Corporate Governance & Business Ethics: A Dubai-Based Survey

INTRODUCTION The UAE is an emerging market that is going through deep changes socially, economically, and to a lesser degree politically. Economically, it has moved from a relatively undiversified, closed and inward-oriented economy to an outward oriented, open, and diversified one. Due to its phenomenal economic growth over a record period of time, the country has become a key focus for international corporations and more recently for personal and institutional investors. This paper posits that this fast paced transformation and modernization of markets, infrastructures, and institutions was not followed by an equally diligent adoption of proper governance practices and business ethic standards. The UAE economy is characterized by a high concentration of ownership in the hands of government and/or families. The financial system is in most part bank-intermediated with very little reliance on capital markets to raise funds. Neither firms nor banks within this relationship-based system, as opposed to a market-based system, feel the need to develop corporate governance mechanisms, since the former are able to rely on banks for continued financing and the latter feel relatively comfortable under explicit or implicit government guarantees. This has led to a marginal role of institutional investors, and less incentives for disclosure and accountability. While this is true of most emerging markets, the UAE has the added feature of being a tax-haven. Under the Commercial Companies Law and the Commercial Transactions Code, all businesses must keep financial records but the legislation does not specify the exact nature of such records. Listed companies, which represent less than 0.1% of all companies operating in the country, are required to report on a quarterly basis but the extent of reporting is rather limited and in most part at the discretion of the reporting companies. It is against this background that a questionnaire was designed targeting top executives within leading business organization in the country in order to get a first hand appreciation of their perception of corporate governance and ethical practices within their respective companies and industries. To the authors' knowledge, this is the first attempt to look at business practices within corporate UAE. No similar effort had been undertaken in the GCC region either. While the UAE has been often in the media for its phenomenal economic growth, no attempt has been made to date to look at corporate governance and business ethics within UAE organizations. The second section of the paper looks at the business environment in the UAE, followed by a review of the literature about business ethics in the Middle-East. Survey design, data collection and findings are presented in the fourth section, followed by recommendations and area of future research. THE UAE BUSINESS ENVIRONMENT The United Arab Emirates (UAE), a federation of seven emirates established in 1971, is situated in the Arabian Peninsula. Although each emirate in the Federation maintains a large degree of independence, the UAE is governed by a Supreme Council of Rulers made up of the seven emirs, who appoint the prime minister and the cabinet. The country held its first national elections--for an advisory body--in December 2006. The UAE is similar in size to Austria with a land mass of 82,880 square kilometers. It is the second largest populated country in the Gulf Cooperation Council (GCC) after Saudi Arabia. It is the second largest in terms of per capita nominal GDP after Qatar. The nominal GDP of the UAE grew by 27.8% in 2005 to reach a level of US$ 132.3 billion. Real GDP grew by 8.2% in 2005 reaching a level of US$ 97.4. A member of OPEC, the UAE has the 6th largest oil reserves in the world. The late Sheikh Zayed, ruler of Abu Dhabi and first president of the federation, was quick to recognize the potential of the oil industry and direct oil revenues towards the development of the country's infrastructure, healthcare and education. …