3rd Compliance and Anti Money Laundering Seminar Kingdom of Saudi Arabia The Changing Landscape of Corporate Governance

1. 3rd Compliance and Anti Money Laundering Seminar Kingdom of Saudi Arabia The Changing Landscape of Corporate Governance March 23, 2011 J. Chris Razook Program Manager, IFC –World Bank

2. IFC Corporate Governance Program Press Market Transparency is improved; Encourages good CG Regulators Regulators promote sound CG (codes, regs) IFC IFC Companies Improve Performance Investors Investors incorporate CG in investment process Sustainable Private Sector Growth Companies Take action to improve their CG IFC Companies Improve Access to Capital IFC Consultants Consultants equipped to help companies Institutes Sustainable institutes equipped to continue CG advocacy IFC IFC

3. Changing Landscape of Corporate Governance Sharper Focus on Risk • Financial Sector – Basel, Walker Reviews • Role of Board and Risk Committee • Elevation of CRO & RM Board Composition and Functioning • Independence and Skillsets • Diversity • Functioning of Committees Director Duties • Increased awareness • Push for accountability

4. Changing Landscape of Corporate Governance Evolving Disclosure Practices • Risk Reporting • Governance • Non-Financial Intangibles & Sustainability Investors Stepping Up • Stewardship Code • Sustainability Push – PRI, IFC PerfStds MENA: Awareness to Implementation • Successful Institutes promoting CG agenda • Numerous Codes developed (most voluntary) • Need further progress with FOEs and SMEs • Need more local success stories

5. Case Example: Abu Dhabi Commercial Bank Key Changes Key Challenges • Composition: Comprised nine directors, six of which were government officers and no ‘independent’ directors; Needed stronger risk management skills. • Roles: Board vs. Management roles were blurred in some areas due to existence of an Executive Committee that included reps from both. • Structure: Had several working committees, though some were performing management type tasks (e.g., loan collections and recoveries). • Risk Management: Risk management needed to be better coordinated centrally to improve information flow. • Public Disclosures: Subpar compared with international standards. • Director Shareownership: The Bank’s articles required board members to own a minimum number of shares in the bank. • Changed composition adding one-third independent directors; Enhanced their risk management and banking experience.   • Clarified distinction between Board and Management, emphasizing the Board’s role to monitor performance of the latter; Removed directors from the combined Executive Committee. • Adopted a revised committee structure including Audit, Risk, Nomination/Remuneration, and Corporate Governance Committees; Removed management duties (e.g., loan recoveries), and ensured adequate independent composition. • Established a management-level Risk Committee and hired a Chief Risk Officer to oversee all Risk Management activities in the ban; Adopted more advanced tools for market risk and operational risk. • Improved disclosures significantly including in its Annual Report and on their website to include ample information related to its performance and its governance framework. • ModifiedSH Rights – removed prohibitive article.

6. Case Example: Abu Dhabi Commercial Bank Source: IFC, Corporate Governance Success Stories, 2010 • CG played a significant role in helping the bank access debt financing • Bank was awarded “Gold Category” for submission of financial statements by ESCA • The bank has also reported that the Board is more vigilant and actively challenges management

7. Thank Youwww.ifc.org/corporategovernancecrazook@ifc.org