Ethical Boardroom talks to Andrew Smith, CEO of the UAE’s RAK Insurance, on the importance of adopting a proactive approach to good corporate governance, promoting strong values and showing commitment to stakeholders.
EB: What is your background in corporate governance?
Having worked for publicly listed multinational organisations and privately owned businesses, I had the responsibility of delivering key results for all stakeholders including shareholders and board of directors. Years of experience have given me extensive and significant experience in corporate governance and control mechanisms that have led to internal improvements and recognition of the company by local regulators and governing bodies.
I am one with RAK Insurance in its commitment to international best practice of governance, enterprise risk management and board ethics.
EB: You took the helm at Rak Insurance less than three years ago; what progressive steps have you taken to enhance the company’s governance practices?
RAK Insurance’s commitment to implementing corporate governance procedures is still in its early years but progressing in the right direction. The UAE’s ministerial resolution concerning governance rules and corporate discipline standards only came to effect in recent years.
As part of the company transformation under my leadership, the first step we took was to introduce a code of conduct. This has been reviewed with the employees and fully implemented. We have introduced and adopted a wide range of policies and procedures related to a number of functional areas, such as human resources, underwriting, claims, finance, operations and policies related to the legal and compliance department.
One of the biggest changes we have made in the company is establishing a clear-cut delegation of authority, providing a proper chain of command and clearer accountability of responsibilities. Corporate governance is not a programme but simply put, it’s ensuring good business behaviour with a set of mandatory boundaries but at the same time, providing space for responsible entrepreneurial behaviours. The strategies we have developed have been anchored on the principles of focusing on the long-term perspective; working on real and sustainable values; and considering the interests of stakeholders at all times.
EB: Where do you see room for improvement over the next 12 to 18 months?
To further improve RAK Insurance’s corporate governance, we have to recognise that good governance is not just about compliance and reporting but more on the performance aspects. Having more elaborate roles, objectives and understanding of the major functions from the board of directors, shareholders, executive management and even to the employees will lead to a more consistent working relationship.
Maintaining an effective governance infrastructure is also a challenge that we have dealt with effectively. We have in place a dissemination strategy that would enable all our stakeholders with a crystal-clear grasp of information the company holds. Greater internal control is also an area for improvement over the next 12 to 18 months.
EB: What is your vision for RAK Insurance’s corporate governance practices over the next five years?
To date, RAK Insurance is committed to ensure all necessary means and precautions are in place so that all shareholders exercise their equal statutory rights without any discrimination in the accordance with the instructions of the Securities and Commodities Authority.
The board of directors are devoted to the transparency practices of UAE Corporate Governance as stipulated in the Ministerial Decree No. 23/r for the year 2007 and as amended by the Ministerial Resolution No. 518 of 2009 concerning Governance Rules and Corporate Discipline Standards. The board of directors has stabilised the mechanism of approval and publication of the final and interim financial statements at the ADX to inform shareholders and related parties, whereas all final and interim financial results shall be reviewed and discussed by the audit committee who shall make a recommendation to the board of directors for approval in order to be disclosed and published in the Abu Dhabi Securities Market.
“The board and management have to share a clear vision of the company’s purpose; its core business areas and markets and the risk the company is willing to take”
The nomination and remuneration committee has ensured the independence of independent members of the board of directors and assuring or ascertaining that no change has been made in their status. In addition to the audit committee and nomination and remuneration committee, an investment committee was formed. The investment committee is a management committee that reports to the board of directors.
Over the next three to five years, I would like to work towards achieving a clear vision for the company, a well-defined value creation strategy with annual and mid-term performance objectives, a clear succession plan for senior management and well-defined goals and objectives.
The board and management have to share a clear vision of the company’s purpose; its core business areas and markets, its financial goals (targeted rates of return and growth) and the amount of risk the company is willing to take to achieve them. This vision sets the boundaries within which the company intends to create value for its shareholders. The board is responsible for ensuring adherence to this vision, which should always be mentioned at the beginning of the annual report to shareholders. Indeed, its annual recall, “this is our business,” is an excellent indicator of good governance.
A company’s strategy defines how it intends to create value in the next three to five years and which strengths it intends to capitalise on. Developed by management and approved by the board, the strategy should appear in the annual report. Good governance can be recognised by the quality of this strategy; annual and medium-term performance objectives – every year a board should set short- and medium-term performance objectives for senior management.
The directors should assure shareholders that the company has a comprehensive succession plan outlining the internal development of senior management successors. The quality of the plan reflects whether the directors are able to assert themselves or not.
The real performance of a company should be assessed according to objective criteria, return on capital and earnings per share as two examples. It shouldn’t be assessed by the market price of its share alone, which measures expectations rather than corporate performance. These rules, combined with a separation of the roles of directors and senior management, should ensure that the company’s interests are aligned with shareholder interests, which is the very foundation of good governance.
EB: Corporate governance codes and regulations are still in their infancy within the Gulf Cooperation Council (GCC) states; how difficult has it been to adapt to international best practice standards?
Coping with international standards and improving the corporate governance environment is being taken more seriously by GCC countries. The economic turmoil experienced worldwide in 2008 has dampened the boom of the GCC countries and has brought to the surface greater emphasis on the need for sound corporate governance rules and regulations.
In 2010, the Securities and Commodities Authority resolved to approve the Ministerial Resolution No. 518 of 2009 concerning Governance Rules and Corporate Discipline Standards in the United Arab Emirates. It is believed that the way to control and direct the business corporations is to have a solid system of corporate governance.
The region is on the right path in implementing corporate governance as seen by the continued surge of foreign investors. However, significant challenges remain, especially in the areas of transparency and disclosures, board practices and internal controls.
Adhering to an international best practice standards, such as International Corporate Governance Network or the Organisation for Economic Co-operation and Development (OECD) is now being seen as a not so difficult tasks as the regional corporate governance framework has already been laid for companies to comply with.
EB: Good governance requires a constant effort to communicate corporate policies to all stakeholders; what steps has RAK Insurance taken in this sphere?
Communication for me will always be a two-way process. RAK Insurance stands firm on its commitment to an open and honest communication and that the voices of our stakeholders are being heard. We hold dialogues with our employees on a regular basis to hear what they have to say on our policies. We try as much as we can to listen to diverse opinions before coming up with any changes in our policies.
The company, as mentioned, has clearly defined roles for the senior management, who carry out the day-to-day operations effectively and in the most efficient manner in accordance to the company’s agreed strategies, policies and procedures.
To support the senior management, RAK Insurance has an intranet portal accessible by all employees where all policies and procedures are published. This intranet site also has a management dashboard, which contains all the reports generated by each department, all new regulations imposed on insurance companies and any other matter relating to the company as a whole and all its internal stakeholders.
When it comes to our clients and customers, we use various forms of media to communicate with them. These may include face-to-face meetings with big corporate clients to get their up-to-date feedbacks; sharing marketing materials, such as flyers and brochures. The website is being constantly updated and surveys are being conducted throughout the year.
“Risk management is a continually evolving process as the company continues to grow, which requires a systematic and comprehensive review at all times”
Being listed in the Abu Dhabi Securities Exchange as a public shareholding company, we have an obligation to publish our Corporate Governance Report on their site annually. This report together with our Annual Report is also being made available to our shareholders and potential investors.
EB: What does it mean for RAK Insurance to be recognised as a regional leader in corporate governance in Ethical Boardroom’s 2015 Awards?
We, at RAK Insurance, are greatly honoured and humbled to be given the accolade of this award. The company has been transformed during the past two years, including refocusing our business for greater economic efficiency and being awarded Best Corporate Governance – Insurance – Middle East 2015 is a testament that we are on the right track. RAK Insurance has been in the UAE insurance industry for the past 40 years. We continue to withstand tough competition and RAK Insurance is still emerging as a pioneer insurance provider in the UAE. The core values of the company, which we uphold until this day, serves as our framework in ensuring a balance of the interests of our stakeholders, including its shareholders, management, staff, customers, suppliers and the wider community.
EB: RAK Insurance scored exceptionally high marks for risk management; can you tell us why having a coherent enterprise risk management strategy is essential to the company’s growth?
RAK Insurance manages risk as part of its day-to-day activities to ensure it operates within the tolerance of risk the company is willing to take to realise its organisational objectives.
Having a coherent enterprise risk management strategy contributes to the enhancement of our organisational management and provisioning for consolidated services, which in time leads us to discovering new business opportunities. It provides, through its emphasis on overall risk appetite, a more objective basis for resource allocations, resulting in improved capital efficiency and return on equity. Having ERM in place also stabilises earnings and reduces stock-price volatility, offering the tool for more profitable, risk-adjusted investment decisions.
Our ERM addresses exposures to all sources of value, not just exposures to physical and financial assets. Consequently, it delivers transparency to all our stakeholders, resulting to reduced regulatory scrutiny, litigation expenses, costs of access to equity capital and the rate of return on incurred debt.
RAK Insurance follows a holistic risk monitoring and reporting framework. Each department performs evaluation of their business units based on their strategic, operational, financial and compliance risks/opportunities. If any of these were identified, prioritisation would be based on probability and impact in consultation with the head of risk. Risks would then be categorised into low, medium or high risk and will be analysed as to which will have the highest major impact in the company as a whole. Based on the already implemented risk mitigation measures, these risks will be addressed and if further actions are required, it will be remedied.
Regular reports are being submitted by the respective heads of departments such as reinsurance credit risk report, concentration risk, cash flow forecasts, reinsurance statistics, claims paid and claims reserves report, liquidity adequacy report and, most importantly, internal audit reports.
Risk management is a continually evolving process as the company continues to grow, which requires a systematic and comprehensive review at all times.