NMC Scandal and its Corporate Governance

  1. Introduction

The case involve a series of investigation which was being pursued against NMC organisation. In UAE, this is ranked as a leading provider of healthcare and in the past listed in the FTSE 100 company. This fraud involved an approximately $6 billion in terms of hidden debts which elicited immense concerns leading to the catastrophe. The outcome of this included the organisation running into trouble. Initially NMC was forced to admit fraud of USD 2 billion in debt, which was eventually increased to a staggering USD 6.6 billion, according to the latest report released on March 23, 2020. Following the discovery of NMC’s debt, one of its biggest creditors, Abu Dhabi Commercial Bank, filed a criminal complaint against the company for approximately USD 1 billion of owed funds. This when the short-seller Muddy Waters had questioned the organisation financial reporting and doubts emerging regarding its stakes owned by majority of the shareholders. It is hence relevance to evaluate how this case is linked to corporate governance and the best practice which could be pursued in Saudi Arabia companies to avoid recurrence of a similar issue.

  • Cause of the problem

The issue originated in 2019. This occurred after Muddy Waters which us a hedge fund highlighted an issue pertaining to possible fraud and theft after identifying inconsistency in the organisation accounting. As a result of the identified concerns, Financial Conduct Authority (FCA) initiated an in-depth investigation on February 27th, 2020. The outcome of this was suspension albeit temporarily of the NMC’s shares from trading in the FTSE 100 with CEO similarly being removed from the Board. For evidencing the source of the problem, it is important to consider that NMC is currently headquarter in Abu Dhabi and had already been listed to the FTSE 100 index. With the UK being a developed country and UAE developing, both nations operate varying legislations and policies, culture and norms and corporate governance codes. Also, for the board characteristics of NMC, several facts were evident which impacted the corporate governance monitoring and avoidance of disastrous occurrences. Further, the International directors sometime lack the local knowledge of regulations and requirements. Furthermore, the greater the distance the foreign directors are from the foreign company, the less monitoring pressure is put on executives, which could allow executives to act irrationally and not in the shareholders’ best interests. This could have elicited the issue due to failure of having a clear understanding of the scope of corporate governance legislation. Also, they could have lacked the financial expertise of working in the two distinct business environment with unique expectations and requirements.

  • Implementation of governance laws

Considering Saudi Arabia context, the operations in the corporate governance are as guided by the capital market authority regulations. These regulations which are continuously updated can be adopted in Saudi Arabia to avoid a similar occurrence in the organisations operating in the market. For instance, in Article 91 of the legislation, it stipulates that for success of the effectiveness of corporate governance, all organisations would be involved in verifying the organisation to comply with all the rules. This is while reviewing and updating the rules in line with the statutory requirements and best practices. There…

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