By Enas Gomee: The nineties of the twentieth century had a quick and violent developments which affected the structure of the global economy, the effects of the globalization of financial markets emerged, and financial markets
collapsed in Southeast
Asia and Latin America. Process of privatization and the transition to a market economy became more than the past, all these developments prompted the International Monetary Fund and the World Bank to participate with OECD to draft “Principles of Corporate Governance” and study its effectiveness on both developed and emerging markets alike.
According to OECD the definition of corporate governance is “the set of rules, regulations and procedures that achieve better protection and balance between the interests of the company’s managers and shareholders as well as other associated stakeholders”. These rules include matters relating to corporate law and securities laws, and the rules of registration in the stock exchange, and accounting standards which are applicable to the listed companies, and competition laws, and the laws of bankruptcy and others. The main objective of corporate governance is to “eliminate the gap that can occur between managers and owners of the company as a result of the negative practices that could harm the company”.
Egypt is the first Arab state which had evaluated at practice of corporate governance by the World Bank and the International Monetary Fund, the report which was prepared in 2001 in collaboration with the Ministry of Foreign Trade and the Capital Market Authority and the stock exchange that the rules governing the management companies and applied in Egypt are in line with the international principles.
The recent period has witnessed a remarkable development in the field of establishing the rules of corporate governance and development in Egypt and that is because of the issuance of new registration and disclosure rules, and introducing new standards for registration including profitability, the number of shareholders and the minimum level of capital in line with international standards. Disclosure rules also have evolved and companies have been obliged with the composition of audit committees, appointment of responsible person for relations with investors, establishment of Settlement Guarantee Fund. Allowing the registered owner to vote on behalf of the beneficial owner and according to his instructions, allowing to use voting system by ordinary and electronic e-mail.
Egypt’s initiative for the application of the international rules of corporate governance:
The issue of corporate governance has received increased attention in recent years because of the increased overlap of the Egyptian economy with the global economy through the globalization of capital markets and the increasing importance of role played by the private sector in the Egyptian economy. Over the past years, Egypt confirmed the application of international rules for corporate governance in both the private and public sectors, and that through the issuance of:
- Guide of rules and standards of corporate governance joint sector in the Arab Republic of Egypt in October, 2006.
- Guide of the principles of corporate governance for public sector companies in the Arab Republic of Egypt in July, 2006.
- Project Executive Rules of Corporate Governance of listed companies and Alexandria Stock Exchanges Cairo in November, 2006.
First: Guide of the Rules and Standards of Corporate Governance of joint stock companies in Egypt:
This set of rules of corporate governance principles in Egypt is considered as complementary rules to texts which are related to Joint Stock Company in different laws, and it does not consider jus cogens and not binding rules. They are only organization rules for corporates in accordance with the global standards and methods that achieve a balance between the interests of different parties, so these rules have an indicative nature. These rules are applied at the joint stock companies which are restricted at the stock exchange. These rules are separated between:
- General assembly
- Board of directors
- Internal Audit Department
- Audit Committee
- Disclosure of social policies
- Rules to avoid conflicts of interest
Second: Guide of the Principles of Corporate Governance for public sector companies in Egypt:
They are considered complementary principles to the rules and provisions that govern and organize these companies. Principles of the Organization for Economic Cooperation and Development (OECD) for the governance of state-owned companies are considered as the guiding rules of the principle of public sector companies. These principles agree with the object of the Law of Public Sector Company’s No. 203 of 1991 which is the liberation of the public business sector from any restrictions that may hinder its ability to compete with the private sector.
These principles are divided into six groups as follows:
- Assertion of the existence of an effective legal and regulatory framework for public business sector companies
- The state is acting as an owner
- Equal treatment of shareholders (owners)
- Relations with the parties of common interests
- Transparency and Disclosure
- Responsibilities of the Board of Directors public sector companies
Third: Project of executive rules of listed companies at Alexandria Stock Exchange Cairo:
A committee of experts completed from the preparation of a detailed report that contains a project of the rules of executive governance of listed companies at the Egyptian Stock Exchange. Application of these rules is mandatory in its final form for all listed companies and Alexandria Stock Exchange. These rules apply to all Joint Stock companies which issue Securities and are listed at the Egyptian Stock Exchange within six months from the date of issue. These companies shall take into account and follow the rules and standards of corporate governance in Arab Republic of Egypt issued by the Ministry of Investment Guide in October 2005. These rules are separated between
- Board of directors
- Disclosure and providing information to shareholders
- Conflict of interest and internal trading
- Internal Control
- The appointment of the auditor
This article seeks to highlight certain aspects related to corporate governance in Egypt; as corporate governance is not meant to force companies to respect the set of rules and interpret them narrowly and literally, it is rather a culture and style meant to adjust the relationship between the owners of the company and its directors and stakeholders. It is, however, been observed that recent developments with regards to corporate governance rules all over the world have become a powerful tool for attracting foreign direct investment. Egypt is no exception, however, further developments are foreseen in the future.