Local family control of UAE listed companies is likely to plummet in the coming years, as a surge in initial public offerings (IPO) disperses power to public investors, the author of a ground-breaking report on GCC boardrooms said.
Dubai and Abu Dhabi's top 15 families currently have control of approximately one-third of the listed companies in the UAE, with GCC families holding an average between 19 per cent and 30 per cent of board seats.
Of the 39 listed firms in Dubai, over a quarter have at least two directors and three board seats held by the same family. While in Abu Dhabi, the number rises to half of the listed companies with two or more directors and four board seats occupied by the same dynasty.
The findings come from a report by Abu Dhabi investment bank TNI and Hawkamah, the Dubai-based institute for corporate governance, which polled nearly 600 of the GCC's public companies – the most comprehensive survey to date.
Dr Nasser Saidi, chief economist at the Dubai International Financial Centre, and co-author of the study, said the GCC's more mature capital markets could expect to see levels of family representation at board level begin to drop away as IPO activity rallied. "As exchanges mature and investors become more confident, and more families are willing to list, so you get more families opening up their capital and listing firms. As a result of that you have less concentration.
"The numbers from the report are showing that the markets are maturing and the concentration of power among these families will likely diminish. If you look at Dubai, and the UAE generally, the phenomenon of increased listings over the last five years has led to greater diversification in terms of representation on boards but also the concentration of power of influential companies," said Saidi.
He said the amendment in the UAE company law, to allow firms to list less than 55 per cent, would give strong encouragement to families to list their companies.
The highest concentration of family power was found in Qatar, where 15 top families control more than 50 per cent of listed companies. In Kuwait, this figure dropped to 25 per cent, while Saudi Arabia registered the lowest at less than 20 per cent.
Saidi said figures were more in line with other developing economies around the world than was first thought, with places such as Mexico or Hong Kong, where 20 per cent of companies in many cases being family-owned. "Directors are understood to be the most powerful and influential individuals in a company hierarchy. In the context of the Gulf, where the family has been at the core of political and economic influence, families with most board representation can be thought of as controlling the economy," the report said.
It surveyed 3,493 individual GCC board members occupying 4,254 board seats across 582 listed companies.
The five most represented families take up as little as 10 per cent of total board seats in Saudi Arabia, and as much as 40 per cent in Qatar, the report found.
In Kuwait, a single family can own up to 100 per cent of a board, while in Saudi Arabia, this proportion goes down to 75 per cent. According to the report, Dubai emerges as the best citizen, where no one family holds more than 50 per cent of a company board.
Saidi emphasised that the representation of families on the board did not equal the same status as shareholders, which would denote actual ownership of a company.
The GCC was also found to have few instances of directors sitting on multiple boards, a situation that could lead to potential conflicts of interest.
Bahrain was found to have the highest levels of directors with single mandates (89.8 per cent), followed by Saudi Arabia (87 per cent), Dubai (85.7 per cent) and Kuwait (84.3 per cent). Abu Dhabi (82.8 per cent). Dubai was found to have the highest levels of directors holding down four board seats at listed companies (1.8 per cent). "Directors with multiple mandates may find it hard to dedicate enough time to all companies. In addition, certain conflicts of interest may arise when the same director sits on the board of competing corporations.
"In order to minimise conflict of interest, the ideal scenario would be for each director to sit on a single board, but this is seldom the case – even in Western markets," the report said.
Saidi said he was surprised by the findings, which showed a GCC-wide general acceptance of a one director, one board code of practice.
"It turns out that you don't have that many cross-directorships in the GCC, and Dubai has one of the lowest across the region, which is healthy because you're having more people entering boards and seeing more non-executive directors," he said.
Qatar and Oman show a different distribution of mandates, with less than 80 per cent of directors being present on a single board, and the largest proportions of two and three board representation. Bahrain remained best-in-class, particularly due to its lowest proportion of multi-board representation.
The data from the report stopped short of providing any insight into private company boards in the GCC, only capturing public company representation.
"We suspect that the ratios would be significantly different, mostly due to the fact that private companies are less regulated. However, a director who is present on very few boards of public companies would still face significant time constraints, or conflicts of interest, if he also sat on a large number of private boards," the report added.
The size of boards varied hugely across the region, with an average Bahraini board of 8.8 members 40 per cent larger than an average Kuwaiti board of 6.2.
Similarly, the maximum size of boards in Abu Dhabi (15) or Bahrain (15) is nearly 40 per cent larger than in Dubai (11) or Kuwait (11).
The smallest boards in Bahrain dwarf Saudi Arabia's smallest boards by 2.5 times.
Saidi said one explanation for the discrepancies was variations in legal frameworks across the GCC.