Governance: Etisalat Company

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Table of Contents

Introduction
Financial History and Capability
History of Governance Issue
Analysis
Governance Issues
Employee Issue
Partners, Consultants, and Vendors
International Business and Issues
Conclusion
References

Introduction

Etisalat is a UAE based telecommunication company that was initially referred to as the Emirates Telecommunication Corporation. The corporation is a governmental agency charged with the major function of providing communication services. Additionally, it is a multinational company operating in over fifteen countries in the Middle East, Asia, and Africa, particularly west and North Africa.

The recently released report on the performance of companies globally showed that Etisalat is at number twelve with a stable customer base of over one-fifty million. The Forbes magazine declared the organization the best in the UAE in 2012.

Financial History and Capability

In the beginning March 2014, the organization reported a stable revenue of US$10.6 billion, with a net profit of USD$1.93 billion. In 2012, analysts reported that the organization enjoyed a market capitalization of $22 billion (Arbache, 2010). Its closest rival, the Emirates Integrated Telecom, is far much behind in terms of capital and profitability. The company is considered an internet center in the Middle East region since it offers connectivity to upcoming firms conducting their operations in small-scale in various states.

It was ranked the twelfth globally in terms of voice carriage, but it is the leading in the Middle East region and Africa. In October 2008, the corporation had at least 510 roving accords with coverage in over 186 states.

The firm has managed to penetrate the European and American markets, which shows that it is one of the world’s best performing companies given the fact that it operates PoP in New York, Amsterdam, Frankfurt, Paris, and London. Since 2011, the organization has been trying to put up Etisalat 4G, which is a powerful internet network in the world.

History of Governance Issue

Since its inception in 1976, International Aeradio Limited owned the organization, the British company, and some domestic investors had shares as well. However, the ownership structure changed hands in 1983 and this was when the issues of governance emerged when the administration of the United Arab Emirates acquired over sixty percent of shares. Currently, foreign and local investors own just forty percent meaning that they do not have the power to influence the selection of the board members.

One of the major governance problems that facing the organization was first witnessed in 1991 when the government formulated a federal law allowing the corporation to be the only provider of telecommunication services in the country (Dawley, &Jamal, 2008). It was regrettable when the administration gave the corporation the authority to control licenses as regards ownership, importation, producing, and operating any communication gadget.

This was a mistake because the firm used this advantage to kill competition leading to monopolized market. The government’s directive meant that the firm was a regulatory agency, as well as a competitor in the sector.

The government argued that it was trying to protect the economy by eliminating unnecessary competition. Even though the corporation has been successful in achieving its financial objectives, it has failed seriously in terms of governance because managers are never answerable to the members of the public, but instead the board controls them.

The governance issues facing Etisalat are the same as those facing other public corporations in the Middle East region, as well as West Africa. Rarely does the management of the firm follow the ethical codes as stated in manuals of various professional bodies. Financial reporting is skewed because no member of the public is involved in the auditing process while funds are often misappropriated, yet the board has been doing nothing.

Analysis

Studies show that that the emergence of state owned enterprises in the country and in the entire MENA region is attributed to the socialist policies that the region adopted after the process of colonization. The country has been applying various developmental models before settling on the current one, which the government is in charge of all major sectors. The shift to the current model that encourages the government to intervene in the market has been gradual and the focus has been on strategic sectors, such as the oil and gas sector.

The current state of affairs whereby the government is in control of most of the corporations is a new phenomenon having started in early 1970s. Initially, the governments in the MENA region argued that they had to control the important sectors to ensure people were employed, oil flowed smoothly, and adequate revenues collected. Just after the Second World War and the subsequent development of the Cold War, states in the region were of the view that various western powers were targeting their economies.

Therefore, they embarked on ambitious programs aimed at planning at the state level, commonly referred to as centralized planning, which encourages protection of local markets, facilitating industrial development, nationalization of all private companies in the economy, and redistribution of public resources through adoption of public. The aim was to empower the public through advocating for social development, which would be achieved through public sector employment program.

Governance Issues

Many public companies, including Etisalat are forced to work based on the government directives, which are often marred by controversies given the fact that politics will always take center stage whenever elected leaders are involved in the management of profit making organizations. In countries that the government plays a minor role in controlling commercial activities, restructuring has never been an issue because of little social resistance.

Stakeholders and experts from the World Bank and International Monetary Fund have been urging the government to consider privatizing Etisalat Corporation in order to improve its corporate governance, but the social resistance has never allowed reforms to take place. Whenever the government tries to privatize the enterprise, members have been quick to lobby the government and the religious bodies to reject the move meaning that mismanagement is expected to go in the company.

The company is known to fund major government projects, including campaigns for the sitting head of state. Managers are never responsible since they know that they have the backing of the executive. In terms of relating with clients, the organization is supposed to conduct customer experience surveys to establish their levels of satisfaction (Clarke, 2004).

Unfortunately, the organization has never cared because of the defective social corporate responsibility structure that simply favors the rich and does not consider the sufferings of the majority (Aglietta, & Rebérioux, 2005). In fact, the management indicates in the company website that it engages customers in personal meetings, discussion forums, field visits, and arrangement of conferences to discuss the issues facing clients.

This has never happened and whenever an individual launches a complain, it takes several days to address the problem, something suggesting that the firm is not keen on retaining customers given the fact that it enjoys a monopoly. From time to time, it conducts road shows and organizes for trade fairs, but these are simply projects meant to benefit some individuals in the organization since it gives them an opportunity to divert resources to private projects.

Employee Issue

On the issue of employees, the organization is expected to have a clear recruitment system that follows the concept of meritocracy, but top directors are simply appointed from among those handpicked by the political leaders. Additionally, the process of employing the chief executive has been open mainly because the head of operations should be somebody trusted in the political circles that can cooperate in squandering public money.

While the company policies suggest that employees are supposed to report any form of mismanagement and injustice to the senior management, the reporting structure, including the use of email, has never been clear because workers are victimized leading to dismissal and subsequent sanctions. Promotions are conducted based on favoritism whereby family members are only considered, as well as those believed to be politically right.

The best performing employees should be given some form of non-financial rewards, such as arranging for an annual event, but funds meant to facilitate employee efficiency have never been used appropriately because of corruption (Clarke, 2004). Professional training is no longer offered instead new members with adequate experience are brought in and given promotions at the expense of the most loyal workers who might have worked in the form for over twenty years.

Partners, Consultants, and Vendors

In the company profile, it is stated that each business partner, consultant, and other vendors are free to interact with the board and the top management, including the CEO. However, the mode of engagement is not clearly laid out because important consultants are to be met at the trade exhibitions and whenever periodic conferences are held.

If an organization is to improve its performance as far as governance is concerned, it should ensure that consultants are allowed to submit their reports, views, and findings at any time, irrespective of the time and place.

The process followed in issuing tenders has never been fair because an individual will have to know somebody to bribe in the board before being given the permission to supply goods and services in the company, which means that the best suppliers will never have an opportunity of trading with the company simply because of poor governance.

Whenever an opportunity presents itself, only cooperative service providers are given the contracts while those committed to ethical principles are often accused of mismanagement and provision of poor quality services. For instance, the company’s policy on dealing with suppliers and other contractors claim that whenever their services are needed, they will be contacted via phone or email. In fact, no supplier has eve managed to supply anything to the corporation without being given the gone ahead by the government.

Others bribe their way, which is a bad practice in business. In terms of following the regulations and legal standards, the management has always failed meaning that a serious governance problem exists. Even though the organization is a government agency, it should be able to survive in another environment that is not supported. The corporation has never been keen on observing the laws on labor relations since employees are often mistreated, with discrimination being the major problem at the time (Werenfels, 2002).

International Business and Issues

Internationally, it is suggested that an organization should reveal its financial records to the public, but this has never been the case with Etisalat because it does not present the audited accounts. The regulatory bodies, including the municipal council, the local authorities, and consumer affairs authority have equally failed because they do not play their role of controlling the Etisalat from violating the law.

Some senior managers of Etisalat are members of chambers of industry and other regulatory bodies meaning that the organization has put in place adequate measures to prevent it from public scrutiny. The way the corporation relates with investors, fund managers, analysts, and lenders raises many questions in the sense that they do not question the usage of resources even after being presented with reports on the mismanagement of the organization.

Moreover, its relationship with members of the public is not good since it rarely gives back to the society. Whenever a community-based project is presented to the management, they conduct an audit to establish which one to fund meaning they are biased and they always look at the political affiliations of those intended to benefit from the project (McConnell, 2003).

Conclusion

Directors of Etisalat have various roles and responsibilities to play meaning that they have to employ a systematic framework that will restore consumer confidence and this could only be achieved through implementation of strong corporate governance policies, including the codes of conduct, remuneration, reporting policies, and employee management. Currently, the organization is not in a position to develop risk management policies because it suffers from mismanagement.

Metric Stream System

The organization should consider utilizing metric stream, which is a flexible system that aims at streamlining the governance structure of organizations with the major aim of facilitating strong corporate governance.

Through the system, the company is likely to comply with the rules and regulations, such as accountability and adopting an open communication policy. Without the system, mismanagement and misappropriation of funds is likely to continue because the organization is greatly influenced by the external forces some of which are powerful government bureaucrats (Douma, & Schreuder, 2013).

Effectiveness of the System

The system is known to support enterprise risk management meaning that the organization will be in a strong position to take risks. Additionally, policy formulation, especially as regards to change, would be easy and viable. It is recommended that the organization adopt the metric stream system since it will guarantee communication and public awareness.

The system makes use of management tools, such as the balanced scorecard, which ensures monitoring and the making of decisions in a simpler way. Many organizations have been applying the system in the United States and Europe and the results have been positive (Holton, 2006). For instance, it is known to streamline several CCO-level oversight strategies, agendas, measures, executive decisions, reviews, documentation processes, and teaching mandates.

Through the system, the organization will be able to eliminate SOX practices, money-laundering claims, and corruption practices that are rampant. With time, the company will be in a position to implement ethical codes since the system will facilitate a productive corporate culture of honesty and integrity.

Metric stream has been proved to combine software and content in delivering the form of governance that many organizations have been yearning for since it offers an imbedded solution that facilitates best practices. Employees will be able to access quality education from experts, as well as learn the regulations without necessarily attending classes.

References

Aglietta, M., & Rebérioux, A. (2005), Corporate Governance Adrift: A Critique of Shareholder Value. Northampton, MA: Edward Elgar.

Arbache, A.M. (2010). Presentation to the OECD Taskforce on Corporate Governance of State-Owned Enterprises. Cairo: Associated Press.

Clarke, T. (2004). Critical Perspectives on Business and Management: 5 Volume Series on Corporate Governance – Genesis, Anglo-American, European, Asian and Contemporary Corporate Governance. New York: Routledge

Clarke, T. (2004). Theories of Corporate Governance: The Philosophical Foundations of Corporate Governance New York: Routledge.

Dawley, D., &Jamal I.H. (2008). Privatization and Financial Performance: Can Value Be Created by Privatizing State-Owned Enterprises in the Middle East & North Africa (MENA) Region? Journal of Economic Valuation and Economic Loss Analysis, 3(1), 67-93.

Douma, S. & Schreuder, H. (2013). Economic Approaches to Organizations. London: Pearson

Holton, G. A. (2006). Investor Suffrage Movement. Financial Analysis Journal, 62(6), 15–20

Jamal, I. (2008). Infrastructure Privatization: A Multinational Review of Five Initiatives in the Middle East and North Africa. International Journal of Arab Culture, Management and Sustainable Development, 1(1), 1-45.

McConnell, J. (2003). International Corporate Governance. Journal of Financial and Quantitative Analysis, 38 (1): 1–36.

Werenfels, I. (2002). Obstacles to Privatization of State-Owned Industries in Algeria: the Political Economy of a Distributive Conflict. The Journal of North African Studies, 7(1), 87-103.

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