Despite government and activist pressure, it remains easier to hide than come clean for businesses in the middle east. Can we change the system?
By Bushra Azhar
Whether it is the Saad and Gosaibi case shrouded in layers upon layers of useless and expensive secrecy or the real numbers of health and safety accidents, countries in the Gulf Cooperation Council (GCC) are not particularly well known for prioritizing transparency. Even though more and more companies are striving to be open about their practices as governments take steps to push them in the right direction, public disclosure is still seen as an unnecessary and cumbersome practice among corporate corridors.
From cultural nuances to a skewed perception of what it entails, there are many reasons why companies in the region consistently shy away from being open and transparent. Here are four reasons why:
The spirit and practice of CSR in the GCC region is often reminiscent with traditional conservative values and religious concepts. It is a region that often does not identify with elements that represent an open, modern society. In daily life, people – and corporations – depend on structures and institutions that are resonant with their heritage and have withstood the test of time, such as the family, clan networks, and religion.
This means that while there is a focus on integrity and social service, in true cultural likening, transparency and openness are not necessarily a part of the corporate agenda. Despite regulatory pressures, this focus on secrecy and privacy prevails in all aspects of business in the GCC.
The good news however, is that in the wake of the financial meltdown, companies are quickly realizing that higher walls mean lower investor trust, and that trust is a valuable commodity.
Skewed Perception of CSR
Transparency is not only about honesty but open sharing of ideas, knowledge, victories and bloopers within and across all stakeholders. It is an enabler that allows not only for the exchange of ideas but a true alignment of all elements of a company with the expectations of the stakeholders. The general perception, however, in the GCC region is that being transparent means that all your business details, even the confidential ones need to be put on the table for all to see and judge. Because of this false understanding, companies are intimidated by the concept and often see it as an unnecessary threat.
Although there have been some reforms at the government level to address the issue of better governance and higher transparency, the main challenge is at a more fundamental level: Markets are not mature enough to recognize or reward such practices and even if a business decides to be open and transparent about its practices, it often stands to lose if the rest of the industry does not follow suit.
The objective of government-driven initiatives such as Hawkamah is to shape corporate governance practices and framework in the region by promoting the core values of corporate responsibility. These reforms promise that the as the corporate governance gap closes, the overall response of markets towards transparency, accountability, fairness, and disclosure will improve.
The Financial Statement Triumphs
Financial statements of most companies in the GCC region are designed to hide more than reveal. Smart investors steer clear of companies that lack transparency or have enigmatic business structures. That said, ask interested parties in the region what kind of information they want companies to publish and you'll probably hear them say financial information -- and lots of it.
Non-financial information or off balance sheet items is just not considered significant enough to warrant a disclosure. The problem with this attitude is twofold: first, you never get to see the full picture of a company beyond the mandatory financial disclosure and second, the potential risk of investing in a company with seemingly great numbers but underlying currents of dispute is very high.
With loss of investor confidence following cases like Saad and Gosaibi, transparency and disclosure have now become the linchpins of business, with bankers, analysts, lawyers and investors across the region calling for better and more holistic disclosures. Fortunately, similar corporate catastrophes in recent years have ruffled more than a few feathers and emptied more than a few pockets, leading lenders as well as regulators to ask for higher levels of transparency and disclosure from companies in the region.
Lest you think I'm talking of a different era, as I write this, there is news about another corporate scandal in an apparent series involving shady transactions and misreported financial figures. The regional CEO of Australian engineering firm Hastie Group has fled the UAE after bouncing two checks worth $700,000. arabianbusiness.com reports that "they (the management) started hiding losses and burying stuff in the balance sheet”.
Guess it's always easier to hide than coming clean. Can we change the system?