Can the Pearl Initiative in cooperation with the UN improve transparency and corporate governance in the Middle East?

By: Hyacinth Mascarenhas

He may only be 33 years old, but Badr Jafar already run and done more than most entrepreneurs twice his age.

Born and raised in the United Arab Emirates, Jafar is atop a family business that ranges from oil and gas to shipping and health care. Established over 40 years ago, the Crescent Group has been operating out of the UAE as a family business group and comprises of two main companies – Crescent Petroleum and Crescent Enterprises.

Under Crescent Enterprises, the family’s non-petroleum businesses include aviation, medical services, media and the highly successful ports and logistics company Gulftainer – a company that grew by 15 percent even during the recession.

As the Managing Director of the Crescent Group and CEO of Crescent Enterprises, this high-impact entrepreneur has made waves regionally and globally spearheading multiple social enterprises in the Middle East, particularly in social entrepreneurship.

“Encouraging entrepreneurship in the region must be a major priority as it is not only critical to combating unemployment, but also to ensuing economic competitiveness in this ever-increasing competitive landscape,” said Jafar. “Creating the hundreds of millions of new jobs we desperately need in the Arab World over the next decade or so is virtually impossible without investing in entrepreneurship and its solutions.”

Encouraged by his father, Hamid Jafar, to start his own company, Jafar gained a taste for business at a young age.

At the age of 15, Jafar attended Eton College and later attended Cambridge University where he graduated with Bachelor and Masters’ Degrees in fluid mechanics and thermodynamics.

But despite his enormous success, his biggest motivation stems from its upbringing.

“Giving back is an absolutely essential part of my ethos, and the lessons by which I was brought up. No one has ever become poor by giving, and it is also not how much we give but how much love we put into giving that shows real results,” said Jafar. “I read a book once on an ancient Indian philosophy called Vedanta. One of the tenets of this philosophy is that intense work is rest, and so to be honest I always strive to keep myself busy, whether it is a for profit, non-profit or purely social activity.”

Jafar’s pride and joy, however, is the Pearl Initiative, sector-led not-for-profit organization set up to improve transparency, accountability and business practices in the Arab world. Developed in cooperation with the United Nations Office for Partnerships in 2010, Jafar hopes the initiative will “positively impact the business environment and foster competitive economic growth, sustainable social development and job creation.”

As a region-wide project, the Pearl Initiative is based in all GCC countries with a 19-person board comprised of thought-leaders and businesspersons from across the region.

Amir Dossal, Executive Director of the United Nations Office for Partnerships and co-founder of the Pearl Initiative, said, “the Pearl Initiative provides an excellent platform for creating robust governance architecture in the Gulf region, and in-turn improving business and investment confidence resulting in a consequential increase in capital flows and trade within the region.”

Family-run businesses are considered a cornerstone of Arab economies and operate across a diverse range of sectors. While the importance of adopting transparency processes in family firms has been increasing across the region, there is still a long way to go.

According to a recent study that interviewed over 100 family firms across the GCC and covering all major industry sectors, only 76 percent of family firms produce an annual report equivalent. Even these reports were generally for internal stakeholders only. While 63 percent of firms disclose financial and non-financial information to banks and business partners, only 12 percent of family firms publicly disclose any kind of financial information.

Interestingly, these firms also have a fine line between “the family” and “the firm.” Only 55 percent of the firms had board members from outside the family and 42 percent have at least one non-family non-executive director on the board.

Almost three-quarters of the region’s family businesses are owned and managed the second generation with only 5 percent managed by a fourth generation or beyond. As a result of poor succession planning, however, global statistics show that less than 10 percent of family businesses make it past the third generation. With more than $1 trillion in assets expected to be handed over to the next generation in the next few years, there is significant scope for possible conflict and complications without the right corporate governance standards.

“Creating a culture of good corporate governance and a sense of strong business ethics is vital to every company, regardless of whether it is in the private or public sector or where it is based in the world,” said Jafar. “That said, the application of governance practices cannot be applied in a one size fits all approach. If the governance standards are to be fully embraced and adopted, we must develop standards or models that are culturally and regionally relevant.”

The initiative is also crucial in helping GCC countries improve their reputations as regions for viable international investments.

“When international investors look abroad for likely investments, a country’s reputation will be a major factor in whether they decide to put their investment into a region. The decision to invest will need to account for a high level of risk if it is in a country perceived to allow corrupt business practices,” said Jafar. “Where a region or country is known for implementing best practice and acting on cases of corruption or bribery, the investor can place a higher level of faith that their pledge will be dealt with in the correct manner and their money will not be involved in illegal or unethical practices.”

In order to ensure this promising trend continues through future generations, the initiative recently launched a competition in Saudi Arabia for students who researched and prepared case studies on best practices applied in Saudi companies.

“We are acutely aware that in order to build a genuine culture within the private and public sectors that is supportive of these important issues, we need to engage with future leaders – our students -so that when they enter the workforce they are already in tune with a forward-looking set of values,” said Jafar. “Our future leaders are a hugely important constituency for us if we are to effect a change in corporate culture that is sustainable and long term.”

Will a culture of transparency become a reality in the near future?

According to Jafar, a combination of an increased focus on the issues and championing them to effect a cultural change can help achieve this goal.

“We believe that installing policies and processes that facilitate transparency can directly contribute to higher ratings and enable potential foreign investors to understand how the company operates. And companies across our region are realizing the benefits of instilling values that result in transparency to stamp out bribery and corruption,” said Jafar. “Change can often be painful, but in this case it is entirely necessary to pave the way for a better future.”

Follow Badr on Twitter @BadrJafar 

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