to the QFMA to strengthen Corporate Governance in Qatar. Introduction The Corporate Governance Code (the QFMA code) was introduced by the Qatar Financial Market Authority in 2009. The introduction of this code was driven by the importance of the requirement of a well-structured corporate governance with the mandate to offer a platform for market efficiency and integrity and also to facilitate economic growth. The QFMA Code encourages companies to consider and implement voluntarily the appropriate policies, about the companys circumstances, even though the Code is not prescriptive yet. The article mainly aims to compare the QFMA Code with the international benchmark of the Principles of Corporate Governance of the OECD of 2004, so as to develop recommendation to the on how the QFMA can strengthen their corporate governance framework. The article first looks at a brief overview of the QFMA Codes. This is done with respect to the major issues of the duties of the director, mechanisms of control, rights of the shareholders, disclosures, compliance and corporate governance. The benchmarks in the OECD Principles are used to compare these key areas. Finally, the article looks at the recommendations about how the QFMA can be able to meet the set standards by the OECD Principal, and help in strengthening the corporate governance framework of the Qatari (Zain, 2011). This review will look at the literature review on this particular field, the methodology, data collection and analysis, as well as the conclusion on the QFMA Code in Qatari. Literature Review Corporate governance can be dated back to the 19th Century when there was the introduction of the agency theory on the background of public corporations. There was a great need to separate functions from those functions of the owners and maintain some control over management performance (Gregary, 2000). Corporate governance encompasses the mechanism of control for a business that is organized in a limited liability corporate. Other people consider corporate governance to be a set of rules, regulations and voluntary practices that are aimed at resulting in the best performance by humans and maximizing the entitys net worth through securing and safeguarding its interests (Chee, 2002). Various scholars have overviewed different theoretical perspectives on corporate governance and further elaborated within various domains (Kirkpatrick, 2005). All this results from the corporate governance ground and its effective components including enforceability and transparency of the rights and prerogatives of all the shareholders and business entity directors. Corporate governance, therefore, become regarded as the internal system of procedures and policies which serve the shareholders requirement and other business entity stakeholders. In a nutshell, this definition simply refers to all the relationship strategies and policies that are among the stakeholders, shareholders, board of directors, government agencies and creditors that aim at providing efficiency in corporate performance (OECD). As argued by the international researcher, corporate governance is considered to be static and that cross-sectional difference rather than time-series changes, explain well how performance is affected by corporate governance. However, a short time span does not provide room to test how on how severe the endogeneity issue is actually. Although corporate governance has given enough claims as well as legal suits against corporation management for poor performance and negligence, it also has many blessings. It affects the development and functioning of the capital and the financial markets as it exerts a strong influence on how the resources are allocated. Considering the era of increasing capital mobility and globalization, it has become an important condition of the framework affecting the industrial competitiveness and the developing countries economies. The Corporate Governance Code for Qatar was drafted taking into consideration the best practices for the corporate governance. These include those practices developed by the Organization for Economic Development and Corporation, the Bank for International Settlement, the International Corporate Governance Network, and the International Institute for Finance. The provisions were also adapted to the local conditions of the State of Qatar and the existing commercial companies of Qatar, Laws and state market regulations. OECD states that corporate governance is the system that directs and controls the by business corporations. The structure of the corporate governance is responsible for the specification of rights distribution and responsibilities among different participants found in the corporation. Such participants include the shareholders, board, managers, and the stakeholders. It also spells out the rules and procedures that are used to make decisions on the corporate affairs. There are five main elements of corporate governance that both the OECD principles and other codes deal within a broader perspective. Such elements include transparency and ownership control, responsibilities of board directors, protection of minority shareholders, accounting, and auditing, as well as the regulatory environment (Jesover & Kirkpatrick, 20o4). The emphasis in the Corporate Governances revised 2004 OECD Principles, looks at corporate governance as an essential component of management of risks most likely to be faced by the stakeholders, and more so by the shareholder. A shareholder expects to be compensated for the cost they incur when buying a companys shares. The compensation, he expects to be in the form of high dividends, or through the capital gains when the he sells his shares at a good premium. However, the level of the premium and dividend gains depends entirely on the companys performance. It also depends on the extent to which the company will be successfully and honestly managed. That also depends entirely on the hands of those the shareholders entrust the management of the company on their behalf, and these are the Board of Directors. The power to manage the company is delegated by the shareholders to the Board of Directors since it is practically impossible to run the company and hold meeting with all the shareholders. The Board of Directors also delegates the companys day-to-day functions or activities to the executive managers. This leads to asymmetry in the management of companies (QFMA, 2009). The existing deficiencies of Corporate Governance are addressed by the present Corporate Governance Code, and provides particularly a comprehensive corporate governance framework for those companies that are subject to the authority of QFMA. Research Objectives and Research Questions Research Objectives The main objective of this article is to provide a comparison on the degree of compliance of Qatars corporate governance framework with the OECD Principles of Corporate Governance 2004. Other objectives include: i. To find out any similarities between the Qataris corporate governance framework and the Principles of corporate governance of the OECD. ii. To find out any differences between the Qataris corporate governance framework and the Principles of corporate governance of the OECD. Research Questions i. Does the Qatars corporate governance framework comply with the OECD Principles of Corporate Governance? ii. Are there any similarities between the Qatars corporate governance framework and the Principles of corporate governance of the OECD? iii. Are there any differences between the Qatars corporate governance framework and the Principles of corporate governance of the OECD? Research Design The article used secondary data to confirm the compliance of the Qatars Corporate Governance framework with the OECD Principles of Corporate Governance. This achieved by using OECDs Principles database with the Corporate Governance principles and the information from the QFMA Codes of Corporate Governance. Various Articles of the company law were reviewed to determined their relevance and compliance to the OECD principles. Critical and comparative analysis was used to make a comparison to come practically up with a solution whether there is, or there is no compliance of the Qatars Corporate Governance framework and the OECD Principles of Corporate Governance. Observation and comparison were used to compare the secondary data sources to make this study a success. Comparison was then made on the major areas such as the compliance, background, similarities, and differences. The various relevant parts of the QFMA Codes and the OECD Principles were selected and taken for the study. Data Collection Data was collected from the various OECD principles that had been selected. QFMA Codes of Corporate Governance were also used to obtain data from specific Chapters and Articles. Relevant data was jotted down on the particular areas of interest that have been mentioned above. The data from each of the sources relating to the areas of interest were all taken up and jotted down for further analysis. Data Analysis The collected data from the two data sources were then critically analyzed through comparative analysis method. On this, each area of interest, like the differences and similarities between the OECD principles of corporate governance and the QFMA Codes of corporate governance were analyzed. The information concerning one area of interest from both sources were brought forward to make a comparison. Results then arrived, and they were very vivid. The results were used to make conclusions on whether there was compliance or not on the Qatars corporate governance codes and the OECD principles of corporate governance. Analysis and Results 1. Compliance The QFMA Code complies with the OECD Principles because it grants the discretionary provision to QFMA to enforce various provisions of the Code while using the approach known as comply and explain why, which is also applied by the OECD and other leading international institutions. This is the approach that involves identifying those provisions that the company has failed to follow, explaining the reason why the company has failed to follow those relevant provisions, and explaining how its practices are in line with the relevant provisions. This approach of comply and explain why offers a robust and flexible structure for governance to Qatari companies, while trying to balance the genuine governance interests of the public capital market. This approach that is considered directive, rather than prescriptive, is designed to produce an effective for outcome for high quality and integrity. An example of such an approach can be seen in the QFMA Codes suggestions for corporate governance practices that are aimed at optimizing a firms corporate performance and accountability, for the sake of the shareholders interest and the broader economy. Comparison of QFMA Codes and OECD Principles 2. Background OECD plays a very important role in a way to promote good governance practices in public services and corporate activities. The OECD Ministerial agreed upon and adopted some principles in May 1999 which were referred to as OECD Principles of Corporate Governance. These were the first international standards in Corporate Governance, and their main aim of the establishment was to provide guidance and international benchmark for those regulating and participating in the financial markets (Zain, 2011). These principles were non-binding and were able to accommodate different legal, cultural and economic circumstances. They were, therefore, drafted to strike a balance between various international models that attracted the global investment committee, instead of just a single model of corporate governance. Since then, these principles have been adopted by the Financial Stability Forum to be one among the twelve main standards for a good Financial Systems. There came the 2004 OECD principles that were the revised corporate governance principles that came to replace the OECD Principles of 1999. These revised OECD Principles of 2004, however, retained substantially, the same underlying elements of corporate governance. These principles are written in six chapters, where each is headed by a single statement of the principle, and this is followed by several supporting recommendations and commentary. It will be remembered that the first chapter is that which calls on the government to develop effective institutional and legal framework that will support good corporate governance practice. 3. Similarities The benchmark of the international set by the OECD principles and framework of the QFMA Code have quite a substantial number of similarities. These similarities are in some particular areas such as directors and the rights of the stakeholders or shareholders. i. Board of Directors The Board of Directors accountability of a company and its shareholders are established in chapter six of the OECD Principles. It also gives authority of providing strategic guidance to the company. When you look at Article 3/1 of the QFMA Code, it demonstrates the same spirit like that which is embodied in Chapter six above. ii. Rights of Shareholders There are the rights that are conferred upon the shareholder under s 7 of the QFMA Code by the domestic laws and regulations, as well as the companys by-laws. These include the rights to buy sell and transfer shares without any restriction. When you look at Chapter 2 of the OECD principles, its states that corporate governance is meant to protect and facilitate exercising of the shareholders rights. This chapter, most importantly requires that the board of directors should protect the shareholders rights and are accorded a fair and equitable respect. iii. Stakeholders The OECD Principles verily require that the rights of the stakeholders should be protected and recognized. The law should be followed in accordance on this issue, through mutual agreements, and it should encourage active cooperation between corporations and shareholders in wealth and job creation and sustainability of enterprises that are financially sound (Zain, 2011). Chapter protects the stakeholders interests by law. Similarly, section 8 of the QFMA Code addresses all the rights of the stakeholders by requiring that they are recognized and protected. iv. Disclosure and Transparency Chapter 5 of the OECD Principles talks about the reason for the need of a regime with a strong disclosure is to make the investors feel their confidence is increased in a company that makes the companys cost raise capital to reduce. This, correspondingly, increases the investors confidence in the capital markets. Section six of QFMA Code also addresses disclosure in a similar way. The OECD Principles and the QFMA Code, both recognize the importance of external and the internal audits (Zain, 2011). 4. Differences There exist some differences between OECD Principles and the QFMA Codes. These differences, however, are majorly on their scope and application, the rights of the shareholders, stakeholders and control regulations. i. Application It is clear that the OECD principles are non-prescriptive and non-binding. Their purpose is to serve as a benchmark for the policy makers and the market participants while they develop their practice. On the other side, the QFMA Code clearly states in the preamble and at its section two that the QFMA Code has mainly been developed for Joint Stock Companies that are listed on the Qatar Exchange (Zain, 2011). ii. Scope Out of the six chapters of the OECD Principles that have been outlined, the QFMA Code, with minor exceptions that the provision of equitable treatment is not contained in a separate section, has exhaustive coverage. Conclusion and Recommendation In a nutshell, all of the research questions were answered, and all the objectives achieved. The research found out that there was significant compliance by the Qataris Corporate Governance framework with the OECD Principles. The research also found that there were both similarities and differences between the QFMA Codes of corporate governance and the OECD Principles. Some of these differences and similarities are discussed above. My main recommendation out of the research is that, the QFMA Code need to address the key executive succession planning issues. References Chee, L. (2002). Corporate Governance: An Asia-Pacific Critique. New York. Gregary, H. (2000). Globalization of Corporate Governance. 2. Jesover, F., & Kirkpatrick, G. (20o4). The Revised OECD Principles of Corporate Governanceand their Relevance to Non-OECD Countries . Malaysian Accounting Review, 9(2), 2. Kirkpatrick, G. (2005). Imporving Corporate Governance Standards: The Work of the OECD and the Principles. New York: Oxford University Press. Retrieved from ISBN-13: 978-0-19-928936-3. QFMA. (2009). QFMA Code of Corporate Governance: Article 30/1. Journal of the Qatar Financial Markets Authority, 4-42. Zain, A. A. (2011). Corporate Governance in Qatar: AComparative Analysis. Corporate Governance eJournal, 1. Read More