Emirates Group Corporate Governance - Case Study Example

Emirates Group Corporate Governance Name Institution Date Table of Contents Table of Contents 2 2 Emirates Group Corporate Governance 3 Introduction 3 Corporate Governance in United Arab Emirates 4 Investment Regulations 5 The Mandate of the Board 6 Emirates Group Corporate Governance 6 Accounting practices and the benefit scheme 7 Commitment to International Best Practices 8 Management policies and practices 9 Conclusion 10 References 11 Emirates Group Corporate Governance Introduction Corporate governance is a set of customs, processes, policies, institutions and law that has an influence on the way a corporation is being controlled, administered or directed. It comprises of the relationships among the numerous stakeholders and the objectives and goals for the formation of the corporation. According to Yocam and Choi (2008), the significant agenda of corporate governance is the extent and nature of accountability of specific persons in the organization, and the various mechanisms that have been put in place to eliminate or reduce the principal-agent problem. There is a tendency that is popular of viewing the shareholders as public corporation owners which has an impact on how corporate governance is defined. Corporations come into being as legal persons by regulations and laws of a specific jurisdiction. These may vary greatly from one country to another. The legal person status of corporation is universal to all jurisdictions and it is actualized through a statute. This permits the entity to hold property in its own right without being referred to another existing real person. It has a right to enter into transactions, sue and be sued as an independent person (Knell, 2004). The independent entity status give the corporation perpetual existence that ensures that the death of individuals within the corporation does not affect the existence of the company and its life is unlimited and only tied to the purpose of its own creation. Apart from statutory laws in the relevant jurisdiction, the corporations fall in the confines of common law in some countries, and various regulations and rules that affects practices of business. In Majority of the countries’ jurisdiction, corporations possess a constitution that defines individual rules that govern the corporation and constrain or authorize decision-making (Calder, 2008). Corporate Governance in United Arab Emirates Code of Corporate Governance in the United Arab Emirates was put into place in 2007 May by the Emirates Securities and Commodities Authority, and later on amended in 2010. Adhering to the code is an obligation of public joint stock companies in the United Arab Emirates. The others include the companies listed on Dubai Financial Market and Abu Dhabi Security Exchange. The rules are an effort to bring on board corporate governance principles that are accepted internationally. The Hawkamah Corporate Governance Institute was put in place in 2006 at Dubai International Center to enhance corporate governance guidelines and codes in the United Arab Emirates and the whole region (OECD, 2004). Acknowledging that the capital markets in United Arab Emirates were gaining sophistication and in depth, the International Monetary Fund Financial System Stability Assessment of the year 2007, persuaded the relevant authorities to permit foreign investors to access the security markets fully by elimination of restrictions on board membership and stock ownership. It further more expounded that authorities should necessitate the public listing of quasi companies that are large on the stock exchange to encourage the development of the market. The revisions that are pending to the United Arab Emirates Company Law are anticipated to permit foreign ownership at hire level in the United Arab Emirates incorporated limited liability companies. More information about the revisions is not yet available. The Dubai Financial Market and Abu Dhabi Security Exchange were put in place in 2000 in pursuant to the Law on Emirates Securities and Commodities Authority. Dubai Gold and Commodities Exchange commenced to trade in the year 2005 (Baker & Anderson, 2010). Investment Regulations Fundamental rights of shareholders are found in the 1084 Federal Law number 8 concerning commercial companies. The law requires that 51% of limited liability companies should be owned by a national of UAE or a company that is UAE wholly owned. In practice UAE national usually act as partners who are silent by which shareholders who are foreign are able to control and manage Emirati LLCs. Companies have no provisions directly addressing shareholders protection specifically in related-party transaction areas. United Arab Emirates companies that are listed should prepare and adequately distribute interim and annual reports after a general regime for the periodic financial information disclosure (Yocam & Choi, 2008). New code of corporate governance avails further provisions relating to the appointment and the role of an independent external auditor. New codes postulates that an external auditor should not get involved in incidents whereby conflicts of interest is bound to be witnessed and should disclose such details. The IPO (Initial Public Offering) requisite and process disclosures should follow the international best practice. United Arab Emirates legislation does not provide for particular accounting standards to be applied in the preparation of financial reports of companies. The International Monetary Fund has proposed for quick adoption of a setting regime of accounting standards. All companies that are listed on the ADX are obliged to publish financial statements based on international financial reporting standards according to regulations of companies. Board of director composition is also detailed by the new provisions. The board must be comprised of non-executive directors who are the majority, with one-third of members being independent (Oxford Business Group, 2008). The Mandate of the Board The Board is called upon to constitute an audit committee and remuneration and nomination committee. Audit committees must be made up of at least three directors who are non-executive and should more so have majority directors who are independent and include accounting and financial experts. The companies are required to a system of risk assessment that is similar to that of the regime of Sarbanes-Oxley United States. Boards are required to implement and develop an internal control system together with disclosing and conducting annual reviews of the system to its shareholders and SCA. The corporate governance of any corporation may stem from customs, traditions, or laws and regulations that are put in place by the relevant authorities in the corporate world. Whatever is that is outlined in the rules and regulations are just adopted by the companies as obligations (Calder, 2008). Emirates Group Corporate Governance Emirates Group of companies consists of three subsidiaries. Emirates is the United Arab Emirates international airline and its major activity is to provide commercial air transportation. Dnata is the vast travel management services company in the United Arab Emirates and the only ground that handles agent at Dubai International Airport. Its major activities are provision of cargo and aircraft handling, services of information technology, services of aircraft engineering and the sale of air tickets on behalf of airlines either as General Sales Agent and their agent. Dnata and Emirates are independent entities and do not a group as outlined by International Financial Reporting Standards. These entities are under common management. Consequently under management Review and Financial Statics sections of the corporation they are referred to as Emirates Group. The corporate governance practices of the Emirates Group are administered to all the companies. Emirates Airline is the vast airline in the Middle East. It is the UAE international airline and operates over 2400 passenger flights every week. It has international Airport Terminals in over 105 cities in 62 countries in the six continents. The company also operates three of the ten world’s longest non-stop commercial flights from Dubai to Los Angeles, Houston and San Francisco, with all on Boeing 777-200LR except for San Francisco. Emirates is operating a mixed fleet of Boeing and Airbus wide-body aircraft and are one of the only nine airline to operate an all wide-body aircraft fleet. Accounting practices and the benefit scheme The method of purchase of accounting is applied to account for acquisition of subsidiaries. The acquisition cost is measured as the fair value of assets given and incurred liabilities or assumed at the date of exchange and more so cost attributed to the acquisition. Transactions having minority interests are treated as transactions with external parties. According to Colley (2003), minority interest disposal results in gains and losses that are subsequently recorded in consolidated income statement. The consolidated financial statements are prepared according with and comply with International Financial Reporting Standards. Senior employees who are based at United Arab Emirates participate in a defined benefit scheme of provident to which Emirates contribute a particular percentage of percentage of basic salary basing on the grade of the employee and how long he has served in the company. The amount that is contributed is invested in a scheme administered by a trustee and accumulates together with returns obtained from investment. The contributions are a monthly basis despite of the performance of the fund and are not put together but identified separately and are attributed to every participant (Calder, 2008). Benefits that are received under the provident scheme are subjected to rules of vesting which are depending on employee participation length of service. Emirate airline is a subsidiary of the Emirates Group, which in turn is a subsidiary of the Dubai government investment company; Investment Corporation of Dubai. The airline has registered a profit every year and its growth has not gone below 20 percent. In 2009 the airline paid dividends which were worth $260 million. The government has gotten Dhs7.1 since the commencement of dividends being paid in the year 1999 and following provision of a start-up capital of US$ 10 million and more addition of investment of about US$80 million at the time of the formation of the airline (Colley, 2003). Commitment to International Best Practices Emirates National Board of Directors view corporate governance as very crucial to its long term creation of value to all the stakeholders. The framework of governance enables the Group to manage change and reduce risk in-line with achieving its strategic objectives. Accountability and transparency are significant to Emirates business, making sure that there is control which is essential for risk management that is effective, accurate disclosure and regulatory compliance of information to the market are constituted. Emirates is committed to carrying out its operations in accordance with international best practices are advised by the regulating boards. Emirates ensures that there is excellent professional relationships both internally (between its committees, Executive management team and the bank’s board) and externally (with the central bank, shareholders and regulatory bodies) and the business communities in which the group operates in. Management policies and practices Emirates goes by international banking regulations, DIFX stipulations and UAE central bank rules. The rigorous risk and capital management completely or absolutely complies with Basel II specifications. Emirates Boards of Directors meets on a monthly basis and it consist of twelve prominent members of local business community, who are leaders in their industries. There is a company secretary for the committees and the board. The mandate of the board comprises of formal agenda of overall management and strategy, corporate structure, financial controls and reporting, annual report approval, internal controls, group risk management and approval of dividends. Independent non-executive directors exist on the Emirates board (Yocam & Choi, 2008). The Group ‘independent’ as having no any real or perceived conflicts of interest with any shareholder group or partner in business. There are other four Board committees who meet on regular basis to govern the activities of the Group on the behalf of the shareholders. Board and Investment Committee meets quarterly or more often when need be, ahead of general meetings of the board. The committee is in charge of ensuring quality control in the financial compliance and reporting process. Board Audit Committee is in charge of internal financial reporting systems of control and the associated process of auditing. It is also this Group’s committee mandate to monitor regulatory and legal compliance together with internal codes of conduct (Oxford Business Group, 2008). Board Risk Committee provides overall framework of corporate governance of Emirates Group. The committee is also given the responsibility of being in charge of all procedures of risk management. The committee meets at least quarterly and is in charge of overseeing Base II related activities and gives guidelines for capital allocation and management. Board Follow Up and Remuneration Committee meets on quarterly basis to conduct a review of strategic Human Resources decisions that is made by the Group which comprises of issues to do with remuneration. Executive Committee Team on collective terms monitors the performance of the Group and makes Group level decisions in the authority limits that are delegated by the Board of Directors. Such decisions involve the every day running of the Group, its growth strategically and implementing of any decisions made by the board. This senior team of management meets twice every month (Colley, 2003). Conclusion Corporate Governance is a vital part of the corporation practices that makes it to register growth and win the trust of the various stakeholders. The customs, traditions, set laws by regulation bodies are the aspects that are incorporated into the corporate governance of the organization. The set practices will determine how the operations of the corporation or the company are carried. Emirates airline is one company that has performed tremendously following adoption of sound corporate governance practices. It has been seen that this practices are sometime internationally recognized. For any organization to remain profitable and ensure the stakeholders and all the employees are contented it must embrace corporate governance candidly. References Oxford Business Group. (2008). The Report: Ajman 2008. NY: Oxford Business Group http://books.google.co.ke/books?id=KPPOkAKwk0gC&pg=PA88&dq=Oxford+Business+Group.+%282008%29.+The+Report:+Ajman+2008.+NY:+Oxford+Business+Group&hl=en&ei=vtbyTfb5BoiGhQfrzfXHBg&sa=X&oi=book_result&ct=book-thumbnail&resnum=1&ved=0CC8Q6wEwAA#v=onepage&q&f=falsev Monks Robert A. G. & Minow N. (2008). Corporate governance. London: John Wiley and Sons. http://books.google.co.ke/books?id=QCcVKLBj2W4C&pg=PA90&dq=Monks+Robert+A.+G.+%26+Minow+N.+%282008%29.+Corporate+governance.+London:+John+Wiley+and+Sons,&hl=en&ei=CdfyTZveNo24hAeKxbTFBg&sa=X&oi=book_result&ct=result&resnum=1&ved=0CDEQ6AEwAA#v=onepage&q&f=false Colley J. L. (2003). Corporate governance. New Jersey: McGraw-Hill Professional. Calder A. (2008). Corporate governance: a practical guide to the legal frameworks and international codes of practice. London: Kogan Page Publishers. http://books.google.co.ke/books?id=vfkwCy5f488C&pg=PA277&dq=Calder+A.+%282008%29.+Corporate+governance:+a+practical+guide+to+the+legal+frameworks+and+%09international+codes+of+practice.+London:+Kogan+Page+Publishers&hl=en&ei=DNryTZL-NIiIhQeE7ozDBg&sa=X&oi=book_result&ct=book-thumbnail&resnum=1&ved=0CCwQ6wEwAA#v=onepage&q=Calder%20A.%20%282008%29.%20Corporate%20governance%3A%20a%20practical%20guide%20to%20the%20legal%20frameworks%20and%20%09international%20codes%20of%20practice.%20London%3A%20Kogan%20Page%20Publishers&f=false OECD (2004). Corporate Governance: A Survey of OECD Countries. Paris: OECD Publishing. http://books.google.co.ke/books?id=DPpI2BmmKkYC&printsec=frontcover&dq=OECD+%282004%29.+Corporate+Governance:+A+Survey+of+OECD+Countries.+Paris:++OECD+Publishing&hl=en&ei=9tryTaS8IpC6-Aa5tv3zBg&sa=X&oi=book_result&ct=book-thumbnail&resnum=2&ved=0CDIQ6wEwAQ#v=onepage&q&f=false Baker H. K. & Anderson R. (2010). Corporate Governance: A Synthesis of Theory, Research, and Practice. London: John Wiley and Sons. http://books.google.co.ke/books?id=GWmVERypjYEC&pg=PT433&dq=Baker+H.+K.+%26+Anderson+R.+%282010%29.+Corporate+Governance:+A+Synthesis+of+Theory,+Research,+%09and+Practice.+London:+John+Wiley+and+Sons.&hl=en&ei=ZtvyTe6UINHs-gaxlNn9Bg&sa=X&oi=book_result&ct=book-thumbnail&resnum=1&ved=0CC0Q6wEwAA#v=onepage&q&f=false Knell A. (2004). Corporate governance: how to add value to your company: a practical implementation guide. Butterworth-Heinemann. http://books.google.co.ke/books?id=vbq9aEYT860C&pg=PT30&dq=Knell+A.+%282004%29.+Corporate+governance:+how+to+add+value+to+your+company:+a+practical+%09implementation+guide.+Butterworth-Heinemann.&hl=en&ei=l9vyTcWEGcbCtAaN88GsBg&sa=X&oi=book_result&ct=book-thumbnail&resnum=1&ved=0CC8Q6wEwAA#v=onepage&q&f=false Yocam E. & Choi A. (2008). Corporate Governance: A Board Director's Pocket Guide: Leadership, Diligence, and Wisdom. Annie ChoiPublisheriUniverse. http://books.google.co.ke/books?id=ND3MZpTTvvIC&pg=PA90&dq=Yocam+E.+%26+Choi+A.+%282008%29.+Corporate+Governance:+A+Board+Director%27s+Pocket+Guide:&hl=en&ei=BtzyTYtjkMa0BsS4zaYG&sa=X&oi=book_result&ct=book-thumbnail&resnum=1&ved=0CC0Q6wEwAA#v=onepage&q&f=false Read More