The UAE’s stellar development is raising the bar on good governance

With the eyes of the world on Dubai and the UAE, greater scrutiny and growing competition is raising the bar on good governance, writes Nicolas Manset, Head of the Middle East at Russell Reynolds Associates.

Right now, the UAE is literally and figuratively at the centre of the world. The bold visions and sky-high ambitions set out in the UAE’s ‘We the UAE 2031’ strategy and Dubai’s ‘D33’ Economic Agenda have positioned the UAE and Dubai as a place of infinite possibility and unimaginable growth for global investors.

People are looking at this part of world, and this increased attention is helping to raise the bar on good governance – especially in relation to emerging technologies such as artificial intelligence and crypto. At the same time, homegrown businesses have woken up to the fact that governance isn’t merely a question of compliance, but building a trusted, resilient and sustainable brand.

A hotbed for innovation

The UAE has stated its ambition to be an ‘attractive incubator for future innovators and entrepreneurs’ and ‘destination of choice for R&D investment’ in cutting-edge technologies such as AI, crypto, blockchain and NFTs. But these technologies also come with increased risk related to privacy, data security and ethics.

According to the Global Corporate Governance Trends 2024 report from Russell Reynolds Associates, board discussions around these kinds of technologies have skyrocketed in the last year. More than 30% of the S&P 500 addressed AI in their proxy statements last year.

Around the world, the growth of AI and other smart technologies has led to a raft of new legislation. In the EU, for example, the new Digital Services Act will affect how companies can use data captured by smart devices while companies in Brazil are having to put in place robust cybersecurity procedures to cyberattacks and data leaks.

As more international companies operate in the UAE, these new regulations will inevitably have a knock-on effect. At the same time, the UAE is also setting up new regulators and regulations of its own, such as the Virtual Assets Regulatory Authority and new rules around crypto.

These changes abroad are helping drive changes at home, in three areas: board composition, board effectiveness and risk management.

Board composition

Boards around the world are spending more time on their own composition, especially in regard to gender diversity. This is also true in the UAE, spurred on by the ‘Women on Boards’ directive. The number of women on boards has been steadily rising since 2012, and continues to do climb.

Board effectiveness

The introduction of the Federal Corporate Tax last year, as well as economic uncertainty, means that boards are also recognizing the need for robust board evaluations as a means of enhancing transparency, accountability and decision-making. We’re starting to see more board evaluations, and we expect them to become common best practice in the near future.

We’re also seeing an increase in continuous training for board directors around role descriptions, performance evaluations, KPIs and ethics.

Risk management

Finally, we’re seeing a greater focus on risk – be it financial, legal, business continuity or crisis management plans. With the influx of foreign businesses and investors, we are now in a global market. That means that when it comes to risk management, regulatory reporting, monitoring and surveillance, homegrown businesses need to be world-class to compete with the best of the best.

As board governance matures, collaboration with regulatory bodies and the mutual understanding of what one needs to do is absolutely key, especially when it comes to emerging technologies such as AI. Regulators need to train themselves on what the laws are, but boards do as well. That means not just training, but constant, continuous training.

Conclusion

Everybody wants to be in the UAE. Just look around you. Look at the real estate, the construction, the pace of growth and the size of the population. But to compete with the best in the world, homegrown businesses need to work on three things: getting more women on the board, giving directors the training they need to perform, and making sure they’re up to speed on the latest risks and regulations.

The good news is that the UAE is now a magnet for the world’s top talent. There’s such a melting pot of talented, intelligent people in the region. The people who come here are often best in class, because this is the place to be. And this influx of talent also is bringing change with it. The people bringing these changes are as good as you’ll find anywhere in the world, and the UAE is catching up fast.