Dubai SME Corporate Governance
Initiative
Start now, Start Early
Alexandar Williams
Director, Strategy & Policy
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
2
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
3
Moving Forward - The New Economic Imperative
“Better” path
→ Productivity
Output
(economic
growth)
“New” path
→ Innovation
Need to move to
new growth path
“More” path
→ More labor
and capital
Moving Forward: a different
economic development path
From “Bigger” to “Better”
Dubai’s current
situation in key
sectors, e.g.
• Real estate
Reaching optimal scale
Reaching minimum scale
• Decreasing returns for each
additional unit of labor and
capital
• Increasing macroeconomic
challenges (demographics,
environment,
infrastructure)
→ Rising cost of growth
Inputs
(Labor and capital)
4
Vision, Mission, Roles & Core Initiatives
Dubai SME 100,
Gov. Proc. Prog.,
YBL
Incubation,
Idea Lab, Entrepreneur
Capability
Development, YEC
Corporate Governance,
Access to SME Financing,
Ease of Doing Business ,
IP
Groom
Vision
Dubai as a Global
Center for
Innovative SMEs
Seed
Advocate
Mission
Foster the development of a
flourishing entrepreneurial
culture and a competitive SMEs
sector to support Dubai’s
economic development
Roles
Entrepreneurship
& Entrepreneur
Development
SME Sector and SME
Firm Development
(Groom Dubai’s Top
SMEs)
5
The Dubai SME Definition
Trading
Employees
Services
Manufacturing
Turnover
Employees
Micro
<=9
&
< = AED 9 mn
< = 20
Small
< = 35
&
< = AED 50 mn
Medium
< = 75
&
< = AED 250 mn
Turnover
Employees
< = AED 10 mn
< = 20
Turnover
&
< = AED 3 mn
< = 100 & < = AED 100 mn
< = 100 &
< = AED 25 mn
< = 250 & < = AED 250 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
Size-wise Split of Business Establishments in
Dubai
Medium, 5%
Sector-wise Split of SMEs in Dubai
Manufacturi
ng
8%
Large , 5%
Services
35%
Small, 18%
Micro, 72%
Trading
57%
Micro firms account for 72% of the total business count in Dubai,
In terms of a sector-wise split, the Trading sector accounts for
followed by Small and Medium firms accounting for 18% and 5%
a majority of SMEs, followed by Services (35%) and
of the total business count, respectively.
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
Sector-wise Split of Value-add by SMEs
Gross Value-add by Size of Firms
13%
9%
15%
Large
17%
47%
Manufacturing
Medium
60%
41%
Small
Services
Trading
Micro
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.
Contribution to Employment by Size of Firms
Sector-wise Split of Workforce
Employed with SMEs
15%
Large
16%
58%
11%
33%
16%
Services
Medium
Small
Manufacturing
51%
Trading
Micro
SMEs contribute 42% to the total workforce.
Majority of the workforce employed by the SMEs is in the Services sector.
Source: Dubai Statistics Center
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
High
International orientation
Dubai SMEs
Moderate
Access to Finance
ICT Adoption
Low
Scalability
• 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.
Sector-wise State& Characteristics of Dubai SMEs
Sector 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
Infrastructure
Entrepreneur
Government
Programs
Equity
Investors
Mentors/
Advisors
Banks
Personal Enablers
Financial Enablers
Initiatives by Dubai SME
Business Enablers
Lobbies & Entrepreneurial
Organizations
Source: Accelerating Entrepreneurship in the Arab World, World Economic Forum
Environment Enablers
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
Infrastructure
Entrepreneur
Government
Programs
Equity
Investors
Personal Enablers
Mentors/
Advisors
Financial Enablers
Business Enablers
Banks
Aspects of entrepreneurship
ecosystem requiring high
government focus
Lobbies & Entrepreneurial
Organizations
Environment Enablers
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%
16
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
17
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
18
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
20
Two. Conduct a succession planning process
- long term process for orderly succession
- planned and emergency scenario
- early spotting & responsibility development
- managerial and ownership succession
21
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”
25
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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www.dubaisme100.ae
(resource center page)
Thank You