UAE has 130 companies that are listed on the three stock exchanges and they follow a set of stringent rules which make them more efficient and competent to take better decisions. If SMEs in the UAE imbibe habits of the listed companies, they can well take their businesses to the next level, says Mark Fisher.
[dropcap]T[/dropcap]he 130 companies that are listed on the UAE’s three stock exchanges follow a variety of rigorous rules that govern their actions as publicly tradable entities. Requirements range from preparation of financial statements to the make-up of the Board of Directors and public disclosure of significant events affecting the business. These rules are overseen by the companies’ regulators – the Securities and Commodities Authority (SCA) in the case of companies listed on Dubai Financial Market or Abu Dhabi Stock Exchange, and Dubai Financial Services Authority (DFSA) for companies listed on NASDAQ Dubai. Listed companies are also subject to informal pressures, such as justifying their performance to large numbers of shareholders and regular questioning by the media.
So what does any of this have to do with the tens of thousands of SMEs in the UAE that are unlisted? The sensible answer is: a great deal. They can learn valuable lessons from studying how listed companies behave, and can benefit from copying it to a greater or lesser degree. The demands of being listed promote best practice in many areas of business life, resulting in greater efficiency, better decision-making and increased ability to cope with risks and seize opportunities. These are the ingredients of success for any business, listed or not.
A key requirement of being listed is to produce properly audited financial statements. In the case of NASDAQ Dubai companies, these must be prepared on a comprehensive accounting basis such as International Financial Reporting Standards (IFRS). This can be onerous even for large companies; so many SMEs around the world follow a less challenging IFRS standard tailored for their needs. Millions of SMEs have adopted this in the past five years, according to The International Accounting Standards Board.
In the UAE, unlike many countries, there is as yet no legal obligation for unlisted companies to prepare audited accounts. However the practice is gaining traction and is recommended in Dubai SME’s Corporate Governance Code. The advantages to business owners range from elimination of possible fraud to identification of both wasteful and productive expenditure, as well as gaining an accurate picture of the company’s overall financial health. Moreover if a company wishes to obtain a bank loan, or attract a new investor, it can be critical to the deal to produce reliable financial information. The company also has the option to put some of its financial data on its website so that the public can see it and – hopefully – be impressed by what it reveals.
Listed companies must also disclose information about who owns them. Not every minor shareholder, but the main ones. In the case of a NASDAQ Dubai company, anyone owning more than 5% of the shares must be identified. This goes a long way towards building trust and confidence in the company, including among people who do business with it or are considering doing so. Ordinary SMEs can also benefit from making clear who the main owners of the company are, as well as providing information about the background and skills of Board directors and senior executives.
Corporate governance best practice for listed companies includes appointing independent directors to the Board, meaning directors who do not have close personal or commercial ties to the company. Unlisted SMEs would do well to follow the same process, choosing well qualified and knowledgeable candidates, to broaden the quality of decision-making and ensure that diverse points of view are discussed. Another feature of good governance for listed companies is to formally ensure that first class risk management systems are in place, to enable risks to the business to be identified as early as possible and handled effectively.
Listed companies are required by regulation to publicly disclose events and plans that might affect their share price. SMEs should consider providing similar transparency. People will have more confidence in your company if they understand what it is doing and why and are aware of its expansion and successes. Making effective use of your website and the media is key to this strategy. Well crafted press releases can tell a persuasive story about what your company is achieving and ensure that a large audience hears about it. Interviews with journalists and use of social media such as Twitter can spread your message far and wide.
So even though your company isn’t listed, it would do well to copy the habits of those that are.