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									Corporate Governance
      in Egypt

     Dr. Khaled Dahawy
  The American University in
            Cairo
Agenda
   Main Goals
   What is Corporate Governance
   Benefits of Corporate Governance
   Legal Framework
   Early Developments
   New Developments
   Methodology
   Results
   Analysis
   Conclusion
Corporate Governance in Egypt   Dr. Khaled Dahawy   2
Main Goals
   Provide a brief overview of recent
    developments in corporate governance in
    Egypt

   Present and analyze the results of the
    2006 survey of corporate governance
    disclosure practices in Egypt.



Corporate Governance in Egypt   Dr. Khaled Dahawy   3
Corporate Governance
   Set of processes, customs, policies, laws and institutions
    affecting the way in which a Corporation is directed,
    administered or controlled.
   Includes the relationships among the stakeholders and the
    goals for which the corporation is governed.
   The principal Stakeholders are:
          Shareholders
         Management
         Board of Directors
         Other stakeholders include:
               employees,
               suppliers,
               customers,
               banks and other lenders,
               regulators,
               the environment and the community at large.
                                                              (www.Wikipedia.org)

Corporate Governance in Egypt           Dr. Khaled Dahawy                       4
Corporate Governance
   It is a multi-faceted subject.
   An important theme of corporate governance deals with
    issues of:
         Accountability and Fiduciary Duty
         Essentially advocating the implementation of guidelines and
          mechanisms to ensure good behavior and protect
          shareholders.
   Another key focus is the Economic Efficiency view, through
    which the corporate governance system should aim to
    optimize economic results, with a strong emphasis on
    shareholders welfare.
   Other Aspects such as the Stakeholders View, which calls
    for more attention and accountability to players other than
    the shareholders (e.g.: the employees or the environment).


Corporate Governance in Egypt       Dr. Khaled Dahawy                   5
Benefits of Corporate Governance
   Realize high and sustainable rates of growth.
   Increases confidence in the national economy
   Deepen capital market and increases its ability to
    mobilize savings
   Raise investment rates.
   Protects the rights of the minority shareholders
    or small investors.
   Encourages growth of private sector by
    supporting its competitive capabilities, helping to
    secure financing for projects, generating profits,
    and creating job opportunities.
Corporate Governance in Egypt   Dr. Khaled Dahawy         6
Is it Worth the Effort
   “Firms with stronger shareholder rights had
    higher firm value, higher profits, higher sales
    growth, lower capital expenditures, and fewer
    corporate acquisitions
   Investors who bought firms with the strongest
    democratic rights and sold those with the
    weakest rights "would have earned abnormal
    returns of 8.5 percent per year during the sample
    period."

                                Corporate Governance and Equity Prices by Paul
                                Gompers of Harvard and Andrew Metrick of the University
                                of Pennsylvania’s Wharton School


Corporate Governance in Egypt                   Dr. Khaled Dahawy                     7
Is it Worthwhile?
80% of the respondents were ready to
 pay a premium for well governed
 companies.
 The study further indicated that this
 premium amounted to 40% in the case of
 Egypt.
                                Mckinesy Corporation2002 Survey




Corporate Governance in Egypt         Dr. Khaled Dahawy       8
Special Concerns - Egypt
 Small and Medium Enterprises
 Family Owned Enterprises
 State Owned Enterprises
 The issue of enforcement and
  implementation




Corporate Governance in Egypt   Dr. Khaled Dahawy   9
Corporate Legal Framework
   French civil law
         Primary source of the corporate legal
          framework in Egypt.
   Anglo-American common law
         The Capital Market Law
         Central Depository Law.




Corporate Governance in Egypt   Dr. Khaled Dahawy   10
CG and Laws in Egypt
 Companies Law (CL 159/1981)
 Investment Law (IL 8/1997)
 Public Business Sector Law (PBLS
  203/1991)
 The Capital Market Law (CML 95/1992)
 The Central Depository Law (CDL
  93/2000)



Corporate Governance in Egypt   Dr. Khaled Dahawy   11
CG in Egypt – Early Developments
 Late 1990s, a well-tailored economic
  reform program
 ROSC 2001
 2002 CASE New Listing Rules
 Egyptian Institute of Directors (EIoD),
  2003
 ROSC 2004




Corporate Governance in Egypt   Dr. Khaled Dahawy   12
CG in Egypt – New Developments
       CMA Restructure, 2005
       Egyptian Code of Corporate Governance, 2005
          Scope
          General Assembly,
          Board of Directors (BOD)
          Internal Audit Department
          External Auditor
          Audit Committee
          Disclosure of Social Policies
          Avoiding Conflict of Interest,
          Corporate Governance Rules for Other Corporations

Corporate Governance in Egypt    Dr. Khaled Dahawy             13
CG in Egypt – New Developments
 Code of Corporate Governance for State
  Owned Companies, 2006
 CMA auditors registry, 2006
 Auditors Code of Ethics, 2007
 Efforts of NGO’s
         Corporate Governance Manual for Family
          Businesses
   CASE New Listing rules, Forthcoming


Corporate Governance in Egypt   Dr. Khaled Dahawy   14
Methodology
    Guidance on Good
     Practices in CG
     Disclosure
    UNCTAD
    Technical aid for:
         Regulators
         Companies
                particularly in
                 developing countries
                 and transition
                 economies




Corporate Governance in Egypt           Dr. Khaled Dahawy   15
Survey Tool
 UNCTAD Questionnaire
 Manual Analysis of:
         Financial Reports
         Websites
   Five Sections
         Ownership Structure and Exercise of Control Rights
         Financial Transparency and Information Disclosure
         Auditing
         Corporate Responsibilities and Compliance
         Board and Management Structure and Process

Corporate Governance in Egypt    Dr. Khaled Dahawy             16
                        Ownership Structure and Exercise of Control Rights

                                       Ownership structure

              Process for holding annual general meetings

                                Changes in shareholdings

                                           Control structure

                    Control and corresponding equity stake

            Availability and accessibility of meeting agenda

                                             Control rights
Rules and procedures governing the acquisition of corporate
                control in capital markets.
                                   Anti-Takeover measures

                                                               0        5         10    15       20       25     30
                                                                      Number of companies disclosing this item




Corporate Governance in Egypt                                 Dr. Khaled Dahawy                                   17
                          Financial Transparency and Information Disclosure


                             Financial and operating results

                                Critical accounting estimates

     Nature, type and elements of related-party transactions

                                        Company objectives

                   Impact of alternative accounting decisions

    Disclosure practices on related party transactions where
                         control exists
The decision making process for approving transactions with
                      related parties

   Rules and procedure governing extraordinary transactions

Board`s responsibilities regarding financial communications


                                                                0        5          10   15       20       25     30
                                                                       Number of companies disclosing this item




Corporate Governance in Egypt                                   Dr. Khaled Dahawy                                      18
                                                          Auditing


                Process for interaction with internal auditors

                Process for interaction with external auditors

               Process for appointment of external auditors
Process for appointment of internal auditors / Scope of work
                   and responsibilities
 Board confidence in independence and integrity of external
                         auditors
                                     Internal control systems

                                  Duration of current auditors

                                    Rotation of audit partners
   Auditor involvement in non-audit work and the fees paid to
                          the auditors

                                                                 0     5         10      15       20      25     30
                                                                      Number of companies disclosing this item




Corporate Governance in Egypt                                Dr. Khaled Dahawy                                    19
                                   Corporate Responsibility and Compliance

     Policy and performance in connection with environmental
                     and social responsibility
  Impact of environmental and social responsibility policies on
                    the firm's sustainability

  A Code of Ethics for the Board and waivers to the ethics code


                   A Code of Ethics for all company employees


         Policy on "whistle blower" protection for all employees

     Mechanisms protecting the rights of other stakeholders in
                           business

               The role of employees in corporate governance


                                                                   0     5       10       15       20      25     30
                                                                       Number of companies disclosing this item




Corporate Governance in Egypt                                Dr. Khaled Dahawy                                    20
                                 Board and Management Structure and Process

        Governance s tructures , s uch as com m ittees and other
             m echanis m s to prevent conflict of interes t
                           “Checks and balances ” m echanis m s
       Com pos ition of board of directors (executives and non-
                             executives )
         Com pos ition and function of governance com m ittee
                                s tructures
                    Role and functions of the board of directors

           Ris k m anagem ent objectives , s ys tem and activities
          Qualifications and biographical inform ation on board
                                 m em bers
          Types and duties of outs ide board and m anagem ent
                                 pos itions
 Material interes ts of m em bers of the board and m anagem ent

                                 Exis tence of plan of s ucces s ion

                                   Duration of director's contracts
  Com pens ation policy for s enior executives departing the firm
             as a res ult of a m erger or acquis ition
   Determ ination and com pos ition of directors ` rem uneration

                         Independence of the board of directors
           Num ber of outs ide board and m anagem ent pos ition
                    directors hips held by the directors
  Exis tence of procedure(s ) for addres s ing conflicts of interes t
                     am ong board m em bers
               Profes s ional developm ent and training activities
     Availability and us e of advis ors hip facility during reporting
                                 period
                                Perform ance evaluation proces s


                                                                        0    5         10     15       20       25     30
                                                                            Number of companies disclosing this item


Corporate Governance in Egypt                                      Dr. Khaled Dahawy                                        21
Problems/Hurdles
 Closed/family companies
 Lack of Awareness of Corporate
  Governance
 Lack of Knowledge of Benefits of
  Corporate Governance
 Lack of Implementation Manuals
 Small Boards of Directors




Corporate Governance in Egypt   Dr. Khaled Dahawy   22
Conclusion

   Major developments in the legal
    framework

   Need for progress in implementation




Corporate Governance in Egypt   Dr. Khaled Dahawy   23
Conclusion
 We are still starting
 Educate as you Enforce
 There is a need for development:
         Awareness of Corporate Governance
         Awareness of Importance and Benefits of
          Corporate Governance
         Training Courses
         Manuals and Implementation Tools



Corporate Governance in Egypt   Dr. Khaled Dahawy   24
Corporate Governance in Egypt   Dr. Khaled Dahawy   25

								
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