Corporate GovernanceCase Study: mobinets LEARNING OBJECTIVES After reading and discussing this case study, you should be able to: • build the business case for good corporate governance; • recognize some of the key challenges that impede good governance; and • identify improvements to address those challenges. INTRODUCTION “The foundation of capitalism is the Darwinian idea that the market will decide whether goods or services or stock should continue to exist.”1 Simply described, corporate governance is about striking a balance between achieving organizational objectives and complying with applicable regulations, ethical norms, and contracts. In the short run, there appears to be some trade-off between these two sides of the scale; however, over the long run, achieving the latter actually serves the former by enhancing the company’s sustainability and control of resources, and thus shareholders’ wealth. Corporate management must ultimately realize that, one way or another, they will be “held accountable by the ‘invisible hand’ of the market and by government.”2 To this effect and notwithstanding that “corporate governance is not a one-size-fits-all concept,”3 common themes in the development of such governance include (a) changes at the board level and (b) improvements in management control, among a few others. COMPANY BACKGROUND Labib Shalak, a young national of northern Lebanon, completed his undergraduate studies in mechanical engineering at the American University of Beirut. His next sojourn was in France, where he obtained a master’s degree in telecommunications from the École Nationale Supérieure des Télécommunications. In 2003, after having developed extensive expertise in these areas, he founded mobinets in the northern Lebanese city of Tripoli—perhaps as a means to harness his entrepreneurial spirit on the one hand, his longing to give back to his community on the other, and, somewhere in between, his passionate vision for next-generation telecom operations support systems (OSS). But such a thrilling venture is not without challenges. Overview of the Business: Products and Services Mobinets Lebanon S.A.L. Offshore caters to telecom operators and suppliers. As such, it provides the following products and services: Monks and Minow 2011: 36. Monks and Minow 2011: 16. 3 CIPE 2011. 1 2 Case Study: mobinets | 1 2 | Corporate Governance . these are offered as opportunities arise. FIGURE 1. Moreover. and Moldova. with revenues driven primarily by NEP licensing fees—generally charged on a site license basis (and thus nonrecurring)— and related recurring NEP support fees for keeping the perpetual licenses alive and providing maintenance and technical support. Geographical Market Mobinets’ geographical coverage spans a large number of countries in the Middle East and North Africa and in Europe. whereby Gemalto subcontracts/outsources to mobinets the IT project management for its own products.”4 It comprises a set of network and planning optimization tools—over 20 modules. LEGAL STRUCTURE AND OWNERSHIP Mr. the company’s twin-pronged strategy was to focus on IT and telecom consultancy services for revenue generation and to invest heavily in the development of NEP. Hot competition means mobinets’ competitive advantage in this area is relatively lower. South Africa.21% mobinets Lebanon S. the United Kingdom. the company’s focus has been shifting towards product sales. In this respect.com. • Telecom consultancy services: Mobile operators are increasingly outsourcing the technical engineering work— often defined as “managed services”—to suppliers or major consultancy firms. Strategy Mobinets has transitioned from a service to a product model. http://www. mobinets enjoys the advantage of having on staff engineers with in-depth knowledge of mobile networks from existing NEP clients. Kenya. Côte d’Ivoire. when NEP was launched. Morocco.37% IFC ~18.42% Others ~1.A. each of which may be acquired separately—that yield substantial savings in capital and operating expenditures for customers in addition to other strategic and security benefits. Labib Shalak ~80. As for value added services and products. ◆ Value Added Services and Products: mainly in the m-payment and m-banking areas (where “m” stands for “mobile”).L.• NEP (Network Engineering Platform): Previously called NPT (network planning and optimization tools). Tunisia. accessed on August 3. NEP product sales are expected to boost the sales of telecom consultancy services and related revenues. • IT consultancy services: ◆ IT Project Management: mobinets has an operating and maintenance agreement with Gemalto.mobinets. Offshore 4 100% 100% mobinets Morocco SARL (registered in Morocco) mobinets France SARL (registered in France) Mobinets' website. 2012. NEP is the company’s flagship product. and IT consultancy services. Mobinets has also agreed to provide Ericsson with IT and telecom professional services to supplement the latter’s internal resources in certain areas. Since 2010. Mobinets has a partnership agreement with Nokia Siemens Network whereby the latter resells NEP. The product continues to be refined to meet evolving operator demands and provide more functionality. France. Saudi Arabia. As a start-up. a “comprehensive next generation operations support system (OSS) […] that meets the challenges of new hybrid networks and changing technologies. a leading provider of SIM (subscriber identity module) cards. Examples include Austria. Kuwait. and thus value added services and products are offered only as opportunities arise—through indirect sales via partners (major vendors and equipment suppliers) such as Ericsson. is a telecommunications engineer by education and training. • Mobinets Morocco was set up in 2008 as a backup site to ensure business continuity in response to the deteriorating political situation in Lebanon. By the first half of 2012. He has over 15 years of experience in the telecom and IT industry including consultancy work in mobile network planning for major companies such as Siemens in Germany. a “frontier region” of Lebanon. Nortel in France. Ten percent is usually kept until final acceptance. product delivery—customization. and of the client’s internal purchasing process (for example. integration. Now that the product’s credibility and reputation are growing rapidly. to cut through this phase and go straight to negotiations. depending on the size of the project. which may be up to a year after provisional acceptance. grew to 44 by the end of 2009. Generally speaking. • IFC. Labib Shalak. is the first institutional investor in mobinets. some clients are invoiced while the work is being performed and others only after the work is complete. the workforce had almost doubled (to more than 90 employees) and was expected to reach 120 by the end of 2012. and implementation—can take anywhere from three to nine months of on-site activities by two or three mobinets engineers. Once a purchase order is placed. T-Mobile in Austria. • Mobinets France is critical because national regulations lead many customers in Europe prefer to contract with a European company. mobinets had to provide potential clients with on-site pilots—a process that generally requires two man-months—as a proof of concept. composed of only 3 individuals in 2003. if it requires issuing a request for proposal. which can take several months.• Mr. Workforce The mobinets workforce. Although payment terms are typically within 30–90 days of the invoice date. Mobinets’ NEP Sales and Collections Cycle In the first year or so following the launch of NEP. the sales cycle can easily exceed a year. and suppliers—as they fall due. and the cash cycle takes even longer—both of which exert heavy pressure on operating cash flows to meet running obligations—such as salaries. As a result. Case Study: mobinets | 3 . Client payment schedules are also variable and contingent on the agreement reached. the process is slowed down further). Senior specialists have an average of 14 years of IT/telecom industry experience. more often than not. Shalak’s share of the company is expected to be distributed as stock options to employees. the sales force is able. about 90 percent of the contract amount is usually collected within 90 days of receipt of the provisional acceptance certificate—a document attesting that the client preliminarily accepts the product as delivered pending any issues that surface when the product is put to actual use. operating expenses. and other factors. having IFC on board enhances the company’s credibility relative to that of its competitors. and provided the company with venture capital that otherwise would have been difficult to obtain for a small to medium-sized enterprise (SME) located in Tripoli. Up to 13 percent of Mr. Time requirements at this stage are very variable: they are a function of the client’s ability to quickly secure its internal budget. the company founder. a member of the World Bank Group. and then maintained for business development in North Africa. the extent of customization needed. Moreover. the number of modules acquired. and Cingular Wireless in the United States. more than half of whom were dedicated to research and development for NEP software. This has been a conscious decision. which is in progress. the Russian Federation. Time to market for NEP is a critical success factor for mobinets.CASE I BUILDING THE BUSINESS CASE FOR GOOD GOVERNANCE “How much is the confidence of the marketplace worth?” 5 Mobinets is headquartered in Lebanon and has offices in Morocco and France. The mobinets Code of Ethical Conduct should be finalized within a short time. • Simple/moderate complexity • Few to multiple SHs • Medium # employees • Moderate complexity • Simple business Capital. Take a look at figure 2 (SME Stages of Growth). it plans to open sales offices in the United Kingdom. In addition to managing its cash flows. One step in this direction is the development of a Code of Ethical Conduct. at which stage of the continuum would you place mobinets? FIGURE 2. mobinets may well have to go for another round of financing. growing its staff. & Control needed throught to varying degrees 5 Monks and Minow 2011: 80. To support its growth plans within the constraints of the NEP sales and collections cycle. revenue) • Nature and complexity of business • Where the business is going STAGE 4 STAGE 3 STAGE 2 STAGE 1 • Owned by a single/ couple individuals. As part of its growth strategy. and assume its position in the global arena before competitors catch up. and expanding its customer base. developing its flagship product. and cities in both North America and Latin America. South Africa. • Small to medium # employees. Stewardship. mobinets is developing an appropriate corporate governance framework—with all the resource commitment that this entails—to support its operations. Dubai. the company needs to rapidly solidify its sales and marketing functions to exploit the unique features of NEP so as to gain market share. Singapore. What related impact do you foresee? 3. 4 | Corporate Governance • Go Public (IPO) • Medium # employees – growing • Medium complexity – growing . Questions to ponder: 1. Is the timing right to pursue changes in corporate governance? Or is mobinets adding one more burden at a critical time when it needs to optimize resources? What benefits is this commitment likely to yield? 2. SME STAGES OF GROWTH Key factors dictating CG framework • Ownership structure/company type • Size (employees. • Small # employees • Few SHs. establish its foothold in the industry. The board does not have a formal corporate secretary. He comes from an engineering background and enjoys extensive experience in telecommunications and IT.CASE II THE BOARD OF DIRECTORS “[…] Creating tomorrow’s corporation out of today’s…” 6 Board Effectiveness Mobinets’ board of directors has undergone substantial change: having consisted of Mr. and her husband originally. Board meetings basically address financial performance and actual/potential projects. They meet up to four times a year—usually in person. Hitti have been most instrumental in such strategic activities as promoting the company. Koleilat serves as advisor to the chair of a highly reputed telecom company and as a member of its board. At one point. Mortada has richly diversified expertise in IT and telecom—in emerging markets particularly—as well as a PhD in computer science and a degree in computer engineering. 6 Monks and Minow 2011: 283. The company also has an advisory board composed of the following members: • Elias Khoury: With 25 years of worldwide management consulting experience in a variety of economic sectors in North America. ◆ Tom Wilson has 23 years of experience in the telecommunications industry. that role is currently played by the financial director. Those who live abroad are not easily accessible. He also serves on a number of boards. who also is the CEO. Other current and former board members have also lent themselves to these activities. • Hani Koleilat: With 22 years of senior executive telecommunication experience in the Middle East and Africa. Shalak. So far. He spent his first 10 years in the industry with a globally renowned provider of telecommunications—particularly mobile—equipment and data communication systems. There are no active board committees. Shalak and Mr. He also serves on the board of another telecom company in South Africa. Mr. Europe. one of which is vacant and the other three occupied: ◆ Joseph Hitti (all names but chairman’s are fictitious) comes from an IT background. though to a much lesser extent. and the Middle East. ◆ Wajih Mortada is a managing director at a multibillion-dollar investment group that manages investment vehicles focused on emerging markets across the world. he enjoys impressive experience in venture capital projects and private equity financing. fostering business relationships. he was vice president of two NASDAQ-quoted companies. today it consists of five members: • The chairman: Labib Shalak. Mr. He is also the CEO of a company that specializes in business development and mergers and acquisitions in the technology sector in the Middle East. Case Study: mobinets | 5 . his sister. • Four independent directors’ seats. Members of the board are very busy individuals. In addition to membership on numerous boards in Lebanon and abroad. and providing prompt feedback to management. Mr. Khoury is now a retired partner of an internationally renowned consulting firm and currently involved in governance functions with a variety of Middle East companies and nonprofit organizations. Mr. but sometimes over the phone given the difficulty of aligning their schedules. […] When a company is failing. frequency. it will try almost anything. There is consequently a tendency to fall into a pattern of not changing anything. or as Zein Balhas. meeting proceedings. Mr. while being very selective about the projects that it undertakes. The roles of chair and CEO are not separate. nonexecutive. On the other hand. executive. and Asia. mobinets has certainly come a long way in building a very impressive international customer portfolio and notable business partnerships. and formality) effective and efficient? 7. puts it: “meeting this rising demand without compromising quality. the United Kingdom. skill sets. Mobinets is in the process of setting up an audit committee headed by one executive board member and consisting of two other board members. Organizational Structure and Decision Making Because of the company’s rapid growth. A staff recruitment plan is being pursued to achieve the organizational hierarchy depicted in figure 3. The goal is to have the committee fully operational before the end of June 2013. That said. Questions to ponder: 1.• Bassem Barakat: With over than 17 years of experience in the telecommunications industry. and the demand for its product is increasing at a much faster rate than its staffing. the company is improving its supply capabilities locally and in Morocco. a company that is successful generally does not know where the roots of that success lie. by building its project management team (currently six individuals). However. 6 | Corporate Governance . but success. the biggest challenge a company faces is not failure.” 7 Moving Forward As a start-up company from the “frontier region” of a developing country such as Lebanon. Europe. Does the board include an appropriate mix of a. a significant challenge that mobinets faces is flawless delivery. it is no easy task to find new recruits with the right qualifications—candidates with networking and telecom experience at internationally renowned industry players are primary targets—and then train them in-house to become adequately familiar with NEP’s unique features.g.” To this effect. its organizational structure is still in the making. Is the board’s role vis-à-vis management clearly defined and well understood? Do the directors fully understand their duties and responsibilities to the company and its shareholders? 3. Is the board size appropriate for the company? 5.. What sort of support structure should be built to provide the board with more adequate support? What do you expect the role of the audit committee to be? Is an internal audit function part of this structure? Why or why not? CASE III MANAGEMENT CONTROL “Unquestionably. the financial director. What is the merit of having an advisory board? Do you think that the use of such a board is appropriate in the case of mobinets? Or do you think that a full (regular) board of directors would be sufficient? 2. does that pose a problem? 4. Are the board procedures (e. mobinets has brought on board a telecom and IT international consultant to help it restructure the production and delivery departments. North America. The company has successfully built its brand equity. As a result. given the future direction of the company? 6. 7 Monks and Minow 2011: 359. and implement best practices in accordance with the international standards of CMII and Six Sigma. and Dubai. and independent directors? b. as part of its ongoing restructuring activities. Barakat is currently a partner at an esteemed consulting firm and a member of its communications and technology practice services. acquired through engagements in the Middle East. Delivery. Finance. ORGANIZATIONAL HIERARCHY CEO Quality Assurance** Internal Auditor** VP HR Manager Chief Commercial Officer/ Chief Marketing Officer Chief Technical Officer Chief Information Officer Chief Financial Officer Product Management Human Resources Sales Support Software Development Finance Research & Development Admin Technical Sales Project Management Solution Architect Marketing Telecom Delivery IT Admin/ System Integration Accounting & Budgeting Project Management Collection Business Development The positions marked with asterisks in figure 3 are currently empty. and sales director. Production. Among the most prominent vacancies that mobinets is actively seeking to fill are those of quality assurance. Product Management. as is development of an in-house accounting function. Development of an internal dashboard to report performance on a monthly basis is under way. In the meantime. It follows that job descriptions and divisions of responsibilities are still not very clear and that the decision-making responsibility is shouldered to a large extent by Mr. Case Study: mobinets | 7 . management keeps a very close eye on things. and key performance indicators (KPIs) to lower-level management and staff is done in an informal setting. These developments will enable access to financial and management information in real time for planning and monitoring purposes and will greatly enhance internal communication across the organization. Mobinets plans to apply for ISO certification during the summer of 2013 with the goal of streamlining all its horizontal processes across its six departments (Human Resources. both vertically and horizontally. many of them currently fill multiple positions concurrently. In terms of monitoring. budgets. It is documented in the current-year budget and the high-level budget for the following two years. Shalak because of his seniority in and vision for the company. Business Planning and Monitoring and Communication Mobinets’ strategic plan is clear in the mindset of senior management and the board of directors. Sales and Marketing). training manager.FIGURE 3. it meets practically daily to address operational issues. as are a number of positions within the functions under them. Communication of these plans. the company is understaffed but employees are very devoted and cooperative. B. develop. Mobinets has identified two key risks: A. so at this point the in-house accounting and reporting function is still being developed. and job descriptions have yet to be formally articulated. Insolvency. 8 Monks and Minow 2011: 115. to ensure that obligations are met in order of priority. Shalak’s sister. An internal audit function is definitely part of the long-term human resources plan. Questions to ponder: 1. In addition to its annual reporting. what are some of the key challenges that the developing company faces as it outgrows its current organizational setup? 2. the accounting function was being outsourced. Meanwhile. mobinets reports to IFC on a quarterly basis. What further steps need to be taken? 4. How can mobinets attract. which is certainly much needed but entails a notable percentage of newcomers who have yet to become wellversed with the unique features of mobinets products and services. Mobinets recently hired a consultant from Ernst & Young for two months to help structure the financial department. to ensure their compliance with applicable standards. Should efforts be made to put it into effect sooner? Do you think the company should develop it in-house or simply outsource it? Why? CASE IV DISCLOSURES AND SHAREHOLDER PRACTICES ‘Is it fair to assume that shareholders have […] knowledge? That they can act on it in a meaningful way? What is the evidence to support your answer?’8 Financial Reporting and Disclosure Prior to 2012. all purchases. mobinets appointed as its external auditor Deloitte. The final approval of all sales transactions lies with Mr. expenditures. authorities. and retain good talent as a smaller company with more limited financial means than larger competitors? 5. The financial director is therefore very closely involved in the preparation of the financial statements. Internal Controls and Transaction Cycle Processes While mobinets is actively working to add staff. and disbursements are subject to approval by senior management—namely the financial director. Quality and timeliness of delivery. In 2012. management is exercising hands-on control over the different processes. risk management is carried out. procedures. Shalak. a Big Four firm with the appropriate industry expertise and cross-border reach. given the rapid growth in demand giving rise to the robust workforce growth. employees are filling multiple roles. Mr. The accounting for the French and Moroccan subsidiaries is centralized at the Lebanese headquarters. consolidated and otherwise.Risk Management Although no formal process is in place. The internal audit function is part of the long-term plan. After reviewing the elements of mobinets’ management control structure. Appropriate cash management is thus critical: all disbursements (except for petty cash payments) have to be approved by the financial director. 8 | Corporate Governance . Policies. due to the inherent nature of the company’s cash collections cycle. How is mobinets handling those challenges? 3. Two roles are combined in the person of the founder. Case Study: mobinets | 9 . send a strong signal to the marketplace. Case II: Suggested Answers 1. Who is (are) mobinets’ key stakeholder(s)? 3. For the board’s role vis-à-vis management to be clearly defined and well understood and for the directors to fully understand their duties and responsibilities to the company and its shareholders. Moving forward. If mobinets were to develop an annual report. clearly articulate to staff a formal commitment to ethical conduct. 3. the timing is right because substantive positive effects are anticipated. Mobinets has recently switched auditors. management. Mobinets would be considered a Stage 3 company per the framework below. If/when the company grows to stage 4 (currently at stage 3) and/or takes on several new shareholders. The board size of five is appropriate for now. it is highly recommended to develop a board charter for the formal board and terms of reference for the advisory board (including an authority matrix that clearly distinguishes decision-making roles between the board. Are the financial statements sufficient to ensure that all relevant information is made available to the key stakeholder(s)? What is the benefit of providing additional disclosures? 4. Separating these positions at this stage of the company’s growth may be premature. and anticipated valuation premium 2.Questions to ponder: 1. 4. it may consider revisiting this size (perhaps expanding it to seven). management consulting skills are needed to guide the company in developing a management structure that suits its growth plans. Yes. growing quickly towards Stage 4 (except no planned IPO as of now). The advisory board can help fill some of the current gaps in the regular board. Ethics code should help set tone at the top. mobinets has but a few shareholders. what types of disclosures would be included? 5. including the following: • Enhanced firm reputation to support bidding for contracts and growth of market share • Enhanced efficiency and optimization of organizational resources • Improved crisis response and enhanced sustainability • Improved profitability • Enhanced ability to access financing. and shareholders). 2. So far. especially by institutional investors and creditors. How would you expect this move to affect the quality of its financial reporting? The perception of the company in the marketplace? The effectiveness of the board of directors? 2. what key shareholder practices and protective measures would you recommend be put in place to attract future investment? Case I: Suggested Answers 1. For example. 3. provided it is clearly communicated to all. 10 | Corporate Governance . Management should schedule monthly meetings to review overall performance against targets. etc. appointing a Big 4 audit firm. management consulting type background)—but they have an advisory board member who can fill that role for now. approach to evaluate and improve the effectiveness of risk management. provided vacancies are filled. Also need someone who can provide guidance to help set up management structure (e. budget. Further steps: • The strategic plan. key-person risk is very much concentrated in Mr.g. Carrying out staff training should be part of those plans. formal agenda.. Audit Committee charter to be approved by board. and the company’s understanding of best practices for disclosure as well as relevant regulatory requirements. developing a work plan. developing the in-house accounting function. 6. reporting requirements. francophone Africa) and/or key business relationships. with clear terms of reference. independently reporting to the board of directors and/or Audit Committee the information that they need to effectively discharge their responsibilities. The board meets with adequate frequency but could improve its procedures such as developing a work plan. among other things. etc. 7. should help in ultimately developing an annual report (which includes key nonfinancial information. to meet at least quarterly. Steps currently taken include being selective about new undertakings while putting into effect a defined staffing plan for a defined organizational hierarchy. For future seats.g. reporting requirements. control. including an annual plan for the board.. and governance processes” (IIA Definition). operations. unclearly defined job descriptions and responsibilities. minutes. the quality of reported information. and KPIs (long term and short term) need to be documented for the organization as a whole as well as for individual business units. large number of newcomers makes it difficult to standardize quality of delivery. • The switch to a Big Four audit firm is expected to have a favorable impact on the reporting process. Very good structure overall. 2. 3. including a summary of its corporate governance framework)—all of which enables the board to be better informed as they carry out their fiduciary duties. exploring some training (offered around the region). Support structure for the board of directors: • A corporate secretary. • Audit Committee—ultimately to be composed only of nonexecutives/independents who are financially literate—to monitor and review the financial reporting process as well as the internal control and risk management systems.Case II: Suggested Answers continued 5. Periodic meetings should be scheduled for all employees. and key decisions. Case III: Suggested Answers 1. Good collection of skills overall—with plenty of industry expertise (IT and venture capital). unformalized business monitoring/risk assessment mechanisms and training programs. disciplined. Shalak. objectives. • Internal Audit—“bringing a systematic. formal agenda. hands-on control by upper management over cash. to focus on improving board procedures. Challenges include understaffing and shifting management structure. might benefit from filling with people who have experience in new markets (e. minutes. lack of communication to lower-level management and staff. • Mobinets should set up a management committee to help set policies and procedures. This process is imperative for more realistic planning/ budgeting. and accountabilities and segregates duties appropriately. • For each department. develop. The company should consider expediting somewhat the setting up of an internal audit function. it may be more cost-effective for mobinets to outsource this service. and that ensures the division of decision-making roles between the board. and maintain good talent: • On the financial level: Creating performance-based financial incentives (such as a KPI-based scheme). • Develop a board charter and an authority matrix that identifies roles. etc. A chief audit executive plus an assistant) that would perform part of the tasks and coordinate with a professional service firm for the rest of the tasks. there are different means by which to attract. To ensure appropriate motivation. take over some decision-making responsibilities. until it is capable of standing alone without external support. • The (medium-term) organizational structure is to be finalized. reduce key-person risk. staff should be well informed (trained) about the scheme. rewarding employees’ commitment to the job/company. As a relatively smaller company. Such a function would gradually grow with the rest of the company. control. impartial review and appraisal of the operational activities and of the risk management. in-house audit functions are generally more effective but. and (b) reporting findings and recommendations. and help with communication. offering employee stock options • On the nonfinancial level: offering greater growth opportunities for employees as new positions/ markets open up. assessing their impact. Everything else being equal.Case III: Suggested Answers continued • A KPI-based scheme to formally evaluate staff coupled with related financial and nonfinancial incentives is to be put in place. responsibilities. maintaining open lines of communication. in terms of size and expertise. 4. That being said. Shalak’s time for the more strategic issues. and governance processes. Prepare a policies and procedures manual that clearly identifies roles. management. and shareholders are clear to all. and developing corresponding mitigation strategies. key decisions and which individuals/bodies are authorized to make them. Case Study: mobinets | 11 . at this stage. • There should be a formal system for routinely identifying business risks. so it may not be a bad idea to establish a small internal audit function (for example. and thereby free Mr. and enhanced probability of realizing objectives. which would greatly assist management by (a) providing a formal. and assistance in which employees take ownership of the organization’s endeavors/successes/failures (by demonstrating commitment to the development/training and empowerment of staff members. educating employees about these incentives to ensure appropriate motivation. it may prove rather difficult to put in place an effective in-house audit function after the company is fully grown. improved loss/cost control. set a threshold for approving/making cash disbursements and other transactions above which approval by senior management is required.) 5. creating a positive work environment and a close-knit culture of honesty. openness. conflicts of interest. mobinets has less extensive reporting requirements than its publicly held counterparts. For instance. As a privately held offshore company with but a few shareholders. Suggested shareholder practices: • Establish preemptive rights for shareholders • Establish a board nomination committee and task it with developing procedures and a board profile. 3. some key nonfinancial information is necessary for proper interpretation of the statements and to improve the transparency of the reporting entity. following are a few suggestions for disclosures: • A summary of its corporate governance framework. there is no all-inclusive list of required disclosures. No. to be based on written criteria. and the company’s understanding of best practices in disclosure and also relevant regulatory requirements. its operations. to facilitate monitoring. • Require directors and senior executives to list all interests with other companies.Case IV: Suggested Answers 1. his management role keeps him well informed and up-to-date. The primary shareholder/stakeholder is IFC. the financial statements are insufficient in themselves: although they contain primarily financial information. which it is now strengthening • The company’s policies on social and environmental responsibilities and related key initiatives • Management discussion and analysis of key strategic issues • Related-party transactions • Risk concentrations • Subsequent events • Pending lawsuits 5. the quality of reported information. it is not required to publish its financial statements. one vote” policy • Adopt policies and procedures to ensure that equitable information is provided to all shareholders • Adopt a written policy defining the treatment of related-party transactions. 12 | Corporate Governance . Higher-quality information enables the board to be better informed—and consequently more effective—as it carries out its fiduciary duties. and its decisionmakers’ information needs. Other than legal requirements. The switch to a Big Four audit firm is expected to have favorable impacts on the reporting process. Deciding which disclosures to include requires the preparer to exercise judgment while drawing on his or her profound knowledge of the organization. 2. That being said. These effects are expected to enhance the credibility of the financial information reported and thus the general perception of the company in the marketplace. Shalak is a majority owner. Access to its valuable information is thus restricted to selected parties whose specific needs can be easily understood and addressed. and insider trading. consider using a search firm to select candidates • Require minority shareholder representation on the board • Adopt fair and transparent voting procedures including a “one share. Although Mr. and require board approval of all related-party transactions and conflicts of interests. • Adopt a written policy defining how dividends are determined each year and the corresponding approval process. 4. MBA. 5th ed. 2012. http://www. ACKNOWLEDGEMENTS This case study was developed by IFC. Mobinets website. and Nell Minow.mobinets. accessed on August 3.REFERENCES Monks. and mobinets for being part of this case study. Suliman S. February. 2011. The hope is that other fast-growing small and medium enterprises can learn from this experience. “Advancing Corporate Governance in the Middle East and North Africa: Stories and Solutions.com. United Kingdom: Wiley. LCPA. Olayan School of Business at the American University of Beirut. a member of the World Bank Group. CPA. CEO and Chairman of the Board. Corporate Governance.. and authored by Rania Uwaydah Mardini. IFC and the author would like to thank Labib Shalak. Robert A. 2011.” Global Corporate Governance Forum. CIPE (Center for International Private Enterprise). G. Case Study: mobinets | 13 .