MANAMA, 29 November 2004 — Strong corporate governance guidelines came under the spotlight as the Bahrain Monetary Agency (the central bank) paves the way to upgrade regulation to enhance the safety and reliability of Bahrain banks and insurance firms.
“Such is the importance of corporate governance that draft guidelines on enhancing high level controls are going out for a second public consultation,” said deputy governor of the BMA, Khalid Al-Bassam.
He was speaking during the official opening of a conference on “Corporate Governance: Board and Executive Action for Good Governance’, organized by the Bankers Society of Bahrain and held under the patronage of Shaikh Ahmed ibn Mohammed Al-Khalifa, governor of the BMA.
The conference, which attracted directors of boards, top executives, business owners, regulators, lawyers and legal advisors and auditors addressed recent developments and issues surrounding effective and efficient corporate governance, as well as the latest practices for responsible organizational direction and management. “Confidence in corporate governance standards is a key ingredient in generating trust and creating the proper environment in which financial markets can operate,” said Al-Bassam. “Healthy corporate governance practices can also lower capital costs and attract foreign direct investment (FDI), which is disproportionately low in the Arab world.”
“Lower capital costs, increased attractiveness to FDI, and greater financial stability and long-term growth: These are all powerful reasons why corporate governance matters.”
Al Bassam said “As a regulator, the BMA strongly believes in the importance of good corporate governance in its licensees, as well-run licensees are easier to supervise. But more fundamentally, if licensees are not well run by their board and management, then there is a limit to what the regulator can do to make up the shortfall.” The BMA is currently working on upgrading its corporate governance requirements for bank licensees. Corporate governance is also a key component of the new regulatory framework for insurance companies, due out in January 2005.
“However, while stronger norms and structures are important, it is ultimately people on whom corporate success or failure depends, as has been amply evident from the recent corporate failures in different jurisdictions.”
He added that “At the end of the day, we can’t legislate integrity. Without competent, knowledgeable people, acting honestly and prepared to speak out and challenge where this is required, then no amount of processes will save the day.”
In his presentation, Dr. Khalid Ateeq, executive director, Banking Supervision, pointed out that effective corporate governance hinges upon the dynamics between three bodies of persons — the shareholders, the board and the management.
He discussed the different “hot topics” of corporate governance, including the extraordinary executive pay packages and bonuses, whether directors should be financially literate, whether directors should be non-executive or independent, the need for spelling out the responsibilities and functions of boards and whether firms and their boards should be forced to make accountability statements on the financial conditions of their companies.
“These are also the issues that the BMA is confronting as it drafts new corporate governance guidelines for banks, guidelines which are going out for a second public consultation,” said Dr. Ateeq.