EIOD · Bassem Shaaban Sherif Magdy Printed By Alluxe Printing Published by: EIoD Co ntents Arabic Summary Executive Director’s letter By: Dr. Ashraf Gamal Editor’s Note By: Ms

Project EditorNahal Kamal

Editorial ProductionAhmed ShoaibAhmed EidNermine Helmy

Advertising ProductionMostafa M. Abu-El-Elaa

Photography and LayoutHany Ramzy

FinancialsBassem ShaabanSherif Magdy

Printed ByAlluxe Printing

Published by: EIoD

C o n t e n t sArabic Summary

Executive Director’s letterBy: Dr. Ashraf Gamal

Editor’s Note By: Ms. Nahla Kamal

Corporate Governance IntroducedBasic concepts and definitions of Corporate GovernanceBy: Nermine Helmy

Does Mohieldin Mean investment?The strategies deployed by the Government of Egypt in the political, economic and social spheres are bearing fruit. During the past three years, Egypt has witnessed the strongest upsurge of economic growth in recent times. The Minister of Investment in an exclusive interview to the ExecutiveBy: EIoD Team

Securitization in EgyptA snapshot on the securitization market in Egypt and its developmentsBy: Mr. AbdelHamid Ibrahim

Egypt’s Monitoring public ownership initiativeIn Egypt, despite current unprecedented levels of private sector contribution,investments in SOEs remain a huge component of Egypt’s budget. The article shows the efforts of the government to monitor the performance of publicly – owned companies.By: Mr. Basel El Heiny

©The Executive. All rights reserved to the Egyptian Institute of Directors (EIoD).

“The Executive“ is Egypt’s leading magazine for the business community and business decision-makers. Packed with lively and informative features and shorter advisory items, it is essential quarterly reading for directors of companies of all sectors and of all sizes.

“The Executive“ is editorially autonomous and the opinions expressed are not those of contributors’ employing organizations, unless expressly stated. The views of contributors do not necessarily reflect the views of the Egyptian Institute of Directors nor that of the Ministry of Investment. All information contained within this magazine is provided for general information purposes only and on the understanding that none of the content herein constitutes legal or other professional advice.

September-December 2007 Issue # 1

8

10

11

14

16

20

For Advertisement in “The Executive” magazine, Kindly contact:Mostafa M.Abu-El-Elaa

Tel : +202 37482769 / 33352765Fax : +202 37629028E-mail: [email protected]:Junction of Salem Salem & Abdel Azim Rashed St., 4th Floor, Agouza, Cairo, Egypt

22This publication is funded by the EU

C o n t e n t sFrench direct InvestmentsAn article by H.E. the Ambassador of France in Egypt

Promoting Corporate social Responsibility in Egypt through environmental awarenessEncompassing social, ethical, and environmental practices into the business practices is now more commonly known as Corporate Social Responsibility. More about it in the article. By: Ms. Sally Makram

Ownership concentration in Arab Equity MarketsThe widely-held firm is, in fact, not a widely observed phenomenon in most countries, the article will shed the light on the ownership concentration in the Arab countriesBy: Dr. Mohamed Omran

Determinants of commercial banks profitability maximization Profitability is one of the major measures of banks efficiency. The article highlights the main factors which lead to a perfect profitability maximization in banks.By: Dr. Khalil AbuRas

Latest investment news

First Annual International Conference on Transparency & DisclosureMore than 400 participants attended the first annual international conference on Transparency and Disclosure that was organized by the Egyptian Institute of Directors ( EIoD) in collaboration with the UNCTAD. All about it inside ..By: Mr. Ahmed Eid & Ms. Mona Alaa

Corporate Governance in the Middle East and North AfricaA quick and precise review of the development of corporate governance in the MENA region. By: Ms. Elena Miteva

23

24

26

Stock Exchange Mergers Leading to Corporate Governance PracticesStock exchanges around the world are merging and this is raising questions about the impact of this activity on corporate governance standards, details are inside .. By: Anthony Miller & Ms. Jackie Cook

Corporate Governance in Banks Corporate governance of banks has recently gained prominence in both international and local fora. The article sheds the light on the importance of CG in banks and the effect of its application.By: Dr. Hala ElSaid

Board Development seriesThe EIoD has pioneered in introducing the Board Development Series certificate program, all details about the program and the accreditation are inside .. By: Mr. Ahmed Shoaib

IFC’s efforts to improving Corporate GovernanceMany companies in the MENA region have come to a stage in their corporate life when they have to apply corporate governance principles.By: Mr. Martin Staindl

EGYTRANS and corporate governanceA practical application of Corporate Governance in an Egyptian company. By: Mr. Hussam Leheta

Corporate needs governance but business-owing families need it even more!There is no doubt that all businesses need corporate governance, but the article shows that family-owned businesses need even more. By: Dr. Alaa-Eldin Adris

Strategic Management between board of Directors and ManagementWhy to have a focused strategy? What is the most common reason that strategic planning fails? And more in the article. By: Mr. Afifi A. Afifi

Corporate SecretaryWhat are the rights of Directors? What makes a person a Director?What are the duties of the company’s secretary?By: Ms. Hala Ragab

Certified Directors’ Forum of EgyptMeet our graduates of the first and second intakes of the board development series.

30

32

34

42

44

46

48

50

52

38

53

54

56

September-December 2007

...

مجلة من عدد أول بإصدار معكم نسعد"The Executive"عن تصدر التي

المصري المدیرین .مركز

"The Executive"اختیارهاسم بعنایةتممخاطبة في المجلة أھداف عن لیعبر شدیدةمجالس وأعضاء واألعمال المال رجالفي العاملة الشركات وقیادات اإلدارات

أو التوسعمصر في ترغب التي تلكالمصريفيبنشاطھا السوق .داخل

"The Executive"ربع مجلة ھيمركز عمل فریق بجھود تصدر سنویةمركز أول یعتبر الذي المصري، المدیرینثقافة لنشر یسعى األوسط الشرق فيبالمنطقة الشركات حوكمة تقوم. وتطبیقات

ومقابال ودراسات مقاالت بنشر تالمجلةالمال بنواحي المھتمین كل تفید ومعلوماتنشر في تسھم كما واإلقتصاد، واألعمالالشركات وحوكمة اإلستثمار مفاھیم

بھا المرتبطة ویشارك. والموضوعاتمن ومدیرون أعمال ورجال خبراء بالمجلةینظمھا التي التدریبیة البرامج خریجيبھا یشارك كما المصري، مركزالمدیرین

وعالمیةكذلك مصریة جامعات أساتذةقواعد نشر في مختصین إلى باإلضافة

الشركات االقتصادحوكمة وخبراء.واالستثمار

محمود الدكتور مع حوارًا العدد ھذا یتضمنالدین اإلستثمار–محي فیھ–وزیر نناقش

المصریة الحكومة بھا تقوم التي الجھودالتي القواعد وتطبیق القوانین تساعدلتفعیل

والرقي مصر في األعمال مناخ تحسین فيجذب إلى باإلضافة الحالیة بالمشروعاتتحقیق على یساعد مما الجدیدة االستثمارات

المصري لإلقتصاد .الرخاء

من العدد ھذا "The Executive"فيبرامج أحد عن بالتفصیل مرة ألول " ننشر

المصري المدیرین والفاعلة" مركز الناجحةحوكمةفي بقواعد الوعي نشر مجال

ورؤساء أعضاء مھارات وتنمیة الشركات،إسم تحمل تدریبیة دورة في اإلدارة مجالس

"Board Development Series "والتياألوسط الشرق في تدریبیة دورة أول تعدفي لیس الشركات حوكمة قواعد تتناولكلھا العربیة المنطقة في ولكن فقط مصرمھارات تنمیة علي تركیزھا الي باإلضافة

مجالس ورؤساء .االدارةأعضاء

من العدد ھذا في أیضًا تجد"The Executive"شامل عنتغطیة ة

والشفافیة لإلفصاح األول السنوي المؤتمربإطالق المصري المدیرین مركز قام الذي

من الفترة في یونیو١٩–١٨فعالیاتھالسید٢٠٠٧ رعایة اإلستثمار/ تحت .وزیر

بأقالم مقاالت مع العدد ھذا في بكم نتوقفبرنامج خریجي من مھارات"عدد تنمیة

اإلد مجالس ورؤساء الذي" ارةأعضاءلنتعرف المصري المدیرین مركز یعقدهفي العملیة وتجاربھم نجاحاتھم وعلى علیھموالفعالة الصحیحة اإلدارة قواعد تطبیقبالمجتمع ثم ومن بالشركات للرقي والرشیدةإدریس، الدین عالء األستاذ ومنھم ككل،

واالستاذ/ واألستاذة رجب، عفیفي/ ھالة. عفیفي

السفیرذاھثرىیكما من؛ كل بكتاباتھم العددالسید مصر لدى بادو/ الفرنسي لوران

مستشارى/ واالستاذ كبیر إبراھیم الحمید عبدود االستثمار، نائب. وزیر عمران محمد

االستاذ المصریة، البورصة باسل/ رئیسالمالیة وزیر السید مستشار الحیني

والدكتورة السعید،/ المصري، ھالةاالستاذ/والدكتور راس، أبو مارتن/ خلیل

واألستاذة واالستاذ/ ستاندل، ماتیفا، / إلیناواالستاذة میلر، كوك/ أنتوني . جاكي

على حقیقیًة، فائدًة المجلة لكم تقدم أن نتمنيمن قادمة أخرى أعداد في بلقائكم أمل

"The Executive"أن دائمًا متمنینومساھما بكتاباتكم البناءةتشاركونا .تكم

.

8

IIt gives me a great pleasure to introduce to you the first issue of “The Executive”. “The Executive” is a quarterly business magazine issued by the Egyptian Institute of Directors, EIoD. The EIoD is an affiliated entity in the Ministry of Investment working mainly on corporate governance issues in Egypt and the MENA region.

The institute’s main objective is to spread the awareness and application of good corporate governance among Egyptian and regional companies and business communities. In doing so, the EIoD carries out a variety of activities including conferences, workshops, training courses, research, and consultancy. The institute also cooperates with many leading international organizations and so is always capable of using the technical support of leading international experts. Therefore, and in a relatively short period of time, the EIoD was able to establish itself as the leading corporate governance institute in the region. Consequently, the institute was able to attract Chairmen, directors, and key executives from leading companies to take its training courses, attend its seminars and conferences, and join the membership of the institute.

What we have done so far is only a beginning, for we believe that good corporate governance is not anymore optional, it is the only way by which Egypt and the region can enhance their competitiveness and maintain the rights of shareholders and all those who deal with companies of the region.

We hope that you will find “The Executive” useful and we will always welcome your feedback and contributions to the topics of the following issues.

LetterExecutive Director’s

Ashraf Gamal El-Din

Executive DirectorEgyptian Institute of Directors

Dear reader,

WWe are proud to introduce the first issue of The Executive to be published by the Egyptian Institute of Directors. The magazine serves to complete and complement the missions of the Ministry of Investment and the EIoD among which spreading awareness about corporate governance practices and investments in Egypt.

All of us at the EIoD are excited to be working on such an important and big project that is still in its evolving phase and its characteristics still emerging. We also plan to announce new features of The Executive in the future, such as electronic access and archival search capabilities, which will enhance our ability to bring to you the most thorough primary source coverage of Egypt’s investment and corporate governance developments.

No Clear theme runs through all of the articles in this issue, so I thought I’d take this opportunity to introduce another theme that encompasses these articles, as well as, we hope, everything else published by the Egyptian Institute of Directors. That is the issue of Professionalism. The Executive aims to present articles from directors and executives to directors and executives that are accessible to all regardless their field of specialization. More ambitiously, The Executive aspires to stylistic excellence – all articles are written clearly, concisely, and with logical development and elegant phrasing which I hope will be your judgement as well.

I would like to take the opportunity to thank everyone who participated in this issue and a special thanks is owed to the European Commission Delegation for sponsoring this issue of the magazine.

We welcome readers’ comments and feedback about The Executive. The magazine’s strength depends on the continued receipt of professional, high-quality submissions. Keep them coming!

NoteEditor’s

Nahla Kamal

General ManagerEgyptian Institute of Directors


IntroducedCorporate Governance

The roots of “Corporate Governance” go back to the beginning of the 19th century, and

were dealt with by some organization and management theories as well as the enterprise theory. Those roots lie in the “Agency Problem”, a situation that happens when management is separated from ownership.

A number of definitions related corporate governance to different prospectives, some consider it to be a mechanism that allows companies to get financing, magnify the value of their shares and secure continuity in the long run. Others define it from the legal prospective as the contractual relationship which defines the rights and duties of the shareholders and the stakeholders on one hand and of the directors on the other hand. Finally, some define it from the social and moral perspective by concentrating on the company’s social responsibility to protect the rights of the minority shareholders or junior investors, to realize equitable socioeconomic developments and protect the environment.

Nonetheless, and although there is no single, accepted definition of what “Corporate Governance” means, an acceptable and comprehensive definition of corporate governance refers to the rules, laws and standards that define the relationship between the company’s board of directors on one hand and its shareholders and stakeholders on the other hand. It involves a set of relationships between a company’s

management, its board, shareholders and other stakeholders. It also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.

Good corporate governance is a mixture of legislation, non-legislative codes, self regulation and best practices, structure, culture, and board competency. In this aspect the Organization for Economic Cooperation and Development (OECD) has articulated a set of core principles of corporate Governance practices that are relevant across a range of jurisdictions, which are:• Shareholders rights, equitable treatment of shareholders.• Stakeholders’ role in corporate governance.• Disclosure and Transparency.• Responsibilities of the board of directors.

The quality of corporate governance is mainly a function of the presence and quality of two groups of determinants, external and internal determinants. The external determinants refer to the general investment climate in the country which includes; laws that regulate market performance, the efficiency of the financial sector , the competitiveness of the commodities markets and the factors of production and the efficiency of the supervisory bodies and authorities in exercising strict control over the companies. The importance of the external determinants presence is that it provides a sound

corporate governance environment and ensures the enforcement of laws and rules that reduce the conflict between social and private returns.

On the other hand, the internal determinants refer to the rules and principles that determine the decision- making process and the division of responsibilities among the general assembly, board members, and the executive directors of the company.

As the board of directors is considered to be the heart of the company, it is the link between those who provide the capital and to whom they are accountable, and who carry out the policies and decisions they make. Corporate governance thus exists to provide a framework to balance the relationship between the board, shareholders, and other stakeholders.

Corporate governance has many advantages to companies and to the economy as a whole. Research has proven that well-governed companies have better access to finance at lower cost. Well-governed companies achieve more profits and have better policies to handle risks. The rights of shareholders, minority shareholders, stakeholders, and employees are maintained better in well-governed companies. Finally, corporate governance boosts investors’ confidence in companies resulting in higher market value for such companies. Those positive impacts on companies and stakeholders are surely reflected on the economy as a whole in terms of being able to attract more local, regional, and international investors.

By: Nermin Helmy

14


An Exclusive Interview to The Executive

Minister of Investment...

D o e s M o h i e l d i n m e a n I n v e s t m e n t ?D o e s M o h i e l d i n m e a n I n v e s t m e n t ?

By EIoD team

The strategies deployed by

the Government of Egypt in

the political, economic and

social spheres are bearing

fruit. During the past three

years, Egypt witnessed

the strongest upsurge of

economic growth in recent

times. Since 2004, Egypt

announced the country was

Open for Business.

How are the investors

faring? What are the tangible

results of the reform

measures introduced?

This exclusive interview

with H.E. Dr. Mahmoud

Mohieldin – the Minister of

Investment will shed the

light on some answers to

these questions and others

concerning various sectors

including financial services,

investment, and corporate

governance

16

D o e s M o h i e l d i n m e a n I n v e s t m e n t ?

The Executive


In commenting on the developments being witnessed in the Egyptian economy the Minister of Investment

said;Egypt is experiencing its longest and

strongest period of economic growth in more than a quarter of a century. Economic reforms undertaken since July 2004 have opened up previously-closed sectors of Egyptian industry and commerce to investors. The government embarked on reforming the public sector and to enhance the private sector’s role in economic development.

The steady increase of Gross Domestic Product (GDP), rising to almost 7.1 and 6.5 per cent during the first and second quarter of FY2006/2007 respectively, is much inline with the target set for achieving and sustaining an average annual growth rate of 6 – 7 per cent.

Mohieldin Added that the fiscal stability and transparency, which are the two key elements of a stable macroeconomic environment, as well as a healthy investment climate, are the core of the government endorsed reform agenda. As a percent of GDP, the cash deficit was reduced from 9.4 per cent in FY2004/2005 to 8.9 per cent during FY2005/2006, and is budgeted to decline further to reach 7.6 percent in FY2006/2007.

And concerning the Exchange rate, the Minister explained that its movements play a key role in the price competitiveness of Egypt’s exports of goods and services, with areal depreciation of the Egyptian Pound following the free float in January 2003

triggering a doubling in the value of manufactured exports from US$ 3.4 billion in FY2001/2002 to US$ 6.4 billion in FY 2005/2006. In Q1 FY2006/2007, manufactured exports reached US$ 2.3 billion, compared to US$ 1.5 billion in same period the previous year.

On another front, the net international reserves held at the Central Bank of Egypt reached US$ 26 billion at the end of the first half of FY2006/2007.

INVESTMENT RACEMuch of the reform efforts undertaken

by the government during the last three years have endeavored to create an “investment-friendly” environment in Egypt, said Dr. Mohieldin and added that these reforms and the encouragement of private sector participation have spurred growth in all sectors.

It is sufficient to mention that the net foreign direct investments has increased

“the real depreciation of the Egyptian Pound triggered a doubling in the value of manufacturing exports from US$ 3.4

billion in FY2001/02 to US$ 6.4 billion in FY2005/06”

Real GDP Growth2000/01 3.42001/02 3.22002/03 3.12003/04 4.22004/05 4.62005/06 6.1Q1 06/07 7.1Q2 06/07 6.5

3.4

3.2

3.1

4.2

4.6

6.1

7.1

6.5

2000/01

2001/02

2002/03

2003/04

2004/05

2005/06

Q1 06/07

Q2 06/07

Real GDP Growth (%)

Source: Ministry of Economic Development

17



from about US$ 407 million in the FY 2003/2004 to be US$ 6.1 billion in the FY 2005/2006 and till the third quarter of the FY 2006/2007 it recorded almost US$ 10 billion.

Undoubtedly, the investment climate has also encouraged domestic investments. The private sector has exhibited dynamism in terms of an increase in the contribution to implemented investments in the Egyptian economy. The share of the private sector in the total implemented investments has increased from 83.8 per cent during the first half of FY 2005/2006 to reach 87.9 percent during the first half of FY2006/2007. The minister of investment added that the manufacturing sector has been at the lead in terms of implemented investments, having absorbed a total of LE 19.8 billion in implemented investment during the same period of which 90 percent are owed to the private sector.

UPPER EGYPT: INVESTING IN THE FUTURE

Dr. Mohieldin stressed on the fact that the government’s focus has been on Upper Egypt in terms of directing investments, and several projects and indicators exist to prove the results of this strategy. As there are several public-

private partnerships as well as Egyptian, Arab and foreign investments in Upper Egypt and it is worth mentioning that the Upper Egypt Investment company which was established in May, has already started to examine some projects including transport, marketing and hotels to benefit from the natural and tourist wealth in this area.

“ … I can say that the interest in Upper Egypt is not only embodied by new projects but also through several government procedures to improve the investment climate, facilitate procedures, provide information on governorates and their investment opportunities and improve the overall economic climate ….” , said the Minister of Investment.

The government interest is also focused on investments that are already in operation such as Sugar and Integrated Industries Company and Misr Aluminum Company in which new investments are pumped.

ECONOMIC EXPANSION: NON-BANK FINANCIAL SERVICES

Reform has led to a huge increase in the investor base in the stock exchange during the last three years. This is proven by the market capitalization figures that show an increase by 17.3 percent to reach LE 533.9 billion by the end of December 2006, compared to LE 456.2 billion by the end of December 2005. Dr. Mohieldin added that issuances for new companies, and capital increases amounted to LE 39.5 billion in Q2 of FY2006/2007 compared to LE 16.8 billion.

Not only the capital market that is witnessing success and development, Minister Mohieldin mentioned, but also the mortgage finance sector. As The number of people buying homes through mortgage lending rose sharply in 2006 as banks and mortgage finance companies responded to the government’s emphasis on home ownership.

This year would witness a significant development in the mortgage finance field according to expectations of banks and mortgage finance companies that mortgage volume would exceed EGP 2 billion by the end of 2007.

While, the Mortgage Finance Support

Column1 2005/2006 July 1, 2006 May 31,2007Free Zones 139 134Direct Investm 1923 3149Law 159 1805 2144

134

3149

2144

18051923

139

0

500

1000

1500

2000

2500

3000

3500

Free Zones Direct Investment Law 159

2005/2006 July 1, 2006 May 31,2007

Number of newly established companies

Source: GAFI

“Companies say they are meeting the milestones in their business plans and exceeding their goals because the new investment

climate is conducive to business.”

18



from about US$ 407 million in the FY 2003/2004 to be US$ 6.1 billion in the FY 2005/2006 and till the third quarter of the FY 2006/2007 it recorded almost US$ 10 billion.

Undoubtedly, the investment climate has also encouraged domestic investments. The private sector has exhibited dynamism in terms of an increase in the contribution to implemented investments in the Egyptian economy. The share of the private sector in the total implemented investments has increased from 83.8 per cent during the first half of FY 2005/2006 to reach 87.9 percent during the first half of FY2006/2007. The minister of investment added that the manufacturing sector has been at the lead in terms of implemented investments, having absorbed a total of LE 19.8 billion in implemented investment during the same period of which 90 percent are owed to the private sector.

UPPER EGYPT: INVESTING IN THE FUTURE

Dr. Mohieldin stressed on the fact that the government’s focus has been on Upper Egypt in terms of directing investments, and several projects and indicators exist to prove the results of this strategy. As there are several public-

private partnerships as well as Egyptian, Arab and foreign investments in Upper Egypt and it is worth mentioning that the Upper Egypt Investment company which was established in May, has already started to examine some projects including transport, marketing and hotels to benefit from the natural and tourist wealth in this area.

“ … I can say that the interest in Upper Egypt is not only embodied by new projects but also through several government procedures to improve the investment climate, facilitate procedures, provide information on governorates and their investment opportunities and improve the overall economic climate ….” , said the Minister of Investment.

The government interest is also focused on investments that are already in operation such as Sugar and Integrated Industries Company and Misr Aluminum Company in which new investments are pumped.

ECONOMIC EXPANSION: NON-BANK FINANCIAL SERVICES

Reform has led to a huge increase in the investor base in the stock exchange during the last three years. This is proven by the market capitalization figures that show an increase by 17.3 percent to reach LE 533.9 billion by the end of December 2006, compared to LE 456.2 billion by the end of December 2005. Dr. Mohieldin added that issuances for new companies, and capital increases amounted to LE 39.5 billion in Q2 of FY2006/2007 compared to LE 16.8 billion.

Not only the capital market that is witnessing success and development, Minister Mohieldin mentioned, but also the mortgage finance sector. As The number of people buying homes through mortgage lending rose sharply in 2006 as banks and mortgage finance companies responded to the government’s emphasis on home ownership.

This year would witness a significant development in the mortgage finance field according to expectations of banks and mortgage finance companies that mortgage volume would exceed EGP 2 billion by the end of 2007.

While, the Mortgage Finance Support

Column1 2005/2006 July 1, 2006 May 31,2007Free Zones 139 134Direct Investm 1923 3149Law 159 1805 2144

134

3149

2144

18051923

139

0

500

1000

1500

2000

2500

3000

3500

Free Zones Direct Investment Law 159

2005/2006 July 1, 2006 May 31,2007

Number of newly established companies

Source: GAFI

“Companies say they are meeting the milestones in their business plans and exceeding their goals because the new investment

climate is conducive to business.”

18


The Executive


and Guarantee Fund finalized the procedures of providing 600 applicants for housing units with a cash support of 15% of the unit value of maximum of EGP 10,000. And there are underway preparations to provide 3000 citizens with cash support during the coming months, which would bring total support from the fund to limited income citizens and applicants for mortgaged units to about EGP 23 million by the end of 2007, the units will be provided in 6th October, Shoroq and New Damietta cities in coordination with the new Urban Communities Authority.

CORPORATE GOVERNANCE: THE SIGNIFICANCE AND THE IMPLEMENTATION

Dr. Mohieldin explained that regulations enforced by The Cairo and Alexandria Stock Exchanges (CASE) for listed companies are being amended to include a greater commitment to Corporate Governance. The Minister added that the new rules are expected to be approved by the Capital Market Authority (CMA) before the end of this year and will be a measure of listing companies.

Dr. Mohieldin hailed the civil society organizations that embrace the concept of Corporate Governance. He said he is optimistic about the publication of such rules adopted by the organisations. Implementing such rules will benefit Egypt in various ways, he said.

Dr. Mohieldin was possitive that the sound enforcement of Corporate Governance will contribute towards promoting investment and will improve the competitiveness and financial capacities of Egyptian companies.

“… implementing corporate governance guidelines would facilitate companies’ access to finance from financial institutions once they comply with the standards set by the Egyptian banking system. Companies are required to implement Corporate

Governance principles before they seek external capital….”, said the Minister of Investment.

Dr. Mohieldin considered that Egypt’s achievements were clear in increasing local and foreign investments, whether direct or through the stock exchange. Implementation of the reform programme through enforcing Corporate Governance rules will even lead to more achievements.

“The share of market capitalization in GDP increased to 86.43 percent by the end of December 2006 compared to 73.85 percent

by the end of December.”

“Corporate Governance is not a set of rules but a philosophy and a concept that have to be adopted by Egyptian society whether it be the business community , economic organisations or national

institutions.”

19


Securitization is one of the most innovative structured finance products that was recently

introduced in the Egyptian market when the Minister of Investment issued ministerial decree in year 2004 (amended in year 2006) adding chapter 10 to the executive regulation of capital market law in relation to securitization. Prior to that, specifically in 2004 a whole chapter was added to the capital market law number 95 for the year 92 namely chapter three – Securitization Companies.

Principally, a securitization general structure involves assigning the title of future Receivables (or alternatively pool of financial assets generating future cash flows) by the owner of these assets ( the ”Originator”) to a (“Securitization

Company”) which is established as a joint stock company under law 95 for1992 by virtue of assignment contract. The Securitization Company reimburses originator for the present value of the assigned assets, a transaction which is funded by an amortizing Bond Issuance (the “Bond”) placed with institutional investors in the local capital markets. The Bond would be repaid from collections of Receivables during an appropriate collection period (which would be monthly or quarterly) (the “Collection Period”). The law also permits shareholding companies to launch a securitized bond issue subject to obtaining the approval of the Capital Market Authority or what is so called the Internal Securitization. The main

difference between both types is that internal securitization allows bondholders to have recourse to other assets owned by the originator which is not the case if the securitization is done via a securitization company.

Securitization offers many benefits to Originators of financial assets. Firstly, securitization provides an alternative source of capital from bank loans or loans provided by other financial institutions. Using securitization will make Originators less dependant on one source of capital. Secondly, a securitized bond issue usually enjoys an improved rating versus that of the originator due to the diversity of underlying pool securing the bond in the first case versus the financial risk of the originator in the second. This results in a lower cost

Mr. Abdel Hamid Ibrahim, Senior Financial Advisor to the Minister of Investment

in EgyptSecuritization

20

The Executive

of funding for the originator and hence improves profitability ratios. Moreover, securitization permits companies to obtain funding directly through the capital markets, hence achieves capital market recognition. In the same context, Securitization can help improve financial ratios because it removes both assets and liabilities from the balance sheet. Following securitization, a Seller’s return on equity, debt to equity and return on assets will improve. Finally and most paramount, securitization allows companies to fund growth opportunities taking into consideration that these investments are offloaded at a later stage to a securitization company and proceeds are utilized to finance other investments and so forth.

In light of the above and growing market perception of the benefits of securitization, four issues were successfully launched to the Egyptian Debt Capital Market namely, Egyptian Arab Land Bank First and Second issues for LE 500 million and LE 750 million and Contact Securitization Company’s first and second issues for LE 140 million and LE 159 million respectively. All of these deals were oversubscribed by a minimum multiple of 2x reflecting that inventors have well received the infant product.

The growing business activity of the Real Estate Sector coupled with the introduction of mortgage finance law and other legislative decrees aiming at achieving a warranted enforcement of security will definitely fuel the securitization in the future.

21


Public Ownership InitiativeEgypt’s Monitoring

I- BackgroundA main OECD Guideline is to

encourage states to act as informed and active Owners [“the exercise of ownership rights should be clearly identified within the state administration. This may be facilitated by setting up a coordinating entity or, more appropriately, by the centralization of the ownership function”].

In Egypt, despite current unprecedented levels of private sector contribution, investments in SOEs remain a huge component of Egypt’s budget (in 2006, total SOE assets exceeded EGP 1 Trillion). Mindful of this sector’s importance, the Ministry of Finance (MOF) launched an initiative for organized, standardized monitoring government investment in its enterprises. Rather than an abrupt roll-out a monitoring structure, MOF opted for a “proof of concept” approach, envisaging formulation of performance measures to be tested on a group of pilot SOEs, as well as studying best practice monitoring models, with a view to suggesting a model for Egypt.

To accomplish this, in March, 2007 the Minister of Finance passed a Ministerial Decree forming a Working Group comprising MOF, MOI (including EIoD), and Ministry of Housing. The Working Group (WG) drew up a Master Plan for the Initiative, and proceeded to implement it. The first phase envisages the creation of a Performance Measurement System (PMS), to include a rating index for Corporate Governance

(CG) adoption and development; conducting Beta Testing of the PMS on a pilot group of SOEs, and training/ capacity building within those SOEs. The second phase would witness reviewing various best practice models, with a view to suggesting a model for monitoring Public Ownership which could be adopted by the Egyptian government.

II - Targets AccomplishedTo date, the following has been

achieved under this Initiative:1. Defining Strategic Goals For SOEs

As a prerequisite for measuring performance, strategic goals and objectives have to be determined and communicated to the management whose performance would be measured. Several such goals were identified and proposed.

2. Choosing 6 Companies To Serve As Pilot For a Beta Test Process

A number of pilot SOEs (6) were selected on which the PMS (and Corporate Governance Index) would be tested to judge results and identify what adjustments need to be made prior to a larger scale roll-out.

3. Design Corporate Governance Rating Index (CGRI) as a PMS Component

An important and crucial component of the PMS is to design a system to develop and adopt CG. Egypt’s CGRI was

Basel El HayeeniAdvisor to the Minister of Finance

22 00The Executive

designed as a “Yes/No” questionnaire that would quantitatively measure the level of CG compliance within SOEs. 4. Conduct Beta Testing of The CGRI Among the Pilot Companies

The CGRI questionnaire was completed by the pilot companies for Beta test purposes. The results and feedback from the pilot companies are being compared, and appropriate adjustments are being made with the objective of reaching a final CGRI version.5. Settling on a PMS, and starting its Design

After reviewing several forms of measurement systems, the WG settled on the Balanced Scorecard (BSC) measurement system, and selected the four perspectives on which Egypt’s BSC will be based, namely, Financial, Customer, Process, and Learning/Growth perspectives. Currently, the WG is designing individual measures and associated weights.

III - Future Targets The WG continues to pursue the

Project Plan, including the finalization and testing of PMS (including CGRI), and another wave of capacity building within select SOEs.

The culmination would be an in-depth study of world-wide monitoring models with a view to recommending a model for Egypt, as well as an action plan for the Egyptian government to pursue as and when it decides to roll-out the model for exercising its ownership function.

France ranks among the leading European investors in Egypt, especially with significant new investment flows

during the last three years. French companies are mostly attracted by the rapid growth of the Egyptian market, ideal location close to Southern Europe and emerging markets of the Middle East, competitive costs of production and business friendly Government policies.

According to the annual survey conducted by the French economic mission in Cairo, about 90 French companies have a controlling stake in subsidiaries in Egypt, with a total capital investment well in excess of 3 billion euros and with a total of about 40 000 employees.

These investments were initially focused on services : telecommunications (France Telecom with Mobinil and the Orange Business Services support centre in Cairo), banking (Société Générale with NSGB, Crédit Agricole and BNP-Paribas), insurance (AGF), tourism (Accor group), waste management (Veolia) and retail (Carrefour). French companies are now mostly diversifying their activities in industry and manufacturing. The main companies operate in the areas of cement (Lafarge, Ciments Vicat, Ciments Français), industrial gases (Air Liquide), pharmaceuticals (Sanofi-Aventis), electric equipment (Schneider, Nexans), home appliances (Groupe Atlantic), building material (Bonna Sabla, Saint Gobain, Soprema, Jacob Delafon) and, increasingly, food industries (Lactalis, Bel, Bongrain, Danone).

A significant number of these companies are in the process of raising their investment in the country to match the very rapid increase of their markets.

The France-Egypt Presidential Business Council, established in April 2006 on the occasion of the official visit to Egypt of President Jacques Chirac, aims at expanding the number of partnerships between French and Egyptian companies and enhancing the role of small and medium enterprises in bilateral investment.

Laurent PadouxEconomic and commercial counsellorHead of the Economic MissionFrench Embassy in Cairo

French Direct Investmentin Egypt

00The Executive

designed as a “Yes/No” questionnaire that would quantitatively measure the level of CG compliance within SOEs. 4. Conduct Beta Testing of The CGRI Among the Pilot Companies

The CGRI questionnaire was completed by the pilot companies for Beta test purposes. The results and feedback from the pilot companies are being compared, and appropriate adjustments are being made with the objective of reaching a final CGRI version.5. Settling on a PMS, and starting its Design

After reviewing several forms of measurement systems, the WG settled on the Balanced Scorecard (BSC) measurement system, and selected the four perspectives on which Egypt’s BSC will be based, namely, Financial, Customer, Process, and Learning/Growth perspectives. Currently, the WG is designing individual measures and associated weights.

III - Future Targets The WG continues to pursue the

Project Plan, including the finalization and testing of PMS (including CGRI), and another wave of capacity building within select SOEs.

The culmination would be an in-depth study of world-wide monitoring models with a view to recommending a model for Egypt, as well as an action plan for the Egyptian government to pursue as and when it decides to roll-out the model for exercising its ownership function.

France ranks among the leading European investors in Egypt, especially with significant new investment flows

during the last three years. French companies are mostly attracted by the rapid growth of the Egyptian market, ideal location close to Southern Europe and emerging markets of the Middle East, competitive costs of production and business friendly Government policies.

According to the annual survey conducted by the French economic mission in Cairo, about 90 French companies have a controlling stake in subsidiaries in Egypt, with a total capital investment well in excess of 3 billion euros and with a total of about 40 000 employees.

These investments were initially focused on services : telecommunications (France Telecom with Mobinil and the Orange Business Services support centre in Cairo), banking (Société Générale with NSGB, Crédit Agricole and BNP-Paribas), insurance (AGF), tourism (Accor group), waste management (Veolia) and retail (Carrefour). French companies are now mostly diversifying their activities in industry and manufacturing. The main companies operate in the areas of cement (Lafarge, Ciments Vicat, Ciments Français), industrial gases (Air Liquide), pharmaceuticals (Sanofi-Aventis), electric equipment (Schneider, Nexans), home appliances (Groupe Atlantic), building material (Bonna Sabla, Saint Gobain, Soprema, Jacob Delafon) and, increasingly, food industries (Lactalis, Bel, Bongrain, Danone).

A significant number of these companies are in the process of raising their investment in the country to match the very rapid increase of their markets.

The France-Egypt Presidential Business Council, established in April 2006 on the occasion of the official visit to Egypt of President Jacques Chirac, aims at expanding the number of partnerships between French and Egyptian companies and enhancing the role of small and medium enterprises in bilateral investment.

Laurent PadouxEconomic and commercial counsellorHead of the Economic MissionFrench Embassy in Cairo

French Direct Investmentin Egypt


in Egypt Through Environmental Awareness

Promoting Corporate Social Responsibility

In the US, environmental awareness movements gained intense popularity in the 1990s. With this

increase in environmental awareness came an increase of anti-corporate, pro-environment protests in the US and other western countries. Consumers were demanding that companies take a more “responsible” approach to the way they conducted their business and produced their products. Product boycotts were on the rise. Examples of product boycotts are numerous—from cancer causing carcinogens in plastics, to products that released harmful chemicals that deplete the earth’s ozone layer. Terms such as biodegradable, ozone-friendly, recyclable, CFC-free were now what consumers were seeking before opening their wallets and paying for their products. Many products started to boast the proud statement “environmentally friendly” on their packaging.

Companies were faced with an ever-growing population of environmentally aware consumers. They had to take action or risk their products and services being shunned. In order to cater to their consumers, corporations had to integrate practices that not only generated profit but were also morally and socially sound into their business plans. Even if the companies were “forced” to make social and environmental issues a priority out of fear of profit loss, the results were still environmentally and socially favorable.

Encompassing social, ethical environmental practices into business practices also now more commonly known as of Corporate Social Responsibility (CSR) has been gaining widespread popularity and not only among large multinational corporations. Companies and organizations from petroleum to furniture companies are producing CSR mission statements. Many have “environmental” policies or missions. Navigate the website of most corporations, and you’ll find a prominent link to their CSR missions and the details of the activities they engage in to support the community and environment.

To list just a few examples, the Starbucks’ site features several pages detailing how the corporation contributes positively to the community and the environment. They list the many social programs they are involved in. From how they promote the use of coffee for compost to how they promote environmentally friendly practices with farmers, to how they donated money in support of public parks and educational programs. The Nike website has a link you can follow to support worldwide children refugees and state how they are working to reduce their carbon dioxide emissions. Even the Philip Morris tobacco company’s website describes how they work to “reduce the environmental impact” of their business and “promote the sustainability of the

natural resources on which we depend.” They promote awareness on how to prevent litter caused from cigarettes. Many multinational corporations even produce lengthy annual reports dedicated to their CSR activities. Worldwide, the CSR trend is growing as more and more people make it a priority.

How does CSR practice play into the business strategies of Egyptian companies? Several companies in Egypt— from telecommunications to natural gas to banking organizations are following suit and have embraced CSR as a crucial component of their business activities, setting a good example for other companies to follow. Egypt faces a number of challenges. With many local companies faced with the problem of low profit margins, engaging in socially sound activities are not at the top of the priority list. However, while Egypt may not witness the same level of social responsibility policies integrated into the business plans as those in the west, anytime in the near future, the only way to get a step closer to this result is by increasing public awareness on environmental issues and promoting the benefits of maintaining our environment. Companies will make the environment and other social issues a priority only when the consumer does. Consumers will only make it a priority when they are made aware of the benefits maintaining a healthy environment.

By Sally Makram

24


Ownership Concentration

Mohammed Omran, Ph.D.Vice ChairmanCairo and Alexandria Stock Exchange

The following is a summary of a recent study carried out by Mohammed Omran of Cairo and

Alexandria Stock Exchanges (CASE), and Ali Bolbol, and Ayten Fatheldin of the Economic Policy Institute, Arab Monetary Fund, into the impact of the concentration of ownership in four Arab markets.

The widely-held firm is, in fact, not a widely observed phenomenon in most countries. They suggest that this can be attributed to several reasons. In developed countries it could be a response to a legal system that does not protect minority shareholders, but it could also be the result of entrenched financial structures and practices that determine and shape the enactment of corporate law. For example the tradition of strong bank involvement in corporate control and ownership in certain countries, such as Japan and Sweden, having been accommodated into their legal practices.

For developing countries it could also be due to the underdeveloped nature of their financial markets, allowing limited access to external financing, and the preponderance of family firms.

Sound governance should therefore go beyond the textbook example of the widely-held firm and concentrate on redesigning corporate practices that are more peculiar to their case, such as: lack of agency between concentrated and minority owners, reduced liquidity of shares, cross ownership and pyramiding of shareholdings, dual-class shares, and the like.

In this context, the Arab economies are no exception. Their corporate legal system largely follows the civil-law

system, but one can reasonably argue that the relation between legal origin and financial arrangements in the Arab countries merely reflects the influence of a third exogenous variable, which is the role of the state or the nature of the political system and its national governance. Here the Arab world does not fare well, having a relatively closed and highly concentrated political system with a poor mode of national governance. This naturally spills over to its system of corporate governance, as the majority of Arab firms are either government- or family- owned and stock markets are still in a rudimentary stage. But firms are changing, prompted by increased competition from trade openness, by privatisation, and by the need for more external financing. And, to better understand their future trajectory, it is necessary to understand their current corporate make-up and performance.

Previous research studies on corporate governance and firm performance issues have been, mainly, limited to those of developed economies or large emerging economies. It seems that small economies such as those of the Arab countries are very much understudied in the literature, so this particular study aimed to fill this gap by looking at the determinant of ownership concentration and the impact of both ownership concentration and ownership identity on firm performance.

The countries studied provided a selective but representative coverage of the Arab regions – Oman (the Gulf), Egypt and Jordan (the Mashreq) and Tunisia (the Maghreb). The sample of firms from each country covered all major sectors–industry (both manufacturing and non-

in Arab Equity Markets

26

The Executive

manufacturing), financial institutions and services (other than financial); with manufacturing firms comprising close to half the total of 304 firms studied, and financial institutions slightly more than a quarter.

As far as ownership structures of the firms in the sample were concerned, Jordan and Oman emerge as the countries with the highest private ownership, having more than 80% of firm ownership in the hands of private institutions and individuals. Egypt, on the other hand, remains the country with the largest presence of government ownership at 34%, despite its diligent efforts at privatisation in the second half of the 1990s. Tunisia is the country with the largest foreign participation in firm ownership at 18% – surely facilitated by the free trade agreement with the EU – and also appears to be the one with the least participation by local individuals.

Moving on to ownership concentration it seems that both foreign and individual participation in ownership is on the rise, which bodes well for improvements in both the culture of investment and the degree of international confidence in these respective economies.

The authors provide the following conclusions and policy recommendations in response to their analysis of the study:1) Ownership concentration in Arab corporations seems to be negatively associated with legal protection. In other words, when the legal framework does not offer sufficient protection for outside investors, entrepreneurs and original owners are forced to maintain large positions in their companies resulting in a

concentration of ownership. More active stock markets and fewer restrictions on economic activity are correlated with dilution and less concentration of corporate ownership. Hence, if the latter is desired in its own right, then naturally better laws protecting investors and their implementation and more developed stock markets are surely welcome.

2) Notwithstanding the desirability of less concentrated ownership, it does not seem to have a significant effect on Arab firms’ profitability and performance measures. Nor does the separation between the CEO and Chairman. This means that – at least in the short term and especially given the fact that firms typically raise equity not so much in public markets but through family ties or personal relationships – the legal protection of creditors is more important than improving other aspects of corporate governance since any substantial growth in external finance is likely to be debt.

3) Market measures tend to be positively related to concentrated ownership, the presence of blockholders, and the conflation of CEO and chairperson positions. However, this result seems to depend more on reputational effects and lower agency costs than on market fundamentals pertaining to firms’ actual performance, as previous research had indicated. Hence, future improvements in corporate governance practices are better gauged through their effect on performance measures rather than market measures. 4) Large-sized firms and firms operating in a less open economic environment

have higher profitability and performance measures than other firms. This could be the result of favourable advantages seized by monopoly power, not advantages gained through more efficiency. As a result, efforts that aim at better corporate practices should be coupled with reforms of product markets, competition policy, and the overall operating environment for firms.

5) The identity of owners matters more than the concentration of ownership. Particularly important in this regard is the negative association of individual investors with performance measures in financial institutions, a result that could be explained by the tendency of individual owners to manage banks’ assets recklessly in the absence of checks and oversight by other major owners. Also interesting is the lack of a significant relationship between foreign investors and performance measures but the presence of a positive one with market measures. This, however, should not mean taking a neutral or indifferent stand regarding foreign investors, because of the better governance practices that they could bring to domestic markets, and consequently should not act as a deterrent for attracting more of them.

The full research paper Corporate Governance and Firm Performance in Arab Equity Markets: Does Ownership Concentration Matter? can be downloaded from the Elsevier (Sciencedirect website): http://www.sciencedirect.com under the International Review of Law and Economics.

27


To a great extent profitability is one of the major measures of banks efficiency.

In this article I shall highlight the main factors which lead to a perfect profitability maximization in banks.

Maximization means realizing both increasing revenue mean while minimizing costs and expenses. Consequently we obtain two kinds of profit, one is from the increased volume of business and the other is from the declined costs.

Banks as financial intermediaries should be capable to keep a stable spread as follows:A) The( EX ANTI SPREAD) as a difference between the contractual interest rates on the agreed loans and advances after deducting the interest rates paid on deposits.B) The ( EX POST SPREAD ) as a difference between the bank’s actual interest revenues and the actual interest expense.

The difference between the first spread and the second spread is due to the loans defaults.

Certainly the ex-post spread is more useful and realistic measure because banks with high yield and risky credit facilities are likely to face high defaults, but credit well studied is almost highly collected through prevailing credit rationing.

The loan loss provisions are an actual loss rather than it is an additional cost over the basic cost of funds because it is a non cash expense.

Loan loss provisions are sharing the net interest income while bad debts are

liquidity cancer and both are direct measures for a deteriorated credit quality and anti the (CAMELS) concept.

So that credit staff should be qualified, high skilled and well trained.

A rapid growth in loans leads to a poor asset quality specially in recession or with saturated sectors in the market.

Banks may keep an alert, perfect and broadminded staff to early discover the doubtful accounts then to professionally handle the remedial steps and accelerate liquidating the non performing loans.

It is worth referring that Basle requirements intense pressure to raise more capital to support the banks growth and reduce risk but, it is a higher cost of capital to the bank and the shareholders.

So that banks should follow an embedded credit policies to assure healthy portfolios whatever to corporate or to retail customers.

UN provisioned NPLS is an alarm in some banks, requires a speed deduction from equity until NPLS provisions to be justified according to Basle requirements.

Non interest income: Should be increased through the different forex operations and the concentrated and focused marketing efforts to promote the services rendered to customers and expected clients, this should perfectly

done at the lowest costs and overheads at a perfect marketing mix in terms of promotion, products , places, pricing, and people .

In this concern, free of charge services are not recommended, also overheads should stick to its value added earning and results.

Non lending activities such as investment banking operations are enhancing the bank market share and

minimize the operational fixed cost per unit.

Hence there are two additional reasons of efficiency and cost reduction:1) The economies of scale (after capital raising, mergers and acquisitions). 2) The economies of scope (management skills, strategic management, P.O.S. and more advanced equipments).

Banks should apply an adequate asset liability management concepts to keep an integrated approach to the risk management and the strategic balance sheet entire management.

Banks may use legal techniques to benefit from tax exemptions particularly when using their funds in treasury bills or treasury bonds.

The Egyptian banking system is more integrated with the world system consequently such performance should be evaluated and benchmarked not only to the domestic banks but to the international banking system as well.

Determinants ofCommercial banks Profitability Maximization

Dr. Khalil Abu Ras

30

LATESTThe Capital Market Law Executive Regulations Amendments

On July 25th 2007, the Minister of Investment, Dr. Mahmoud Mohieldin issued a decree amending the second section of the third chapter of the executive regulations of the Capital Market Law # 95/1992 on investment funds.

The decree comes within the efforts of the Ministry of Investment and the Capital Market Authority to enhance the securities market in Egypt and bringing it up to international levels.

The amendments stipulate that the majority of funds’ board members should be independent persons who are not, in any form, related to the funds’ company, investment manager or the fund secretary, in order to protect the interests of the funds’ policyholders.

The amendments also, set measures for different categories of funds such as monetary market funds and private ownership funds.

The decree allows the possibility of having a management services company that supervises the registration of issuing and restoring securities and calculating the daily net value of the securities. While, the amendments allow funds to invest their liquid money in investment channels which are low in risk and reversible into cash upon request.

The new decree prohibits borrowing except for the purpose of meeting applications for refund to avoid the use of financial leverage in financing the fund’s activities. Where, the real estate funds are exempted from this, which may borrow not more than 50 % of their real estate assets to finance their activities.

Also, the new decree allows the Capital Market Authority to temporarily stop the refund of funds’ securities in emergency cases which seriously affect the position of policyholders.

w w w . i n v e s t m e n t . g o v . e g

On July 24th 2007, The Ministry of Investment finalized the regulations of the investment zones to be established in different sectors according to law # 19/2007 . The zones shall be run using the same system of free zones and shall have the advantages of quick, easy licensing and procedures through the offices of the General Authority for Investment and Free Zones in theses zones.

The law allows the private sector to establish, manage, use and promote these investment zones to lift the cost of utilities and service off the state.

It also maintains the state’s supervision on these zones via

a supervisory board that controls projects, sets measures of licensing and allows more facilities especially those related to customs.

Projects in investment zones shall commit to their purpose of investment and pay all due customs and duties.

The rules also include the mechanism of forming the investment zone board which includes representatives of relevant bodies.

The board will be responsible for setting measures and standards of investment in zones, granting licenses and commitment to laws.

New Government Insurance Fraud

The Prime Minister, Dr. Ahmed Nazif issued a decree organizing the system of the government fund to cover the harms caused by automotive vehicles accidents in Egypt. The decree was issued to enforce law # 72/2007 on the compulsory insurance against the civil responsibility emerging from automotive accidents.

The Minister of Investment, Dr. Mahmoud Mohieldin said that the decree comes within the efforts exerted by the Ministry of Investment and the Egyptian Insurance Supervisory Authority (EISA) to provide insurance coverage to citizens especially harms caused by automotive vehicles accidents in Egypt including:non-identification of the vehicle responsible for the accident, non-insured automobiles, accidents of automobiles exempted from licensing procedures, financial inability of insurance companies, and other cases to be defined by EISA.

The bylaw of the government insurance fund includes 17 articles. The first article defines the law, EISA, the fund and the relevant minister. The second article defines the fund’s location and supervisory body. The third article identifies the goals of the fund. The fourth article stipulates to register the fund in EISA. The fifth and sixth articles define the due insurance. Articles from seven to ten include the rules of the fund’s board. The twelfth article stipulates that the fund should have an account of revenues and expenses. The thirteenth article defines the beginning and end of the fund’s fiscal year. Articles from fourteen to seventeen organize the aspects of supervision on the fund’s activities.

Rules of Investment Zones Finalized

NEWS

The Minister of investment, Dr. Mahmoud Mohieldin signed on July 11th 2007 the document of Egypt’s’ joining, formally, the Investment Committee of the Organization for the Economic Co-operation and Development ( OECD ) as a partner member in the organization.

During the official ceremony, the OECD reviewed the final report on the technical evaluation of investment climate in Egypt including all information on the policies of investment which shown positive in general, with regard to the reforms adopted by Egypt’s government in the fields of investment promotion, facilitating the licensing and registration procedures, supporting the competition protection and monopolistic practices prevention policies, putting into effect the governance rules in companies of both public and private sectors, committing to regulations related to corporate social responsibilities, encouraging policies to upgrade the employment efficiency, improving capital market development policies, promoting the financial sector

infrastructure and control rules, reforming trade and tax policies.

By this joint, Egypt enjoys the formal right to participate in all activities and works of the committee and the right to decide on all resolutions to be issued by the committee like all OECD member countries and other non-member countries which joined the investment committee as a partner member.

The OECD mentioned that Egypt is considered the first Arab and African country to have the right of a partner’s capacity in the OECD investment committee taking into account the eight other countries have submitted formal requests to join the OECD declaration and committee at the same time of Egypt.

It is worth mentioning that the Ministry of Investment has submitted a formal request to join the OECD investment committee and declaration on international investment and multinational enterprises on February 28th 2006.

Egypt joins OECD Investment Committee as a partner member

World Bank analyzes the Egyptian Business ClimateTowards continuous improvement and facilitation of the investment climate, a meeting between Dr. Mahmoud Mohieldin and the World Bank was held on July 15th 2007, through which , the Word Bank had presented the preliminary results of the detailed study on the investment procedures in Cairo, Alexandria and Assiut.The study highlighted a number of reforms which could improve the investment procedures namely the reduction of property registration costs from 5.9% to 1.9%. This led to a higher rate and return of house registration especially after the enactment of law# 83/2006 on the fees of notary and registration which set the maximum of fees at EGP 2000. The report referred to the facilitating procedures of taxes, cross-border trade and investor protection. However, the study stated that it is important to reduce the time for obtaining licenses of building.The World Bank officials mentioned that the governments’ success in defining the bureaucratic obstacles to invest in Egypt helped to take several reform procedures.

Procedures of usufruct finalizedOn July 28th 2007, the Ministry of Investment and the General Authority for Investment and Free Zones have finalized an integrated framework with procedures to effectuate the usufruct right . These include procedures used to facilitate system registration at the real estate registration, use it as a guarantee for loans, enable banks to register pledges on it and foreclose it in cases of non-payment.By using this system, the state shall be able to enhance investment and development in Sinai and the economic zone North West Suez Gulf in which lands are allocated according to the usufruct system, also, the system will help the asset management program to achieve its goals.


Inauguration of the conference This year, the conference focused

on “Investment and Good practices in Corporate Governance” and over two days many topics have been discussed such as, the international practices in corporate governance disclosure, the status of corporate governance disclosure in the MENA region, the role of corporate governance disclosure in attracting international investments, and in addition, the conference highlighted the disclosure of corporate governance practices in the financial institutions.

On the first day of the conference, H.E Dr. Mahmoud Mohieldin, the Egyptian Minister of Investment awarded graduation certificates to the participants of the first and second Intakes of the Board Development Series program (BDS). It is worth mentioning that the BDS program is provided by the EIoD.

During the speech of H.E the minister of investment in the conference, he

mentioned that Egypt was the first Arab country in the region that issued codes of corporate governance especially for the state owned enterprises, depending on the OECD principles of corporate

governance. He also mentioned that the committee responsible for drafting the freedom of information law in Egypt, in which the ministry of investment is presented, is currently finalizing the draft that is to be discussed in the next parliamentary round.

Dr. Mohieldin spoke about the reforms that has been undertaken to adopt a business environment that is supportive to private business which is well coming portfolio investment and foreign direct investment. The minister added that the foreign direct investment was going to grow from its very modest, low levels of 2 billion dollars in 2003/2004 and expect for this fiscal year more than 10 million dollars. Mohieldin also mentioned that it was not just the foreign direct investment but investments by the Egyptians as well which have been growing by 21% during the last three years. Private sector investments in the Egyptian stock exchange have seen similar development where from 1.71 billion Egyptian pounds in January 2004 to more than 600 billion Egyptian pound at the end of May this year. This is growing from 33 % to more than 69% of GDP.

Transparency and DisclosureAnnual International Conference 18th-19th June

By Ahmed Eid and Mona Alaa

In Cairo, more than 400 participants attended the first annual international conference

on Transparency and Disclosure that was organized by the Egyptian Institute of Directors

( EIoD) in collaboration with the UNCTAD. The conference was held at the Mena House

Oberai Hotel, Cairo, Egypt, on June 18th – 19th , 2007 and under the auspices of H.E Dr.

Mahmoud Mohieldin, the Egyptian Minister of Investment.

“I have to admit that the results of the reforms were basically, beyond our calculations and expectations since we started our

reforms back in July 2004”, says HE Dr. Mohieldin

34


Inauguration of the conference This year, the conference focused

on “Investment and Good practices in Corporate Governance” and over two days many topics have been discussed such as, the international practices in corporate governance disclosure, the status of corporate governance disclosure in the MENA region, the role of corporate governance disclosure in attracting international investments, and in addition, the conference highlighted the disclosure of corporate governance practices in the financial institutions.

On the first day of the conference, H.E Dr. Mahmoud Mohieldin, the Egyptian Minister of Investment awarded graduation certificates to the participants of the first and second Intakes of the Board Development Series program (BDS). It is worth mentioning that the BDS program is provided by the EIoD.

During the speech of H.E the minister of investment in the conference, he

mentioned that Egypt was the first Arab country in the region that issued codes of corporate governance especially for the state owned enterprises, depending on the OECD principles of corporate

governance. He also mentioned that the committee responsible for drafting the freedom of information law in Egypt, in which the ministry of investment is presented, is currently finalizing the draft that is to be discussed in the next parliamentary round.

Dr. Mohieldin spoke about the reforms that has been undertaken to adopt a business environment that is supportive to private business which is well coming portfolio investment and foreign direct investment. The minister added that the foreign direct investment was going to grow from its very modest, low levels of 2 billion dollars in 2003/2004 and expect for this fiscal year more than 10 million dollars. Mohieldin also mentioned that it was not just the foreign direct investment but investments by the Egyptians as well which have been growing by 21% during the last three years. Private sector investments in the Egyptian stock exchange have seen similar development where from 1.71 billion Egyptian pounds in January 2004 to more than 600 billion Egyptian pound at the end of May this year. This is growing from 33 % to more than 69% of GDP.

Transparency and DisclosureAnnual International Conference 18th-19th June

By Ahmed Eid and Mona Alaa

In Cairo, more than 400 participants attended the first annual international conference

on Transparency and Disclosure that was organized by the Egyptian Institute of Directors

( EIoD) in collaboration with the UNCTAD. The conference was held at the Mena House

Oberai Hotel, Cairo, Egypt, on June 18th – 19th , 2007 and under the auspices of H.E Dr.

Mahmoud Mohieldin, the Egyptian Minister of Investment.

“I have to admit that the results of the reforms were basically, beyond our calculations and expectations since we started our

reforms back in July 2004”, says HE Dr. Mohieldin

34 The Executive

The Minister of Investment has been supporting the efforts to spread awareness on corporate governance and its principles in society at large. Dr. Mohieldin mentioned that this can be done through spreading the culture of disclosure, transparency and accountability.

On the other hand, the executive director of the EIoD Dr. Ashraf Gamal, stated that since state-owned companies adopt its own financial resolutions, applying corporate governance in this case is much easier than in private companies given the fact that some of private sector companies applied it brilliantly, thus making good results.

In this respect, the vice chairman of Cairo and Alexandria stock exchange, Dr. Mohamed Omran declared that the main priority in the meantime is how to attract more investment instead of wasting time on issuing investment resolutions and policies. Moreover, he asserted that corporate governance, economic growth / boom, reliable/trustworthy shares and the attraction of capital are inseparable.

“Applying corporate governance is challenging”, mentioned the advisor of the Minister of Finance, Mr. Basel Al Hini, the first slow steps of applying corporate governance will lead eventually to the great goals and the top supervision / control over sate-owned companies.

CG as key to success: by top business leaders

Several related topics where discussed during the conference that included;

International Practices in Corporate Governance Disclosure which provided an overview of good practices in corporate governance disclosure based on experiences from around the world including recent surveys of corporate governance disclosure, regulatory framework and exchange listing requirements and challenges for improving disclosure in the region.

Corporate Governance Disclosure, Shareholders Involvement, and International Investment were among the important topics discussed. Speakers explored the link between good practices in corporate governance disclosure and the ability of enterprises to attract international investment and to access foreign capital markets. Examples of corporate governance indexes and will highlight Egypt’s efforts in developing an index for corporate governance in State-Owned-Companies.

The chairman of Egytrans Company, engineer Hussam Leheta spoke with regard to this issue, asserting the launch of corporate governance practices in private sector companies, the commitment to transparency and disclosure, the decrease of risks, then the shareholders’ trust. “All the information about the members of the board of directors and their successors, their raises, payrolls, profits distribution and all the financial statuses will be available on a database”, said Leheta.

Annual International Conference 18th-19th June

The Ministry of finance has established a taskforce to monitor public ownership. It goes beyond

state-owned enterprises; it has other aspects of public ownership,

economic authorities owned by the state or reporting to the state.

Graduates of the BDS

35


“Applying transparency and disclosure is the best approach towards free-risks climate” affirmed the chairman of FINBI Company, Dr. Amr Hassanien, assuring that the announcement of conflict of interests’ cases will curb corruption. In addition, the board member of Olympic Group, Mr. Hatem Khater pointed out that some companies take advantage of corporate governance through misusing it as a decoration though it is very momentous.

Financial Institutions’ disclosure: Endless questions

The executive director of the Egyptian Banking Institute, Dr. Halah El-Saed summed up the issue through evaluating the bank’s financial performance, previous years’ profits, and its policies in accordance with allocating resources, capitals, liquid ratio and potential risks. The bank has to announce the structure of the salaries and raises which are paid for the members of the board of directors and their experience.

The vice chairman of Banque Misr, Mr. Mohamed Kafafi asserted what was aforementioned concerning the importance of banks’ transparency. Credit desks will provide transparency about customers which will decrease credit restrictions.

“Avoiding many problems could have been an option if corporate governance has been applied earlier” said the chairman of the Commercial International Bank (CIB), Mr. Hisham Ezz El-Arab.

The chairman of the Insurance Holding Company, Mr. Mahmoud Abdullah declared that many companies became insolvent since they have not carried out transparency and disclosure criteria. Accordingly, a company has lost 20 million dollars in two years. “Though many companies are not subjected to transparency and disclosure rules, they are the cornerstone of the companies’ success” said Abdullah, mentioning that “there is a grey phase that precedes the implementation of these rules”.

Disclosure CompetitionThe Egyptian Institute of Directors

(EIoD) – in cooperation with the International Finance Corporation (IFC) - organized the 2006 Best Annual Report & Website Competition. The award ceremony took place on 19th June 2007, the second day of the Transparency & Disclosure First Annual International Conference. This Competition aims to promote improvements in corporate governance applications in the quality of information and disclosure in annual

reports and websites in Egypt.Mobinil came on the first place

in the Website Competition,on the second, third and forth places came Lecico Egypt, Orascom Construction Industries, and Orascom Telecom, respectivley. As for the winners of Annual Report Competition, Orascom Construction Industries came on the first place followed by, Mobinil, Lecico Egypt, and Commercial International Bank respectively.

The Professional Qualification for Directors

The EIoD celebrated the graduation of the first and second intakes of certified directors on the fringe of the conference. The graduates, who were awarded their certificates by the Minister of Investment; Dr. Mahmoud Mohiedien, will help developing the boards they currently serve in or will be in the future. “The program targets board members, directors, CEOs, CFOs and senior executives as trainees for the best practices of corporate governance”, declared the general manager of the EIoD, Ms. Nahla Kamal, adding “That the best way to improve these practices can benefit the boards of directors planning on the long-run”. Furthermore, she mentioned that this program which is accredited by the Egyptian Capital Market Authority (CMA) and Institutional Shareholder Services (ISS) is considered to be the first in the MENA region.

EIoD in cooperation with IFC organized the 2006 Best Annual Report & Website Competition to encourage companies to apply

best disclosure practices.

Conference attended by more than 400 participants over two days

36


in the Middle East and North Africa (MENA)

Corporate Governance

This article is a reprint of the article written by Ms. Elena Miteva, Economist, OECD published at ICGN Yearbook 2006, with the kind permission of the ICGN. The full year book can be downloaded from the following link: http://www.icgn.org/conferences/2006/documents/icgn06%20yearbook-final3.pdf

1. In their efforts to stimulate growth, investment and employment, MENA countries increasingly acknowledge the importance of improved corporate governance for the success of the reforms underway. In 2004, MENA countries in co-operation with the OECD and other multilateral and bilateral partners decided to launch a Working Group on corporate governance in the region . This Working Group is a part of a broader MENA OECD initiative on Governance and Investment for Development. It also contributes to the global dialogue on corporate governance the OECD has launched in Asia, Eurasia, Latin America, Russia and South East Europe. 2. Increasing investment, local and foreign, is a common goal throughout the region. The MENA region has witnessed significant economic and financial development. However, MENA countries’ trade and cash flows, as well as GDP levels and growth remain marginal on a global scale. The region needs a significant capital infusion in order to promote business development and growth to close the gap. The number of large companies contributing to growth is still limited, and there is a need for

many more. Due to the substantial increase in oil prices, national savings, especially in oil producing countries, exceeded investments and resulted in substantial accumulation of financial assets abroad. At the national level, corporate governance practices of domestic corporations need to improve in order to attract and retain more capital locally and to successfully compete for investment globally. 3. The MENA region comprises countries with significant distinctions in levels of per capital income, economic diversification, liberalisation and economic and political stability. However, most MENA countries share common characteristics, such as thin and tightly regulated financial markets, prevalent government ownership and limited role of market forces in their economies. As far as corporate governance reforms are concerned, most countries made progress over the past decade, but are still at an early stage in the process. 4. More concretely, the following characteristics of the economies in the region shape the way the corporate sector is currently governed and financed, as well as its ability to respond to rapid technological change and economic globalisation:

Concentration of ownership. The corporate landscape is characterised by an extreme level of concentration, due to large, family dominated companies and company groups, that also include banks and by a very strong presence of the state. Publicly traded companies in the MENA

are also characterised by a high degree of ownership concentration . The pattern of ownership is similar across industries and has remained relatively stable in recent years, concentrating control in the hands of the largest shareholder or the five largest shareholders.

Family ownership and control. The ownership composition in the region suggests substantial role of families, often facilitated through nominee accounts. Individuals among the top five shareholders are mostly family members or close relatives holding high level executive positions within the companies. Moreover, the distribution of shares among individual investors is extremely narrow. Most family companies in the MENA are characterised by a strong family leader. Not surprisingly, families play also an important role in shaping boards of directors, by nominating family members, close relatives or senior managers. Evidence also suggests that the higher the ownership share of the dominant family shareholder, the more likely it is for the chief executive officer to be members of that family. This leads to tight oversight of management by the family with little role for the board. Family and other controlling shareholders influence corporate decisions also indirectly through their stakes in a number of holding companies and subsidiaries.

Bank-based corporate finance. Though the region has been a net exporter of capital for decades, the financial sector has failed to develop the capacity to channel a significant proportion of

38

The Executive

these savings into long-term productive investment within the region. Financial systems in MENA countries are fragmented, dominated by banks and in some economies, by state-owned banks. The banking sector in the MENA region is moderately to highly concentrated. Moreover, financial institutions, including insurance, investment and securities companies own significant

proportions of the shares in listed companies and are often among the five largest block holders. In spite of current prudential regulations, preventing banks from holding “significant” shares in listed companies, commercial banks have become large shareholders in non-financial listed companies, sometimes ranking among the five largest shareholders. This suggests the need for

particular attention to good governance of banks with a special focus on related lending and sound risk management policies.

Developing capital markets. Financial liberalisation and development programmes, carried out in the last decade yielded modest results for the financial markets as well. Evidence suggests that in most countries of

39


the region, capital markets have a significant room for improvement and development. They are characterised by high concentration, relatively few listings resulting in low levels of liquidity and a limited role in supporting economic growth. Until recently, foreign participation was limited, however under pressure for attracting capital and reducing volatility, markets in the region started gradually to open. In spite of this situation, following efforts of liberalisation and improvements of the underlying legal framework, some MENA capital markets have shown considerable growth in recent years. This development underlines the urgency of corporate governance reforms, which are critical for the sustainability of capital market growth and in order to avoid the potential drawbacks stemming from inadequate corporate governance arrangements of new share issues and newly listed companies.

Legal Traditions and Enforcement Patterns. The Gulf and Palestinian jurisdictions, as well as Egypt and Jordan converge to the common law system, while the rest of the countries rely on the European civil code tradition. In most countries from the region, the legal system should also comply with the Islamic shariah, based on religious rules and guiding principles. The legal frameworks of securities markets are relatively new and more recent than company laws; however both had to undergo amendments in the recent past. In spite of the fact that the legal and regulatory framework of corporate governance is largely in place, there is vast room for improvement. In several MENA countries, the judicial system is susceptible to political pressure and long delays, resulting in poor enforcement. In general, civil litigation plays a limited role, while greater emphasis is placed on administrative and criminal judicial actions. Private dispute resolution mechanisms are new and largely untested. 5. The availability of accurate, comprehensive, up-to-date and comparable information on the legal and regulatory framework is an

important precondition for the design of a well-informed strategy for corporate governance reforms in the region. Data on Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Tunisia and the United Arab Emirates was collected in 2005, in the framework of the MENA OECD Working Group on Corporate Governance, with support from government officials, scholars and private sector experts. Some preliminary findings , suggest as follows:

• The fundamental building blocks of corporate governance concerning shareholders in the MENA are in place. However, the legal and regulatory framework should improve the rules intended to protect the non-controlling shareholders from exploitation and abuse by insiders and controlling shareholders.

• The rules governing the role of the state as a shareholder will need to be strengthened to ensure that it does exercise its rights actively and in the best interest of the company.

• The data gathered by the Working Group shows mixed results and suggest significant differences of the disclosure frameworks of the countries in the region. It also appears that disclosure and external audit pose serious problems in virtually all countries from the region.

• MENA countries pay more attention to the powers and duties of board members, as well as their election, while the results are quite mixed and largely disappointing with respect to director independence, professional qualifications, board committees and executive compensation. 6. The legal framework of corporate governance in the MENA matters crucially in ensuring access of corporations to financing, in attracting higher quality of investment and in supporting financial market development. These are all factors leading to better enterprise performance, productivity, competitiveness and ultimately economic growth, underlining the importance of legal reforms of corporate governance in the MENA. 7. Fundamental reviews of the legal

framework are not required in all countries of the region, while in some they may not be politically timely. In such circumstances and in taking into account the rapidly changing company environments, there is a growing need to continuously adapt existing rules . Consistent and clear rules in primary legislation underpin certainty, credibility, democratic legitimacy and usually strong possibility for enforcement. In the drive to adapt to the requirements of a modem corporate governance framework, attention should also be paid to secondary regulation by governments and regulators and to standard-setting by market participants (such as corporate governance codes). 8. Special attention in the MENA will also need to be paid to eliminating inconsistencies between different legal and regulatory norms in the areas of property rights, company law, securities market legislation, accounting and auditing rules, insolvency provisions and the civil codes (including labour law). Moreover, in some countries, the tradition of ad-hoc resolutions and decrees in addressing legal and regulatory gaps tend to exacerbate existing contradictions among rules and laws. Adherence to internationally recognised standards can help in solving such difficulties. 9. In order to reap the full benefits of legal reforms, countries need to devote the necessary attention and resources in order to significantly improve enforcement. Concrete actions taken by the responsible authorities in accordance with existing norms are as important as the quality and extensiveness of the body of law. However, ownership and control in the MENA is unlikely to evolve unless companies adhere to their obligations of transparency, equitable treatment of shareholders and, in general, respect for their rights. In this respect, home-grown initiatives, such as the Egyptian Institute of Directors and the International Corporate Governance Institute (Hawkamah), based in Dubai, can play an important role in supporting corporate governance reforms in the region.

40


Leading to Convergence in Corporate Governance Practices

Stock Exchange Mergers

Stock exchanges around the world are merging and this is raising questions about the

impact of this activity on corporate governance standards. Just as most industries have globalized through cross-border mergers and acquisitions, so too are stock exchanges. This M&A activity in the stock exchange industry is likely to be a key driver of increased convergence in international corporate governance practices, including corporate governance disclosure.

Global consolidation in the stock exchange industry

With the December 2006 approval of the merger between the New York Stock Exchange and Euronext, the world witnessed one of the largest mergers in the stock exchange industry. The NYSE, already the world’s largest stock exchange even before the merger, was prompted to bid for Euronext when rival Nasdaq made moves to acquire the London Stock Exchange. In merging with Euronext, the NYSE beat out a rival bid from Deutsche Börse which was also trying to acquire Euronext. At the time of the merger, Euronext (with exchanges in Paris, Amsterdam, Brussels, Lisbon, and with LIFFE in London) was Europe’s second-largest stock exchange group after the LSE. The merger resulted in the new company, called the NYSE-Euronext Group, that is the largest stock exchange in the world with an exchange

capitalization four to five times greater than other leading stock exchanges. Trading began on the combined NYSE-Euronext exchanges in April 2007.

With stiff global competition amongst exchanges for cross-border reach and a broader product range (contributing to decreasing trading, settlement and clearing costs), the NYSE-Euronext merger is triggering further consolidation in the global stock exchange industry. For its own part, the NYSE-Euronext continues to actively seek new acquisitions in Europe and has already developed special arrangements with the Luxembourg Exchange for the development of corporate bonds business, and with the Warsaw Exchange for IT cooperation. NYSE-Euronext has also indicated intentions to expand operations in Asia with a strategic alliance with the Tokyo Stock Exchange, a sizeable stake in the National Stock Exchange of India, as well as plans to become more involved in China when authorities allow foreign minority ownership stakes in Chinese stock exchanges.

Meanwhile, Germany’s Deutsche Börse plans to acquire the US based International Securities Exchange. The LSE, which itself rejected an acquisition bid by NASDAQ earlier this year, is about to acquire Borsa Italiana. And NASDAQ and Borse Dubai are competing against each other

Dr. Anthony Miller is an Economic Affairs Officer at the United Nations Conference on Trade and Development (UNCTAD) specializing in corporate governance disclosure. [email protected] www.unctad.org/isar

Ms. Jackie Cook is a corporate governance consultant to UNCTAD and a Senior Research Associate at The Corporate Library. [email protected] www.thecorporatelibrary.com

42

The Executive

for the acquisition of OMX, the Nordic stock exchange group. OMX not only provides a common offering spanning Helsinki, Copenhagen, Stockholm, Iceland, Tallinn, Riga and Vilnius, but also provides exchange technology, clearing services and central securities depositories in a number of countries.

Impact on listing requirements and corporate governance disclosure

With the global consolidation of the stock exchange industry, questions emerge about the impact of this M&A activity on listing requirements and corporate governance disclosure. For many years there have been two prevalent models of corporate governance disclosure practiced across the globe, namely the principles-based ‘comply or explain’ model characteristic of European corporate governance disclosure, and the rules-based reporting format of the US. What happens when US and European exchanges merge?

Following the NYSE-Euronext merger, a number of European listed companies were concerned about exposure to US listing requirements, particularly having to comply with NYSE listing rules that are heavily influenced by the US Sarbanes-Oxley Act (SOX). To allay these concerns, the NYSE-Euronext Group has continued to operate separate listing processes and separate order books for trading, which continue to fall under the jurisdiction of local regulators.

While this is a pragmatic approach to the issue in the short term, it is believed that some degree of regulatory convergence is a likely outcome of the global stock exchange merger wave over the longer term. As the transnational exchange groups continue to acquire or take substantial stakes in smaller national or regional exchanges, they can be expected to push for improvements in corporate governance practices and disclosure requirements through new exchange listing rules. Emerging over time would be a standard set of rules across a large transnational stock exchange group, which would represent a significant convergence in international practices. Further reinforcing this are 3 additional drivers of convergence. The first is companies themselves. As enterprises seek to access capital in one of the larger capital markets of Europe or the US, they will be required to comply with at least some of the governance practices and disclosure rules for these jurisdictions. The second driver is the role of large institutional investors investing internationally. As these investors increase their stakes in companies across the globe, they are putting pressure on company boards and local regulators to observe international best practices in corporate governance and disclosure.

The third driver is regulatory bodies and or stock exchanges in smaller national markets and emerging economies.

These local regulatory bodies may move their own requirements to more closely match best international practices in order to make their securities markets more attractive in a globally competitive market. Many such regulatory changes may resemble European- or US-style governance practices given the overwhelming size and influence of the US and European securities markets. An example is Japan’s new J-SOX rules modeled on the US SOX.

Rising to the challengeWhat do these developments mean

for executives and policy makers in emerging markets? One of the implications is that efforts to improve standards of corporate governance, both at the company level and at the country level, should be reinforced and reinvigorated. Recent events suggest that corporate governance and disclosure practices around the world may converge amidst the emergence new global giants in the stock exchange industry. In this scenario, the companies that rise to the challenge and meet international standards of corporate governance, will be in the best position to access capital and to successfully compete on the world stage. And governments that invest in improving the corporate governance practices of their enterprises are making the right investment to meet the competitive challenges of tomorrow.

43


in BanksCorporate Governance

Although the subject of corporate governance in developing economies has recently received

a lot of attention in research literature. The corporate governance of banks has recently gained prominence in both international and local fora.

The opaque nature of banks and the increasing complexity of the financial landscape due to the continual evolution of financial products and services and more importantly the principal-agent problem have highlighted the urgent need for developing countries to adopt sound corporate governance principles.

The corporate governance of banks in developing economies is important for several reasons. Banks have an overwhelmingly dominant position in developing-economy financial systems, and are extremely important engines of economic growth as financial markets are usually underdeveloped. Banks in developing economies are typically the most important source of finance for the majority of firms. As well as providing a generally accepted means of payment, banks in developing countries are usually the main depository for the economy’s savings. Many developing economies have recently liberalized their banking systems through privatization/disinvestments and reducing the role of economic regulation. Consequently, managers of banks in these economies have obtained greater freedom in how they run their banks. Indeed as far back as Adam Smith it has been recognized

that managers do not always act in the best interests of their stakeholders. The separation of ownership and control has given rise to the agency problem whereby management can operate the organization in their own interests, not those of stakeholder.

Looking back to recent banking crises most of which have resulted from a breakdown in internal controls or management oversight thus enhancing the corporate governance practices of the banking sector has become of fundamental importance for the stability of the financial sector and for fostering increased foreign investment.

The case for corporate governance is clear and cannot be ignored; various studies have concluded that there is a positive correlation between good Corporate Governance and economic growth. A recent study also indicated that investors are willing to pay a premium for the shares of well governed organizations. The recent privatization of Bank of Alexandria at six times its book value serves as a perfect example of how reform, restructuring, and sound governance can contribute in raising the market value of an organization. Sound Corporate Governance will also pave the way to increased competitiveness of Egyptian banks looking to increase their presence in international markets.

Dr Hala El SaidExecutive Director Egyptian Banking InstituteCentral Bank of Egypt

44


Egypt in 2007 is different than Egypt ten years ago and will witness in the few upcoming years

significant improvements especially in the training field, Nowadays the Egyptian market has a better perception of the concept of training and companies consider it as an investment in the human capital.

The EIoD is adopting the approach that says the training should begin at the top of the ladder (Board of Directors, key executive and potential directors).

Hence, the EIoD has pioneered in introducing the Board Development Series certificate program accredited from The Institutional Shareholders Services (ISS) – USA and the Capital Market Authority of Egypt and it is worth mentioning that the EIoD owes a special thanks to the International Finance Corporation (IFC) for their technical and financial support in this program.

This Program aims to equip the participants with the specialized knowledge in corporate governance issues that affect their long-term planning, the working procedures of their board and information disclosure and lots of other important subjects.

This certificate offers a benchmark and a standard to directors. It further increases the opportunity of the participant to serve as an independent director and enhances the career prospects of the participant as top- executive or director of companies and boards in Egypt and the region.

This program consists of four related parts, where each part is composed of six modules (delivered over three days), making a total of twenty four modules over a period of non-consecutive twelve days. This program is delivered by local and foreign experts on the corporate governance issues in an interactive

manner to allow and encourage peer discussions among the participants. Course materials will comprise of PowerPoint presentations, background materials (e.g. articles and papers), and best practice documents.

The participate who wants to hold a Certified Director certificate should attend at least eight credit hours out of the twelve hours “ Total course duration” and pass the self-assessment of the four parts with an average score not less than 80%.

By Ahmed Shoaib

BDS“Board Development Series”

The parts of this program and the modules which will be covered as follows:Part I: An Introduction to Board and Corporate Governance.Module 1: The Definition of and Rationale for Good Corporate Governance Module 2: Building an Effective Board - Roles and Authorities, Duties and Liabilities Module 3: Board Election, Composition and Structure - The Right Mix-of-Skills and Importance of Independent Directors Module 4: Executive and Non-Executive Remuneration - How to Attract, Retain and Motivate Directors and Officers Module 5: The Working Procedures of the Board and Its Committees, and the Role of the Corporate Secretary Module 6: Case Study: Conducting a Board Self-Evaluation

Part II: Practical Tools for Strategic Guidance and Managerial Oversight.Module 1: The Role of the Board in Setting Strategy - Setting Strategy and Monitoring Performance Module 2: What Every Director Needs to Know About Finance and Accounting Module 3: The Interaction between the Board and Management - Obtaining the Right Information in a Timely Manner Module 4: A Guide to Succession Planning - What Every Board Needs to Know

Module 5: Choosing and Evaluating the CEO Module 6: Case Study: The Board’s Changing Role: From a Family-Owned to a Listed Company

Part III: The Role of the Board in Disclosure and Transparency.Module 1: An Introduction to the Board’s Role in Information Disclosure and Transparency Module 2: The Board and Risk Management Module 3: Establishing Internal Audit and Control Procedures Module 4: The Board and its Audit Committee Module 5: How to Interact With the External Auditor Module 6: Case Study: Developing a Model Annual Report

Part IV: The Role of the Board in Protecting Shareholder Rights.Module 1: An Introduction to the Board’s Role in Protecting Shareholder Rights Module 2: The Board’s Role in Preparing for and Conducting the General Meeting of Shareholders Module 3: The Board’s Role in Shaping the Company’s Dividend Policy Module 4: The Board’s Role in Related Party, Extraordinary and Control Transactions Module 5: The Board’s Role in Managing Corporate Conflicts Module 6: Case Study: Building a Corporate Governance Improvement Plan

46


the IFC’s efforts

Improving Corporate Governance

Many enterprises in the MENA (Middle East and North Africa) region have reached a stage in

their corporate life where professionalizing their board practices, improving the control environment, being more transparent, and reinforcing shareholder rights—in short, adopting good corporate governance practices—have become crucial to their future growth and competitiveness, in particular as they transition from mid-sized family-owned enterprises to large companies with regional ambitions.

By strengthening their corporate governance practices, companies in the MENA region can improve their access to outside capital and lower their average cost of capital. Just as importantly, good corporate governance can bring better performance by producing(i) Superior leadership, oversight, and strategic direction;(ii) Efficient information flows and work processes; and(iii) Better compliance, accountability, and less conflict. Finally, good corporate governance practices contribute to and improve a company’s reputation and, as a result, such companies enjoy more public confidence and goodwill.

IFC, a member of the World Bank Group, has worked on corporate governance issues in more than 80 countries and this extensive experience has positioned IFC as a global authority on governance issues for the private sector in emerging markets. Over the last two years the Corporate Governance Program of the IFC’s Private Enterprise Partnership in the MENA region (PEP-MENA) has launched various activities targeted to provide:

(i) Advisory services to banks and companies on implementing corporate governance;(ii) Assistance to investors to incorporate corporate governance into their investment decision-making;(iii) Policy advice to the public sector on regulatory reforms and drafting national codes of corporate governance; and(iv) Capacity building for sustainable institutions with a focus on corporate governance.

In Egypt, IFC has channeled its advisory services on corporate governance through the Egyptian Institute of Directors (EIoD). Of particular note in this regard is the development and launch of the region’s first certification program for directors in Egypt, internationally accredited by the Institutional Shareholder Services. The so-called “Board Development Series” is designed for chairmen, board members, corporate directors, senior executive officers, and top management of private sector companies, and provides its participants with the necessary tools to improve governance practices.

IFC’s Egypt Corporate Governance Project moreover continues to help improve the legal and regulatory framework. The project advised on both the corporate governance code for listed companies and corporate governance guidelines for state-owned enterprises (the first of its kind world-wide!). Moreover, the Project advised the Egyptian Capital Markets Authority on a draft regulation on corporate governance and, in follow-up to the Project’s intervention, the CMA has put these draft rules on hold. Finally, the project is supporting the launch of a corporate governance training program for bank directors, jointly with the Egyptian Banking Institute (EBI).

Martin SteindlProject OfficerIFC PEP-MENA Egypt Corporate Governance Project

48


The Egyptian Transport and Commercial Services Company S.A.E.

EGYTRANS

The Egyptian Transport and Commercial Services Company S.A.E. (EGYTRANS) was established in December 1973. However, its transport activities and experience date back to 1939. It is now a corporation with capital of LE 47.5 million. Since its inception it has grown into a true leader in the transport field in Egypt with over three hundred employees and eight branches. EGYTRANS became a publicly listed company through an IPO in 1997. EGYTRANS offers a wide and varied mix of services in the field of integrated transport.

Our Mission is “We make integrated transport easy and cost-effective for businesses and people”. Our Vision is that we will be the leading Egyptian provider of integrated global transport services and solutions, recognized by customers as the provider of choice. We are committed to growing shareholder value.

EGYTRANS and applying Corporate Governance is a very interesting story; at the beginning, I would like to point out that corporate governance means the system by which companies are being directed and monitored. It all started when I attended a course named “Board Development Series” that was organized by the Egyptian Institute of Directors (EIoD) in cooperation with the International Finance Corporation (IFC). On a later stage, EGYTRANS Corporate Governance Coordinator attended the same course which was the trigger that encouraged us to apply CG. After convincing our board of directors, the whole board became

extremely keen to apply corporate. Thus we committed ourselves to a Code of Corporate Governance in June 2006 that ensures responsible, value-based, transparent management of the company, reinforcing the long-term confidence of shareholders, customers, employees and other stakeholders in the leadership of the company and by doing that, became the 1st company that applied CG in Alexandria.

We voluntarily chose to apply CG for many reasons, first Applying and ensuring compliance with the Egyptian code of corporate governance (guidelines and standards) for Egyptian listed companies and any of its future amended versions. Second, ensuring the rights and equal treatment of EGYTRANS shareholders. Third, regulating the role of our Board of Directors. Fourth, Ensuring transparency & disclosure. Fifth, increasing the confidence of investors in EGYTRANS. Sixth, minimizing risk.

Many achievements have been done since then regarding applying CG guidelines and principles in EGYTRANS. We hired a Corporate Governance Coordinator, formulated CG action plan with fixed goals and responsibilities and established EGYTRANS CG Code which was approved by our Board of Directors. CG awareness was conducted through all levels of employment in EGYTRANS; it was also extended to board members and shareholders. Many policies have been established such as Internal Trading policy, Disclosure policy, Document Retention policy as well as Related Party Transactions Policy. We

established major changes in our Board of Directors such as having a majority of non-executives, establishing Board Committees (Audit, Nomination and Remuneration & Corporate Governance), establishing charters for different board committees as well as conducting annual board assessment. We now have also CG Manual and Document “Good Practices for the Board of Directors”. We discloses regularly financial as well as non-financial information on our website www.egytrans.com

EGYTRANS CG department, in cooperation with Egyptian Institute of Directors (EIOD) and Industrial Modernization Center (IMC), conducted a successful tailored Corporate Governance course for EGYTRANS employees in January 2007; 168 EGYTRANS employees, i.e. 1/3 of EGYTRANS taskforce, attended the mentioned course. In addition, we established a Risk Management Taskforce in 2006. EGYTRANS has future CG plans include preparing our Policy for Minority Shareholders, dividend Policy and succession Planning Policy as well as developing our Annual Report.

Applying Corporate Governance was definitely an asset to EGYTRANS. It led to better internal controls. Due to the nature and volume of EGYTRANS activities and the risks associated to them, applying risk management, which is one of the most important modules of CG, is very beneficial to EGYTRANS. Applying CG also led to strong trading on EGYTRANS shares and increased the interest of private equity firms to invest in EGYTRANS.

By: Eng. Hussam Leheta

50


The Egyptian Transport and Commercial Services Company S.A.E.

EGYTRANS

The Egyptian Transport and Commercial Services Company S.A.E. (EGYTRANS) was established in December 1973. However, its transport activities and experience date back to 1939. It is now a corporation with capital of LE 47.5 million. Since its inception it has grown into a true leader in the transport field in Egypt with over three hundred employees and eight branches. EGYTRANS became a publicly listed company through an IPO in 1997. EGYTRANS offers a wide and varied mix of services in the field of integrated transport.

Our Mission is “We make integrated transport easy and cost-effective for businesses and people”. Our Vision is that we will be the leading Egyptian provider of integrated global transport services and solutions, recognized by customers as the provider of choice. We are committed to growing shareholder value.

EGYTRANS and applying Corporate Governance is a very interesting story; at the beginning, I would like to point out that corporate governance means the system by which companies are being directed and monitored. It all started when I attended a course named “Board Development Series” that was organized by the Egyptian Institute of Directors (EIoD) in cooperation with the International Finance Corporation (IFC). On a later stage, EGYTRANS Corporate Governance Coordinator attended the same course which was the trigger that encouraged us to apply CG. After convincing our board of directors, the whole board became

extremely keen to apply corporate. Thus we committed ourselves to a Code of Corporate Governance in June 2006 that ensures responsible, value-based, transparent management of the company, reinforcing the long-term confidence of shareholders, customers, employees and other stakeholders in the leadership of the company and by doing that, became the 1st company that applied CG in Alexandria.

We voluntarily chose to apply CG for many reasons, first Applying and ensuring compliance with the Egyptian code of corporate governance (guidelines and standards) for Egyptian listed companies and any of its future amended versions. Second, ensuring the rights and equal treatment of EGYTRANS shareholders. Third, regulating the role of our Board of Directors. Fourth, Ensuring transparency & disclosure. Fifth, increasing the confidence of investors in EGYTRANS. Sixth, minimizing risk.

Many achievements have been done since then regarding applying CG guidelines and principles in EGYTRANS. We hired a Corporate Governance Coordinator, formulated CG action plan with fixed goals and responsibilities and established EGYTRANS CG Code which was approved by our Board of Directors. CG awareness was conducted through all levels of employment in EGYTRANS; it was also extended to board members and shareholders. Many policies have been established such as Internal Trading policy, Disclosure policy, Document Retention policy as well as Related Party Transactions Policy. We

established major changes in our Board of Directors such as having a majority of non-executives, establishing Board Committees (Audit, Nomination and Remuneration & Corporate Governance), establishing charters for different board committees as well as conducting annual board assessment. We now have also CG Manual and Document “Good Practices for the Board of Directors”. We discloses regularly financial as well as non-financial information on our website www.egytrans.com

EGYTRANS CG department, in cooperation with Egyptian Institute of Directors (EIOD) and Industrial Modernization Center (IMC), conducted a successful tailored Corporate Governance course for EGYTRANS employees in January 2007; 168 EGYTRANS employees, i.e. 1/3 of EGYTRANS taskforce, attended the mentioned course. In addition, we established a Risk Management Taskforce in 2006. EGYTRANS has future CG plans include preparing our Policy for Minority Shareholders, dividend Policy and succession Planning Policy as well as developing our Annual Report.

Applying Corporate Governance was definitely an asset to EGYTRANS. It led to better internal controls. Due to the nature and volume of EGYTRANS activities and the risks associated to them, applying risk management, which is one of the most important modules of CG, is very beneficial to EGYTRANS. Applying CG also led to strong trading on EGYTRANS shares and increased the interest of private equity firms to invest in EGYTRANS.

By: Eng. Hussam Leheta

50


But Business-Owning Families Need it Even More!

Corporate Need Governance...

Many business-owning families drift unconsciously into haphazard and destructive

patterns of decision-making and communicating that can threaten and even destroy their shared interests and eventually the business.

In emerging economies, when professionally-run family businesses are scarce, the threats to family-owned business or otherwise – are immense. The fact that the majority of the private business in emerging economies is either family-owned or founder-owned makes emerging markets vulnerable and liable to distress under challenges such as markets and technology changes, globalization and free-trade agreements, competitions quickly copying successful strategies, suppliers and customers alter the rules of the game, etc.

The emotional dimension in family-owned and, to a lesser extent, in the founder-owned business proves to be the stumbling block towards business flourishing and, even, survival. This could be attributed to different reasons; unresolved personal conflicts, lack of trust, difficult family relationships or family demands on the business. Conflict is a natural element in human relationships, so is sibling rivalry and competition between the generations in a family. Working together intensifies family interactions and could just magnify the impact and expand the harmful effects of conflict.

At Corde, we did realize the importance of paying the right attention to and focus on family governance at

the off set of “Turnaround” projects. In a way, it became evident that we can’t turnaround the business without the good family governance, or a “Family Turnaround”.

In many of our interventions, we had to re-establish the most critical family business capital, which is “Trust”. Such a rebuilding basically takes place by turning common family business liabilities into assets through principles of family governance. Let us take the example of those chronic issues typically found in family operation; ignoring conflict, individual goals, unilateral decisions, acting by reaction, dwelling into family politics and making individual deals, to name a few. In a family governance frame work, we turn those liabilities into assets by: addressing conflict, having a shared vision, developing a fair decision making process, adopting planning,

and promote governance structures and family agreements on all deals related to the family business.

The goal in our activities remains to be developing a viable business strategy. Yet such a strategy has to be shaped by the corners of the family. Ultimately, the strategic planning process for the business has to go in harmony with the planning process for the family in what is called today by many management strategists “Parallel Planning Process” (PPP). This process essentially seeks striking a balance between the demands of the family system (emotion concerns, family needs, maintaining stability) and business system demands (business performance, business needs, managing change).

Even the best formulated and thought-of strategies for the family business would stumble if the governance system holding it together doesn’t duly consider the governance of the family and be attentive to issues that may seemed at times irrelevant to business performance. A governance frame work for the family should very carefully consider, not only family values and goals in the business, but also health, prosperity, continuity, participation, community role, family communication, and more.

Webster’s Dictionary defined the word “govern” as “the aim of keeping a straight course or smooth operation for the good of the individual and the whole”.

There is no doubt that all corporates need that, but business-owning families need it even more!

Dr. Alaa-Eldin M. AdrisManaging Director

Corde

52


between Board of Directors and Management

Strategic Management

Why to have a focused strategy? And whether it is important to have a STRATEGIC INTENT AND PLAN? What is the most common reason for Strategic Management / Planning to fail?

Here are some of the benefits that may occur as a result of strategic Management / Planning• Makes the management of an organization easier by providing a framework and a clearly defined direction for decision-making. • Establishes a uniform vision and purpose that is shared by the organization and helps all members pull in the same direction. • Works to create an increased level of commitment to the organization and its goals. • Can result in improved quality of services for clients and a means of measuring the service. • Helps everyone in the organization with setting priorities and matching resources to opportunities. • Increases the ability to deal with risks from the external environment. • Improves the decision-making in a number of different areas, including human resources (recruitment, selection), training departments.

What Is The Most Common Reason Strategic Planning Fails?

What often happens with strategic plans in organizations is that the organization develops a plan, , then takes the plan store it into the back of the drawer, never to be looked at or considered again. Hence, the plan itself is ignored.

Organizational leaders need to understand that there is a link between leadership and

implementing the strategic plan, and that without leadership and leadership commitment to keep the plan on everyone’s attention, most of the value is lost.

Board and company StrategyBy nature the typical board of directors

are ill equipped and not properly designed to provide product and market leadership. The majority of board members lack the industry specific experience and the company specific knowledge and most important the time necessary to turn the board strategic vision into operational reality. Due to limited time and not enough attention the board member is not expected to have command of the issues and the necessary independent judgment that would allow them to make sounding proposals to counter those of management.

The important question “ Is it possible to create a formal mechanism within the existing governance process so that the board so that the board could exercise proactively it’s responsibility for strategic oversight?

The answer is yes. The mechanism is a formal strategic review process ( a strategic audit) which imposes its own disciplines on both board and management. The process would empower the independent directors leadership over the strategic oversight and provide them with the authority to establish the criteria and methods of review. This will require the board and the CEO to regularly review the company performance.

Board of Directors and company management should always monitor the external environment and always be ready to align their strategies and strategic directions. In order to achieve this they need to have a clear vision.

Features of an effective vision statement may include:• Clarity and lack of ambiguity • Paint a clear picture• Describing a bright future (hope) • Realistic aspirations, achievable • Alignment with organizational values and culture, Rational • Time bound if it talks of achieving any goal or objective References: Global Emerging

Giants Network

Mr. Affifi A. Affifi

53


and the board of DirectorsCompany’s Secretary

What are the duties of the Company’s Secretary?

This position of Company Secretary is deeply ingrained in the systems of many countries. Their rights, duties and responsibilities are partly in the Statutes of the company, and partly by accepted good practices. They should hold suitable professional qualifications and they are generally responsible for keeping statuary records updated in good order and available for inspection. They attend and take minutes of meetings of shareholders and board and ensure they are validly called and advise on correct procedures and ensure compliance with the relevant laws and articles of association, Stock Exchange regulations, membership changes, shares certificate issuance as well as information sent to shareholders. They are also responsible for sending forms to the authorities to comply with the companies laws, ensuring good or (at least lawful) corporate governance in the organization.

Companies Secretary signature is sometimes required on Board, General Assembly minutes, contracts and legal documents.

What makes a person a Director?In most companies, the position is clear

and unambiguous. A director is a person who is properly and formally appointed in accordance with the provisions of the articles of the company.

Some companies give senior employees a title that includes the word “Director”, but do so without actually

appointing them to the Board. This may be to impress customers or to increase the status of people concerned. The word “Director” in a person’s title does not automatically make a person a director in the legal sense. Care should always be taken, as it may sometimes have unintended consequences.

What are the rights of Directors?These include the following:

Access to information: All Directors, including non-executive directors, have full collective responsibility for running of the company. It follows that all directors have full equal rights to information. This includes access to financial records, but it applies to other information as well.

Who are “alternate” Directors?If permitted by the articles, a company

may appoint an alternate director to act in place of the original director during his absence. It is sometimes done by directors spending significant periods abroad, or otherwise, away. The precise procedure depends on the articles.

Does a Director have an automatic right to receive remuneration?

There is no automatic right for a director to be remunerated for his services. Such right may be given by the articles, which may also stipulate whether the amount of such remuneration is to be fixed by the directors or by the members in the general meeting or to be recommended by the board and approved in the general meeting.

Hala Fathi RagabGeneral Council and corporate Secretary,Crédit Agricole Egypt.

( F A Q s ) a n d I n t e r n a t i o n a l B e s t P r a c t i c e s

54

The Executive

Are there Indemnities and Insurances for Directors? Is it common?

In some jurisdictions, a company may indemnify its directors to the extent permitted by law and as specified in the articles. If so permitted, a company may purchase indemnity insurance for the benefit of directors and other company officers.

Directors’ duties are becoming more progressively more onerous and the risks are progressively greater. Indemnity insurance is, as a result, becoming of greater importance.

Qualification shares for board membership are no longer required under Egyptian law.

What are the Responsibilities of Directors?

Directors are required to act in the best interest of the company as a whole. They must not give undue preference to the interest of one section of the members over the interest of others.

Practically, this may cause difficulties because directors are sometimes appointed to look after the interests of a major shareholder, employees or others. Nevertheless, they must act in the best interest of the company as a whole.

Directors appoint the company secretary and usually delegate a great deal of authority to him/her. This particularly relates to the statuary obligation. Therefore, care should be taken to appoint a suitable competent person.

Directors have primary responsibility for the management of the company and for seeing that statuary obligations are fulfilled. The number of statuary obligations is vast and covers for example health and safety, data protection, compliance, risk, etc. They are responsible for good Corporate Governance. An increasing criticism is that the requirements of directors are becoming so numerous and onerous, they interfere with the general running of the company for the benefits of the members. In most cases, maximizing

profits is a primary aim and this is the responsibility of the directors.

Are Directors allowed to take loans?In general, loans to directors are

prohibited. There are certain exceptions and qualifications to this rule.

Do Directors have service contracts?In some jurisdictions, a copy of the

director’s service contract must be kept at the registered office or where members’ information is kept and available for inspection.

55


1

Towards Effective LeaderManagement Tips Series

2

3

4

5

6

78

9

10

FIX THE PROBLEM, NOT THE BLAME.It is far more productive, and less expensive, to figure out what to do to fix a problem that has come up than it is to waste time trying to decide who’s fault it was.

TELL PEOPLE WHAT YOU WANT, NOT HOW TO DO IT. You will find people more responsive and less defensive if you can give them guidance not instructions. You will also see more initiative, more innovation, and more of an ownership attitude from them to develop over time.

MANAGE THE FUNCTION, NOT THE PAPERWORK.Remember that your job is to manage a specific function within the company, whatever that may be. There is a lot of paperwork that goes with the job, but don’t let that distract you from your real responsibility.

DON’T DO ANYTHING. Your job as a manager is to “plan, organize, control and direct.” don’t let yourself waste valuable time by falling back on what you did before you became a manager. We know you enjoy it and you are good at it. That’s why you were promoted. Now you need to concentrate your efforts on managing, not on “doing”.

GET OUT OF YOUR OFFICE. Management by walking around (MBWA) does work. You make yourself more approachable. You get information first-hand. You find out what’s really happening.

LEAD BY EXAMPLE. If you ask your employees to work overtime, be there too. Just because company policy allows it, don’t fly first-class if your associates are in coach on the same plane. Be a leader - it’s tougher than being a manager, but it’s worth it.

DELEGATE THE EASY STUFF.The things you do well are the things to delegate. Hold on to those that are challenging and difficult. That is how you will grow.

SET S.M.A.R.T. GOALS. Goals you set for yourself, or others, should be specific, measurable, achievable, realistic, and time-based.

KNOW YOUR GPM. In engineering, GPM is gallons per minute, a design criterion. In management GPM is an acronym for goals, plans, and metrics. To achieve your goals, you must first determine what your goals are. Then you have to develop a plan that gets you to your goal. Finally you need metrics (measurements) to know if you are moving toward your goal according to your plan.

CHANGE OR DIE. Your business must change to survive. As much as we wish it would, nothing stays the same. Some industries change

58

The Executive

11

12

13

14

15

16

17

18

19

20

faster than others. Some markets are more fixed. To stay in business, you need to watch both and change as they do, or before.

TRAIN YOUR SUPERVISORS. The key to your business success is the productivity of your employees. The key to employee productivity is their perception of their immediate supervisor. Invest in training your supervisors and managers. It will pay off.

YOU CAN’T LISTEN WITH YOUR MOUTH OPEN. Your associates, your employees, your suppliers, your customers all have something of value in what they have to say. Listen to the people around you. You will never learn what it is if you drown them out by talking all the time. Remember, the only thing that can come out of your mouth is something you already know. Shut up and learn.

GET YOUR PEOPLE INVOLVED. It’s a lot easier to get employees to stand behind a company decision if they have the opportunity to participate in the discussion. Management still has to make the decision. But if they have had the opportunity to make their point of view known employees are more apt to stand behind the ultimate decision, even if they don’t agree with it.

ANYONE CAN STEER THE SHIP IN CALM WATERS. What will set you apart in your career is how you perform during the tough times. Don’t become complacent and relax just because things are going well. Plan ahead for the downturn.

STOP AND SMELL THE ROSES.Believe it or not, you will do a better job with your business if you let your mind wander once in awhile. Take a break. Recharge your internal battery. When you go back to work you will be more creative as well as less stressed.

PEOPLE AREN’T MUSHROOMS. Mushrooms grow very well when kept in the dark and fed horse manure. People, on the other hand, function better when they are kept in the loop and given straight info.

DARE TO DREAM. You can’t move forward if you are always looking back. You can’t find new solutions if you believe ‘it can’t be done’. Have the courage of your convictions and go after it.

DON’T SPRAY THE APES. Avoiding negative commentary about how down the organization is heading and how mysterious the fate is better than contributing organizational paralysis and supporting negative conflict.

WORK ON YOUR WEAKNESSES FIRST. In any position or job you find yourself, there will be things you do well, some you do okay, and some you don’t do so well. To improve yourself, and increase your value, work first to improve in those areas that are your weakest.

YOU ARE NOT SMARTER THAN EVERYBODY. You may be smarter than anyone, but you are not smarter than everyone. Seek input from the group, and listen to it. You will be surprised at what you can learn.

59

Transparency & DisclosureInternational Annual conference June 18th & 19th 2007

Business Gallery

Dr. Mahmoud Mohieldin, Minister of Investment with the graduates of Board Development Series program ( BDS)- first intake during the EIoD conference ( Transparency & Disclosure conference) in Mena house hotel.

Dr. Mahmoud Mohieldin, Minister of Investment, Mr. Dezidar Stefanko, officer in charge in the UNCTAD, Mr. Khalil Hamdani Director in the UNCTAD and Mr. Diego Mellado onbehalf of H.E Dr. Klaus Eberman during the EIoD conference ( Transparency & Disclosure conference).

Dr. Ashraf Gamal Eldin, the executive director of the EIoD during his speech.

The EIoD team would like to thank Dr. Ziad Bahaa El Din for his support to the institue and to corporate governance efforts in Egypt. Congratulations for the new post. The EIoD would also like to congratulate Mr. Assem Ragab and wish him best of luck.

Numerous local & international organizations and companies attended the conference.

Dr. Ashraf Gamal Eldin, the executive director of the EIoD during his speech.

Numerous local & international organizations and companies attended the conference.

The winners of the best Annual Report & website organized by the EIoD and the IFC awarded during the conference

The winners of the best Annual Report & website organized by the EIoD and the IFC awarded during the conference

Board Development Series Program ( BDS )Second Intake

Board Development Series Program ( BDS )

Second Intake

Snap shots of the Board Development Series program, the second intake attended by 17 participants.

Training of trainers program

July 8th 2007

Snap shots of the training of trainers, those trainers are the graduates of the BDS progra

m, they have been trained to be

trainers in the upcoming intakes of the BDS program.



Training of trainers programJuly 8th 2007

Snap shots of the training of trainers, those trainers are the graduates of the BDS program, they have been trained to betrainers in the upcoming intakes of the BDS program.



Training of trainers programJuly 8th 2007

Snap shots of the training of trainers, those trainers are the graduates of the BDS program, they have been trained to betrainers in the upcoming intakes of the BDS program.


Snap shots of the training of trainers, those trainers are the graduates of the BDS program, they have been trained to be trainers in the upcoming intakes of the BDS program.

Business Gallery

The EIoD Team

Documents

EIOD · Bassem Shaaban Sherif Magdy Printed By Alluxe Printing Published by: EIoD Co ntents Arabic Summary Executive Director’s letter By: Dr. Ashraf Gamal Editor’s Note By: Ms