Dubai, November 16, 2005: In an increasingly complex business environment influenced by globalization and other fast changing market forces, good and effective corporate governance is crucial to ensure the integrity of businesses. Emaar Properties PJSC is pleased to announce the formation of a Corporate Governance Advisory Council to take the lead in establishing a framework of sound and effective policies, rules and practices to govern the relationship of the stakeholders – managers, shareholders, employees, suppliers, customers, etc – and to enhance its risk management and internal controls systems to raise the platform so as to better able to deliver shareholders’ value through continued growth and financial stability. This pioneering initiative aims to develop international benchmarks for corporate governance policies, rules and practices with defined codes of best practices and ethical standards that will be a beacon to progressive corporations and institutions in the region.
The Corporate Governance Advisory Council
The Advisory Council will be chaired by Emaar Chairman, Mohamed Ali Alabbar, and its members will include Emaar representatives and well known international and local financial and business personalities experienced in the issues and trends in global corporate governance.
Mr Alabbar said: “This marks another critical milestone in the continued growth and development of Emaar’s globalized business. The increasing diversity, both in terms of the nature of our business as well as its geographical spread, will continue to put pressure on our processes and procedures. The formation of the Advisory Council is a totally voluntary initiative proactively taken by the Board to ensure the sustainability of the integrity and financial stability of our businesses which underpins shareholders and market confidence. We have taken this initiative even though there are currently no legal or regulatory requirements in this area.”
“Emaar is known for having taken the lead in governance issues in the past, beginning with the formation of a Public Joint Stock Company, the listing of the company on the Dubai Financial Market (DFM) on March 26th, 2000 and the quarterly reporting of financial results on the DFM. We are proud to lead the way once again to develop a robust and forward looking corporate governance framework that will meet with the challenges of the complex business environment. This pioneering initiative will also ensure that the buoyancy and confidence that the regional financial markets have seen in the recent past will be enhanced with a greater degree of accountability and transparency. This will pave the way for increased investment and capital participation in regional corporations by the global investment community,” he added.
Mandate of the Advisory Council
The Advisory Council has been mandated to formulate corporate governance standards that will meet or exceed that of the equivalent international standards. It has been given absolute latitude to set more stringent standards if it considers appropriate. It will, initially, focus on the following four areas:
- Matters concerning the Board of Directors, e.g. the composition and the degree of independence in the membership of the Board and the manner in which the Board conducts its affairs, the process for formal assessment of the effectiveness of the Board, and the procedures for handling conflicts of interests.
- Matters concerning remuneration of members of the Board of Directors and/or senior executives, e.g. procedures in place for the development of remuneration policies and the disclosure of such policies.
- Procedures and processes for accountability and audit, e.g. the presentation of a balanced and understandable assessment of performance and prospects, the effectiveness of the system of internal controls with appropriate checks and balances between management and the Board.
- Communication with shareholders and their rights, e.g. the timeliness, regularity and fair communication with shareholders and the extent of shareholders’ participation at meetings.
In developing the framework for an effective corporate governance structure, the Advisory Council will also develop codes of best practices, including ethical codes, for the Board, management and staff. The Advisory Council will not only focus on the internal structures and processes but would also stress on systems to ensure the timely disclosure of all material matters in a balanced, consistent, comparable, relevant and reliable manner.
“Reliable and comparable financial reports prepared in accordance with international financial reporting standards and disclosures of material matters in a timely manner are crucial in creating an efficient and stable capital market. The financial reports of EMAAR, which are already prepared in accordance with international financial reporting standards is a good role model for regional corporations. The formation of the Advisory Council to further enhance the corporate governance structure is an additional and critical step in positioning Emaar towards achieving a more significant diversity in its stakeholders base through a potential listing on one of the leading international bourses,” added Alabbar.
Throughout the world, governments, regulators, shareholders, investing institutions and other stakeholders are demanding for the highest level of ethical standards and transparency, and the independence and effectiveness of the Board consisting of skilled and specialist members. They are also demanding that companies put in place effective corporate governance structures that go well beyond minimum regulatory and statutory requirements.
Emaar recognizes that timely and transparent corporate reporting is not based on financial performance alone. Whilst the establishment of a sound and effective system of internal controls as part of the normal management and governance process will ensure that this is achieved, what is envisaged by the formation of the Advisory Council is to go beyond financial controls to encompass social and environmental issues and performance – issues which are commonly referred to generically as “reputational risk”.
Corporate Social Responsibility and Sustainability Reporting
In addition, the Advisory Council’s remit includes the formulation of policies and the development of processes that will embrace the full range of risks that an organization faces, including risks arising from “non-conventional” sources such as environmental, social and ethical issues. The questions that the Advisory Council would ask include:
- Are there significant internal and external operational, financial, compliance and other risks identified and assessed on an on-going basis? Significant risks such as those related to market, credit, liquidity, technological, legal, health, safety, environmental, reputation and business probity issues.
- Does the company communicate to its employees what is expected of them and their initiative to act? This may apply to areas such as customers relations, service levels for both internal and outsourced activities, health, safety and environmental protection, business continuity issues, accounting and financial issues.
- Are there established channels of communications for individuals to report suspected breaches of laws or regulations, or other improprieties?
- Are there specific arrangements for management monitoring and reporting to the board on risk and control matters of particular importance? These could include actual or suspected fraud, and other illegal or irregular acts or matters that could adversely affect the company’s reputation or financial position.
A review would be undertaken of the strategic and operational management processes and systems that will ensure:
- The alignment of our policies, systems and activities with our values;
- That we learn about the actual and perceived impact of our activities;
- A more effective management of risks associated with actual and perceived social and environmental impacts on business process; and
- That we inform stakeholders to enhance our engagement and overall value added through reputational gains.
A fundamental shift has taken place in the attitudes of boardrooms towards corporate reputation. The parallel emergence of instantaneous worldwide communications, globalization and stakeholder activism have turned the management, protection and enhancement of reputation into arguably the greatest and most complex corporate challenge.
“Reputation, in my view, will be a key competitive differentiator for the successful company for the many decades ahead of us,” said Mr Alabbar. He further added, “We must be as concerned with the risks that can damage the business reputation as with risks that can cause immediate financial loss. The Advisory Council is yet another testimonial of the relentless effort of Emaar’s Board and management to continuously improve systems and processes so as to enhance long-term shareholders’ value. With the continuing strong support of His Highness Sheikh Mohammed, this initiative further fulfills his vision of positioning Dubai into the global arena for corporate excellence.”
