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Good Governance: Core Principles for Family Businesses in LEBANON

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'Good governance' is required by both government and business in Lebanon & MENA. Good CG essential in Lebanon to compensate for weak overall governance. 5/6/09 ... – PowerPoint PPT presentation

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Title: Good Governance: Core Principles for Family Businesses in LEBANON


1
Good Governance Core Principles for Family
Businesses in LEBANON MENA
  • Dr. Nasser Saidi

2
Core Principles for Good Governance
  • Evidence from economic growth and financial
    crises
  • Role importance of good governance
  • Evidence government, corporate
  • Proposals and recommendations for Lebanon

3
Good Governance
  • Well performing institutions, enabling legal
    infrastructure, regulatory regimes and
    enforcement, good governance are major
    contributors to economic growth prosperity and
    democracy
  • Good governance is required by both government
    and business in Lebanon MENA
  • Good CG essential in Lebanon to compensate for
    weak overall governance

4
Core Principles for Good Governance in Family
Businesses in Lebanon
  • Change attitudes towards value of effective,
    transparent accountable corporate governance
  • Develop adopt core principles for business
  • Amend laws to
  • Increase protection of minority shareholders
  • Separate management from ownership

5
Dimensions of Good Governance
  • Voice and accountability
  • Political stability No violence or conflict
  • Government effectiveness
  • Regulatory quality
  • Rule of law
  • Control of corruption

6
MENA Governance Below Average High Variability
Across Countries
7
MENA Governance Below Average High Variability
Across Countries
8
Corporate Good Governance
  • Rules incentives by which management is
    directed and controlled so as to maximize the
    profitability and LT value of the firm for
    shareholders, while taking into account the
    interests of other stakeholders
  • CGG has a positive effect on domestic foreign
    investment
  • Poor CG inadequate disclosure, no independent
    oversight weak minority shareholder rights
    discourages investment incentives for efficient
    management

9
CG Investor Protection Performance in Emerging
Markets
  • Better CG highly correlated with better operating
    performance and market valuation
  • Cross-country differences in laws enforcement
    affect ownership structure, dividend payouts,
    availability cost of external finance and
    market valuations
  • Firm level CG provisions practices matter even
    more in countries with weak shareholder rights
    and weak legal environments

10
Issues Facing Family Business
  • Succession who will succeed?
  • Separation of ownership and management trade-off
  • Separation allows specialization in mobilizing
    capital (shareholders/creditors) and efficient
    resource use (management)
  • Large v/s minority shareholders

11
Bank corporate governance in Lebanon Prelude to
CGG of family businesses?
(insert chart of Lebanese family-owned banks ???)
(source BCC)
12
Why do we need bank CG in Lebanon?
  • Liquidity and solvency problems
  • Opaqueness of banks
  • Difficulty in monitoring evaluating bank
    managers likeliness for family members to
    exploiting the private benefits of control
  • Abilities of bank managers to shift into higher
    risk activities
  • Threat of private creditors initiating bankruptcy
  • Money Laundering activities
  • Crowding out effect, less market competition

13
A regulatory environment is imperative
  • Conditions for establishing banks in Lebanon
  • Internal audit by banks
  • Law on illicit enrichment
  • Law on the issuance of and trading in bank
    shares, the issuance of bank bonds, and the
    ownership of real estate by banks
  • Anti-money laundering Law
  • Legal or supervisory limitations on connected
    lending
  • Minority shareholders protection

14
Bank CGG what standard to apply in Lebanon?
  • Set corporate objectives
  • Run the day-to-day operations of the business
  • Consider the interests of recognized stakeholders
  • Operate in compliance with applicable laws and
    regulations
  • Protect the interests of depositors
  • Allow market competition for better performances

15
Bank CGG matters
  • Bank corporate governance expressed as a prelude
    to CG for family businesses in Lebanon
  • Provide a quantity and a quality of banking
    services to accommodate overall economic
    development and minimize the threat of serious
    systemic crisis
  • Role of the government laws regulations
  • Improving the information environment
  • Attract foreign investors

16
Market value offamily-owned firmsas a of the
total equity market value of the top 20 firms
17
Families and Finance in Lebanon MENA
  • Families/entrepreneurs should actively promote
    development of financial markets
  • Reduce risk through diversification and
    divestment of family assets
  • Exit strategy solution to successor problem and
    equity in family inheritance

18
Alternative Patterns of Separation of Ownership
Management
  • Anglo-Saxon
  • Founder/entrepreneur
  • Professional manager
  • Exit sell-out
  • European
  • Founder/entrepreneur
  • Heirs professional management
  • Retain ownership
  • Asian/EM
  • Heirs
  • Maintain ownership

19
OECD Principles of Good Corporate Governance
  • Shareholder rights
  • Equitable treatment of shareholders
  • Role of shareholders
  • Disclosure and transparency
  • Responsibilities of the board

20
Recommendations Proposals
  • Change attitudes high value of effective,
    transparent accountable corporate governance
  • CGG practices matter more in Lebanon due to weak
    shareholder rights and legal system
  • Standardize Accounting and Auditing Practices
  • Families/Entrepreneurs should contribute to
    development well-functioning of financial
    markets
  • Reforms
  • Amend Laws to protect investors and minority
    shareholders
  • Introduce separation between Board and Management
  • Appoint a Commission to develop set of Core
    Principles for Good Corporate Governance

21
Guidelines for transparency and corporate
governance in Lebanon Proposal of a Draft Code
of Corporate Governance
22
Minority shareholder protection
  • Protect the rights of minority shareholders
  • Right to vote on important matters
  • Right to buyback shares
  • Right to formally present an issue to the board
    of directors
  • Treat foreign shareholders equally with domestic
    shareholders

23
2. Responsibilities of the Board of Directors
  • A majority of board members should be independent
    from management
  • Boards should establish various subcommittees
  • All material information should be publicly
    disclosed Transparency
  • Develop an investor relations program that fully
    informs all shareholders of corporate activities

24
3. Accounting and auditing
  • Firms should conform to accounting and auditing
    practices and standards i.e. comply with IAS or
    U.S. GAAP.
  • Audit committee should have a majority of
    independent directors, who should be able to read
    and understand fundamental financial statements
  • All communications between the committee and
    external auditors should be without the company
    management present

25
4. Transparency of Ownership and Control
  • Who controls a company?
  • Who has significant ownership?
  • Firms should disclose accurate, adequate, and
    timely information so as to allows investors to
    make informed decisions about acquisitions,
    ownership obligations and rights, and the sales
    of shares

26
5. Regulatory Environment
  • Credible and transparent regulatory environment
  • Regulatory environment must not be perceived to
    be under control or influence of any particular
    interest group
  • Regulators should be independent from industry
    and from political parties

27
Corporate Good Governance A way of promoting
economic growth
28
Good Governance Core Principles for Family
Businesses in LEBANON MENA
  • Dr. Nasser Saidi
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