Alexandar Williams Director, Strategy & Policy Dubai SME Corporate Governance Initiative Start now, Start Early
Jan 14, 2016
Alexandar WilliamsDirector, Strategy & Policy
Dubai SME Corporate Governance Initiative
Start now, Start Early
1. Who is Dubai SME?2. The Dubai SME landscape and Profile 3. SME Corporate Governance Initiative 4. The Code of Corporate Governance for SMEs – 9
Pillars
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DUBAI SME – An agency of the Department of Economic Development – Government of Dubai
Mission: Enhance the Economic Welfare and Prosperity of the People of Dubai
Vision: Achieve Dubai’s economic development goals by 2015 for competitiveness and sustainable growth
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Output(economicgrowth)
Inputs(Labor and capital)
Reaching minimum scale
Dubai’s current situation in key sectors, e.g.
• Real estate
Reaching optimal scale
• Decreasing returns for each additional unit of labor and capital
• Increasing macroeconomic challenges (demographics, environment,
infrastructure) → Rising cost of growth
“More” path → More labor
and capital
Need to move tonew growth path
“Better” path → Productivity
“New” path → Innovation
Moving Forward: a different economic development path
From “Bigger” to “Better”
Moving Forward - The New Economic Imperative
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Vision, Mission, Roles & Core Initiatives
SME Sector and SME Firm Development
(Groom Dubai’s Top SMEs)
Entrepreneurship & Entrepreneur Development
Foster the development of a flourishing entrepreneurial
culture and a competitive SMEs sector to support Dubai’s economic development
Foster the development of a flourishing entrepreneurial
culture and a competitive SMEs sector to support Dubai’s economic development
MissionMission
Dubai as a Global Center for
Innovative SMEs
Dubai as a Global Center for
Innovative SMEs
VisionVision
Roles
Dubai SME 100, Gov. Proc. Prog., YBL
Dubai SME 100, Gov. Proc. Prog., YBL
Corporate Governance, Access to SME Financing, Ease of Doing Business ,IP
Corporate Governance, Access to SME Financing, Ease of Doing Business ,IP
Incubation, Idea Lab, Entrepreneur Capability Development, YEC
Incubation, Idea Lab, Entrepreneur Capability Development, YEC
The Dubai SME Definition
Micro
Small
Medium
Trading
< = 9
Employees Turnover
< = AED 9 mn&
< = 35 < = AED 50 mn&
< = 75 < = AED 250 mn&
Manufacturing
< = 20
Employees Turnover
< = AED 10 mn&
< = 100 < = AED 100 mn&
< = 250 < = AED 250 mn&
Services
< = 20
Employees Turnover
< = AED 3 mn&
< = 100 < = AED 25 mn&
< = 250 < = AED 150 mn&
According to DSC Database:
SMEs count for 95% of the total enterprise population in Dubai SMEs employ around 42% of Dubai’s workforce SMEs contribute 40% of Dubai’s value add
Share of SMEs in Number of Establishments
SMEs account for 95% of the business establishments in Dubai, with a majority of these operating in the Trading sector
Micro firms account for 72% of the total business count in
Dubai, followed by Small and Medium firms accounting for 18%
and 5% of the total business count, respectively.
In terms of a sector-wise split, the Trading sector accounts
for a majority of SMEs, followed by Services (35%) and
subsequently by Manufacturing (8%) .
Source: Dubai Statistics Center
Value-add by Dubai’s SMEs
SMEs contribute 40% to the total value-add and
42% to the total employment in Dubai’s economy
SMEs contribute 40% to the total value-add in the economy. Trading SMEs are the highest contributors to the total value add in the economy.
Source: Dubai Statistics Center
SMEs contribute 42% to the total workforce.Majority of the workforce employed by the SMEs is in the Services sector.
State & Characteristics of Dubai SMEs
Dubai SMEs are highly oriented towards internationalization; however are low on orientation towards innovation and corporate governance. Scalability potential tends to be low, primarily due to high overheads
• Low refers to orientation on the specific theme indicated / reflected by up to 20% of the surveyed respondents
• Medium refers to orientation on the specific theme indicated by 20-40% of the respondents
• High refers to orientation on the specific theme indicated by more than 40% of the respondents.
Dubai SMEs
High
Moderate
Low
International orientation
Scalability
ICT Adoption
Access to Finance
Sector-wise State& Characteristics of Dubai SMEsSector with Highest Orientation Sector with Lowest Orientation
Trading Services
Manufacturing Trading
Services Trading
Services Trading
Manufacturing Trading & Services
Trading Services
Similar across all sectors
Entrepreneurship Ecosystem
Dubai SME is currently providing support
to SMEs at varied levels of SME support ecosystem
Entrepreneur
Mentors/ Advisors
Equity Investors
Go
vern
me
nt
Pro
gra
ms
Banks
Infr
ast
ruct
ure
Lobbies & Entrepreneurial Organizations
Personal Enablers
Financial Enablers
Business Enablers
Environment Enablers
Source: Accelerating Entrepreneurship in the Arab World, World Economic Forum
Initiatives by Dubai SME
Key Gaps in the SME Support Ecosystem
Although, improvements could be made at all levels of the SME support
ecosystem, a few of these aspects require a higher focus
Entrepreneur
Mentors/ Advisors
Equity Investors
Go
vern
me
nt
Pro
gra
ms
Banks
Infr
ast
ruct
ure
Lobbies & Entrepreneurial Organizations
Personal Enablers
Financial Enablers
Business Enablers
Environment Enablers
Aspects of entrepreneurship ecosystem requiring high government focus
Dubai SME Corporate Governance Initiative
• Why are we doing this? In Dubai? For SMEs? • What is the business case?• What is the economic case?
1. Enables a professional, quality and sustainable firm development
2. Provides confidence and informed (better) decision-making leading to better bankability and invest-ability …enhances access to finance, raises equity value and reputation, enhances talent attraction, enhances market penetration…
Dubai SME Corporate Governance Initiative - Confidence in lending and investment leads to sustainable
business development leading to positive economic impact (hopefully more economic value creation with right policies)
Hence, for SMEs: - Better to start now, to start early- Build foundations for long-term growth & sustainablity
Dubai SME Corporate Governance Initiative
Components
• Code of Corporate Governance (issued)• IFRS for SMEs Train-The-Trainers (Sep 2011)• Corporate Governance Implementation Guidebook (Dec 2011)• SME Corporate Governance Workshops (Jan – Dec 2012)
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Highlights of First SME CG Survey
• Basic understanding of CG – 47 %• Importance of CG vs other priorities like Operations/HR : 75%• Sources of Future Financing:
– Equity investor (Local/Domestic): 60 %– Loans from domestic banks, financial institutions: 25%– Intra-group/intra-family lending : 15%
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Highlights of First SME CG Survey• Top 3 Benefits of CG
- Improve strategic decision-making - Building/enhancing the company's reputation and trust among stakeholders - Improve operational efficiency
• Top barriers to implementing CG- Lack of information/know-how- Lack of qualified specialists to help with implementation
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Highlights of First SME CG Survey
• Only 16% of SMEs have a Company Code of Corp Gov• Only 3% disclose of financials • 60% do not have succession plans
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Areas of Focus of Corporate Governance Code for SMEs
• Formalizing Corporate Governance policies and procedures
• Board of Directors• Control environment (internal controls, audit and risk
management)• Transparency and Disclosure• Stakeholder relations• Family Governance
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The 9 Pillars of the Code
One. Adopt a formal corporate governance framework outlining the roles of the key bodies such as partners, shareholders, board of directors and management
- clear vision and business plan- clear roles of directors and managers - governance framework
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Two. Conduct a succession planning process
- long term process for orderly succession- planned and emergency scenario- early spotting & responsibility development- managerial and ownership succession
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Three. Establish a timely, open and transparent flow of information with shareholders.
- All shareholders treated equitably- Establish clear lines of communication with shareholders- Establish effective engagement mechanism to gauge views of
shareholders
Four. Endeavour to set formal Board of Directors to accompany the growth of the company
- Formalize decision-making process- Add check and balance- Add to strategic thinking - Provide support and guidance to Management- Consider set up of “Advisory” board for smaller companies (2-3
members)- Appoint independent, non-executive directors with industry
and business development skills
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Five. Develop clear mandate for its board of directors to oversee the operational performance of the business as well as evaluating and improving business strategies
- Define collective role and individual board members’ roles clearly
- Meet frequently as necessary- Align board mandate and objectives with business’ goals - Monitor and evaluate management’s performance
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Six. Maintain credible book of accounts, which are annually audited by an external auditor
- Maintain quality, timeliness, comprehensiveness and integrity of corporate financial statements (A company’s credit or investment worthiness is often based on its book of accounts)
- Engage credible, independent accounting firms- Adopt Internationally-recognized accounting standards
“the company’s story is its financial story”
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Seven. Set up an internal control framework in place and conduct a regular review of risk
- Establish a formal process for identifying significant business risk especially for growing SMEs
- Define risks broadly to include financial, strategic, regulatory, health & safety, IT Security & corporate reputation
- Align board and management risk tolerance levels - Establish Internal Audit function to ensure risk management
and governance framework in place
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Eight. Recognize the needs of stakeholders - Broadly defined to mean employees, customers, suppliers,
creditors, regulators, the community, etc which have relations with the enterprise
- Establish clear relationships and engagement strategies
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Nine. Formulate a framework setting out the family’s relationship with the business.
- Set up family constitution setting out the family’s vision and policies regulating the family’s relationship with the company
- “professionalize the business”“The first generation builds, the second generation enjoys, the third
generation destroys”
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2013 Activities
• Focus on Investment – Readiness/Preparing for IPO
• Annual Report Writing Workshops for SMEs
• Corporate Governance Case Studies
• Corporate Governance Advisors Network
• Enterprise Risk Management (ERM)
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(resource center page)
Thank You