Gulf must lose 'brown envelope' culture - KPMG chief

Gulf companies need to improve their corporate governance strategies or risk falling victim to fraud and losing market share, according to a partner at KPMG.

Fraud and unethical behavior across the region has grown alongside the growth of the business sector, and this must be addressed before it is too late, Colin Lobo, partner in-charge forensic for global audit and advisory service, said in an interview.

“The region certainly needs to look at its corporate governance framework and the code of conduct is an integral part of that. It needs to be dealt with now rather than much later when it will probably be too late,” he warned.

GCC companies looking to regional stock markets to grow their capital are coming under increasing pressure to improve their corporate governance guidelines.

According to Gulf Capital 48 GCC companies are due to IPO between the second quarter of 2008 and 2010.

While introducing corporate governance guidelines is no more challenging in this region compared to others, the Middle East faces specific challenges fuelled by a predominately cash-based economy, said Lobo.

“It makes it more difficult to track and trace money that may have changed hands. In the West it may be expensive holidays but in this part of the world cash in a brown envelope is the preferred method,” he said.

He added that the construction industry is most susceptible to unethical behavior.

“Fraud and corruption isn’t relevant in one area, it’s across the board. [However], the construction industry is prone to it purely because of the scale of projects being undertaken in the region.”

According to a joint report by Dubai-based Hawkamah Institute for Corporate Governance and World Bank member IFC, poor corporate governance in the GCC is costing the region up to $300 billion a year.