In Dec 2001, Enron filed for chapter 11 after a six month investigation led to the end of 'America’s most innovative Company' as rated by Fortune. After an in-depth investigation, revealed that Enron had been most innovative with its financial structure the firm's erstwhile auditors Arthur Anderson were dissolved. This really brought to the forefront the critical question: in this era of business and financial complexity, who can the investors really trust?
The Securities and Exchange Commission (SEC) was forced to revisit the guidelines for corporate governance (CG) to regain the lost confidence of general public in the transparency and accountability of the CG system. To-date, numerous efforts have been made through Sarbanes-Oxley's enactment and its adoption to improve transparency in Corporate America. Although this system is continuously evolving, tangible benefits in the form of better internal controls, increased reliability of the published financial statements and better public confidence in equity markets has been observed post 2002.
It took seven years for the issue of corporate governance to surface in the region at Al Gosaibi in the Eastern Province of Saudi Arabia. Founded as a money exchange trading concern in the 1940s by Hamad Ahmad Al Gosaibi, the company grew into one of the most respected business groups in the Middle East, a group which has leveraged its brand name to raise debt and owns significant stakes in businesses across the region. However, in May 2009 it announced that it was unable to meet its debt obligations. This triggered a wave of unrest amongst the management, which later announced misappropriations in the financial management system of the Group. The internally orchestrated fraud was blamed on Mr. Maan Al-Sanea, son-in-law of the deceased co-founder of the Group and Chairman of another troubled Saudi conglomerate, Saad Group.
Al-Gosaibi, unlike other business houses, has been candid about the misuse of their assets and has filed cases against Mr. Sanea in the New York Supreme Court. This can be taken as a positive sign and a definite move towards more transparent operations of the Saudi business houses. As the case unfolds, both Al-Gosaibi and Saad Group are expected to face increased allegations and heightened embarrassment. The silver lining is that it might just result in better regulation and control of key management personnel of such groups.
Over the past couple of months, there has been increasing number of voices expressing concern over the integrity and transparency of corporations in GCC region and the business conglomerates which constitute a healthy portion of the economy. I believe that this region has a long way to go in institutionalizing corporate governance and accepting it as beneficial in the long run. A focus on the following areas of governance will do the trick: ownership structures, board composition and remuneration, corporate responsibility and compliance along with financial transparency and information disclosures.
Sources: http://en.wikipedia.org/wiki/Corporate_governance, http://www.economist.com/businessfinance/displaystory.cfm?story_id=14067167, http://news.bbc.co.uk/2/hi/business/1780075.stm