As the backbone of the Dubai economy, small and medium enterprises should embrace corporate governance early to strengthen their bottom lines and boost the local economy. That was the consensus of panel members at a corporate governance seminar for SMEs in Dubai today organised by Taylor Wessing (Middle East) LLP, the regional office of the international law firm.

The panel discussion was represented by Jeremy Cama and Ben Constance, specialist corporate lawyers at Taylor Wessing (Middle East); Alexandar Williams, Director of Strategy & Policy at Dubai SME, an agency under the Department of Economic Development; Nick Nadal, Head of Hawkamah, the regional institute for Corporate Governance; and  David Clements, Director at Deloitte.

Following Dubai SME’s introduction of a corporate governance code in September last year, the industry seminar sought to demonstrate to SMEs how early adopters of the nine principles of corporate governance were not only adding value and competitive advantage to their businesses, but also contributing to the future growth of the Dubai economy.

“There is a definite business case for implementing corporate governance,” said Alexandar Williams, Director of Strategy & Policy, Dubai SME. “In Dubai, 95 percent of our enterprises are SMEs. They are driving the real economy and it is the real economy that drives the overall economy.  If we do not get this right and the SMEs do not grow into quality enterprises, the economy does not grow well.”

While compliance with the SME corporate governance code in the UAE remains voluntary, the panelists agreed implementation of robust governance frameworks can help businesses to better manage their risk and improve their access to finance.

“Corporate governance in this region may be in its infancy, but we need to accept that it is here to stay. It could be said of SMEs they should adapt or die. That may not be a very cheery message, but it is a realistic one. Corporate governance is more than just compliance with legal obligations or informal codes. It can and should be a wealth creator, not a wealth reducer,” said Jeremy Cama, Specialist, Taylor Wessing.

Mr. Williams added: “Implementing corporate governance enables professional, quality and sustainable firm development. It provides confidence and informed decision-making leading to better bankability and invest-ability. It enhances access to finance, raises equity value and reputation, enhances talent attraction, enhances market penetration and improves risk management. Fundamentally, good corporate governance provides confidence.”

Nick Nadal, Head of Hawkamah, agreed that implementing good standards of corporate governance can enhance the capital positions of SMEs.  “When done properly, good corporate governance can improve a company’s access to suppliers, clients, finance and investors, all of which contribute positively to its bottom line,” he said.

However, Mr. Nadal said more work needs to be done at a local level to prove this value. “We need to cascade corporate governance codes to develop voluntarily, but supported by incentives. The SME 100 is a great initiative, but how do we now work with these top 100 businesses to prove that good corporate governance adds capital to the bottom line?  How do we work with them to show that effective corporate governance implementation, beyond regulations, actually brings value to the company?.”

Expanding on the views of the panel David Clements, Director of Forensic and Dispute Services at Deloitte, said failure to implement corporate governance within an organisation of any size could result in serious economic loss and reputational damage.

“History has provided a number of high profile cases where the lack of corporate governance has directly led to significant and damaging financial crime. The Middle East is not exempt and there have been a number of recent examples where organisations have incurred significant losses through fraud,” he said.

While all panelists agreed a bottom-up approach to implementing corporate governance ensures the fundamental principles are embraced and practiced by senior management, starting the journey early will also prepare businesses for anticipated legislative changes.

“Given a number of Asian and European jurisdictions have recently adopted more detailed and stringent corporate governance codes, it is likely that corporate governance reform will become a critical issue for many regional economies here in the Middle East, including the UAE,” said Ben Constance, Specialist, Taylor Wessing.

“It appears, in the short term, limited liability companies and free zone incorporations will not, generally speaking, be required to adopt a more rigorous set of corporate governance rules than currently in place. However, we do expect there will be some amendment to the Companies Law as it deals with the issue of accounts and evidence that proper accounting measures for a company are in place. In any event, corporate governance is a dynamic and a globally recognised concept and one which is no doubt here to stay. SMEs should prepare for it and recognise that sound corporate governance is good for the bottom line,” concluded Mr. Constance.

The Taylor Wessing corporate governance seminar was attended by more than 120 SME owners and senior managers. The firm plans to host a follow-up seminar in the next six months.