Alexandar Williams Director, Strategy & Policy

1. Alexandar WilliamsDirector, Strategy & Policy Dubai SME Corporate Governance Initiative Start now, Start Early

2. Who is Dubai SME? The Dubai SME landscape and Profile SME Corporate Governance Initiative The Code of Corporate Governance for SMEs – 9 Pillars

3. 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

4. Moving Forward: a different economic development pathFrom “Bigger” to “Better” 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 • Dubai’s current situation in key sectors, e.g. • Real estate • Decreasing returns for each additional unit of labor and capital • Increasing macroeconomic challenges (demographics, environment, • infrastructure) • → Rising cost of growth Reaching optimal scale Reaching minimum scale Inputs (Labor and capital) 4

5. Vision, Mission, Roles & Core Initiatives Incubation, Idea Lab, Entrepreneur Capability Development, YEC Dubai SME 100, Gov. Proc. Prog., YBL Vision Dubai as a Global Center for Innovative SMEs Corporate Governance, Access to SME Financing, Ease of Doing Business , IP Mission Roles Foster the development of a flourishing entrepreneurial culture and a competitive SMEs sector to support Dubai’s economic development Entrepreneurship & Entrepreneur Development SME Sector and SME Firm Development (Groom Dubai’s Top SMEs) 5

6. The Dubai SME Definition Services Trading Manufacturing Employees Employees Turnover Turnover Employees Turnover < = 20 & < = 9 & < = 20 & < = AED 3 mn Micro < = AED 9 mn < = AED 10 mn Small < = 100 & < = 35 & < = 100 & < = AED 25 mn < = AED 50 mn < = AED 100 mn Medium < = 250 & < = 75 & < = 250 & < = AED 150 mn < = AED 250 mn < = AED 250 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

7. 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

8. 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. SMEs contribute 42% to the total workforce. Majority of the workforce employed by the SMEs is in the Services sector. Source: Dubai Statistics Center

9. 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.

10. Sector-wise State& Characteristics of Dubai SMEs Trading Services Manufacturing Trading Services Trading Services Trading Manufacturing Trading & Services Trading Services Similar across all sectors

11. Entrepreneurship Ecosystem Dubai SME is currently providing support to SMEs at varied levels of SME support ecosystem Initiatives by Dubai SME Source: Accelerating Entrepreneurship in the Arab World, World Economic Forum

12. 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 Aspects of entrepreneurship ecosystem requiring high government focus

13. Dubai SME Corporate Governance Initiative • Why are we doing this? In Dubai? For SMEs? • What is the business case? • What is the economic case? • Enables a professional, quality and sustainable firm development • 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…

14. 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

15. 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)

16. 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%

17. 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

18. 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

19. 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

20. 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

21. Two. Conduct a succession planning process - long term process for orderly succession - planned and emergency scenario - early spotting & responsibility development - managerial and ownership succession

22. 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

23. 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

24. 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

25. 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”

26. 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

27. 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

28. 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”

29. 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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