Socio-political Background of Qatar - Article Example

Literature of the review Introduction Literature review has become a very critical aspect of research methodology that primarily relies on explanation and focus on previous literature and opinions, which are published on the topic. The various research papers, articles and books written by experts and accredited writers on the field become important tool for exploring or expanding on the wider scope of the subject, benefiting the various stakeholders in a myriad ways. The secondary resources thus help identify the areas that need to be addressed for the wider ramifications of the general welfare of a large segment of population. Socio-political Background of Qatar In terms of demographic representation and geographical area, Qatar is one of the smaller nations of the Gulf Cooperation Council (GCC). Doha is the capital of Qatar. After becoming an independent sovereign state in 1971 and with third largest reserves of natural resources of hydrocarbon in the world, it is the fastest developing economies of the world. The country is ruled by the Emir, Hamad bin Khalifa Al-Thani, whose liberal foreign policies has made Qatar an extremely attractive proposition for foreign investors. Contemporary environment of business dynamics in Qatar The oil wealth of the country has brought in a huge number of foreign investors and multinational bodies in Qatar. The state has made strategic alliances with various foreign corporations in the field of oil and gas exploration and refineries. Multinational companies and strategic business partnership with companies from America, Japan, United Kingdom, Germany, France etc. have made their presence in the various upcoming projects comprising of infrastructure development, education, healthcare, consumer durables, telecommunication, electronics etc. The influx of foreign skilled labour in the state has considerable increased in the last few years. Despite having the largest GDP in the world, the country lacks self sufficiency and skilled labour. The higher education and healthcare has become especial arena for focus. The local business like RasGas, Qtel etc. have taken the cudgel for serious community development. RasGas’ ‘CSR programme was conceived to help transform different aspects of Qatari society under its four cornerstone approach: community, environment, education and health, including sport’ (RasGas). The fast transforming socio-economic paradigms of Qatar make it imperative for the foreign investors to become more conscious of their social responsibilities and become proactive participant in conserving and preserving the environment. The ethical considerations of business compulsions and corporate social responsibility have become essential for long term business partnership with their host countries. While it is true that Qatar has welcomed foreign investors and multinationals in various areas of development, it is important that the investors do not take advantage of the liberal policies of the state. In fact, it becomes all the more important that the foreign companies ensure effective corporate governance to overseas compliance of national and international law in their work methodologies and incorporate all the pertinent guideline of corporate governance so as to exhibit CSR in their work environment. CSR and Corporate Governance Developing economies are countries that are in the process of development where their standard of living is gradually improving with rise in per capita income. Though, in practice, it is seen that development is more visible in the urban areas where rapid technology advancement and industrialization can be seen with proportional rise in income. The increasing gap between the rich and the poor becomes obvious because usually in the developing economies, the highly educated and the skilled class of people get the opportunities to benefit from the economic development. Yet another major feature of the economy is that it has emerging market with vast potential, which attracts lots of foreign investments and multinationals with their numerous products. In the case of Qatar, the discovery of oil and gas has suddenly plunged the small peninsular country into world prominence. The vast influx of foreign businesses, in the wake of newly discovered oil wealth, has brought a huge plethora of new problems which need to be addressed at the earliest. It is also true that government alone cannot be responsible for the socio economic development of its population. Though it provides the basic guiding principles and policy parameters of development process in the various core areas, people must also get involved into the process along with the government, in order to achieve the distinction of sustainable development that percolates down to the people. The new dimension to the emerging new opportunities have brought, in the form of corporate social responsibility has become an essential part of corporate business strategy which is fast expanding its areas of interests across the globe. Indeed, CSR is a relatively new concept that is becoming increasing more popular among the multinationals and big corporate houses which have significant presence in a developing countries or are intending to enter the emerging market of developing economies. ‘The relationship between companies and civil society organizations has moved on from paternalistic philanthropy to a re-examination of the roles, rights and responsibilities of business in society. Corporate Social Responsibility (CSR), defined in terms of the responsiveness of businesses to stakeholders’ legal, ethical, social and environmental expectations, is one outcome of these developments’ (UNIDO, 2002). The last few years have seen rising cases of CSR in the socially relevant areas like education, medical health, skill development programs for the under privileged, social issues like gender bias, disability etc. Where ever possible, they have forged strategic partnership with aiding agencies, government and NGO1s to participate actively to improve the socio economic status of the segment. CSR has become a highly commendable effort on the part of the corporate houses, but it is not totally a philanthropic act on their part. CSR also gives them an opportunity to spread their business and at the same times provides them with a credible public image making them popular with the masses. In the contemporary environment of globalization and highly competitive business paradigms, effective CSR policy gives them an edge over their rivals. Thus, bringing CSR in the gambit of corporate governance and making it an intrinsic part of business strategy of a global business. The various research and academic papers written on the topic give credence to the urgent need for a transparent system of corporate governance. A study by Lang and Lundholm, has shown that the large firms which perform better and need to raise capital have greater disclosure in their agenda’ (Lang and Lundholm, 1993). The continuous research is important tool to keep abreast with the fast changing socio-economic parameters and evolving business compulsions. Research studies in the specific areas of concern are the foundation of good policies and programs of the government as well as that of corporations. They not only provide the necessary information and different perspectives to the business paradoxes that are in constant flux but it also gives opportunity to the organization to become innovative and dynamic in its approach to meet the challenges of the time. Different aspects of corporate governance have become intrinsic part of CSR strategy. Some scholars have reasons that CSR is a ‘social investing’ built for the purpose for creating ‘social capital that helps to improve and improvise the economic performance of the corporation (Waddock, 2001; Habish, Meister & Schmedpeter 2001). Internal control is one of key factors that have the power to put the stakeholders’ interests at risk. The Turnbull report says that the aim of framework of internal controls is to ‘reflect sound business practice whereby internal control is embedded in the business process’ (Turnbull Report, 1999, para. 8). Issues like pollution control, environment conservation, community development etc. are major factors that need to be incorporated in the wider precincts of corporate governance. According to Ackerman ‘principles of accountability should ideally be applied before, during and after the exercise of public authority’ (Ackerman, 2004). They should be accountable to the public for the way they execute their duties as well as to the specific group of people for whose development they are working for. According to Fox, ‘civil society demands for state accountability matter most when they empower the state’s own checks and balances’ (Fox, 2000, p. 1). When the mechanisms of social accountability are institutionalized, it promotes transparency in the work place thus giving impetus to the CSR policies within the business strategies and organizational aims and objectives. Corporate governance can be broadly defined as the creation of business environment within and outside the organization that would effectively meet the challenges of the time and improve and improvise the productivity of the performance outcome. In other words, corporate governance directly influences the core business strategies of the organizations and helps to formulate policies and strategies that would create appropriate business environment. This would encourage creative productivity and inter personal relationship which promotes confidence building among various stakeholders. The wide ranging implications of the corporate governance have necessitated development of strategies that promote transparency in their work methodologies. ‘Corporate disclosure to stakeholders is the principal means by which companies can become transparent’ (Solomon, 2007a, p143). In the fast changing environment of globalization, business compulsions have become more stringent in their nature and factors like accountability, responsibility and reliability have become important pre-requisites for business to create a credible environment for their trade and investment. The lack of effective controls vis-à-vis malpractices in accounts and auditing, security of confidential information, corrupt practices in the higher hierarchy of management, disparity in rules and regulation etc. have become crucial risks factors that have resulted in huge economic loss for its shareholders as well adversely affecting its credibility in the market. The transparency in the Corporate Governance would create effective control measurements that would safeguard the interest of all its stakeholders, investors and business partners. The recent cases of misuse and abuse of shareholders rights in the various countries have catapulted the role of corporate governance into the prominence. The increased risks to the interests of the stakeholders have forced the governments to impose strict code of conduct for the higher hierarchy of management who are intrinsic part of corporate governance and established codes of corporate governance. Risks have been defined as ‘the possibility of loss as a result of the combination of uncertainty and exposure flowing from an investment decision or a commitment’ (Boritz, 1990). All the factors and element of governance, that adversely affect and dilute the rights of the shareholders and other stakeholders of the organization, are risks that need to be addressed urgently. The changing paradigms of the global business environment have greatly influenced the wider implications of effective managerial imperatives producing considerable impact on the confidence building processes of the capital market. ICAEW2 has advocated the ‘need for companies to prioritized risks’ (ICAEW, 1998). Hence, very often, the lack of necessary control mechanisms, not only corrode the trust of the investors but they also have long term repercussion on its market credibility and performance outcome. ‘Disclosure is critical to the functioning of an efficient capital market’ (Solomon, 2007b, 144). The disclosure policy of the company has major impact on the market risks on the capital market. Under the codes of corporate governance, the disclosure mainly relates to the policy of the company to disclose relevant information about its budgets, annual financial statements and short term and long term management forecasts and other mandatory information that gives indication of the company’s positioning in the market. ‘The lifeblood of market is information’ (Cadbury Report, 1992a, p33). The information is communicated on the company’s website that gives necessary impetus to the investors’ confidence and promotes transparency in corporate governance. Internal control is another key factor that has the power to put the stakeholders’ interests at risk. The Turnbull report says that the aim of framework of internal controls is to ‘reflect sound business practice whereby internal control is embedded in the business process’ (Turnbull Report, 1999a, para. 8). The internal controls of the company are various inter-related processes within its different departments which facilitate smooth operation, conforming to the prescribed parameters of managerial and policy controls. Internal controls are intrinsic part of strategic management which streamline various operational, productive and administrative processes that are designed to produce improved productive performance leading to better financial outcome. Financial accounting information is one of the most important aspects of corporate governance that has significant element of risks that can effectively damage the investors’ trust. The financial system along with effective auditing provides an easy means for the stakeholders to monitor the performance of the company or organization. Owen Report explains that ‘..the point of an audit is to provide independent assurance of the integrity of the way in which the company has reported’ (Owen Report, 2003a, vol.1 6.1.1). The various financial statements and the role of auditors, help to give credibility to the company’s projected forecasts and at the same time, facilitate better decision making tools to realistically gauge the disparities between the productivity and financial outcome, projected or otherwise. Many scholars have affirmed that ‘accounting information may be regarded as public good because existing shareholders explicitly pay for its production but have no means of exacting a share of this payment from new shareholders’ (Leftwich, 1980; Watts & Zimmerman, 1986; Beaver, 1989). Risk management strategy of the organization is yet another important factor that determines the extent of risk to the stakeholders. The risk management is very crucial for the unpredictability of the socio-economic paradigms of the emerging global values. The Turnbull Report says that the companies need to be able to assess ‘the likelihood of the risks concerned materialising’ (Turnbull Report, 1999b, para. 17). Issues like pollution control, environment conservation, long term measurement for protection against damages due to various factors like natural calamities, fire etc. are issues that need to be incorporated in the risk management strategy. Recent researches have revealed that ‘corporate risk disclosures appears to be related to institutional ownership… companies with more fluid investors tended to disclose more risk information’ (Abraham & Cox, 2007). Development and implementation of such strategies allow the corporate governance to effectively manage the risks. In 1999, Turnbull Report was a major document of corporate governance that defined the extent of risk disclosure techniques comprising of assessment, estimation, management and disclosure of financial risks and internal controls through transparent working. The report emphasised that ‘effective monitoring on a continuous basis’ considerably reduced risks (Turnbull Report, 1999b, para. 27). In 2005, the guidelines were revised to incorporate the changes in the internal control processes that reflected positively in the improved standard of the risk management strategy and internal controls. The wide ranging implication of the revised guidance emphatically established the need for effective corporate governance in the era of rapid globalization. The revised guidelines also ensured that more stringent measurements for internal control were introduced and more transparency is provided through dissemination of information. The organizations need to be more expansive on the various measurements like identification, evaluation and management of the risks that are reduced especially through internal controls. FRC3 has disclosed that ‘..the guidance has contributed to a marked improvement in the overall standard of risk management and internal control since 1999’ (FRC, 2005, p1). It is part of corporate governance to disclose the various application techniques and processes that are used as risk preventive measures. Solomon has asserted that ‘..these (corporate governance) reforms are generally acceptable , though the most important point to emphasize is the maintenance of self regulation’ (Solomon, 1999c, p165). In the recent past, the world has witnessed great slide in the standard of corporate governance that has considerably damaged the goodwill of the public. The lack of strategic control mechanisms and effective regulation has been responsible for the decline of the overall performance of the company, making them an easy target for the unscrupulous elements, both within and outside the organization. The number of financial scandals resulted in various reports and guideline. Turnbull report and later revised guidelines for corporate governance became the guiding principles for the United Kingdom companies to reinforce internal controls to reduce risks and through transparency in the corporate governance. BP in its annual states that ‘..ongoing evaluation processes to assess its performance and identified areas in which its effectiveness, policies or processes might be enhanced…regular evaluation of board effectiveness underpins our confidence in BP’s governance policies and processes and affords opportunity for their development’ (BP, 2005, p161). These guidelines are important principles and not legal acts. In UK, the risk disclosures are voluntary and the company is not bound by legal strictures to disclose its information. The US, on the other hand, has strict laws that prohibit the misuse of public money and make transparency as mandatory practice in the corporate governance. In US, the study shows that ‘demands from the institutional investors for disclosure of internal control information… was considered to be useful to external decision makers’ (Hermanson, 2000). Sarbanes-Oxley Act, 2002 came into force by 2004 which make it compulsory for the US companies to submit annual assessment of effectiveness of the internal control system to ‘Security Exchange Council (SEC)’. In US, it also makes it mandatory for the companies to have independent auditors to evaluate their internal control system while their financial account are separately evaluated, making two of its senior executive personally responsible for its correctness! The incorporation of such modules in the Company Acts promote transparency and protects the stakeholders interests in the capital market. The Enron fiasco is a case in point which had necessitated the US government to impose strict laws that would protect public money from the hands of vested interests. The issues of corporate governance and CSR practices, including pollution control, environment conservation etc. become especially crucial in the contemporary environment of global business dynamics. To create and sustain long term investment by foreign investors, addressing these issues become highly pertinent. Qatar is no exception and the regional and global corporate bodies must incorporate CSR modules in their corporate governance module. Hence, disclosure policy becomes vital part of transparency in Corporate Governance and organizations across the countries have realized that information sharing is essential element of confidence building among its various stakeholders and shareholders alike. Another very important aspect of the research is that it provides the public with the recent trends that are gaining grounds or the awareness about the issues and factors that would impact the ongoing processes of transparency in the corporate governance. The research studies in the academia are important resources that facilitate better corporate governance through efficient implementation and creative inputs provided by the academicians and experts. The disclosure policy is increasing becoming vital to the corporate governance and the business community is constantly looking for new ways to improve and improvise on its existing system so that it can maintain competitive edge over its rivals through the backing of its committed investors and other stakeholders. El-Gazzar (1998) asserts that higher level of voluntary disclosure take place where the large institutional investors are present. ‘Disclosures have long since been recognized as the dominant philosophy of modern system. It is sine qua non (essential aspect) of corporate accountability’ (Farrar and Hannigan, 1998, p.11). In the era of rapidly changing paradigms of global business environment, despite efficient and timely delivery of its wider goals and objectives, accountability forms a major part of quality corporate governance. Dissemination of relevant information that supports the statements of board of governors is important indicator of the good and fair intentions of the corporate body. Healy and Palepu, broadly define disclosure as; ‘different forms of in formation produced by the companies, such as annual report,… OFR4, profit and loss account, balance sheet… and other mandatory items. It also includes all forms of voluntary corporate communication, such as management forecasts, analysts’ projection… stand alone environmental and social report’ (Healy and Palepu, 2001). According to Core ‘the voluntary disclosures are any disclosures above he mandated minimum’ (Core, 2001).It is often observed that disclosures are intrinsic element of corporate governance that provides the impetus for its success or failure in the wider perspective of competitive business which is increasingly acquiring global essence. The fundamental ingredients of disclosure are backed by voluntary disclosures of the company to instil pubic faith and garner support from its shareholders, in the tough and flexible capital market conditions. The framework of disclosure policy is designed to strengthen accountability processes and thereby develop and create an environment of integrity and trust building, within and outside the organization. According to Solomon ‘Turnbull Report represented is an attempt to create an explicit framework for companies to refer to as a benchmark..’ (Solomon, 1999d, p.152). While there is imperative need to understand the multifaceted dimensions of corporate governance that drive and foster support from its investors, the shareholders need to be kept informed about the state of their investment in the organization through transparent functioning of the corporation. IAL5 has reiterated that investors ‘..are increasingly recognizing that good governance is about good leadership, direction and control and should be taken into account in the assessment of management performance’ (IAL, 2006, p.2). The recent cases of huge financial frauds that have eroded the trust of the investors are primarily responsible for establishing codes of corporate governance and good practice, throughout the world. Codes of corporate governance ascertain that the shareholders’ investments are not misappropriated for personal gains of the few, within and outside the organization. Disclosures address the urgent need of the good governance practice and provide transparency. Internal control systems or processes, transparency in accounting system through efficient auditing, anticipatory measures to assess and evaluate risks that threaten the investments of the shareholders are few of the areas which have significant impact on the transparent working of the corporation. ‘Disclosure of good and relevant information reduces asymmetry, lowers the return which investors demand, and thus lowers the cost of the capital to the firm’ (Diamond & Verrechia, 1991). They are also the most important thrust components which facilitate and proffer platform to demonstrate the practice of competent and responsible corporate governance. RWG6 has clearly stated that disclosure of ‘whole system of controls, financial and otherwise, established in order to provide reasonable assurance of; effective and efficient operations; internal financial controls; and compliance with laws and regulations’ (RWG, 1994, p1). The various modules of disclosure policy reaffirm the corporation’s intentions to reduce and possibly obliterate the scope of fraudulent practices and improve transparency. The codes of corporate governance have been developed to ensure effective and transparent functioning of the business processes of the corporation. Mallin states that ‘the introduction of corporate governance codes has generally been motivated by a desire for more transparency and accountability’ (Mallin, 2007, p.21). The implicit and explicit corporate ideologies that are distinct to a corporation are reinforced and emphasized through governance reporting that gives a written confirmation to their commitment to the codes of good corporate governance. It is for this reason that government, through various regulations and parliamentary acts have incorporated the necessity of reporting the details of the practices followed to ensure transparency in governance. While the governance codes and guidelines issued by different government agencies, commissions and boards have been developed, the necessary reforms in them confirm the need for incorporation of new postulates which are designed to improve the efficient delivery of corporate goals and objectives. The reforms in the existing codes and guidelines also provide better safeguard for shareholders’ investments and interests. The various reporting systems within the codes of good governance promote transparency in the overall operation and execution of mission and vision of the corporation. The reporting highlights the responsible behaviour in the corporate governance and inculcates good practice. Major financial frauds in UK and USA in 1980s and 1990s have resulted in extensive changes in corporate management policies and laws. The Cadbury Report that was published in 1992 in UK, initiated the much needed focus on the transparency of corporate governance. It was followed by Greenbury Report (1995), Hampel Report (1998), Smith Report (2003) and Higgs Report (2003). The increasing shift towards more transparent system of corporate governance led to the final Turnbull Report. While the Cadbury Report was limited to the financial aspect of the corporate governance, the later report touched other areas where reforms were needed to rebuild the falling credibility of the public companies. Turnbull Report (2004) proposed comprehensive codes of good corporate governance in the diverse areas of operation, administration and other pertinent business processes which have significant impact on the overall productive outcome of the corporation. ‘Effective financial controls …ensure that the company is not unnecessarily exposed to avoidable financial risks and that financial information used … is reliable. They also contribute to the safeguarding of assets, including the prevention and detection of fraud’ (Turnbull Report, 1999c, para 12). The report was later revised to include fresh guidelines to include improved measures of disclosures leading to transparency in corporate governance. As a leading economy, America has always been proactively involved in promoting measures that are transparent and help to instil confidence in the investors and shareholders. The Enron scandal followed by Worldcom scam are important events in the US capital market and business arena that have forced the government to reform its company laws and incorporate extensive and tough acts to deter malpractices by the corporations. ALI7’s publication of ‘Principles of Corporate Governance and Structure: Restatement and Recommendations’ prompted the government to take up the issue with full serious intentions. The report had generated widespread debate with far reaching consequences. In the late 1990s, the failure of big corporate bodies in America resulted in Sarbanes-Oxley Act (2002) that provided the legal framework for good corporate governance with emphasis on disclosures of pertinent information that would boost confidence among the investors. According to Parker ‘Sarbanes-Oxley Act ensures that the auditors are expected to report their opinions on the effectiveness of their clients’ internal controls in their annual report’ (Parker, 2005). OECD8’s Principles of Corporate Governance is important guidelines for the global business fraternity to take into the considerations of their various stakeholders and strictly implement transparency in corporate governance through comprehensive disclosure controls. The Principle state that ‘corporate governance framework should recognize the rights of stakeholders established by law or through mutual agreement..’ (Du Plessis, 2005a, p.36). The fast advancing technology and rapid globalization, including local migration, has adversely affected the ecological conditions. The Qatar government has recently come under lot of flak due to excessive carbon emission and other hydrocarbon related pollution. The government needs to implement strategies and plans that can effectively control pollution control. The conservation and preservation of natural resources are important part of population dynamics as its sustenance depends on the available resources. Sustainable development is defined as maintenance of ecosystem that facilitates a continuous supply of natural resources like water, clean air, energy and food with proper waste disposal system. It is important that awareness regarding sustainable development is created amongst the public so that despite advancement in technology, environment is preserved for our future generation. The CSR policies of regional and global businesses must be made accountable for disturbing the eco system through careless disregard for natural resources and preservation of the same. The national and international agencies must form strategies which would promote education, healthcare and employment so that people are able to grasp the seriousness of the issue and make individual efforts towards sustainable development. Very often the multinationals and corporate houses indulge in unethical and vested interest that are designed to benefit them hugely. ‘Accusations by governments and civil society alike, of environmental pollution, human rights abuses, and exploitation of labour in supply chains, has pressured companies into becoming more environmentally and socially responsible. However, companies have quickly recognized the strategic value of being more responsible and are beginning to align products and business relationships, in particular through their supply chains, accordingly’ (UNIDO report). The CSR is becoming increasing controversial and the corporate houses and multinationals are trying to subvert public interest policies in the wider propaganda of their involvement in the welfare of the society. ‘CSR is an insurance policy for image-sensitive CEOs. By paying an ideological and financial cover charge to social and environmental causes,. ... By feeding into politically correct themes, these campaigns frequently distract the media and shareholders from failed business practices and poor stock performance’ (Borelli, 2006). The recent financial frauds and economic meltdown make it imperative that more consideration is paid to effective governance to protect the interests of the stakeholders and public. The developing economies of the world urgently need to include all strata of the society in the process of development. But the external factors and limitation of scope, especially with regard to adequate funds, are proving to be pretty retrograde. The efforts of voluntary organizations and other national and international aid agencies are also not able to expedite the process of inclusion of the people who have been denied access to basic facilities like education, housing and employment. The onus therefore, comes on the corporate houses who must make it an intrinsic part of their organization’s mission and work towards attaining it with sincerity. To make CSR really effective, it is imperative that governments must come up with strict rules and regulations for the corporate houses and multinationals with regard to their corporate social responsibilities. In the last twenty years, CSR has been used and misused by the multinationals either to siphon out the money or disregard local interest, human right violations or even completely ignore environmental parameters and factors. It is seen observed that wherever the government has been vigilant with strict and well defined regulations, the multinationals have made commendable efforts at meeting out the expectations of the people. Hence a detailed research regarding social responsibilities of the corporate houses and the strategies to make it more effective, are the need of the hour. ‘The forces and actors promoting corporate responsibility vary in different national contexts; and it is important to conduct research to clarify the roles of different stakeholders, as well as the types of pressures and opportunities that might promote corporate social and environmental responsibility’ (UNRISD, 2000). Thus, the various researches and papers show that CSR and corporate governance are interlinked and can be broadly defined as part of institutionalized corporate practice to promote accountability and responsibility for their actions that affect their stakeholders and public at large. In Qatar, it becomes an important part of expanding global businesses and their long term sustainable presence. Exploitation of resources for financial gains cannot remain the only motive for the corporate bodies. They need to be more proactive involved in the contribution of social construction of the region where they are working, in order to gain acceptance and win the trust of the people. In a conference organized by Hawkamah, the Dubai-based Institute for Corporate Governance, Qatars Minister of Economy and Finance, Youssif Hussain Kamal has emphasized that ‘there is a critical need to enhance corporate governance in the region given the situation of the global financial markets. 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