Lebanon
board members. Lebanese law does not provide for the adoption of mechanisms of cumulative voting for the protection of minority shareholders, as it violates the principle of one share, one vote.18 Thus, minority shareholders are not adequately represented on boards of directors. Both of these shortcomings do little to protect the rights of new or minority shareholders, and they run counter to the principles of corporate governance, which advocate accountability, responsibility, disclosure and fairness. Moreover, Lebanese law does not allow for the separation of the functions of chairman and general manager (the chairman is responsible for all operations – i.e. he can appoint a general manager – but it is the chairman who will be held accountable under law).19 This, in turn, does not allow for the creation of truly accountable officers within a corporation. There are developments afoot, however, and improvements are being made at least in the banking sector, which is by far the most prominent and powerful sector in the economy.
The Banking Control Commission has been focusing on the urgent challenge of preparing Lebanese banks for fulfilling the requirements of Basel II. In this context, there has been an emphasis on developing a culture of appropriate internal audit practices and risk management. The governor of the central bank has been pushing for the implementation of corporate governance and Basel II as a means to promote transparency in the banking sector. While the regulatory framework for banks in Lebanon is robust, it has been interesting to observe how the banks themselves have taken voluntary initiatives to apply appropriate standards of good governance. An excellent example is the initiative by Banque Audi, the first bank in Lebanon to apply corporate governance standards.20 Other banks are now starting to show some interest in corporate governance principles, but at the time of writing Banque Audi is the only one that has taken the initiative. Lynne Ghossein, Khalil Gebara and Badri El Meouchi (Lebanese Transparency Association)
18 See www.ifc.org/ifcext/cgf.nsf/AttachmentsByTitle/MENA2_LTA_LCGTF/$FILE/LTA+&+LCGTF+Pres.Amman.12. 12.2006.pp. 19 Ibid. 20 What follows is derived from an interview with Mr Farid Lahoud, the corporate secretary of Banque Audi (since 2005). Interview conducted on 3 June 2008.
Box 5 Extract of an interview with Mr Farid Lahoud, Banque Audi Where did the drive to carry out the 2005 Corporate Governance (CG) assessment come from? The bank started by carrying out a Corporate Governance (CG) assessment in 2005, with the support of the International Finance Corporation (IFC) and Nestor Advisors (NeAd). The drive to carry out the assessment came from awareness at the level of the board of directors and the executive management. Beyond the importance of CG for investors, regulators, rating agencies and researchers, it was seen by the board and the management as an essential contributor to the bank’s perpetuation and as a value generator at a time when the bank was embarking on an expansion strategy and was in the process of raising capital.
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