Title: Good Governance: Core Principles for Family Businesses in LEBANON
1Good Governance Core Principles for Family
Businesses in LEBANON MENA
2Core Principles for Good Governance
- Evidence from economic growth and financial
crises - Role importance of good governance
- Evidence government, corporate
- Proposals and recommendations for Lebanon
3Good 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
4Core 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
5Dimensions of Good Governance
- Voice and accountability
- Political stability No violence or conflict
- Government effectiveness
- Regulatory quality
- Rule of law
- Control of corruption
6MENA Governance Below Average High Variability
Across Countries
7MENA Governance Below Average High Variability
Across Countries
8Corporate 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
9CG 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
10Issues 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
11Bank corporate governance in Lebanon Prelude to
CGG of family businesses?
(insert chart of Lebanese family-owned banks ???)
(source BCC)
12Why 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
13A 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
14Bank 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
15Bank 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
16Market value offamily-owned firmsas a of the
total equity market value of the top 20 firms
17Families 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
18Alternative 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
19OECD Principles of Good Corporate Governance
- Shareholder rights
- Equitable treatment of shareholders
- Role of shareholders
- Disclosure and transparency
- Responsibilities of the board
20Recommendations 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
21Guidelines for transparency and corporate
governance in Lebanon Proposal of a Draft Code
of Corporate Governance
22Minority 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
232. 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
243. 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
254. 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
265. 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
27Corporate Good Governance A way of promoting
economic growth
28Good Governance Core Principles for Family
Businesses in LEBANON MENA