Take it to penalties

Good corporate governance needs firm rules to work. About a year ago this magazine revealed Dubai’s plans for corporate governance. The impressive Ethics Resource Centre was working on a blue print that would, over a number of years, make the Emirate the envy of the world when it came to corporate governance.

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By  Anil Bhoyrul Published  May 7, 2006

Take it to penalties|~||~||~|Good corporate governance needs firm rules to work. About a year ago this magazine revealed Dubai’s plans for corporate governance. The impressive Ethics Resource Centre was working on a blue print that would, over a number of years, make the Emirate the envy of the world when it came to corporate governance. Well, if last week’s events are anything to go by, there is a long way to go. Under the Dubai Financial Market’s own rules, all listed companies must publish quarterly statements no more than thirty days after the due date. Not an unreasonable request, you would think. Clearly, it is. By May 1st, several companies on the DFM had yet to do so. And why should they? Apart from a letter of reminder, no penalties are being imposed on these companies. The cynics in the market are quick to suggest that the reason for the delay is that some companies have been boosting profits through non-core activities, and are in no hurry to reveal this to the world. Once they do so, the best they can expect is a sharp fall in the share price. But with no penalty for late declaration, such corporate governance measures are worthless. In truth, why should anyone bother? The later the better in many cases. Last May, the executive director of the Dubai Ethics Resource Centre Alex Zalami was busy outlining to the world’s media just how serious the emirate took the issue of corporate governance. I have no doubt he is serious, and fully intends to implement his concepts. But the problem is that most of these require lengthy consultation periods, and approval on a new legal framework could still be some years away. What the Dubai Financial Market – and for that matter the Dubai International Financial Market – needs to do is urgently implement a new set of in-house rules and regulations. These can be agreed upon within a matter of months, and listed companies given no choice but to sign up: not to new rules, but to agreed penalties for those flouting them. Companies must understand that rules are made for reasons, and that breaking them will be costly. Otherwise, companies will continue to operate purely out of the need for a higher share price. As we have seen in recent weeks, that always ends in tears.||**||Don’t promise anything|~||~||~|This week we report exclusively from inside Pakistan on the rebuilding efforts since last year’s tragic earthquake. Massoud Derhally spent several days traveling around the country, with UN officials. During his travels, he also met the Pakistani Prime Minister. And as the story says, the figures are nothing short of shocking: The fault line of the quake stretches across 100 km and has damaged 4429 km of roads. The area affected by the earthquake was 30,000 sq kilometres, impacting a population of 3.2-3.5 million people. The quake killed more than 73,000 and injured 128,000 people. But there is another figure that is equally disturbing. In the aftermath of the disaster, over US$6 billion was pledged from around the world in aid. So far, six months later, only US$2.8 billion has turned up. What happened to the rest? We’re not talking here about individual pledges from people. We’re talking about countries. Why promise what you have no intention of delivering? ||**||No thanks|~||~||~|Over the last three months I have written a great deal about the expected price war over air fares on the Dubai-London route. Virgin Atlantic set the ball rolling in April when it slashed fares by up to 50%. Emirates Airline has joined in with its own special deals, and now somewhat belatedly, British Airways has entered the fray. We can expect the same soon from Qatar Airways and Gulf Air. As I hoped, the real winner in Virgin Atlantic’s Dubai launch has been the customer. Suddenly there is much greater choice on price. I predict this price war will continue well into the summer, with fares ending up 20% lower than now by August this year. But there is no reason to celebrate or send letters of thanks to the airlines. All of them charge ridiculously high prices on the Dubai – London route, in many cases 30% higher than the London – Dubai trip. And all of them make decent profits on this route.||**||

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