smes their role in boosting the economic development · smes and their role in boosting the...

January - March 2009

Not for Sale

www.eiod.org Quarterly magazine published by EIoD

SMEs ... Their Role in Boosting the Economic Development

2 THE EXECUTIVE

Executive Director’s Letter

When the EIoD started its operations in the fourth quarter of 2004, the first thing we did was to develop a corporate governance code for the private sector as a general frame for corporate governance in Egypt. Thereafter, the institute started an intense awareness campaign to spread awareness on the key concepts of corporate governance among various segments of the Egyptian society. Then, the institute proceeded in the capacity building of the private sector in order to help it to apply corporate governance properly. In 2006, the institute published a code of corporate governance for the state owned enterprise (SOE’s) because of the important social and economic roles the companies play in Egypt. The EIoD has then expanded its training courses to include the leaders and board members of SOE’s to ensure the existence of competencies that can transfer the corporate governance ideologies to these companies.

In order to succeed in carrying out our role effectively, the institute cooperated with a lot of experienced entities such as World Bank, Organization for Economic Cooperation and Development (OECD), International Finance Corporation (IFC), Global Corporate Governance Forum (GCGF) and many other pioneering organizations. The Institute has also played an active role in the Arab region through organizing and participating in corporate governance functions in most of the Arab countries. The EIoD has also participated actively in many international events and thus its name became associated with governance in Egypt and the Arab countries.

After two years of leadership in providing the “Certified Directors” certificate, which is accredited by RiskMetrics and the Egyptian Capital Market Authority, the institute began to design and provide a more specialized programs such as Corporate Governance for Family Business, Audit Committee, Qualified Internal Auditor Certified Program, Corporate Governance for Brokerage Firms, Corporate Governance for Health Care Institutions and The Role of Corporate Secretary. The Institute, in collaboration with the General Authority for Free zones and Investment (GAFI), and the Center for International Private Enterprises (CIPE), is preparing a code of Corporate Governance small companies, as this type of companies is common in Egypt and the Arab region.

Finally, and despite the number of studies done by the institute such as the Board of Directors Practices of CASE 30’s companies, the overall frame work for corporate governance in Egypt, SOE’s Board Practices, Corporate Governance for Family Businesses in Egypt; the institute did not conduct studies to measure the impact of its work on the Egyptian companies. Therefore the EIoD’s research team is now designing a survey to assess the impact of the training courses the institute offered along the past three years. The survey also tries to measure the impact of the Corporate Governance codes issued by the institute for Egyptian companies. The institute hence appeals to all those who received the training courses or used the codes of Corporate Governance to respond positively to this survey, which will be available on our web site as soon as it is ready. The survey will also be sent to all the trainees of the EIoD. By this we do not only aim to assess our performance, but also re draft our strategy in response to the changes recommended by those who are in a consistent contact with the institute.

Ashraf Gamal El-Din

Executive DirectorEgyptian Institute of Directors \ Egyptian Corporate Responsibility Center

A Pause for Self Assessment

4 THE EXECUTIVE

Editor’s Letter

The era we are living today is truly an era of small and medium enterprises (SME’s). Today, the entire world economy is focused on SME’s. Tens or even hundreds of SME’s are formed each day in Egypt and thousands worldwide. It doesn’t matter what we call it … SME’s, entrepreneurship, or family businesses … The true spirit of these entities is “dedication … for success”.

As the interest in SME’s continues to grow, the government has joined the business community in recognizing the importance of SME’s to our country and its economy. The government of Egypt has adopted the philosophy that emphasizes on the role of SME’s to propel the overall economy. Egypt has managed, through long- term planning and the implementation of SME-friendly policies, to upgrade this vital sector.

We are dedicating this issue to discuss some of the important issues regarding SME’s such as their nature, needs, performance, growth, financing and risk. The section on SME’s in this issue will give you a good idea about the definition of SME’s: identify some of the advantages and disadvantages of operating this type of business; know about the common management traps that may hurt many SME’s. Finally, you will have an understanding of the unique characteristics and challenges facing SME’s and entities dealing with them such as banks or the NILEX (SME’s stock exchange).

Even though we have excellent articles on this topic written by professionals who deal with SME’s in the field of banking and capital market, the topic is far more sophisticated to be concluded in few pages. Therefore, we will have a series of articles on SME’s in our coming issues.

In this issue too, our regular sections on corporate governance and corporate social responsibility. I hope you will enjoy our selection of light-business-related topics.

Your feedback and contributions are always welcome.

Nahla Kamal

Assistant Executive DirectorEgyptian Institute of Directors

Small and Medium Businesses: The Quiet Giant

ContentsJanuary- March 09

Corporate Social Responsibility

Corporate Governance

Editor-in-chiefNahla Kamal

Editiorial ProductionNermin HelmyHind ElFalakyDina MoustafaSarah ElRafeiAmr Salah El Din

For Advertisement in Executive magazine, kindly contact the EIoD at:Tel.: +202 33352765/ 37482769Fax: +202 37629028email: [email protected]

address: Junction of Salem Salem & Abdel Azim Rashed st., 4th floor,Agouza, Giza, Egypt

The ExecutiveAll rights reserved to the EgyptianInstitute of Directors (EIoD).

The Executive is a leading magazinefor business community and businessdecision-makers. Packed with livelyand informative features and shorteradvisory items, it is an essential quarterly reading for directors of companies in all sectors and of all sizes.

The Executive is editorially autonomousandtheopinionsexpressedarenotthose of contributors’ employingorganizations, unless explicitly stated.The contributors points of view donot necessarily reflect the views ofthe EIoD, ECRC nor that of the Ministry of Investment

The Second Annual Conference on Corporate Social Responsibility “Investment & Responsible Business Practices”

MENA Responsible Business Network Working to promote investment for sustainable development

Financial crisis cast shadow on CSR Conference

Egyptian Corporate ResponsibilityCenter(ECRC)

Al-Mansour & Education:Keeping an Eye on Egypt’s Future

8-11

12-13

14-15

The Case for Nordic Non-ExecutiveBoard

Mediating Corporate GovernanceConflicts and Disputes

The Moral Compass of Companies: Business Ethics and Corporate Governance as Anti-Corruption Tools

20-21

22-25

26-29

16-17

18

Sector Performance

In Depth

Light Topics

Mohamed Ahmed FarghaliKing of Cotton

Preparation is key to a successful interview

How to conduct an interview?

50-52

53

54-55

SMEs and their role in boosting the economic development

30-33

Flu …between Birds and Pigs Socioeconomic effects

Business Dynamics

Nile Stock Exchange (NILEX)

SMALL IS GREAT!

Importance of Corporate Governance for SMEs

34-36

38-40

42-44

46-48

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Dr. Ali El Moselhy, the Minister of Social Solidarity in Egypt, inaugurated the conference by an opening speech delivered on behalf of H.E Dr. Ahmed Nazif – the Prime Minister of Egypt, he started the speech by welcoming all the attendees and highlighted the government’s efforts during the last four years to support the principles of citizenship in the context of the president’s electoral program, which emphasized the devoted commitment to the notion of citizenship as a basis for complete equity among Egyptians

regardless of ideology, gender, or creed. The state has also been keen on equality between all citizens. Within that frame the government worked to enhance the Egyptians life by adopting the “Development of the Most Needy On Thousand Villages” project, which aims to raise the standard of basic services, to create opportunities and tosupport social security was a real step taken to instigate a change in quality of life in these villages and whose ancillary budget reached 2.9 billion EGP. He also mentioned that the government’s vision for social

responsibility is to surpass the idea of philanthropy and volunteerism to reach more encompassing and deeper understanding to achieve economic growth.While, he noted that one of thetools to achieve economic growth is tax laws which the government adopted within the economic reform program has important social implications through exempting donations and financial assistance from taxes of which the companies give it to registered Egyptian NGOs and Civil Society Organizations,

On March 23rd 2009, the Egyptian Corporate Responsibility Center organized the Second Annual Conference on Corporate Social Responsibility, under the auspices of H.E Dr. Ahmed Nazif, the Egyptian

Prime Minister and with the attendance of H.E Dr. Mahmoud Mohieldin, the Minister of Investment in collaboration with well known counterparts such as: UNDP, CIPE, OECD and GAFI. The conference took place at the Cairo Marriott hotel . The conference was attended by Ministers, high profile Businessmen, representatives of different private companies, civil society organizations and international organizations.

The Second Annual Conference on Corporate Social Responsibility “Investment & Responsible Business Practices” 23rd March 2009

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the amount of exemption is 10% of the total annual net profit of the company or the organization donating the fund.In his speech the prime minister, confirmed the crucial role of the private sector in economic development, in regard that social responsibility generally for the majority of private sector companies in the MENA region are still in their very early phases, a role that is still directly intertwined with providing funding through charitable donations.

He stated that the companies should develop to contribute to solving societal problems like unemployment, lack of education, lack of training and vocational training, and environmental problems that have started to occupy the minds of people significantly.The prime minister focused on the government’s strive to make the private sector submit its strategies for the forthcoming period so that the private sector conceptualizes business environments that prioritizes the welfare of those in need, poor people and low income earners . At the end of his speech, the prime

minister raised a question; in the light of the limited financial resources can companies invest in carrying out their societal missions? From his own point of view the answerliesintheactiveparticipationbetween the government, Private Sector, Civil Society Organizations and concerned internationalorganizations.

The conference’s day included threedifferentsessionsfocusedonvarious aspects of Corporate Social Responsibility. The first session, “Priorities, Opportunities & Applications of Responsible Investment” focused on addressing CSR practices, priorities and opportunities forresponsible investment based on international models and current experiences in Egypt.The session was moderated by Dr. Djordjija Petkoski, Head of the Business Competitiveness and Development team at the World Bank Institute, and the session included five speakers representing international organizations, and the private sector:Mr. Peter Hughes, Fellow Director, Corporate Citizenship Organization- UK Mr. Youssef Mansour, Chairman- Mansour Group- Egypt

Eng. Amr Ghoneim, General Manager- IBM EgyptDr. Subir Gokarn, Chief Economist, Standard & Poor’s- AsiaDr. Christina Gradl, Director,Emergia Institute, a principal author of UNDP’s Growing Inclusive Markets Report- USA.

During the session, Mansour Group and IBM Egypt, have introduced their activities in the field of CSR and to what extend they are committed by its practices.While for the other presentations,they have mentioned that the main areas any company should consider it have three dimensions: Economic; Environmental and social dimension which shows the importance of CSR due to two reasons: Internally, through the company’s culture to shape its CSR practices and values; and Externally, through the stakeholders pressure on the companies to perform well and investors who look for improved performance to ensure sustainability. Also, during the session, the case of Indian ESG index that was developed by standard & poor’s had been presented, standing on the importance of having the index as an aggregator and its ability to get away from the individual characteristics of the companies and providing a platform for investors to gather companies that satisfy certain criteria. On the other hand, there was an overview on the UNDP report “Creating Value for All: Strategies for Doing Business with the Poor”, the report was based on 50 cases where businesses have included poorpeopleintheirvaluechainsasproducers, consumers, employees and entrepreneurs. Out of the 50 cases under study in this report two were from Egypt, the Siwa sustainable development initiative and the SEKEM Company.

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For the second session ,“ Responsible Investments: Profitability meets sustainability”that outlined the factors driving investors around the world toincreasingly consider environmental, social and corporate governance ( ESG) issues in their mainstream investments, and discussed the role that investors can play in encouraging better business practicesandthe localcontext forresponsible investment in Egypt. The session was moderated by Mr. Rainer Geiger, Senior Regional Advisor at OECD.The Session included six speakers representing international organizations, banking sector and financial institutions:Mr. James Gifford, ExecutiveDirector, UN- Principles for Responsible Investment.- UKMr. Adnane Raiss, Senior Partner, CSR MENA Company & Senior Advisor International Standards Organisation (ISO) 26000- Implementation & Communication Workgroup, UAE.Mr. Martin Steindl, Program Manager, MENA- IFC Corporate Governance.

Mr. Basel El Hini, Managing Director, Banque de Caire- EgyptMr. Samer Yassa, Partner, EFGHERMES- EgyptDr. Dalia Abdel kader, Head of Marketing and Communications, Arab African International Bank- Egypt

The session presented the responsible investment notion and showed that principles ofresponsible investment are about mainstreaming good governance of ESG issues into investment mainstream.Other initiatives have been introduced such as the principlesof ISO 26000 that evolves around, transparency; openness, impartiality and consensus. The speakers have agreed that CSR is not about profits and gains only, it is about the well being of society, and that banks should be careful in directing the money they get from people’s savings because if the banks do not channel money in the right directions, concerning CSR areas generally speaking, then banks are not doing a big benefit to society.The speakers have highlighted the role played by the financial

institutions as banks are responsible of funding projects, so money is power and banks have the power to integrate ESG considerations across economics.

However , the third session “Enabling Business Environment: policy framework” discussedthe policy framework for a more enabling business environment and the role of organizations within this framework with the aim of devoting more investments to the area of CSR in Egypt.The session was moderated by Dr. Ashraf Gamal El Din,Executive Director of Egyptian Corporate Responsibility Center and the Egyptian Institute of Directors, with the attendanceof four speakers from holding companies, governmental bodies and international organizations:

Mr. Mahmoud Abdallah, Chairman, Insurance Holding Company- EgyptMr. Adam Leach, ExecutiveDirector, International BusinessLeadership Forum- UKMs. Olajobi Makinwa, Senior Issue Manager, UN Global Compact- New YorkMr. Ahmed El Gohary, Advisorto the Minister of Investment on Sustainable Development and Environment – Egypt

In this session, the speakers have delivered some messages one of them, is that the success of any company or association is not in just having good balance sheets, as the success also comes from dealing with the community and interacting with it, and that the company or the association should have a strategy but more important is to have the engagement of all stakeholders, capacity building of individuals and the company/

10 THE EXECUTIVE 11


association, respect for creativity, innovation and knowledge, promote culture, respect citizens and not be discriminatory to anyone or groups. Also, they have mentioned that within the recent financial crisis priorities of each country will vary but investment by companies in CSR will not be worthwhile unless conditions are in place to ensurethat investments are sustained and sustainable, which is important because of growing costs, limited resources, and the need to maximize more efficient use of resources.However, the session has been ended by a concluding remark that sustainable development has three dimensions, social, economic and environmental. To achieve the three there must be a balance between environmental development and economic and social development.

At the endof the conference, H.E Dr. Mahmoud Mohieldin, Minister of Investment highlighted in his speech that the statesmeans government and at the end companies are part of the state like citizens. There is no way to deprive the government from being a part in

this matter simply because there are components within CSR that cannot be left to volunteer initiatives, and there is no way for companies to achieve sustainable profits unless

it has some acceptance from the society. Also, CSR issue cannot be left to company and organization initiatives in the absolute sense, as the relation between social responsibility which is known as rules for companies ( to follow)laid down by the government (stipulate).

He also noted that the Global Compact initiative should be activated and that the companies won’t be recognized from the state unless they fulfill the four criteria of GC: protecting human n rights, protecting workers’ rights, environment protection and not entailed in any corrupt actions.

On the other hand, Dr. Mohieldin had focused on the importance of including CSR in the long term strategic objectives of the company and he has stated some motives that will encourage the companies to do so: first, ethical motive; second, societal acceptance and approval; third, expanding the business in the light of competition.At the end of his speech Dr. Mahmoud Mohieldin, mentioned that if CSR is an important matter in any moment at anytime, therefore, in a time of these economic and financial crises, it becomes an important matter that requires more support and time.

The MENA Responsible Business network is an initiative of the MENA- OECD Investment Programme intended to build a multi-stakeholder dialogue (governments in the region, in cooperation with businesses and civil society organizations) on responsible business in the MENA region, to create a climate that seeks to maximize the potential for investment to contribute to sustainable economic and social development.

The Network involves actors from public and private sector as well as civil society from both MENA and OECD countries. Currently, the network compiles key institutions such as the Egyptian Corporate Responsibility Center (ECRC), Organization for economic cooperation and development (OECD), the World bank Institute (WBI), InWent , center for international private enterprise(CIPE), Transparency International, International Business leadershipForum (IBLF), the European Union.The launch of the MENA Responsible Business Network was in October 2008 in Cairo during the first meeting

of the Regional Task force on Responsible Business Conduct , that wasconductedundertheauspicesof H.E Dr. Mahmoud Mohieldin , the Minister of Investment in Egypt, that was preceded by Three preliminary meetings organized within the activities of the MENA- OECD Investment Programme in September 2007 in Amman, in November 2007 and in February 2008 in Cairo, these meetings served to identify priority areas and objectives of the MENA- OECD Regional Dialogue on Responsible Business Conduct .The main objectives concluded of the network meeting during

October 2008 in Cairo was to focus on the key issues of the MENA-OECD initiative on responsible business conduct concerning the importance, the value added to existing initiatives and the multi- stakeholder approach, discuss the debatable areas on responsible business conduct with specific regard to the MENA region named as: Business integrity and anti- corruption; Education, youth employment and labor standards; Health and Environment.Having indicators for measuring government policy and corporate practices designed to promote responsible business conduct and to have means of action to be taken by the MENA-OECD initiative that includes awareness rising and training/ partnership programmes and multi-stakeholder involvement focusing on public – private dialogue and civil society involvement .The Key purpose of the meeting that time was to discuss the above mentioned themes by exploring the roles of all the parties involved ,distinguishing the respective roles of governments, private sector and civil society , and proposing

Working to promote investment for sustainable development

MENA Responsible Business Network

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mechanisms for strengthening partnerships and measurement of impact.The meeting ended up by following main actions summarized as follows; facilitate effective action topromote responsible business conduct in the Middle East and North Africa through sharing of experiences, discussion ofappropriate policy frameworks and an emphasis on practical implementation on practices related to planning , budgeting, spending , activities, and assessment; identify the needs of MENA companies and obstacles encountered in applying responsible business conduct in order to offertargeted instruments to fulfilling these needs through which can develop training and professional development programmes for business executives and employees to facilitate integration of responsible business strategies into daily practices; address the specific needs of SMEs including family businesses, providing specific analysis and understanding of responsible business practices for SMEs in the MENA region; establish partnerships with education institutes, universities,young entrepreneurs associations to foster a business and corporate culture conductive to responsible business conduct; encourage adoption of corporate governance principles and compliance procedures related to auditing , transparency, disclosures, reporting and related – parties transactions; establishing partnerships with governments aiming at enabling responsible businesses to operate in a corruption free environment without hindrance or bribery- oriented behavior.While on the second meeting of the network that was conducted in February 2009 in London, there

was an emphasis that the focus of the network should continue to be on helping governments to provide an environment conductive to responsible business conduct.

In that aspect, the network should involve both public and private actors and open to allinterested parties from the region as well as supporting international organizations.It was agreed in that meeting that the network will have a co-coordinating committee to help coordinating strategies and activities and promote exchange of information and experiences, the committee will include a representative from each of the participating MENA countries , supporting international organizations and governments, and representatives from private sectorand tradeunions , and thecommittee will be supported by a secretariat that theEgyptian Corporate Responsibility center (ECRC) will provide.Continuing to these favorable efforts, the third meeting for the network was conducted on March 22nd 2009 in Cairo, Egypt, where the network stressed on the importance

of OECD principles and guidelines, including the OECD guidelines for multinational enterprises and the policy framework for investment, in guiding the work of the network.

Also, the network agreed on the creation of five Task Forces to address specific issues: development of tools to assess public policies in responsible business practices; development of a databank to share and promote tools, guidelines and initiatives relevant to the region; business integrity and anti- corruption; labour standards and

skills development ; health and environment, where a lead person should be appointed to organize the group, lead and drive its work towards identified outputs, and report to the Network.The Network welcomes all MENA countries to participate on the long term ; however currently it focuses on the more active countries in the MENA region such as: Egypt, UAE, Lebanon, UAE, Saudi Arabia and Morocco The MENA network agreed to have its next meeting which will be the fourth in June 2009 in Cairo, to discuss the deliverables .

“The MENA responsible business network is keen to work within the

frame work of OECD principles and guidelines, including the

OECD guidelines for multinational enterprises and the policy

framework for investment.”

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The conference reviewed a range of companies’ experiences to the concept of corporate socialresponsibility, and how it contributed to company’s growth and improved its image within clients’ base. Dr. Ali El Meselhi, Minister of Social Solidarity on behalf of the Prime Minister, said that the State was committed to the comprehensive program of economic and social reform, the fight against poverty, expanding the social welfare network, and the provision of necessary infrastructure for a decent life.

He stated that companies have the right to provide them with the healthy work and production atmosphere, the laws of justice between all parties to economic activity, and to protect them against illegal practices. On the other hand, companies must satisfy their duties towards the community through protecting the rights of workers, respect for and application of human rights principles, and preservation ofenvironment through participation in society development and meeting

its needs in their plans and work programs.

He also confirmed that the governance perspective of social responsibility concept is beyond the limits of charity or volunteering efforts, for it adopts a more comprehensive and deeper meaning aiming to achieve economic growth through formulation of frameworks and strategies that are community oriented, and focuses on the surrounding environment by developing and applying legislations

The second annual conference on corporate social responsibility, “Investment and Responsible Business Practices”, under the auspices of the Prime Minister, Dr. Ahmed Nazif, discussed the challenges of corporate social responsibility during the global financial crisis. There is an emphasis on distinction between the concept of social

responsibility and voluntary contributions and grants spent by some companies.

Financial crisis cast shadow on CSR ConferenceBased on Al Borsa newspaper report

and enacting laws related to corporate social responsibility.

The assessment of private sector companies, he said, is no longer based only on profitability, as these companies’ reputation is no longer dependent upon on its financial position. Modern concepts were developed to help sustaining a work environment capable of dealing with the frequent economic, technological and administrative developments worldwide.

Dr. Mahmoud Mohieldin, Minister of Investment, asserted the state role in building a better society through three themes of achieving social responsibility: Support- Assistance- Binding, which are related to public and private companies.

The lack of corporate social responsibility is considered as one of the causes of the crisisrepercussions, in addition tocorruption, along with failure to respond to the views calling for a halt to applying corporate social responsibility during the current crisis.

He urged companies to consolidate their scattered efforts through organization and coordination, to create a society of transparency and disclosure, based on laws and rules governing these standards. He also hinted to the fact that social responsibility was limited for over 80 years to voluntary community service, by a percentage not more than 1% of the total profits. Society didnotexpandtheconceptofsocialresponsibility, while the concept of sustainability can achieve regular profits only if company won community acceptance.

Finally, the Minister revealed launching of the corporate social

responsibility (CSR) index at the stock market by the end of this year.

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Egyptian Corporate ResponsibilityCenter(ECRC)

“We have to choose between a global market driven only by calculations of short-term profit, and one which has a human face.”Kofi Annan

There is an increasing role for the private sector as an engine for growth, a facilitator of the development process and a key contributor to poverty alleviation. In other words, business, trade and investment are essential pillars for prosperity and peace. Responsi--

ble business practices build trust and social capital, contributing to broad-based development and sustainable markets. With this understanding, the former Secretary General of the UN Mr. Kofi Anan launched The Global Compact (GC) in Davos 1999 in order to put «a human face on globalization». The GC was set as a framework for businesses that are committed to align their operations and strategies with ten universally accepted principles in the areas of human rights, labor, the environment and anti-corruption . Over a short span period of time, the GC became the world’s largest global corporate citizenship initia--tive; it is primarily concerned with exhibiting and building the social legitimacy of businesses and markets.

Within this framework, the Egyptian Corporate Responsibility Centre (ECRC) was established in agreement with the Ministry of Investment (MOI) and the United Nations Development Program (UNDP), with the overall objective of supporting and promoting practices and awareness on Sustainable Businesses. With an increasing demand from stakeholders, investors and businessmen to facilitate and elevate the serious dilemmas and barriers related to business practices that not only discourage innovation and entrepreneurshipbut extend to hurdle the

establishment of responsible businesses and sustainable CSR practices; ECRC provides the core fundamental support to empower businesses become responsible by building successful CSR strategies that aim at achieving long-term positive impacts for businesses and communities. Hence, the Centre supports an enabling environment to help create sustainable businesses in Egypt and acts as the key focal point for the United Nations Global Compact within Egypt. More specifically, the centre operates strategically in four different areas.

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Primarily, ECRC aims at building the capacities of its partners through by offering internationally certified training courses in the area of CSR, as well as helping partners to overcome their daily challenges

in implementing effective CSR strategies within their respective institutions. The ECRC also acts as a knowledge base for CSR by gathering and disseminating relevant information and statistics on CSR practices both nationally and internationally. Under this activity, the centre is currently embarking on an Environmental Social and Governance (ESG) Index, which aims at “providing

emerging markets investors with better information on companies’ environmental, social and governance standards” (Banerjee, Alka, 2008). In addition, the ECRC the centre also aims at establishing strategic partnerships as well as advocating for policies that help promote effective CSR practices in Egypt. Hence, the centre is in the process of identifying the right partners to truly become CSR champions and be able to impact businesses, the

community as a whole, and more specifically the lives of the poor and marginalized.

“The ECRC supports an enabling environment to help create sustainable

businesses in Egypt and acts as the key focal point

for the United Nations Global Compact within

Egypt.”

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Al-Mansour & EducationKeeping an Eye on Egypt’s Future

For years now, Al-Mansour Holding Company for Financial Investments, known to most people simply as Al-Mansour Company, has been a steady investor in education. This dedication to education stems from a set of beliefs that shape the view the company has towards the future and towards

the responsibility it has towards the society to which it belongs.

To the rational mind, education is the light by which ignorance is dispelled, by which prejudices are destroyed, by which man is empowered to perform all manners of acts, and by which, finally, humans can look towards each other with understanding and compassion.Al-Mansour firmly believes that education is the bedrock upon which our meaning and our future are built. It is within this framework that the company has committed itself to education- a commitment which has rewarded it well throughout the years. The company has supported organizations like ADVANCE – which has been caring for and teaching children with special needs.Established in 1999, the Egyptian society for developing Skills of Children with Special Needs is a non profit organization founded by a group of families of children with autism and other related development disorders. The society aims to offer life span services tohelpchildrenandadultsdevelop their abilities and reach their full potential. It is the only specialized learning center for autistic children in Egypt. Such a great endeavour requires proper funding, which the Al- Mansour has helped to provide, as Advance’s sole corporate supporter.The company is also very excited about the electronic education platform known as Skoool.The project was proposed to address the provision of technology enabled learning and teaching

supporttoteachersandstudentsinpublic and private schools in Egypt through a fully developed e-learning environment. The background to the project is a program to use e-learning environment. The background to the project is a program to use e-learning resources as a means to enhance education outcomes. The project focuses on the delivery of a digital curriculum to students, parents and teachers for Skoool Egypt. This represents a first phase of development.The potential for this technology is quite enormous, and the project is planned to reach over five million students in Egypt alone. That fact that technology can be used in this way – to extend knowledge on such a marvelous scale, most in need of it–isawonderfulprospectforwhichAl- Mansour have great hopes and forwhichtheirexpectationsarequitehigh.Al-Mansour also works with others such as the Wadi Environmental science Center to help train over hundredsofteachers,who, inturn,are expected to train thousands ofstudents, making them more aware of the value of the environment and more capable of sustaining it.As a corporate citizen, Al-Mansour has drawn the conclusion that theonly way to help the country move forward is to empower its people; and the only way to combat poverty is to overcome the high illiteracy rate. Our goal therefore, is to help reduce

poverty through education. Education provides individualopportunity and a collective growth. The formula is simple yet effective: educated citizens when provided with opportunities create economic health.Therefore, educational reform is the main feature of the company’s CSR platform. It is the area towards which the group is most committed to providing resources and creating programs. The company chose education for its core development strengths, which the Al-Mansour summarizes into three main tenants. First- that education is a basic service that can exponentially and immediately impact the standard of living. Secondly, that education can further foster solutions to both Egypt’s social issues and environmental challenges. Thirdly, that education is an investment that provides many returns, including the permanent gift of knowledge.In the right environment students quickly learn a wonderful lesson that often fills them with awe – that education- that the actual act of learning- is not merely useful, but is also a great pleasure- and excitement of thoughts and understanding, a splendor in and of itself.Or as Yeats would put it – Education is not the filling of pail, but the lighting of a fire.

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The current financial crisis will inevitably cast a spotlight on corporate governance. Roles and responsibilities will come under scrutiny, and blaming will follow. It may even lead to fundamental changes in governance structures.

Nordic countries, especially Finland and Sweden, have followed the Anglo-Saxon governance principles but in recent years developed the unitary board structure further. These countries increasingly underline the separation of rolesand responsibilities between different corporate functions. This eliminates conflict of interests and contributes to transparency; stakeholders are more aware who decides and carries responsibility on decisions taken.

Shareholders are the ultimate decision makers but they use power

vested only at the Annual General Meeting. The AGM elects all board members for a term of one year. Some exceptions to this rule exist,particularly in Sweden where the codetermination law allows 1-2 employee representatives to be appointed to the board, bypassing the AGM procedure.

The fact that often raises eyebrows outside the Nordic region is the composition of the board. Vast majority of listed companies have a completely non-executive board, with a designated quota of independent non-executive directors.

In the past decade even most chief executives have been dropped from board membership. Again logic here stems from strict division of

labour. The board is responsible for appointing and dismissing the CEO, as well as monitoring and controlling company’s operations. Furthermore various laws and regulations place different responsibilities on the board and the CEO, which would increasepotentialconfusionwithina mixed board.

The CEO is by Nordic company laws entitled to attend every board meeting. The relationship between the board and the CEO is crucial, since the CEO is often the only conduit to the board, reporting and

The Case for NordicNon-Executive BoardBy:Olli V. Virtanen

Secretary General of the Finnish Association of Professional Board Members, Board Member of the European Confederation of Directors’ Associations (ECODA) Member of the Private Sector Advisory Group of the

IFC’s Global Corporate Governance Forum.

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Corporate Governancemaking proposals to the board to decide.

Can this work? How can such a board know what is going on in the company? After all, board consists of non-experts, doesn’t it?Fair questions.

A Nordic board is appointed to look after the shareholders’ interests. Detached from the operational level the board can assume a helicopter perspective and take a long term view to the development of the company. A library of books canattesttothedifferentinterestsbetween shareholders and the management. A Nordic board assumes the position of shareholders and aims to convey their objectives to the management for the long-term development of the company. A mixed board with executives and non-executives tends to confuse the management’s interests and shareholders’ interests. The former is often short to medium term – and unfortunately often linked with the time frame of compensation schemes - while shareholders expect the board to look beyond selfish interests and take a long term strategic view.

The on-going debate in Britain on the role of non-executives highlights the point. A mixed board faces a dilemma of becoming a “two-tier board within the board” with executive members forming the group of “knows” and non-executives relegated to “don’t knows”. Executives on the board have the luxury to prepare proposals carefully with extensive background information. They often form an unanimous group and, in the worst case, are able to bulldoze proposal through the board with superior knowledge. As often is the case, executives’ interests in larger issues such as

M&A, investments, divestments etc, do not necessarily align with shareholders’ expectations.

The Nordic model has removed the “knows” and replaced them with “asks”. This has created a level playing field on the board with no in-build structure of unequal knowledge and understanding of the business. To a casual observer the Nordic board may look like an isolated box, a think tank minus top talent. A Nordic non-executive board is built with the same principles as UK companies apply to the selection of non-executives. They are seasoned senior businessmen, and increasingly women, who bring in real expertise and experience from a field relevant to the company’s business.

Should board members have deep understanding of the business? Comparison could be drawn from the executive level. An airline CEO does not require a pilot’s licence, know how to repair a jet engine or master complicated pricing formulas for a given route. He or she needs best people in place to run key functions, optimum channels of information and mechanism for reporting, as well as ability to assess and act upon information for running the corporate entity.

The same principle applies to the board. An ideal Nordic board is competent enough to request (and get) all necessary information from the management, process it, ask for alternative scenarios, and make decisions. It can objectively handle all issues related to management, and fulfils oversight, monitoring and control functions properly. Furthermore the board coaches and motivates not only the CEO but also the rest of the management.

Is it really worth leaving the executives out of the board? There are two ways to look at it. The CEO and his team will undoubtedly oppose it. Resistance took place in Finland and Sweden a few years ago when this principle began to gain ground. The other perspective brings us back to checks and balances. You cannot really decide on matters where you have a personal stake, or sit, metaphorically speaking, on the other side of the table. Today logic has sunk in in the Nordic corner offices and the principles are widely accepted.

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In recent years, the degree of reliance or trust in corporationswas widely questioned due to well-publicized corporate scandals. This, in turn, has underscored the importance of implementing strong, effective corporate governance frameworks. The quality of governance largely depends on the structures and rules in place. As a result, investors have been increasingly examining countries’ corporate governance frameworks and companies’ individual practices prior to making any investment

decision. Investors review existing rules, the effectiveness of enforcement procedures, and companies’ dispute resolution mechanisms.

The better that companies are governed, the more likely it is that they will have fewer disputes. Yet, conflict is inevitable, and rules are not always respected. As part of a good corporate governance framework, investors need to have a suitable venue to seek redress and deal with emerging disputes in

a timely, cost-effective manner.

A good framework, therefore, requires having a reliable way to resolve emerging and existing disputes. According to the OECD, a crucial prerequisite for effectiveenforcement is the availability of efficient mechanisms for dispute resolution. These mechanisms include the main court system, specialized courts, regulatory bodies, mediation, panel rulings, and arbitration.

Mediating Corporate GovernanceConflicts and DisputesGlobal Corporate Governance Forum

Focus 4By: Eric M. Runesson - Partner at Sandart & Partners, Chairman of the Mediation Institute of the Stockholm Chamber of Commerce, Adjunct Professor at Lund University, and Member of the Scientific Advisory Board of the Stockholm Centre for Commercial Lawand Marie-Laurence Guy - Projects Officer and Task Team leader at the Global Corporate Governance Forum

This FOCUS publication highlights corporate governance conflicts and disputes, and constitutes an important first step in leading groundbreaking work on the use of alternative dispute resolution (ADR) mechanisms in the

field of corporate governance.

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Ideally, market supervisory authorities should have a sufficient amount of qualified staff and financial resources to carry out their tasks. Courts should be able to process cases within a year. Independent arbitration panels, consisting of accepted market experts, should be established to resolve conflicts between non-controlling and controlling shareholders and achieve market-oriented, self-regulatory solutions. Such panels already implemented in Brazil and Jordan, should be able to make decisions within three months and, thus, relieve courts from unnecessary work that can be settled directly among the parties.

The limits of judiciary enforcement

In many countries, especially developing ones, judiciary enforcement remains weak.While much has been achieved in raising awareness and improving corporate governance rules and procedures, progress is severely constrained by poor regulatory and judicial enforcement. These constraints result from inadequate funding, the lack of trained staff, and systemic corruption. Ownership concentration often remains the most efficient response to weak enforcement of corporate governance rules.

The increased use of alternative dispute resolution systems

While conflict management can

have positive results and helpdefine the important issues needing resolution, full-blown disputes are always bad news for a company. They can lead to poor performance, scare investors, produce waste,divert resources, cause sharevalues to decline, and, in some cases, paralyze a company.It is not surprising, then, that many corporate disputes have been settled outside of the courts,8 and that companies are increasingly resorting to alternative dispute resolution (ADR).Corporations have progressively engaged in the development of alternatives to traditionaladjudication in response to weak

enforcement, the lack of trust in the judiciary system, the high costs and delays of trials, the difficulties of enforcing non-binding standards, and reputational costs. The 1979 formation of the Center for Public

Resources (CPR, now known as the International Institute for Conflict Prevention and Resolution) was groundbreaking. CPR brought together the corporate counsels of Fortune 500 companies and partners in leading law firms to develop commercially oriented dispute-resolution forums.

Corporate Governance Conflicts and Disputes

1- Boardroom conflictIn the boardroom, conflict is often unavoidable – especially when the board is composed of independent-minded, skilled, and outspoken directors. This is not a bad thing. Board decisions should result from a processinwhichdirectorsconsiderall the information reasonably available to them and engage in a vigorous debate.These issues include strategy,

company control, conflicts of interest, and executivecompensation. A board that never argues or disagrees is most likely to be an inactive or passive board − in other words, a bad board that is neither fulfilling its oversight function nor carrying out its duty of care. This, in turn, can lead to a major corporate failure, such as the well-publicized bankruptcy case of WorldCom in the US.

Governance issues, standards, and requirements can be a fertile source for misunderstandings and conflict. Such examples include:

the relationship between independent directors and theCEO;the line between oversight and management;the directors’ need for information versus management providing too much or too little information; and,the balancing of the company’s short- and long-term interests.

Each of these can lead to serioustension, which can be triggered or intensified by personality disputes. Changes in the corporate ownershipstructure,poorcorporateperformance, a crisis, and disputes involving the company’s stakeholders—these can lead to or exacerbate existing disagreements among board members. How those disagreements are handled will determine whether the discord will work itself out, stabilize or ripen into a dispute.The traditional role of the chairman and eventually the lead director, or a board committee’s head, is to address disagreements, resolve them, and, most importantly, keep them within the boardroom. Corporations hate to go public with their disputes. Corporate disputes reported in the press inevitably have a negative impact on the

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“The better the companies are governed, the more likely it is that they will have fewer

disputes.”

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way the company will be perceived by the public. Yet, in some cases, the dispute – if mishandled or if the chairman is part of the issue – will escalate as more board members are drawn into the conflict. More of the board’s resources and time will be diverted. The conflict could metastasize into a full-blown dispute, which cannot always be contained within the boardroom. Such counter-productivedisputescandisruptcompany operations and lead to huge financial costs and losses.It can happen that the board divides into highly polarized camps. This occurred with Hewlett Packard over its merger with Compaq. In the end, the merger happened, but much time and money was lost in the machinations. The dispute reflected badly on the company’s reputation.

Situations Causing Conflicts within Boards

Transitional periods, such as those following a merger or acquisition in which a significant group of new directors has joined the board

Lack of concurrence on the role of the board or its committees versus management’s roleA new CEO who has trouble building relationships with the board or certain directorsDisagreement or dissatisfaction with content and conduct ofmeetingsA difficult period for a company stemming from adverse publicity, poor earnings, stock performance, ethical lapses, or executive misconductNew long-term strategiesPoorly performing directorsBoard dissatisfaction with CEO or other senior management performanceDirector engagement with

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corporate constituencies suchas shareholders, communities, or employees.

2- Corporate governance-related disputesDisputes that qualify as corporate governance disputes (or disputes directly related to a company’s governance) mostly involve the corporation’s shareholders, board members, and senior executives. Although they may also influence a corporation’s governance and should concern the board, disputes involving employees, other than senior executives, traditionally fall into the field of labor disputes. Disputes involving the company’s outside stakeholders (e.g., customers and suppliers) are traditionally addressed through commercial disputes. Corporate governance disputes may concern

inter alia: conflicts of interest by board members or executives; the appointment of board members/executives; remuneration/bonuses to board members; discharging individual board members/executives; share valuation (in relationtoanissueofnewsharesor bonds or a squeeze out); the terms of a proposed takeover; and, acquisition or disposal ofcompany assets

Categories of Corporate Governance-Related Disputes

Self-interested transactions:Related party transactions, insider trading, conflicts of interest by board members, executives, and seniormanagement

Annual accounts:Disputes between shareholders and the board and/or auditor over the withholding of shareholderapproval

Nomination/appointment of board members:Disputes between shareholders and the nomination committee and/or the board over nomination and/or appointment of board

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“A good framework, therefore, requires having a reliable way to resolve emerging and existing

disputes.”

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members/executives, as well as the criteria for nomination/appointment

Remuneration/ bonuses of board members:Disputes between shareholders and the remuneration committee and/or the board over remuneration and/or bonuses of board members/executives, as well as the criteria forremuneration/bonuses

Share valuation:Disputes between shareholders and the board and/or auditors on the valuation method in case of (a) squeeze out, and (b) share/bond issues

Takeover proceduresDisputes between shareholders and boards regarding terms and conditions of a proposedtakeover, and/or compliance with internal (articles of association) and/or external (listing rules, securities legislation, etc.) rules

Disclosure requirements:Disputes between shareholders and boards regarding compliance with nonfinancial disclosure requirements

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Corporate control (in M&A transactions):Disputes between shareholders and boards regarding a proposedacquisitionordisposalof a substantial part of the company’s assets

Minority shareholders’ rights:Disputes between majority and minority shareholders in squeeze-out scenarios or on nomination/appointment of board members

Bankruptcy/ suspension of payments:Disputes between shareholders and/ or bondholders and boards and/or receivers in corporate restructuring

Share/bond issues:Disputes between shareholders/ bondholders and boards on dilutionIssues

Discharge of individual board members/executives:Disputes between shareholders and board members/executives on individual discharge regarding their performance in the past fiscal year

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Mismanagement:Disputes between shareholders and boards on alleged mismanagement of the company

Non-compliance with corporate governance codes:Disputes between shareholders and boards on the application of “comply or explain” principles as provided in corporategovernance codes

Works’ council:Disputes between shareholders/boards and works’ councils on the interpretation andapplicability of works’ council legal corporate governance-related rights

Without attempting to make a full classification, the following categories, which are based on the identity and characteristics of complainant and defendant, could usefully facilitate further analysis:

Disputes among corporate officers: auditing, conflict of interest or remuneration issues.Disputes among investors (shareholders and/ or bondholders): share valuation, a proposedtakeover, acquisition or disposal of company assets.Disputes between shareholders and the corporation: voting rights or dividend payments.

For more information, please visit the Global Corporate Governance Forum’s website at http://www.gcgf.org/

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The Moral Compass of Companies: Business Ethics and Corporate Governance as Anti-Corruption Tools

Global Corporate Governance Forum Focus 7

By: John D. Sullivan Executive Director of the Center for International Private Enterprise (CIPE)

This FOCUS publication reflects the good practices that companies and executives are implementing to build ethical business organizations. The publication looks closer athowdifferentinstitutionsandleadership

practices come together to create ethical companies and reduce corruption. It is a timely roadmap to both practitioners and policymakers who want to build on the progress and best practices achieved to date, rather than attempt to reinvent the wheel at a critical crossroads.

It is widely accepted that corruption, be it corporate or political, petty or grand, has become a worldwide problem. This acceptance is attested to by the host of international conventions and efforts designed to stamp it out. However, opinions vary as to who ultimately bears responsibility for that corruption, how that corruption can be reduced, and who will take the lead in its eradication.

One thing though is clear — in dealing with corruption, there are no simple answers.Corruption has many faces and many moving parts. In some instances business can be a source of corruption, in others — it is

simply a victim. Some governments only pay lip service to combating bribery, while others genuinely attempt to put in place transparent institutions. In some countries, citizens accept institutionalized corruption as the reality of day-to-day transactions, while in others they refuse to give up without a fight.

Corruption is a corrosive drain on public trust and on the legitimacy of public and private sector institutions.

Its toll can be devastating to a national economy, particularly at a time when open global markets can rapidly reverse investment and capital flows if confidence and trust are compromised by revelations of systemic corruption. Corruption affects all types and sizes of business firms — from global conglomerates to Small and Medium-Sized Enterprises (SMEs) and co-operatives — each with varying degrees of resources and capabilities to deal with the

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consequences. It has the power to destroy firms and with them the livelihoods of stakeholders who depend on a company’s success. This further dehumanizes and undermines the reputation of the privatesectorasapositiveforceforeconomic growth and development in poor countries.

Today, often on a daily basis, televisionandnewspaperheadlinesare filled with corporate corruption scandals that range, from minor cases of individual corruptionto multi-billion dollar corporate collapses that shock the conscience of society. It is ironic that this onslaught of media coverage shapes the public’s negative image of the private sector, at a time when business standards of ethics, transparency, and accountability are perhaps at their strongest and highest level, and continue to evolve.

The private sector can be a force in developing solutions to the corruption problem, and companies around the world are taking charge. They are doing it in a multiplicity of ways. Some engage in collective action to reform the business climate to make it more transparent. Others push for ethical standards and fair practices in dealing with the government, as is the case with industry initiated integrity pacts.These private sector solutions to corruption however are not only external in nature and so many companies are also beginning to look inside, seeking ways to ensure that they are not unwittingly contributing to the climate of corruption. For example, and this is just one of the issues facing modern companies, how do you make sure that leadership calls for anti-bribery trickle down through the whole company, down to the last employee on the ground in

a different country thousands of miles away?

One way of addressing this dilemma and others is the establishment of strong corporate governance. It is increasingly emerging not only as a tool that increases efficiency, improves access to capital, and ensures sustainability — it is also emerging as an effective anti-corruption tool. Simply put, on the day to day transaction level it makes bribes harder to give and harder to conceal. At the decision-making level, it injects transparency and accountability, so that it is very clear how decisions are made and why. And, underlying the very roots of corporate governance, and providing its moral compass, is ethics.

The ethical behavior of companies is rarely recognized as a cornerstone of good corporate governance. Yet, in many ways, ethics underlies much of business behavior, whether it is at the board or staff level, and regardless of a company’s geographic location, size, or industry. The moral underpinnings of the decision-making processes can be observed not only in a large company from an OECD (Organization for Economic Co-operation and Development) country doing business in its own back yard but also in a small business from a developing country engaged in regional trade. Still, while ethics underlies much of

what we do, the actual ethicalperformance of individuals and the companies they represent differs among and between countries, often significantly; and these variations can in large part be explained by the differences in political, economic, and social institutions.

Often, business and ethics are viewed as two separate worlds. Yet, sustainable business, as many early thinkers of today’s economic theory have argued over the centuries, is defined by the ability of companies to do repeat transactions withtheir customers. Customers need to feel that they are treated fairly and honestly. This in turn, depends much on the quality of institutions, such as contract enforcement, rule

of law and property rights, as well as, business ethics — moral guidelines of behavior. In places whereinstitutions are weak, ethics plays a much more fundamental role in facilitating repeat business transactions and, as such, a

sustainable private sector.Moreover, ethics, as a concept and as a practice, extends far beyond individual business transactions — it underlies much of our daily life as private citizens.

The Universal Declaration of Human Rights has over time established a global consensus on the applicability of universal moral principles across all types of cultures and nations. These principles are now reflected in today’s landmark documents of business ethical behavior: OECD Anti-Bribery Convention; UN Convention against Corruption; World Economic Forum’s Partnering Against Corruption Initiative-Principles for Countering Bribery;

“Corruption has many faces and many moving parts. In some

instances business can be a source of corruption, in others- it is simply

a victim.”

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Transparency International’s (TI) Business Principles for Countering Bribery; International Chamber of Commerce Rules of Conduct to Combat Extortion and Bribery; and the UN Global Compact Principle 10 on Anti-Corruption, among others.

Ethics in the business world is not only about global conventions and statements — it is also about meaningful actions and the personal commitment to raise ethical standards (see Table 1). The corporate sector is replete with examples of firms that profess strong ethical cultures on paper but become unraveled by corrupt behavior.

Having a strong sense of ethics is not a guarantee that a company will always do the right thing. But the opposite is also true: many companies have started from poor reputations and set newbenchmarks of corporate ethics. The key component underlying much of what the best ethical companies do is leadership. Leadership — made visible through actions, commitment, and examples — sets the moral tone that emanates from the top of a company and that translatesethicalprinciplesintotheconcrete behavior expected from all persons acting on behalf of a company.

An important factor in dealing with corruption is the establishment of strong public and private regulating institutions. Differences in institutions between countries are one of the reasons some countries are more corrupt than others. TI’s Bribe Payers Index data, for example, suggests a positive relationship between the weakness of a country’s market and democratic institutions on the one hand and the likeliness that companies from that country will

pay bribes to get business deals.

Table 1: Corporate Governance-Ethics Matrix

In the following matrix we identify the likely scenarios that corporate stakeholders will face in the presence of a strong or weak environment in either corporate governance or ethical culture. Each scenario presents opportunitiesfor corporate leaders to move to the ideal bottom right-hand quadrant, namely by becoming an exemplar for how to build an ethical organization and become an industry leader for good corporate governance practices.

Good corporate governance practices cannot be imposed by fiat, even if promulgated by the highest levels of leadership. Similarly, companies will find it hard to comply with corporate governance regulations if there are no initiatives to improve the overall legal and regulatory climate in a country. Nor can corporate governance exist in a vacuum. Ethics, morals, and values (internally) and institutions (externally) guide how corporate governance is developed and implemented to benefit not only businesses themselves but societies as a whole.

In short, the existence of soundcorporate governance standards does not guarantee a corruption-free environment. Often, exposed corruption is a manifestation of weak

corporate governance practices, with unethical behavior at the root of the scandal.But exposed corruption can also be a positive sign — the measures to expose and prevent it are working. Overall, corporate governance by itself should not be regarded as a panacea or an automatic cure for all corporate ills. However, if bolstered by the values and behavior engendered in genuine ethical organizations with sound governance standards, corruption becomes the exception rather than the rule.

Exposed corruption is a manifestation of weak corporate governance practices

The rise of worldwide democracy, accountability, and transparency

Focus on Improving Corporate Governance

Framework

Focus on Compliance Disseminating Best Practice Experience

Ethi

cal

Focus onBuilding an Ethical Organization

Focus on overcoming System Corruption

Weak

Weak

Strong

StrongCorporate Governance Framework

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has reduced the tolerance forcorrupt behavior, and raised governance standards for both companies and nations as a whole. For companies, ethical values are proving to be the missing link between the integrity of business operationsandstrictadherencetofree-market incentives. Hence, the moral compass analogy, as noted in the title of this FOCUS publication, is an apt metaphor to signal that leadership is ultimately responsible for setting the course by which business operations succeed or fail in meeting the moral expectations of society and the financial goals of investors.

Definition of CorruptionTransparency International’s (TI) definition of corruption is succinct and yet comprehensive: “the abuse of entrusted power for private gain.” TI’s simple definition encapsulates a number of key elements:

It applies equally to all three sectors of governance: private, public and civil society;It refers to both systemic and individual abuses that can range from dishonesty to illegal and criminal activities;It covers both financial and non-financial benefits;It points to the importance of governance systems in controlling and regulating how

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authority is exercised; and,It highlights the inefficient costs associatedwithcorruption,thediverting away resources from their intended use.

Systemic corruption is by far the most damaging and the one that is most difficult to analyze and prescribe solutions. Its effects are well documented in the literature but it can still be too difficult to isolate the complex web of variables and factors that account for itsdamaging effects on:

Undermining property rights,Weakening the rule of law,Limiting private sector growth,Eliminating incentives to invest,Debilitating institutional capacity, andDelaying economic and political development.

Costs of CorruptionCosts of corruption on the country level are well documented in a variety of studies. They can be briefly summarized as:

Resource misallocation. Resources that could be put toproductiveusesare insteaddevoted to corruption. Firms waste time and resources on rent-seeking — cultivating relationships with officials and spending on bribes. Officials make biased investment decisionsthatdonotservethepublic interest, and taxpayers swallow the cost.Lower investment. Foreign and domestic investors are scared off by unpredictable costs. Rampant corruption signals to potential investors that the ruleof law, and thusproperty rights, are very weak in the country, making an investment there a risky

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proposition. Lower investment means lower growth.Reduction in competition, efficiency, and innovation.Rent seeking means that favored companies do not compete on market signals alone, while new firms face high barriers to entry. Consumers end up paying in terms of higher prices, lower quality, and limited product offerings.Unresponsive policies and poor administration.Lawmakers in corrupt systems use their powers to help rent-seekers, not the citizenry as a whole. Bureaucrats are not held accountable for their performance and actually have incentives to delay services in order to extract bribes.Lower employment. By forcing businesses into the informal sector, creating barriers to entry, and increasing the costs of doing business, corruption essentially reduces private sector employment, because firms are less likely to grow. Small businesses are hit especially hard.Exacerbated poverty. Corruption lowers the income potential of the poor because there are fewer private sectoropportunities. It also limits their access to quality public services such as healthcareand education.

For more information, please visit the Global Corporate Governance Forum’s website at http://www.gcgf.org/

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Sector Performance

Small and medium enterprises (SMEs) are considered as the engine of growth in prosperous and growing economy and play an important role in creating economic growth. SMEs contribute to economic development by creating employment for

rural and urban population, providing flexibility and innovation through entrepreneurship and increase international trade by diversifying economic activity. Their role in income generation and economic growth for developing countries is critical.

SMEsand their role in boosting the economic development

A dynamic and vibrant SME sector will provide sustainable growth and generate jobs, reducing poverty levels. SME development is pivotal for pro-poor growth because it makes possible the transition from low to middle- income status. In short they function as catalysts of economic change and in many developed and developing economies have been pioneering new technologies and management methods.

There are a number of factors responsible for the importance of SMEs in a developing country, such as:

They foster an entrepreneurial culture and provide resilience

1.

in the economy.They contribute to exports.They are an important vehicle for poverty reduction through employment generation.Sectors dominated by SMEs facilitate learning geographically and across the sectors.

These sectors tend to generate higher levels of competition and mobility, which in turn forces higher levels of learning among firms. This is useful for diversification of the economy.

Their efficiency in resource allocation is higher socially in that they provide more employment at lesser capital

2.

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4.

5.

costs compared to large enterprises. They contribute to reducing inequalities in the economy by distribution of wealth

In Egypt, SMEs constitute more than 75% of the employment rate and 80% of GDP. However, their contribution to the market capitalization is limited to only 10%, because of the financial constraints which they face.The Egyptian government adopts an approach aiming to boost the SMEs sector, and to encourage and

6.

promote its competition, in order to establish a sustained socioeconomic development. SMEs are expected to be an engine to a prosperous and growing economy in the coming decades and to create employment opportunities for the increasing rural and urban population, in addition to its contribution to the GDP, and providing commodities and services in handy prices for a remarkable low-income segment. SMEs are feasible tool in directing small savings to investment.

There was no specific and clear definition for SMEs in Egyp, due to the varying approaches adopted by the planning, executive, statistical, and financial sectors and entities. However, the decree No. 141/2004 (the small entities development law) built the regulating legal framework for these projects. This law defined small entity as every company or an individual enterprise having a productive, service, or a commercial activity, with a paid up capital not less than EGP 50000 and with a maximum of EGP 1 million, in addition to a maximum of 50 employees. The law also defines the micro entities as every company or an individual enterprise having a productive, service, or a commercial activity, with a paid up capital less than EGP 50000.

It is clear that small and medium enterprises form a significant share of the total employment in Egypt. This part of the Egyptian economy - one that serves local markets – is likely to be more resilient in the face

of a global economic recession. Egypt has 2.4 million SMEs with less than 10 workers that employ 5.2 million workers – according to Egypt’s census in 2006 – and another 39.000 SMEs with between 10 and 50 workers. This includes both formal and informal SMEs, however a large number of these enterprises are informal.

Therefore, whatever is relevant to SMEs is also crucial to the country’s prospects for growth and development, and the welfare of not just very poor but the also the average citizen.The global financial crisis is likely to transform the SMEs sector into a refuge for those who will be unemployed from the larger formal sector enterprises.

Challenges facing SMEs:

Access to financeAccess to equity and finance is a major constraint to SME growth in many developing countries. The existing structure of financial sector only serves large enterprises and commercial banks usually apply

conservative policies whilelending to SMEs. Majority of the banks consider lending to SMEs an unattractive venture dueto a range of factors including information asymmetries and consequently high transaction costs,collateralrequirement, financial products not meeting SME sector

requirements in medium to long term.Inadditiontoownershipstructures,SMEs do not approach formal financing for the following reasons:

High cost of credit

1.

a.

Documentation and procedures required for accessing formal finance arelengthy and cumbersomeLong processing timeCollateral requirementsSMEs can non-registered i.e. working in informal sector and therefore would need toenter into formal economy and consequently face regulationsDisclosure of taxes and burden imposed by inefficient tax authorityDisclosure of information cause the firm to lose confidentiality vis-à-vis its competitorsPerception that banks will start interfering in the internal affairs of the firmLack of information regarding benefits of corporate governance for performance of the firm

Family OwnershipThe most important feature of family-owned enterprises is the lack of separation of ownership from control implying that directors and managers cannot be distinguished.This leads to credibility problems as there is no system of checks and balances between shareholders, directors and managers. The duties and responsibilities, and privileges of family members are not clearly defined. Usually in family-owned firms, the family has the requisite

b.

c.d.e.

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Sector Performance

“In Egypt, SMEs constitute more than 75% of the employment rate

and 80% of GDP.”

voting power to unilaterally dismiss boards or management or to over-rule their decisions. Thus the concept of independent directorsdoes not prevail in these firms.It is for this reason that they are not easily convinced to go for external financing.

Other issues for family-owned businesses include:

Absence of clear policies and long term planningLack of outside opinions on strategic direction.Benefits and compensation for family members are not clearly definedHiring family members who are not qualified or lack the skills and abilities for the organizationThey usually do not have a successionplan

InternationalizationA dynamic SME sector is an important

1.

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4.

5.

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complement to a more open economy as experience shows that SMEs contribute significantly to exports. SMEs exist in networks of suppliers, buyers and competitors and they are usually dependent on other large firms

With higher level of trade deficit in developing countries, role of SMEs in exports will become critical.

These international linkages are important for the following reasons:

Access to International MarketsAccess to latest technologyAccesstointernationalinvestorsHigher exports

Access to international markets will help these SMEs to gain international exposure and realize the importance of innovation. For SMEs in developing countries, access to latest technology is critical.

1.2.3.4.

And in order to face thesechallenges, SMEs should establish a framework for corporate governance principles. As corporate governance encourages companies and those who own and manage them to achieve their corporate objectives through a more efficient use of resources.Corporate governance is a significant factor in improving economic efficiency and growth. It has been empirically tested that good governance practices of a company gives a positive signal to investors. With the globalization of markets, international capital flows have become extremely valuable source of external financing. It is essential for companies to observe good corporate governance standards in order to competitively

operate in the global capital market and to attract long-term foreign capital. Foreign Direct Investment, which leads to the transfer oftechnology, is an important factor for economic progress of developing countries. Both the foreign and local investors give importance to good governance practices. Therefore good corporate governance is likely to reduce the cost of capital, encourage more stable sources of financing and facilitate the broadening and deepening of local capital markets.

It is critical to consider the effectof economic growth on human welfare. A sluggish economic activity results in poverty and unequal distribution of resources, lack of healthandeducation facilitiesandunemployment. These issues exist in various underdeveloped anddeveloping economies.Good governance is vital for the development of a healthy and competitive corporate sector.

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Sector Performance

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For SMEs, corporate governance is about the respective roles of the shareholders as owners and themanagers. It is about establishing rules and procedures to manage and run the enterprise. Governance frameworks determine the capacity of small firms to raise capital. Financial markets are faced with the problem of information asymmetry. Itprovides resources to thefirms and also helps them to organize these resources. Other key benefits to SMEs include better and stronger system of internal control and accountability, transparency, strategic vision through participation of outside experts onthe board, owner to focus more on strategic directions and expansionof business than day to day operations and ability to attract better managers. Corporate governance can therefore be viewed as a mechanism to mobilize and combine resources and competences.

Awareness regarding significance of corporate governance is increasing in many countries. SMEs not embracing corporate governance in majority of the developing countries due to the following reasons:

There is generally a lack of awareness among SMEs regarding corporate governance and/or its relationships with corporate performance.The costs for implementing corporate governance are too high as compared to its benefits.

The lack of awareness among SMEs generally results in increase of financial difficulties, worsening

1.

2.

of relationships between SMEs and financial institutions, and decrease public confidence. There is a cost associated with implementing corporate governance such as the appointment of independent directors, developing

internal control systems and external audits. There are not enough trained directors available to sit on the Boards and thoseavailable are appointed at higher compensation. Similarly it is not easy for SMEs to bear the cost of appointing an auditor. However, these costs are outweighed by the medium to long-term benefits.A potential debtor or investor seeing that the foundations for good governance are already in place during due diligence will have more confidence in investing or giving loan to the enterprise. This will also help in internationalization and diversification in their financing for example through listings in stock market, venture capital or debt market. This will help to develop capital and debt markets

in developing countries.

The first step in establishing the corporate governance framework is initiating and generating debate among key stakeholders regarding the need for corporate governance and its implications for SMEs. This

will help to increase awarenessand at the same time build support for developing a framework. It is important that this mechanism be as participatory as possible.

What was the reason of establishing the NILEX?

The idea of launching the Nile Stock Exchange (NILEX) was a result of the

severe financial constraints that the small and medium enterprises face by the banking sector. More than 92% of small and medium projects’ credit applications are refused. Thus, alternative funding is the non-banking sector such as the capital market. In addition to that, SMEs sector represents 75% of the total employment and 80% of GDP, so more freedom for these companies will lead to an increase in GDP. Thus, NILEX is the first market for SMEs’ stocks in the Middle East and North Africa, and it is an initiative to provide «cheap funding» for promising SMEs, to raise capital and expand their activities without complex procedures, and without the need for guarantees or assets.

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2 - What is the definition adopted by NILEX for SMEs?

We can define SMEs based on the paid-up capital criteria; projects up to EGP 1M are small, and up to EGP 5M are considered medium, and projects up to 49 employees are small, whereas projects from 50 to 200 employees are considered medium projects. But these could be old definitions. It should be noted that the minimum capital of a stock to be registered on NILEX is EGP 500 thousand and the maximum is EGP 25 million, while the required minimum in the main stock market is EGP 20 million and companies

with capital less than this are toadjust during the transition period, but this does not mean that they will de degraded directly to the NILEX, but they only must reapply to it.

3 - Does this mean that NILEX is independent from the main stock exchange?

It is considered as a market in the major Stock Exchange. However, when NILEX is financially able to rely on itself, then independence from the main stock exchange would be natural.

4 - What are the benefits given to SMEs when joining NILEX?

It is better to improve and facilitate the investment climate; there is a global trend to facilitate SMEs access to the capital market. The advantages are: Providing support to this sector through the provision of funding without complications, especially in light of the current financial crisis. However, some companies were aiming to be listed to take advantage of tax incentives, but this tax issue has been canceled, because the primary objective is to increase the range of activities of these companies and this is being done through the medium – long term funding provided by NILEX.NILEX enjoys a package of listing rules which are more flexible, with

Interview with Dr. Mohamed Omran Vice Chairman of the Egyptian Stock Exchange

Nile Stock Exchange (NILEX)The first capital market for Small and Medium Enterprises in the MENA Region

34 THE EXECUTIVE 35

Business Dynamicsregard to minimum required capital, the number of shareholders, and the financial background of the company. This is in addition to the reduced listing fees, and an agreement with the Industrial Modernization Center (IMC) to bear around 90% of listing and upgrading costs. It is natural that when a company is already listed on the official stock exchange it will get a better reputation, the matter which do not happen in case ofhaving funds from banks, and also provides merging opportunities with otherentities and facilitate accessto banking finance, because SMEs companies’ data and information will be accessible in the case of being listed. That is beside the upgrading and assistance services offered by NILEX to the companies in restructuring and offering their shares via strong financial institutions. NILEX is also launching funds for the listed companies to enable the provision of greater finance to these companies.

5 – Is joining NILEX limited to the Egyptian companies only?

There is nothing to prevent foreign companies from joining NILEX, as long as the action plan of the company is submitted, and after offering 10% of their shares through an IPO within at least a year from the registration date. Thus, the same regulations apply to these companies same as any company aiming to join NILEX.

6 - What are the listing and transactions mechanisms?

There is a flexibility concerning the commitment to the financial rules; it can be approved for the financial year, and the listing committee may accept companies that have not issued their financial statements for the financial year in case there is an

action plan proposed by the company and including the expected profits, and the plan should be approved by the nominated advisor or one of the financial advisors accredited by the capital market. It is enough to provide annual financial statements approved by the auditor, in addition to the quarterly and semi-annual financial statements approved by the company’s Board. It is also enough to simply disseminate such statements via the websites of these companies, in order to reduce the burden of publication in the official journals and this concerns the disclosure rules. The majority of these rules, imposed on the main market, are applied; to ensure the quality of the market and protect the rights of shareholders, while maintaining the company’s secrets.

With regard to the market transactions, there was only one transaction, until now, made by TN Holding. There are 3 listed companies so far, with a total market cap of EGP 33 million. Trading in the SMEs market is through bidding and without price limits. The bidding sessions are randomly closed at any time during the last ten minutes of the session. The same brokerage company can register offers and bids for the same security at prices varying according to the orders issued to it by customers.

7 - What is the expected number of SMEs joining NILEX by the end of 2009 and the impact of the current crisis on this number?

So far, there are 3 listed companies and we are currently reviewing requests from 3 other companies. We expected a greater number than the current, but it is clear that it is a result of the current financial crisis that companies delay the

process of joining the Stock Exchange due to their inability to meet the portion of shares that must be put for public offering at the moment. As previously stated, it has been agreed with the IMC to bear around 90% of the listing and upgrading costs.

8 - What is the importance of having a nominated advisor for SMEs?

The nominated advisor is one of the specialized companies in the financial consulting, and its role is limited to qualifying the company to be listed, and helps the company in its initial public offering of its shares, in addition to training of the company’s personnel to the application and disclosure rulesand how to comply with the rules and regulations. The nominated advisor is to assess whether thecompany is qualified for NILEX or not. In addition to advising and assisting the applicant company on all its responsibilities during the application process and itsresponsibilities to maintain its status once listed. The nominated advisor is also to assist the company in the preparation and submission of financial statements in the specific timing, in addition to helping the company at the stage of completion of all listing procedures, and during

the IPO process, whether it is public or private. Companies are not able to deal with the stock market in some actions. The extent of the companies’ ability to understand things may not be as required.Despite the fact that some companies think that a nominated advisor is a constraint, but the nominated advisor aims to expand the company and to trade stocks in the market, and therefore the company must have a nominated advisor to follow-up performance and to examine the possibility of working within the stock exchange.

9 - Does this mean that the role of the nominated advisor ends when the company joins the stock market?

On the contrary, there is no limit to the role of the nominated advisor. Its obligations and responsibilities will be maintained for two years from the date of the company’s listing, after this the company may switch to another advisor.

10 - There are talks about launching commodities or derivatives exchange market. Do you think that the local investors’ culture will allow for such market?

Yes, there is a plan to establish such market, to allow derivatives and commodities transactions, which is in great demand. There are already training sessions under the supervision of the Capital Market Authority, Misr For Clearing, Settlement and Central Depository, the Egyptian Stock Exchange, and the Ministry of Investment, on the mechanisms for trading in these markets, in addition to some overseas training in many countries, such as the USA.

11 - Are there specific NILEX listing rules?

Listing rules do not differ from those of the main stock exchange, they are rules concerning the shareholders, investors and the financial statements, the existence of risk management and audit committees. The majority of the disclosure rules have been maintained to ensure market efficiency and investor protection, in particular the

disclosure requirements regarding the company’s announcements of corporate actions and material events. The Egyptian Institute of Directors is in the process ofpreparing a corporate governance code for SMEs, in cooperation with the General Authority of Investment and the Egyptian Stock Exchange, which will be very useful regarding the listing procedures at NILEX.

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SMALL IS GREAT!

In any emerging economy, it wouldn’t be surprising; in fact it’s now becoming a cliché, to say that SMEs account for anything between 80-90% of the number of businesses with a very significant contribution to GDP.This above statement has been said for long time with great attention from governments but with little interest from the business and finance world.

VERY RISKY! DISORGANISED! DON’T UNDERSTAND THE LANGUAGE OF FINANCE!

These are some of the immediate reactions one would hear from the finance world once we start talking about SMEs

VERY BUREAUCRATIC! DIFFICULT TO APPROACH! INFLEXIBLE AND DO NOT LISTEN TO OUR NEEDS!

These are some of the immediate reactions an entrepreneur wouldgive when asked about their experience with banks.These mutual accusations kept going on between the two sides for decades. I can still recall E. F. Schumacher’s «Small is Beautiful», one of the early books that talked about small businesses. Despite these writings were in early 1970s, little was done over the years to bridge the gap between the two sides (Entrepreneurs and Bankers) to find the right formula to make it possible to have a healthy successful model that allows entrepreneurs to

understand what the finance world need from them and for financiers to come up with the right tools and services that help SMEs perform in a better way.In the coming lines, I will try to solve the riddle and find out a common ground where both sides can meet.

A STARTING POINT FOR BOTH PARTIES WOULD BE THE WORD «PROFIT»!

Although direct and simple it might seem for any observer, it is unfortunately often overlooked by many of the stakeholders. Many small and medium companies are established by their owner without having this crucial world in mind. Some companies are formed because their owners are retired employees that still wish to find

W hether it is Egypt, Mexico, Argentina, Pakistan, India, Thailand or any other country in the world, Small and Medium Enterprises share a lot of characteristics, ambitions, challenges and frustrations!

By: Bassam AzabAssistant General Manager Small and Medium Enterprise Banking ServicesHSBC Bank Egypt

38 THE EXECUTIVE 39

themselves a place to spend the day, pretending to be working, instead of the feeling of being redundant. Some others are formed to copy successful stories without understanding the reason(s) for success and whether the newventure can repeat the same story. Some are formed because a technical specialist loves what (s)he is specialized in and would dream to do what (s)he likes to do the way they want it. The only way to do it is to be the boss.THE REAL THING

The real thing, however, is someone who has particular expertise in acertain business field, with initial capital (either by self or through partners) who can use this skill andexpertisetoproduceacertainproduct or service that meets a customer’s need. This need has to be widely in demand to ensure there is always enough business to keep the new venture running in a way that covers the costs and make a decent return to the owner. Let me put it in a different way. Any business owner who is about to start a new business needs to ask his/her self the following questions before staring the new business: Do I (or my partners) have the necessary background and technical expertise about the business I’m about to start?Do I (or my partners) have enough capital tosecurethe initialcostofassets (office, factory, machines, etc.) and the cost of production (raw materials, wages, rent, etc.)?Is there a true need in the market for the product or service I’m about to produce? Did I make sure, through any kind of research (possibly statistics from chambers of commerce), that the demand in the market is still not fully satisfied?In light of the information about the

size of the market, will my size of production be totally sold? Are there any competitors? Will my competitors be able to prevent me from reaching my customers? Are they able to offer better quality or lower prices? Is it easy to reach my customers to first tell them that I’m in the market and to secondly ensure that they can easily find and buy my product/ service when they need it? Is the price I’m going to set good enough to cover all my costs and give me a net margin that is higher than what I can get through investing my money in other alternatives (eg; bank deposits, stock market, etc.)?Can I assess with a reasonable degree that my business will continue to grow over the years by higher rates than inflation?

FINANCIAL STATEMENTS ARE THE COMMON LANGUAGE

If the answer to any of these questions is negative, then we have a problem! This problem will preventtheentrepreneur–sooneror later – from getting to the word «Profit». So, unless the owner is ready to lose money to get their business up for any other reason than profit, following the above check list, there is a good chance that this business will survive and grow over the years.This last statement is very profound, because similar to serious profit seeking entrepreneurs, financiers everyday in the morning scratch their heads to try and find more businesses that they can help through various sources of finance so that the businesses can grow and the financiers themselves can

make «Profit» to their institutions (Banks, Funds, etc.). The common language between the two profit seeking parties is «Financial Statements». For entrepreneurs to tell financiers how good they are to get their support, they need to provide them with documents that show they are really good. For financiers to be able to identify the truly successful businesses to support them, they need documents that show how good the business is. These documents that provide the evidence are financial statements.The ongoing debate (at least in Egypt) between entrepreneurs and financiers that they are unable to talk to or understand each other was because each party took a separate side without really making the effort to have the above discussion to realize that they both have the same interest and that they are working for the same objective: making profit. Now, hopefully that we have finally come to the agreement that both sides should work for profit and that the proof of profitability is manifested in healthy financial statements, we need to come to what kind of financial services SME’s may need.

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A PRACTITIONER’S PERSPECTIVE

Working for HSBC in SME banking field for the past few years, I can broadly classify the needs of SME’s as follows;

Financing working capitalFinancing long term assetsFinancing expansion and growthPayments and cash managementBusiness advisory (technical and financial)

Working capital financing is one of the basic activities of banks. However, more and more today, we see more partners coming into the picture. For example, factoring companies can offer invoice financing to enable businesses to maintain a healthy level of liquidity (a common problem for SME’s) to continue running their businesses. Financing long-term assets and growth are also a core function for banks. Yet again, more external parties are coming to the picture. Leasing companies that buy long-term assts and rent back to businesses make the life of SME’s easier by offering the asst on installment basis while holding title to the asset until final payment by the business. Specialized venture capital funds are more and more moving from the traditional large caps to SME investment, financing start-ups and business expansions. Payments and cash management cannot be conceived in today’s world without having a bank account. The more features the bank can offer to the account of the business, the more efficient the business can run their day-to-day financial operations. Business advisory is the missing component in the chain. This means, for a business that is about to start, answering the questions in the above check list only provides

•••

••

an initial assessment of the possibility of success for the new business. The details (whether on the technical or the financial side) might be numerous. Same goes for a successful SME operation that its owners are wishing to take it to a higher level. In both cases, the problem with business owners is that they might not admit that they could be expertsonthetechnicalsidebut not on the financial one and vice-versa.I have here to blame the Egyptian culture of not understating the power of specialization and the complementary role consultancy can make to cover the gap between the available expertise and the required overall knowledge. It is this cultural problem of «Fix It Yourself» that results in chaotic outcomes and dissatisfactory results that may make the business endeavor unsuccessful and financiers unwilling to give a hand. The problem of «Fix It Yourself» causes low demand on business advisory and hence the loss of a crucial component to the entire chain. If we would like to have a systematic generation of successful businesses, entrepreneurs need to realize the power of business advisory and the need for it for covering the knowledge gap between where they are and where they want to be. If this entire chain is complete, then we can guarantee to a large extent that we have a system in place to help generating successful businesses. Awareness of these facts arecrucial and I thought my duty as a professional working in the area of SME banking, to let both sides of to finance chain (entrepreneurs and financiers) know about them. Also, I wanted to provide a good example of how a bank could pass

the stage of theory into true application by understanding SME banking needs and provide banking services that are most needed by such businesses. I have mentioned earlier the finance needs of SME’s. In 2008, HSBC Bank Egypt launched a dedicated SME finance operation that addresses the finance needs of successful businesses, helping them to grow and prosper. In payments and cash management, we came out of the box to provide a lot of services to help businesses manage their financial operations more efficiently. These services include tailored packages; ASAS, GANBANK, and EID FI EID which provide differentiated servicesaccording to the different needs of different businesses. This was also complemented by a dedicated SME call center and SME internet banking system that allows businesses to make banking transactions from anywhere they are. More importantly, these services are all rendered by professional teams whounderstandandappreciatetheimportance of SME businesses and their needs through out our branch network across Egypt. In HSBC, we believe in SMEs as a strong engine for growth and that they are the future for banking services for the years to come.

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There are several definitions for corporate governance. However, the most appropriate definition which is more relevant to small and medium size enterprises (SMEs) describes corporate governance as «a set of rules, regulations and structures which aim to achieve optimum performance by implementing appropriate effective methods in order to achieve the corporateobjectives». In other words, corporate governance refers to internal disciplines or systems which

govern the relationships among <key players> or entities that are instrumental in the performance of the organization. Moreover, it supports the organization’s sustainability on the long term and establishes responsibility and accountability.The guidelines of corporate governance aim to achieve greater transparency, fairness and hold executive management of the organization accountable to shareholders. In doing so, corporate

governance plays a pivotal role in protecting shareholders and, in the meantime, duly consider the interest of the organization at large without prejudice to employees’ rights. Whilst executive management should have reasonable level of power to run the business, corporate governance ensures that such powers are set to practicaldimensions in order to minimize misuse of authority to serve objectives not necessarily in the best interest of the shareholders. Therefore, it provides a framework for maximizing profits , promoting investment opportunities and eventually creating more jobs.

Today corporate governance principles are considered a key element to the success of any organization and a prescription for improving performance. Simply it is the name of the game for companies that are directed by a board of directors in order to safeguard

the interest of shareholders as well as other stakeholders.

Importance of Corporate Governance for

SMEs

By : Hany Abou-El-FotouhDirector, Policy & corporate affairs

board secretary, CI Capital

42 THE EXECUTIVE 43

In general, corporate governance highlights two major principles:Oversight and control over the executive management’s performance and strategic directionsAccountability of the executive management to the shareholdersFor that reason the principles of corporate governance apply on those who assume the ultimate responsibility for success or failure of the organization. On the other hand, it is imperative to understand that the proper implementation of good corporate governance does not necessarily guarantee success of the organization. Meanwhile, a bad corporate governance practice is certainly a common syndrome causing failure in many organizations.It is interesting to know that a recent survey revealed that more than 48% of investors are willing to pay additional premium over stock prices for companies known to implement sound corporate governance practices as opposed to other companies which may have same level of profitability but characterized with inefficient management or a record of poor governance practices.

The misconception about SME’s stems its roots from the size and contribution of this segment to the economy. The reality is today

SMEs may appear small in size but likely many of them have potentials to grow and become big entities in future. Sadly, this prophecy still not well realized and as a result, implementation of good corporate governance practices continues to be ignored.SEMs in Egypt form large segment of business activities. Generally, they take the form of private

companies owned by small number of shareholders. Often have less than 100 employees. Such companies are usually family-owned run by family members where the authorities and powersare generally held by an individual normally the major shareholder. For that reason the owners commonly consider themselves as running their personal properties.Perhaps the question that strikes the mind of business owners and

directors of small and medium size companies as well as the executive management team « why should we opt to choose to introducenew systems and internal rules which impose limits on the way we do business and our business conduct?». The answer is simply corporate governance plays a significant role for SMEs since it defines the role of shareholders as owners on the one hand, and asbusiness managers on the other hand. This is best done through a process that spells out governance rules and guidelines. These aim to assistallpartiestounderstandhowto manage the organization. As a result, internal conflicts would be better managed and more attention given to achieve growth objectives and support profitability.There are at least three reasons for small and medium size companies to show greater interest to implement corporate governance principles:The good governance practices pave the way to companies to grow or attract additional investors as alternative to raising capital through borrowing from banks at high cost. Additionally, companies may consider going public through IPO.Sound governance practices lead to improved internal control systems which results in more accountability and higher profitability. The latter is attributed to enhanced controls which minimize the likelihood for fraud losses.Corporate governance framework ensures that shareholdersare freed from executive and administrative duties. As a result, conflicts among business owners who assume management roles in the organization would be reduced to a greater extent particularly in organizations owned by few number of shareholders where the distinction between ownership and management capacity is blurred.

“Today SMEs may appear small in size but likely many of

them have potentials to grow and become big entities in future.”

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Raising capital has been for a long time seen as the major challenge facing SMEs. The real challenge is absence of good corporate governance practices in such organizations. Consequently, it would be difficult to access sources of finance from banks or investors.Adoption of corporate governance framework is not common not only in Egypt, but also in most developing countries. This is mainly due to lack of awareness about what corporate governance is about and its relationship with corporate performance and objectives. Besides, the widespread fallacy that implementing corporate governance entails high costs coupled with doubts that such costs would not generate the envisaged benefits to the organization.The biggest challenge for small and medium size companies in Egypt is about how far they can cope with the external business conditions and internal problems which threaten their ability to survive. Surveys indicate that one-third of this category of companies collapse after three years for the following reasons:Absence of planning and forward thinkingInadequate leadership andmanagement skills at senior management levelLack of future business plans for growth and new investment plansProblems with cash flowsInability to innovate, present ideas for business development and cope with ever changing business environment and economic conditionsInadequate access to technicalassistanceIf we consider the main reasons why small and medium size companies fail, we may conclude that implementing corporate governance contributes to a far extent to support chances for

these companies to perform well, grow and adopt better process for decision making. For family owned businesses, corporate governance improves management efficiency, limits internal conflicts and helps in making transition of ownership to heirs a smooth process.

Practically speaking, we need to realize that SMEs may face several problems in implementing corporate governance framework which may often seen costly exercise. Consequently, it is essential that consideration should be given to reduce the relevant requirements for compliance and disclosure and introduce less expensive financial and administrative alternatives which such companies can afford.

In order to help small and medium size organizations to implement corporate governance, we recommend that the competent state authorities issue a code forSME’s corporate governance similar to that issued by General Authority for Investment in collaboration with Cairo & Alexandria Exchange. Particular attention should be given to the following:

Transparency (strategies, organization chart, processes etc)Role of Advisory Board and relationship with other entities.Risk management system and planning.Human resources function with focusonsuccessionplansforseniormanagement.

Finally, we propose a short prescription to deal with the challenges and assist in implementing corporate governance framework for SMEs:

Separate ownership from management duties and specify clear roles and responsibilities for business owners, partners and

other stakeholdersCreate a balanced board and invite non-executive directors who would add value to the board (replace the board of director with an advisory board for companies that are not legally required to establish a board of director). Non-executive directors play an important role in ensuring integrity of the financial data provided to the board and to protecting shareholders’ interest. They also exercise control over executive management and reduce the risks arising from poor management practices or gross negligence Introduce Code of Business ConductRaise corporate culture with a focus on benefits of corporate governanceDevelop senior management’s administrative and technical skills particularly in areas such as strategic planning and leadershipCreate clear organization chartsEstablish independent internal audit function (or employ an internal auditor based on the size of the organization)Create job descriptions which establish clear responsibilities and reporting linesIntroduce succession plans andrules for conflicts of interest

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The flu virus has been diagnosed in Italy in 1878, while “Avian flu” wasdiscoveredearlier in the20thcentury in Southeast Asia, and many limited epidemics appeared in various countries worldwide,including the United States, Italy, Mexico and others. It re-emerged for the first time in Hong Kong in 1997, and since 2003 until 2005 the disease appeared in more than nine countries in Asia, but the seriousness of possible transmission to humans was realized, however, when 18 people were infected with «avian flu» of the type (A) -(H5 N1) – in Hong Kong (of which 6 people have died). Other cases were diagnosed in Asia, mainly in Vietnam, and all of the victims were directly in contact with infected birds and this resulted in such cases. There was another type that

outbreak in the Netherlands and cases were detected among poultry and whoever in contact with them.

In the midst of the «avian flu» infection invasion - a rapid proliferation between the poultry - invariouscontinentsoftheworld,and its penetration in Southeast Asia, then moved to Romania, Turkey, Greece and some other European countries, and emerged in some South American countries like Colombia and Brazil, then appeared recently in some Arab countries such as Egypt, and after causing the deaths of a number of victims in Asia so far, it is important to take vigorous efforts and preventive action -by both the government and the public- to avoid the possibility of a quick move to the Gulf region, that matter which

will cause economic disaster, and possibly a human disaster.

This epidemic does not constitute a real threat to humans at the present time, because the disease remains confined to poultry and was very limited to persons dealing with them directly, and only one or two not confirmed family cases.

Avian flu significantly affects the economy of any country it appears in and it is not only affecting the poultry industry, but it also affects a number of other economic sectors that are directly or indirectly affected by the emergence of the disease.

This disease resulted in a global economic crisis, in the case of disease confinement among poultry

Avian Flu:

Avian flu is an infectious viral disease which is caused by a virus that usually affects birds and may spread to some factions of animal, most notably horses, pigs and cats. The infection virus has mutated and humans became also affected, but birds in general are the most vulnerable of infection, which may rapidly reach epidemic level

and lead to a death rate of birds up to 100%. But the possibility of transmission from one person to another has not conclusively proved until now.

Flu …between Birds and Pigs S o c i o e c o n o m i c e f f e c t s

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In Depth

and birds only, the direct effects will be the economic cost resulting from the death of poultry, the necessary drugs, and hiring personnel to carry out the cleansing and survey and diagnosis, and payment of compensation to those who were affected. Also what falls within the direct impacts caused is the drop in egg production. As for the world poultry exports, it dropped by 14.3% during the period from 2003-2006, and on the other hand, global imports of poultry increased by 5.7%.

Economic losses in the South-East Asia recorded about USD 10 billion, while economic effects vary from one country to another depending on the contribution of livestock to the gross domestic product. For example, the percentage of livestock contribution to the gross domestic product is 0.5% in both Vietnam and Thailand, while it is about 1.3% in China, and 1.5% in Cambodia. The economic losses suffered by Vietnam during 2004 were estimated at 1.8% of GDP during 2004, and those losses were estimated at about 1.5% of GDP in Thailand.

According to the World Bank estimates, the economic effects of bird flu in most countries

are relatively limited on the macroeconomic level, due to the fact that the poultry sector is only a small part of the global economy, but the impact on the poultry sector itself is very severe. In a study conducted by the United Nations Food and Agriculture organization (FAO) about avian flu, it is reported that about 20% of permanent workers in the industrial or commercial farms lost their jobs in Indonesia, and about 60% of the poorest populations in Vietnam are risking loss of income due to avian flu.

As for the indirect effects, thereis the possibility of a significant decline in international tourism, due to people>s fears of bird flu, and as a result of restrictions ontravel between countries.The international financial institutions did not leave thing for prospects,

the World Bank, for example, estimated that a bird flu outbreak for a year among humans could cost the major industrialized countries about 550 billion dollars, whereas the Asian Development Bank estimated the losses of Asian countries during the same period about 300 billion dollars.

The announcement of the outbreak of avian flu in Egypt was on Friday, February 16, 2006 which had affected levels of domestic prices. The prices of several commodities have been affected by the outbreak, and these changes included mainly three major commodity groups: Poultry, poultry alternatives (red meat and fish), and plant protein, especially beans. As for the stock market, some stocks were affected by the emergence of avian flu in Egypt, particularly with regard to companies directly linked to the emergence of the disease, such as poultry, flour mills, or indirect relationship, such as tourism. The poultry supporting industries were also affected, such as bread, which was considered a major food for

poultry.

According to estimates by the Federation of Poultry Producers, the report of the outbreak led to a significant decrease in poultry prices, with price levels declined from EGP 6.50 to EGP 3.5 per kilo in some areas of the Republic, with a 46% decrease. What worth mentioning is that the price levels in that time did not cover the cost of poultry

feedings.

As an attempt to estimate the losses, it is noteworthy that Egypt produces about 2 million chickens daily, representing 3.5% million kilos, with production cost of EGP 5.5 per kilo, and are sold at EGP 3.5 per kilogram - well before

“The World Bank, estimated that a bird flu outbreak for a year among humans could

cost the major industrialized countries about 550 billion

dollars.”

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the emergence of the disease – meaning that the loss incurred by poultry producers in the period from October 2005 until February 2006 was about EGP 7 million per month, which means an industry loss, in only one segment, reached around EGP 210 million per month and about one billion pounds during that period.

At the level of the industry as a whole, daily losses may reach up to EGP 12 million, EGP 360 million pounds per month, as the number of poultry farms in this vital sector is about 17,243 poultry farms employing more than 2.5 million workers, in addition to more than 50 thousand poultry shops. Thus, the estimated cumulative losses for the industry during the entire period of price decreases registered from October 2005 until February 2006 are estimated at EGP 1.8 billion in this period only, which represents about 10% of the total value of investments.

The Government has made many efforts to combat the disease, including many actions as: the prohibition of transferring live poultry of all kinds, in addition to banning slaughtering outside licensed slaughterhouses, and the licensing shops that sell live poultry to change their activity for the sale of frozen birds slaughtered in the special slaughterhouses, in addition to the removal of all unlicensed nests of breeding birds, and the prohibition of importing live birds of different kinds, and their processed meat.

The Ministry of Agriculture and Land Reclamation in Egypt also vaccinated about 32.4 billion birds in 2006, and Ministry of Health and Population provided a quantity of drugs for the treatment of human cases of avian flu, at a cost of about

EGP 228 million during 2006-2007, of which about EGP 164.9 million in 2007 only.

Swine flu:

Now, swine flu is the dominant worldwide theme, which witnessed rapid development since its inception, where the USA administration reported in February 24, 2009 seven confirmed cases of swine flu of the type A/H1N1 (five cases in California and two in Texas) and nine suspected cases in theirterritory. All seven confirmed cases showed moderate symptoms of seasonal flu-like symptoms and only one of them needed to be hospitalized. There were no reports of any deaths so far.

Also, the Mexican government reported three separate events. In the Mexico Federal, surveillance steps for the detection of casesof moderate flu began since 18 March. The number of cases rose steadily throughout the month of April, and in 23 of the same month more than 854 cases of pneumonia were recorded in the capital. 59 of these cases were fatal, and San Luis Potosi in central Mexico reported the occurrence of 24 cases ofmoderate flu, of which three cases were fatal. Mexicali, near the USA borders, reported four cases of flu that none of them led to death.

It was confirmed -thanks to tests conducted in Canada- that 18 of the

total cases that occurred in Mexico are cases of swine flu of the type A/H1N1, and 12 of them genetically identical to swine flu viruses of type A/H1N reported in California.

It is worth mentioning that the swine flu is a respiratory disease in pigs, caused by influenza viruses belong to the family (Orthomyxoviridae), which often affect the pigs. This type of virus causes outbreaks of flu in pigs periodically. Swine flu viruses lead to injuries and high levels of disease, but it is characterized by low rates of death from the disease among pigs. Flu viruses remain among pigs throughout the year, but most cases of epidemic spread among pigs are recorded late autumns and winters, as is the case in humans.

Like all types of flu viruses, swine flu virus changes constantly. When different types of flu viruses affect pigs, there is a possibility that these viruses exchange genes, producing new viruses that are a mixture of swine, birds and humans flu viruses. Different forms of swine flu viruses appeared over years. Currently, four sub-types of flu virus were identified and isolated in pigs: H1N1, H1N2, H3N2 and H3N1. However, most flu viruses that were recently isolated from pig viruses were H1N1. Classical swine flu virus (type H1N1) was isolated from a pig for the first time in 1930.

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Mohamed Ahmed Farghali (Pasha) belongs to a family originated in «Abu Teague», which is one of the Upper Egypt cities, and went with his family to Alexandria, where they settled. His family was among the wealthy elite; even the street he was born in was carrying the name of his family, «Farghali Street».

The family was a business family, grandfather and then his son were among the top traders of grain and cotton on the domestic side, and did not try the experience of exporting to overseas.

Mohamed Ahmed Farghali had received education in the “Jesuites” French School, in which he became fluent in speaking French, and it was the same school in which the former Prime Minister of Egypt

Ahmed Zaiwar Pasha graduated years before, and also Ali Pasha Yehia, who became one of his main rivals in the export of cotton.

After that, he joined the “Victoria College”, and here our great economist points out that period of study was one of the most enjoyable periodsofhislife,sincehehaswonthe auspices of great teachers who had admired his intelligence and diligence.

Farghali then traveled to England to complete his studies at the London School of Economic Studies, but his father>s illness forced him to return to Alexandria to carry the burdens of the family’s business.

We can see that the differentlevels of education in the life of

the «King of Cotton» may have contributed to the formation of Mohamed Farghali’s culture and personality; he mastered the two languages of English and French, was opened up to non-traditional cultural schools and trends, learntabout modern economics and management concepts, and gained practical experience by contacting the Western culture during his short mission to England.

During that era there was a control by foreigners of all different ethnicities, particularly the Armenians and the Jews, on economic and commercial activities nationwide. This is in addition to their monopoly - and without any national competition – of the stock market and its activities, which reap them huge profits by the sale

Mohamed Ahmed Farghali - nicknamed the «King of Cotton» – is one of the most illustrious businessmen in the second quarter of the twentieth century, though his presence had eased off after the revolution of July 23, 1952 like other investors and builders of the Egyptian economy, as a result of the economic trends that the State adopted, particularly during the sixties.

Mohamed Ahmed Farghali

King of Cotton

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of crops produced by Egyptian farmers, who only gain very little from his hard work.

His father’s capital in that period was close to 30 thousand Egyptian pounds, which was a big number then. The main investment of the father and the family was based on grain trade, and the secondary activity was local cotton trade.

But the ambitious son went much further,forafterawhilehetriedtowork independently for two years, having established a farm for pigs breeding over a reclaimed land with an area of 900 acres which was owned by the family in the area of «Abul Shokouk» near Mansoura. But his father sent for him, so he decided to liquidate the project, which gained him a net profit close to three thousand Egyptian pounds. This did not detract from the ambition of the father who might be seriously ambitious and conscious, but he belongs to a generation different from that which his son Mohamed belongs to, and hewasalsoacaptivetoaculturewhich excluded and deprived theEgyptians from any capacity, thus

Ahmed Farghali refused the offer made by Mohamed to break into the world which the Egyptians did know about yet.Under the insistence of the sonMohamed, the father quickly decided to allocate a part of thefamily’s business to cotton exports, which was then the monopoly of foreigners.

Unfortunately, the first cotton export deal incurred agreat loss, more than four thousandEgyptian pounds, but Mohamed was well aware of theexperiment. The story of the «King of Cotton» - whosefatherdiedin 1927 – began with an exportshare whichdid not exceed0.25% of the total cropof Egyptian cotton. After a little over ten years, Mohamed Ahmed Farghali exported about 15% of the total crop. At this rate he was ranked first in the list of exporters, as well as that his success motivated other Egyptians to enter a field which was closed against them.

In 1935, Mohamed Ahmed Farghali was elected as an agent representing the Stock of “Mina Al Basal”, and was the first Egyptian to end foreign

control over theleading positions. In a meeting with King Fouad after his election, theking addressed him with the word «Bek», and since it was a royal pronunc iat ion,

Mohamed Ali Effendi Farghali became a Bek. In 1941, under the Cabinet of Hussein Serri, Farghali obtained the rank of Pasha.

However, Mohamed Ahmed Pasha Farghali lived a lot of crisis and adversity, in 1934 he faced a deep financial crisis threatened all of

prosper i ty andsuccessheachievedin previous years and represented a problem for his striking rise. He entered a contract to supply large quantities of cotton for EGP 8 per pound, but the vagaries of the weather negatively affected the U.S. cotton crop, which led to a rise in the price on the New York Stock Exchange and in turn the prices of cotton increased in theglobal markets, forcing the great exporter - to meet his obligations - to buy the pound of cotton from the local market by twelve pounds and then export it by an amount of fourpoundslessthanthepricethathe paid when buying it. This rise in cotton prices in the New York Stock Exchange has forced him to supply large quantities at a loss of 600 thousand Egyptian pounds. But getting a no guarantee loan from the Bank of Italy, worth 100 thousand Egyptian pounds, had saved him financial distress.

The line chart returned to a rapid rise until the second crisis in 1949, when small and medium-sized merchants failed to supply the

“The first cotton export deal incurred a great loss, more than four thousand Egyptian pounds,

but Mohamed benefited a lot from this experience.”

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required quantities according to schedules to a purchasing giant group that were agreed upon between Mohamed Ahmed Farghali and Ali Yahia and others. To escape from the threatening siege, these traders escalated the matter and complained to the government, but the surprise was in the advisory opinion of the Ministry of Finance stating that traders can supply cotton not conforming to specifications. The King of Cotton tells us in his memoirs how the top exporters agreed on a counter move, Ali Yahia was mandated to seek the King for his support. Farghali recalls that King Farouk exerted pressure on the “Wafd” government until the Minister of Finance - Zaki Pasha Abdel Al Mutaal changed this situation. Thanks to the resourcefulness and manipulation, the leading exporters of cotton managed to manipulate the State Council and its Spokesman Abdul Razak Al Snohori Pasha, even though the Council of State’s advisory opinion was in the interest of small traders, but it was too late. The dispute was referred to courts and has been going for about 20 years, but Farghali Pasha and his partners won the case.

It should be noted that during the

intervening years between the two crises, Farghali had become one of the major contributors to a large number of companies and a board member of a number of banks and economic institutions, and expanded Farghali Co. for Cottons which reached annual profits of more than one million Egyptian pounds.

In 1951, Farghali Pasha faced the third crisis, when he signed a contract to sell a quarter of a million quintals of cotton at eight pounds per quintal, with a total value oftwo million Egyptian pounds. After the contract has been signed, the cotton stock market experts rejected the cotton supplied by Farghali because it is not in conformity with the specifications. When the great exporter protested the decision,a second committee reviewed the case only to endorse the first committee’s opinion, but the plight of the Pasha was only saved by The Great Cairo Fire. In the aftermath of that devastating fire which took place in Cairo on January 26th, 1952, the “Wafd” government was forced to resign, and a new Cabinet was established, and accepted his cotton which was already rejected; and instead of losing two million pounds, he gained a new profit.

Then came the 23rd of July 1952 revolution, to reshape Egypt’s political and economic profile. In their first meeting, Mohamed Ahmed Farghali said to President Gamal Abdel Nasser: «Mr. President, how can I not support a change aiming to achieve the best for Egypt. I was expecting a change like this, since 1949, but all my fears were that the Muslim Brotherhood may secure power in their hands, only to bring our community a step back again».

However, the revolution brought with it the winds of nationalization, in a random way, as the Pasha saw it. He regarded the imposition of sequestrationon thepropertiesofthe rich as close to the unthinkable acts of revenge that violate human dignity. The value of Farghali’s companies was officially estimated at the amount of two million Egyptian pounds, although the real value was more than four-fold. The first monthly salary Farghali received after the imposition of sequestration on his money was only two and a half pound. In the sixties of the twentieth century, Mohamed Ahmed Farghali received an offer to work as an advisor in one of the English banks in London for compensation up to 25,000 Egyptian pounds, in addition to a house and a car with a driver, but he refused to work outside Egypt. The “King of Cotton” agreed to work as an advisor for the Egyptian Cotton Authority, receiving a salary similar to the Chairman’s salary. However, the board, in its meeting to approve the appointment, refused to increase the proposedsalary to more than 100 Egyptian pounds.

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Prepare before you go. Find out all you can about the company before you go to the interview. Understand the products that they produce and/or the services that they provide. It’s also good to know who the customers are and who the major competitors are.

Practice makes perfect.

It will also make you feel more confident and relaxed. So, practice your answers to common questions as for example, what do you consider to be your major weaknesses? Why do you want to work for this company? What are your short-term goals? Where do you see

yourself in five years? What did you like most about your last job? What did you like least about your last job? How would your coworkers describe you? How do you manage multiple tasks/projects? Please give an example. How do you deal with stress and/or deadlines? Please give an example. Do you prefer to work independently or within a team? Why should I hire you?You can also make a list of questions to ask as almost all interviewers will ask if you have questions. This is a great opportunity for you to show that you have done your homework and have put some thought into your questions, question may be: What do you consider the most important skills or traits for someone in this position? How would you describe a typical day in this position? What is the standard schedule for this position? Why are you looking to fill this position? How would you describe your management style? What are the short and long-term goals for this position? Do you expect significant organizational changes in the near future? What are the prospects for advancement in this position? What are the next steps in the hiring process?

Make a great impression.The interview is your chance to show that you are the best person for the job. Your application or resume has already exhibited that you are qualified. Now it’s up to you to show how your skills and experience match this position and this company.

The employer will be looking and listening to determine if you are a good fit. He/she will be looking for a number of different qualities, in addition to the skills that you possess. To make the best impression, dress appropriately : Wear clean, neatly pressed clothes. Avoid anything tight-fitting or clingy. Select a dress or skirt that is no more than two inches above your knee. Select pants that are the appropriatelength. Your pants should cover the ankle, but not drag under the heel of your shoes. Select a tie that, when knotted, reaches the middle of your belt buckle. Clean and polish your shoes. Before your interview, double-check that they are free of mud, debris, and scuffs. Avoid too much jewelry and too many accessories. Remember that it is usually better to be over- dressed, rather than too casual,when you go to an interview. In an interview you should also try to sell your strengths meaning that:; arrive early, by about 10-15 minutes; be enthusiastic; shake hands firmly; be an active listener; sit up straight and maintain eye contact.

Say «thank you».Aftertheinterview,followupwithathank-you note. This is a chance for you to restate your interest and how you can benefit the company. Your best bet is to try to time it so that the not gets there before the hiring decision is made. You should also follow up with a phone call if you don’t hear back from the employer within the specified time.

Does the ideaof going to a job interview make you feel a little queasy?

Many people find that it is the hardest part of the hiring process. But it doesn’t have to be. The more you prepare and practice, the more comfortable you will feel. Increase your odds of landing the job you want by brushing up on your interview skills.

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Preparation is key to a interview

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Preparation before the Interview:

Choose a setting with little distraction. Avoid loudlights or noises; ensure the interviewee is comfortable (you might ask them if they are).Know what you want. Ifyou don’t know the skill set requiredfortheopenposition,chances are you might not ask the right questions, which may confuse the candidate. Make a list of what you’re looking for and then ask pointed questions so that when the candidatewalks out the door you know whetherornotheor she isaviable choice.Prepare for the interview. Going into an interview, each interviewer should have already studiedadossieronthepersonthey’re about to meet face to face. At the very least, become familiar enough with his or her resume, cover letter, or other submitted materials so you don’t waste the first half of the interview re-learning basic biographical information.

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Explain the purpose of the interview.Address terms of confidentiality. Note any terms of confidentiality. (Be careful here. Rarely can you absolutely promise anything. Courts may get access to information, in certain circumstances.) Explain who will get access to their answers and how their answers will be analyzed. If their comments are to be used as quotes, get their written permission to do so.Explain the format of the interview. Explain the type of interview you are conducting and its nature. If you want them to ask questions, specify if they’re to do so as they have them or wait until the end of the interview.Indicate how long the interview usually takes.Tell them how to get in touch with you later if they want to.Don’t count on your memory to recall their answers. Ask for permission

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to record the interview or bring along someone to take notes.

Sequence of Questions

Prepare a script. Don’t underestimate the value of preparing several questions beforehand. Your human resources department may even have a set of preparedquestions to use as a guide. Too often, busy managers (is there any other kind?) forget until it’s too late what they wanted to ask. Ask open-ended questionsaswellasonesthatmight elicit a more detailed response. For example, you may say, «Tell me what led you to apply for this position.» Later,

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Got a key position to fill? Hiring good employees is the foundation of any successful business. But selecting the right ones is hard work, and the interview process is often the most important step in the process. Here’s how to figure out if the candidate sitting across from you is likely to become your next Employee of the Month.

How to an interview?

you could ask, «We’re very deadline oriented here; could you tell me about experiences during which a deadline might have been difficult to meet?» And then listen carefully to the responses. Try to ask a good mix of questions — those that give insight into behavior, elicit opinion, demonstrate experience, and reveal background. When the interview is over you should have a fairly good sense of the person’s likes and dislikes, along with their strengths and weaknesses.Get the respondents involved in the interview as soon as possible.Before asking about controversial matters (such as feelings and conclusions), first ask about some facts. Withthis approach, respondentscan more easily engage in the interview before warming up to more personal matters.Intersperse fact-based questions throughout the interview to avoid long lists of fact-based questions, which tends to leave respondentsdisengaged.Ask questions about thepresent before questions about the past or future.It’s usually easier for them to talk about the present and then work into the past or future.

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The last questions might be to allow respondents to provide any other information they prefer to add and their impressions of the interview.

Conducting Interview

Occasionally verify the tape recorder (if used) is working.Ask one question at a time.Attempt to remain as neutral as possible. That is, don’t show strong emotional reactions to their responses. Encourage responses withoccasional nods of the head,«uh huh»s, etc.Be careful about the appearance when note taking. That is, if you jump to take a note, it may appear as if you’re surprised or very pleased about an answer, which may influence answers to future questions.Provide transition between major topics, e.g., «we have been talking about (some topic) and now I’d like to move on to (another topic).»

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Don’t lose control of the interview. This can occur when respondents stray to another topic, take so long to answer a question that times begins to run out, or even begin asking questions to the interviewer.

Immediately After Interview

Verify if the tape recorder, if used, worked throughout the interview.Make any notes on your written notes, e.g., to clarify any scratching, ensure pages are numbered; fill out any notes that don’t make senses, etc.Write down any observations made during the interview. For example, where did the interview occur and when,was the respondent particularly nervous at any time? Were there any surprises during the interview? Did the tape recorder break?

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People’s Assembly approves a draft law on non- banking financial supervisionFebruary 2009Source: Ministry of Investment

People’s Assembly has preliminary approved a draft law on organizing the supervision process overmarkets and non- banking financial tools.Dr. Mahmoud Mohieldin, the Minister of Investment,

explained that the draft law aims at enhancing means of supervision on the non- banking financial sector activities and markets such as that of capital market, insurance, mortgage finance, financial leasing, factoring in addition to the newly introduced activities, by unifying the regulatory bodies operating in areas of banking activities to be merged one entity which is General Authority for Financial supervision, which will act as a legal entity with a corporate identity in order to ensure developing methods of supervision and market tools.He also noted that the advantages of implementing the draft law will include unifying human and financial resources, unifying supervision systems and enhancing methods of supervision used by employees in such field due to their exposure to different experiences, training and follow up on several markets, not only financial market which will not be limited to one field only.The draft law guarantees the independence of the new supervision authority as the sole body while performing its role in implementing its regulations and methods.

Initiative on Decentralization of Investors’ servicesFebruary 2009Source: Ministry of Investment

The Minister of Investment, Dr. Mahmoud Mophieldin discussed with the Minister of Local Development, Mr. Abdul Salam El Mahgoub the initiative launched by the Ministry of Investment to design an integrated and standardized institutional framework, whereby governorates will cooperate with the Ministry of Investment to provide investors’ integrated services and increase investment opportunities in labor- intensive fields in governorates.By, this initiative, the Ministry if Investment aims to standardize and organize all services provided by the General Authority for Investment and Free zones (GAFI) along with those provided by governorates. These services include procedures of establishment, endorsement of general meetings and boards, licensing, land allocation, investment promotion, providing guidelines, monitoring implementation of projects, surmounting barriers and supporting small & medium enterprises.It was agreed on steps to be taken by both ministers during the coming period to develop andeffectuate this initiativeandprepareareportonproposedexecutiveprocedures,tobe submitted to the prime minister

More Flexibility for Small & Medium Enterprises in setting capitals April 2009Source: Ministry of Investment

The People’s Assembly has adopted the amendments made on the law 159/ 1981 regarding the joint stock, limited by shares and limited liability companies.Dr. Mahmoud Mohieldin, the Minister of Investment mentioned that this flexibility in setting capitals of limited liability companies is meant to help small and medium – sized enterprises to create more job opportunities and transfer economic entities from the unofficial sector to the official sector.The Minister of Investment explained that the draft law will increase the flexibility in establishing companies, especially those with limited liabilities. This will increase the size of investments, particularly the small and medium sized enterprises, thus creating more job opportunities.

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State Owned Enterprises and Affiliated Companiesmake profits of L.E 5,165 million:January 2009Source: Ministry of Investment

Net profit of L.E 5,165 million was realized by companies affiliated to the nine holding companies, included in the Ministry of Investment portfolio during FY 2007/08, compared to L.E 3,903 million during the previous fiscal year.Revenues of current activities amounted to L.E 61,233 million compared to L.E 52,192 million during the previous fiscal year.Profit increase is thanks to the efforts of the Ministry of Investment, in cooperation with the Minister of Finance and the Governor of the Central Bank, to reduce the companies’ debts by two thirds from L.E 32 billion to less than L.E 10 billion. Investments injected into companies for purposes of development amounted to L.E 3,511 million during FY 2007/08.Dr. Mahmoud Mohieldin , Minister of Investment explained that these profits enabled the Ministry of Investment to direct affiliated companies to consider entering some new projects and major industries.

People’s Assembly Extends Free Zone status in Port SaidJanuary 2009Source: Ministry of Investment

The people’s assembly approved the amendment of some provisions of law 5/ 2002, amended by law 1/ 2006, abolishing the law and system of Port Said Free Zone that extends the free zone system in Port Said up to 22 January 2012. The law facilitates procedures to deal with the city’s export allocation during the coming three years.The Minister of Investment, Dr. Mahmoud Mohieldin has mentioned that when the previous amendment of the law was presented in 2006, the government committed itself to definite procedures to develop Port Said and extend the free zone system. As a result, public and private investments increased in the city. Port Said remained the first in human development indicators among other governorates. Dr. Mahmoud Mohieldin noted that public investments in Port Said have increased since FY 2004/2005 up to L.E 2.234 billion, including L.E 736 million targeted investments during FY 2008/2009. He added that the number of companies established during the past four years in Port Said account for 25 percent of total companies established since the reactivation of investment and development in the city in the seventies.

BDS Part IV of intake (7), January 13- 15, 2009The EIoD organized the fourth part of intake (7) of the Board Development Series certificate program (BDS) titled «The Role of the Board in Protecting Shareholder Rights». The course took place at Grand Hyatt Hotel, from 13 to 15 January 2009, the course was delivered in Arabic. The attendees were 15 participants, who were chairmen, board members, CEO’s and senior managers of state-owned enterprises. The speakers were Mr. Ashraf Kamal, General Manager of Disclosure Department – the Egyptian Exchange and Dr. Ashraf Gamal, Executive Director, The Egyptian Institute of Directors- the Egyptian Corporate Responsibility Center.

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The EIoD organized the first part of intake (1) of Qualified Internal Auditor certificate program. The program took place at the Ramses Hilton Hotel, from 27 to 29 January 2009; the program was delivered in English. The attendees were 14 participants, who were internal auditors, internal audit managers, accountants and audit committee members from private companies, state-owned enterprises, banking sector and petroleum sector. This program was designed and delivered by Mr. Amr Yassin – CIA, General Manager of Internal Audit at The Egyptian Exchange.

The EIoD organized a seminar on corporate governance for private healthcare organizations which focused on the financial growth and business sustainability. The seminar took place at the EIoD premises, and it was attended by about 40 participants who were owners, chairmen, board members, CEO’s, senior executives of private healthcare organizations. The speakers were, Dr. Ashraf Gamal, Executive Director, the Egyptian Institute of Directors- the Egyptian Corporate Responsibility Center, Dr. Mohamed Omran -Vice Chairman, The Egyptian Exchange and Dr. Mostafa Hunter-Lead Expert for Healthcare Sector Egyptian Institute of Directors.

Qualified Internal Auditor Certificate Program (Part I) of intake (1), January 27- 29, 2009

Corporate Governance Seminar for Private Healthcare Organizations Focusing on “Financial Growth and Business Sustainability”, February 19, 2009

EIoD & ECRC News

BDS Part I of intake (8), February 23- 25, 2009The EIoD organized the first part of intake (8) of the Board Development Series certificate program titled «An Introduction to Board and Corporate Governance». The course took place at the Grand Hyatt Hotel, from 23 to 25 February 2009; the Course was delivered in English. The attendees were 10 participants, who were chairmen, board directors, CEO’s of private companies as well as banking sector. The speakers were Mr. Chris Razook, Senior Operations Officer – International Financial Cooperation (IFC), Mrs. Amira El Saeed, Operations Officer, International Financial Cooperation (IFC), Mr. Hany Abou-El-Fotouh, Director, Policy & Corporate Affairs Board Secretary, Mr. Salah El Kashef, Partner Middle East & North Africa, Governance, LLC

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BDS Part II of intake (8), March 23 - 25, 2009The EIoD organized the second part of intake (8) of the Board Development Series certificate program titled «Practical tools for strategic guidance and managerial oversight». The course took place at the Grand Hyatt Hotel, from 23 to 25 March 2009; the course was delivered in English. The attendees were 10 participants, who were chairmen, Board directors, CEO’s of private companies as well as Banking Sector. The speakers were Dr. Hesham Dinana, Senior Consultant in Strategic & International Marketing Adjunct Professor at the American University in Cairo and The Arab Academy for Science & Technology, Mr. Osama Mourad, Chairman and CEO, Arab Finance, and Mr. Bassam Azab, Senior Manager of Small and Medium Enterprise Banking Services

EIoD & ECRC News

The EIoD organized the second part of intake (1) of Qualified Internal Auditor certificate program. The program took place at the Ramses Hilton Hotel, from 22 to 24 February 2009; the program was delivered in English. The attendees were 14 participants, who were internal auditors, internal audit managers, accountants and audit committee members of private companies, state-owned enterprises, banking sector as well as petroleum sector. This program was designed and delivered by Mr. Amr Yassin – CIA, General Manager of Internal Audit at The Egyptian Exchange.

Qualified Internal Auditor Certificate Program (Part II) of intake (1), February 22- 24, 2009

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BDS Part I of intake (9), March 30 – 1 April, 2009

The EIoD organized the first part of intake (9) of the Board Development Series Certificate program titled «An Introduction to Board and Corporate Governance». The course took place at the Ramses Hilton, from 30 March to 1 April 2009; The Course was delivered in Arabic. The attendees were 15 participants, who were chairmen, Board directors, CEO and senior managers of state-owned enterprises. The speakers were Mr. Tarek Yousef, Partner – Grant Thornton, Mr. Mohamed Hasouna, Adviser to the Office of the Minister of Investment for the state-owned enterprises, Mr. Salah El Kashef, Partner Middle East & North Africa, Governance, LLC

The Egyptian Corporate Responsibility center (ECRC) in collaboration with the World Bank Institute and InWent organization organized an e-learning training program on corporate social responsibility sustainable competitiveness in English language. The program focused on the main benefits that companies can gain from applying the correct policies in the field of CSR and highlighted two main concepts, which are Social responsibility and the competitive capability. The program consisted of one month online training sessions in addition to three face to face sessions; the first session was conducted on 22nd of March at the Marriott hotel, the second and third face to

face sessions were conducted on the 5th and the 30th of April, 2009 at the Egyptian Corporate Responsibility Center premises (EIoD) and the speakers were Dr. Djordjija Petkoski, lead specialist at the World Bank and the head of the Business, Competitiveness and Development team at the World Bank Institute and Mr. Mohamed El Kalla, Policy Advisor, Private Sector Development Programme, UNDP Egypt.The Course was attended by 15 participant form private companies, banking sector and ministry of Investment.

Corporate Social responsibility and sustainable competitiveness Program in EgyptMarch 22nd 2009

EIoD & ECRC News

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