Governance Book

Prepared by Mohamed Hassan Youssef

The book "Governance" addresses the concept of governance, its standards, and its determinants, with a special focus on its application in Egypt, the banking system, and corporate governance.

Governance is a modern management concept that aims to achieve effective oversight of companies and institutions, and ensure transparency and integrity in resource management and decision-making. Governance has emerged as an imperative following the financial crises that the world has witnessed, particularly after the collapse of major companies such as Enron and WorldCom at the beginning of the twenty-first century. This led to a reconsideration of oversight and sound management mechanisms.

The Governance Book confirms that interest in implementing governance has increased since 2001, when the Ministry of Economy and Foreign Trade began developing a regulatory and oversight framework to enhance the role of the private sector in the national economy. The National Investment Bank is among the institutions that took the initiative to adopt governance standards to ensure effective resource management and achieve transparency and accountability.

 

Definition of governance and its objectives

The book "Governance" indicates that governance is the system by which companies are managed and controlled, establishing a set of rules and standards that ensure fairness, transparency, and accountability among various stakeholders, such as shareholders, the board of directors, and executive management. Governance helps bridge the gap between ownership and management, enhancing confidence in financial markets and encouraging investment flows.

The Governance Book summarizes the objectives of governance as follows:

  • Enhancing transparency and disclosure of financial and administrative information.
  • Protecting the rights of shareholders and stakeholders.
  • Reducing corruption and mismanagement by enhancing accountability.
  • Improving corporate performance and increasing their competitiveness.
  • Attracting investments by improving the business environment.

 

Governance determinants

The Governance Book divides governance determinants into two main types:

  1. External determinants

These are the factors that affect the application of governance at the level of the economy as a whole, and include:

  • Laws and regulations regulating economic activity, such as capital market, competition, and bankruptcy laws.
  • The efficiency of the financial sector (banks and capital markets) in providing the necessary financing to companies.
  • The degree of competitiveness of markets and their ability to attract investments.
  • The efficiency of regulatory bodies such as the Capital Market Authority and the Stock Exchange.
  • The presence of independent professional institutions such as accounting and credit rating offices.

 

  1. Internal determinants

These are the factors that control the application of governance within companies, and include:

  • Distribution of powers within the company between the board of directors and executive management.
  • The extent of the independence of the Board of Directors from executive management.
  • Availability of effective control systems within companies.
  • Degree of commitment to disclosure and transparency standards.

 

Governance standards

The Governance Book notes that the OECD (The OECD has identified a set of standards that help implement governance effectively, including:

Having an effective corporate governance frameworkThis framework should enhance market efficiency and be consistent with the provisions of the law.

Protecting shareholders' rightsThis includes the right to vote in general assemblies, receive dividends, and review financial statements.

Fair treatment of all shareholdersTo ensure that certain groups do not exploit special advantages.

Strengthening the role of stakeholders: Such as employees, banks, and suppliers in supervising the company's performance.

Disclosure and transparencyBy publishing financial and administrative reports transparently.

Board of Directors ResponsibilitiesTo ensure that decisions are made in the best interests of the company and shareholders.

 

Governance in Egypt

The Governance Book explains that Egypt has witnessed progress in implementing governance since the beginning of the new millennium. The extent to which Egyptian laws conform to international standards was assessed. The assessment concluded that the rules governing corporate governance in Egypt are consistent with 39 of the 48 global principles. However, there are some aspects that need improvement, particularly with regard to disclosure of ownership and management.

According to a World Bank report, the most prominent Egyptian laws related to governance include:

  • Companies Law No. 159 of 1981.
  • Public Business Sector Law No. 203 of 1991.
  • Capital Market Law No. 95 of 1992.
  • Investment Law No. 8 of 1997.

Egyptian efforts have focused on improving governance practices within private and public companies, which has contributed to increased transparency and enhanced investor confidence in the Egyptian market.

 

Governance in the banking system

The Governance Book notes that governance in the banking sector is one of the most important aspects affecting financial and economic stability, as banks play a vital role in financing projects and achieving economic growth. The Basel Committee has established a set of standards aimed at improving governance in financial institutions, including:

  • Strengthening the role of boards of directors in supervising banks.
  • Improving financial disclosure and transparency systems.
  • Establishing effective internal control systems.
  • Monitoring financial and operational risks.

The governance book adds that the Central Bank of Egypt has adopted these standards to ensure effective governance in Egyptian banks, which has helped reduce risks and enhance confidence in the banking sector.

 

Corporate Governance and Its Importance

The Governance Book explains that corporate governance refers to the rules that regulate the relationship between management, shareholders, and stakeholders. It aims to ensure efficient management of resources, achieve transparency, and protect investor rights. Governance is a key factor influencing a company's ability to attract investment and achieve financial sustainability.

The Governance Book explains the most important benefits of corporate governance, including:

  • Improve financial performance and increase operational efficiency.
  • Attracting local and foreign investments.
  • Reducing the potential for corruption and mismanagement.
  • Enhancing investor confidence in financial markets.

Governance is a fundamental concept that plays a vital role in improving corporate performance and promoting transparency and accountability in management. Implementing governance has become an urgent necessity in light of increasing economic challenges, as it contributes to creating a stable business environment that is attractive to investment. In Egypt, governance has witnessed significant developments, both in companies and the banking sector, contributing to an improved business climate and boosting confidence in the national economy.

You can download the Governance book directly from here.