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)

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