On November 13, AmCham’s newly formed Corporate Governance Committee held a breakfast event in the Grand Hyatt Hotel at which Minister of Investment Mahmoud Mohieldin addressed the topic “Corporate governance in Egypt: How will the government apply it and how will it affect your bottom line?”

Mohieldin began by outlining the government’s corporate governance initiatives. The minister stated that he has long pushed for companies to be more accountable to their stakeholders. “Since the late 1990s, I’ve been trying... to push for the implementation of effective corporate governance rules.” Early in his term, Mohieldin established the Egyptian Institute of Directors (EIoD) to promote the principles of corporate governance in Egypt.

In October 2005, Egypt adopted a draft Corporate Governance Code based on the principles of corporate governance that were developed six years earlier by the Organization for Economic Cooperation & Development (OECD). According to the preamble of the OECD report, “The principles are intended to assist OECD and non-OECD governments in their efforts to evaluate and improve the legal, institutional and regulatory framework for corporate governance in their countries, and to provide guidance and suggestions for stock exchanges, investors, corporations and other parties that have a role in the process of developing good corporate governance.”

The three pillars of corporate governance are “fairness, transparency and accountability,” the minister explained. “You have to have clear standards [for] a company and apply them, you have to have clear discipline within the firm, [and a] separation of roles and responsibilities between owners, shareholders and management.”

According to Mohieldin, the separation of power between shareholders and management is particularly important for state-owned enterprises to avoid politicization of the firm. These basic principles should be applied regardless of the type of management a company has, he argued.

Mohieldin identified three types of companies in Egypt. The first type is listed on the Cairo & Alexandria Stock Exchanges (CASE), and is monitored by the Capital Market Authority (CMA). The second is state-owned companies, and the third is family businesses, which are difficult to regulate. He argued that the role of the regulator should be to create a framework for good corporate governance and broadly to foster a culture of responsible corporate behavior. “The [idea] is not just to leave the issue of discipline and stability to the market... but to create the discipline within the market and [among] market participants.”

He stressed the importance of a disciplinary agent to monitor business practices and ensure that good corporate governance takes root. “The idea of managing the market is not really having a powerful chairman of the Capital Market Authority, or an aggressive regulator of the banking sector, or an interventionist supervisor of the insurance sector... it’s about the effectiveness of the regulation.” He pointed out that no matter how good the people working for the regulatory agency are, without strong, coherent regulations, there will be failures.

The minister went on to speak about economic reform and the rapid economic growth Egypt is witnessing. With 70 percent of the $6.1 billion total foreign investment going to the non-oil sector, Mohieldin believes that Egypt’s economy is robust and has room to grow. The big challenge, however, is sustainability. Without “efficient markets” and “effective regulations,” he warned, this level of investment and growth will not be sustainable. “The importance of corporate governance is very obvious [because] you can’t have efficient markets without having disciplined corporations,” he pointed out.

Mohieldin ended his speech by expressing his excitement at seeing many NGOs and business organizations, and AmCham specifically, taking up the cause of corporate governance and helping promote a business culture of discipline. “I am very pleased that other NGOs and associations are pushing for the concept of governance, not just corporate governance, because the issue of governance is not just limited to corporations, it’s about the governance of the country at large.” He was pleased because it showed that expectations in Egypt are rising, which will allow performance to rise and growth to continue. “Being a developing country is not really an excuse for us, or for anyone, to accept the minimum,” he said.