Governance

The End of Corporate Corruption in the Middle East?

The end of corporate corruption in the Middle East. It makes for a strong headline, but scratch beneath the surface and at what point does this phrase move from being an aspirational tag line, to a real statement of truth about the corporate landscape in the region – and can it be achieved?

Whether it is the global business community seeking to invest in the region, or international markets seeking to secure investment from here, the Middle East is considered a prize and a source of capital and liquidity.

That being said, the perception of a lack of transparency and accountability in the region is often considered a barrier, not only to inward investment, but also to ongoing business partnership due to increasingly stringent legislative requirements of countries such as the USA and the UK.

This perception is certainly not without foundation – five Arab countries were listed in the bottom ten of Transparency International’s 2013 Corruption Perceptions Index.

The UAE, one of the most globalised economies in the Middle East, tops the Arab World in the Index, ranking 26th out of 177th. Qatar follows at 28th, with Bahrain, Oman and Saudi Arabia not far behind. Clearly the need for better governance has been identified and recognised, and the GCC countries are at the forefront of expending real energy in closing that gap.

What we need to establish is whether these negative perceptions have grounding, and it would seem that they do. PwC survey undertaken in March this year highlights why: 21% of companies in the Middle East have been the victims of some form of economic crime. 12% of this group has suffered losses of $5 million over the past two years, half of which have experienced over $100 million in losses due to corporate corruption.

When looking for a solution to this, and to deliver on the aforementioned aspiration of “the end of corporate corruption in the Middle East”, I see two paths. Firstly, government regulation can play a crucial role in providing a framework for which the public and private sectors can work within. Yet this on its own never fully eradicates the problem, as we have seen in even the most developed markets.

Legislation and regulation when properly administered leads to compliance, or as is often the case undertaking the minimum level possible to meet the proscribed criteria. If we take this ‘box ticking’ route at a corporate level, we may be committing to meet legal requirements but we are not creating a sustainable movement towards greater accountability and transparency.

This is why the second path, one of Private Sector leadership, is so crucial. Private Sector leadership is where business leaders can make the voluntary move to surpass minimum requirements, and embed an ethos of good governance into their organisations and those with whom they engage.

For these best practices to be genuinely embraced, there is a need for recognition that they are directly linked to the bottom line. A company will gain competitive advantages over its peers by embedding these practices into its mode of conduct. Corporate governance can help a business attract capital, customers, business partners and employees. Simply speaking, it is good for business.

Without strong private sector leadership that creates a prevailing culture of internal checks and balances, an environment in which corruption can thrive is made much more possible. Whilst the former provides a preventative measure, checks and balances seek to encourage this with detection and eradication.

It is my opinion that it is not absurd to imagine a scenario in which there is virtually no corporate corruption in our Region, with regulation and corporate culture driving the issue. However, is this aspiration enough of an incentive to change behaviour? If greater economic advantage can be established achieved through legitimate and principled means, then the incentive for criminal activity is minimalized leaving only an incentive for ethical behaviour.

Corporate corruption in Gulf Region is by no means the norm. It is increasingly becoming the exception. But that does not mean that we shouldn’t seek to permanently eradicate it from the system.

As featured in Arabian Business on 24th May 2014.

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