A perception of good corporate administration is key to the development and long term stability of local markets. It will also attract foreign investors to the UAE
Good corporate governance helps all businesses to improve their performance, raise market trust and attract business. In the case of Abu Dhabi Commercial Bank (ADCB), good governance can help develop its investment, loan and deposit businesses.
Since the global credit crisis, banks worldwide have lost much market trust; investors shunned banks because they could not be sure about the true nature of bank assets or liabilities. Banks are central to healthy, functioning financial systems, particularly in the UAE; therefore strong corporate governance, which develops market trust, is of vital importance for the entire sector.
As part of a strategic review in 2005, ADCB started to restructure its products and services. In 2007, the company hired International Finance Corporation, a division of the World Bank, to help it develop a three year ‘road map’ to meet the highest standards of corporate governance. This road map was based on the requirements of Emirates Securities and Commodities Authority Corporate Governance Code, the requirements of Abu Dhabi Securities and Commodities Market ADX, draft guidelines from the Central Bank, and global best practices and principles such as the UK’s Combined Code.
These initiatives have resulted in the following achievements:
- In 2009 Hawkamah awarded ADCB ‘Best Bank in UAE’ at its Union of Arab Banks Corporate Governance Awards
- In 2009 ADCB was the first bank in the GCC to meet the stringent disclosure and transparency requirements to sell bonds to US investors (144A programme)
- In 2010 World Finance awarded ADCB ‘Best Corporate Governance in the UAE,’ placing ADCB among many well known global blue chip companies
- ADCB has been featured by World Bank as a case study for its corporate governance achievements.
Steps taken by the bank include the reorganisation of its board and board committees, reorganisation of management committees, extension of its disclosures in the annual report, focus on more regular and transparent market disclosures, regular board evaluations, focus on board skills and training and amendments to the bank’s articles of association.
As a result ADCB will be ready to respond to and action the requirements of the Central Bank, after it presents its anticipated corporate governance rules.
A key challenge for ADCB is to ensure it maintains its commitment to its four key principles of corporate governance – transparency, responsibility, accountability and fairness – through all of its transactions. Another challenge is maintaining the correct balance between the board and management – the board’s role is to guide and set strategy, and set clear and appropriate delegated authorities. It will be important to avoid any tendencies to micro-manage while maintaining appropriate oversight.
The recent downturn in global markets has affected market conditions for all banks. ADCB has been transparent about the provisions it has taken and the reasons for them, and has maintained a prudent approach to provisioning in circumstances where a different approach may be taken. This approach, and the bank’s general commitment to good governance will, in the long term, enhance market trust and confidence in ADCB and, when the bank’s historic issues have passed, will ensure that the bank trades at a premium to its peers.
One of the major challenges is to maintain disciplined governance processes during periods of strong economic growth. It is easy to see the effect of governance weaknesses during downturns, but less easy during profitable periods.
In the GCC in particular, locating independent directors with strong professional experience is and will continue to be a challenge.