corruption corporate business 118454 519 - Corporate Governance in Corporate Governance

Corporate Governance in MENA region

Corporate governance is not a new phenomenon in the transition economies of the Middle East. Corporate governance issues are especially important in these economies since these countries do not have the long-established (financial) institutional infrastructure to deal with corporate governance issues 

Corporate Governance issues were not discussed before a series of emerging market crisis in 1997 (Sourial, 2004). All this has changed and corporate governance codes as a measure of dealing with each country’s specific governance problems have been adopted by most of the MENA (Middle East North Africa) counties. In the framework of various public and private initiatives where the codes were discussed, this has resulted in improvements of formal legal rules as well as in the drafting of soft-law recommendations.

Especially the financial scandals at the beginning of the 21st century led to a huge number of corporate governance codes all over the world. As a common denominator they want to shape comprehensive standards of good governance. These are the avoidance of conflicts of interests and the request for disclosure and transparency, the constitution of the board of directors of independent directors, managerial compensation, as well as the claim for shareholder rights.

Corporate Governance and its importance is a relatively new subject in Iran, having come to public attention with the first attempt by the Tehran Stock Exchange to develop the first draft of a code of Corporate Governance in 2004, which was based on OECD guidelines and was mainly benchmarked with Code of Corporate Governance in Malaysian Stock Market. In 2010, the Securities and Exchange Organization (SEO) completed and formally adopted the Code of Corporate Governance but implementation in the companies is not compulsory yet. In this period, there has also been a number of seminars, conferences and awareness raising activities on Corporate Governance.   Meanwhile, SEO tries to improve the governance system of the listed companies and the market through separate bylaws such as Disclosure and Transparency bylaw. The OECD Principles of Corporate Governance was translated into Farsi in 2008 but discussion of Corporate Governance has mainly remained in the academic circles while major players have started to notice this concept.

Iranian companies have a one-tier board structure with Board of Directors, but some of the Iranian semi-government companies have a two-tier board structure: a Trustee Board and a Management Board. There are no independent directors in Iran yet. Board members are appointed not on the basis of their expertise and merits but because of their political connections and influence (Mashaveki and Bazzaz 2008). The board system is influenced by the ownership structure of the companies, which is characterized by a majority of small to medium-sized family-owned companies in the Middle East. “Within this structure, the roles and relationship between the family, board, shareholders, and management tend to be overlapping and unclear.”.

In its Doing Business report the World Bank (2011) provides a snapshot of the business climate in Iran by identifying specific regulations and policies that encourage or discourage investment, productivity, and growth. Key indicators and benchmarks are used to help measure the ease or difficulty of operating a business.

Doing Business sheds light on how easy or difficult it is for a local entrepreneur to open and run a small to medium-size business when complying with relevant regulations. It assesses regulations affecting domestic firms in 185 economies and ranks the economies in 10 areas of business regulation:

Ease of Doing Business Rank

Starting a Business

Dealing with Construction Permits

Registering Property

Getting Credit






Protecting Investors

Paying Taxes

Trading Across Borders

Enforcing Contracts

Closing a Business






Table 1: Doing Business in Iran. Source: World Bank 

Investor/shareholder protection, including transparency issues is among other things one of the major drawbacks of Iran’s corporate governance system.

  The Table below shows general information on the structure of Iranian companies and their board of directors.

Percentage of ownership required to invite the General Assembly

Only holders of shares above 20 percent can call an extraordinary shareholder meeting

Board’s system

one-tier Board

Independent board members

Uncommon in Iran

Board Committee

Uncommon in Iran

Disclosure of information about board and managers

In listed firms, records and qualifications of board and CEO should be reported.

Compensation of the board services

Board’s fees and remuneration will be exposed cumulative.

Ownership Disclosure

Yes – but understanding the ownership structure and identifying ultimate owner
is very difficult

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