Corporate Governance of ADNOC Company Paper Example

Introduction

Corporate governance is defined as a set of rules, processes, and practices through which an institution is run (Thomsen & Conyon, 2012). It essentially involves balancing the needs of the many shareholders involved in a company, including the customers, the management, financiers, stakeholders, and the government to achieve development for the company. The major players in corporate governance are the directors who may occupy their position by virtue of their capacity in a company or by appointments by the shareholders. The directors, in turn, have a responsibility to provide leadership, set the company's goals, supervise the management and report to shareholders. Corporate governance is an integral part of every organization, and it is a requirement by governments that every institution has a well-stipulated system of how it operates or relates to the shareholders and the environment as well.

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Corporate Governance for UAE Companies

This particular subtopic is relevant to this study since the company under review, Abu Dhabi National Oil Company is situated in the United Arab Emirates (UAE). To have a grip of how the company operates with respect of its corporate governance, it is important to have a more profound understanding of the laws that the country has put in place to regulate companies within its borders. In recent years, the UAE has seen a push for promotion and advancement of more efficient corporate governance practices (Al Awadi & Koster, 2017). Companies that are already listed in the stock market are now adjusting to the compulsory requirements which the government established while financial institutions have non-binding requirements as a starting point.

The Security and Commodities Authority (SCA) introduced a new code of governance in 2009 which applied to all institutions whose stocks are listed in any market. However, the code exempted government institutions, foreign companies, and regulated entities (Al Awadi & Koster, 2017). The SCA has set a high standard code of governance which is based on international standards. Moreover, it provides a business plan to these companies with the aim of helping them adhere to the rules and regulations provided. Any company that fails to comply with the rules must provide an action plan to show how it is going to rectify its lack of complying.

The provisions of the code of governance are meant to ensure the companies align to a common set of rules. Some of the requirements are; at least a third of the directors must be independent and the majority must be non-executive. The code also stipulates that the board must have an internal control system for risk management, for enforcing the code, ensuring compliance with local laws, and for reviewing financial information of the company (Mubarak, 2012). The codes also mandated the board to form an audit committee as well as a remuneration and nomination committee. The committees must consist of at least two independent directors and at least three non-executive directors. Additionally, one member of the team must be an expert in financial and accounting affairs, and the chairman should not be included in the committees.

The code goes further to state that the meeting of the board must be held at least once every two months. Moreover, all companies which the code of governance applies must submit annual reports of their practices to the SCA. The report has to be comprehensive which means it has to contain information on internal corporate governance system, all the violations committed, and the company's plan to avoid them in the future (Adawi & Rwegasira, 2013). It should also include remuneration details of senior management as well as a composition of the board. Furthermore, the board should appoint a compliance officer who will be responsible for enforcing the corporate governance code.

Purpose

The purpose of this paper is to comprehensively analyze the corporate governance of Abu Dhabi National Oil using available literature. The paper will emphasize the leadership structure of the company and the role of each leadership position. Moreover, it will look at the different principals as they make use of corporate governance mechanism, how they influence the strategic positioning of corporate entrepreneurship and in the process ensure the development of the company.

Company Profile-Abu Dhabi National Oil Company

ADNOC is a state-owned company in the UAE and one of the biggest company in the country. Globally, it is the 12th largest oil company with a production of 3 million barrels of oil per day. Additionally, it has 16 subsidiary companies in different stages of production; upstream, midstream and downstream. It also operates two refineries, oil production companies, and gas industries. It was established in 1971, a decade after Abu Dhabi began producing oil (International Directory of Company Histories, 2018). The company's headquarters are in Abu Dhabi. It is managed by the Supreme Petroleum Council which is headed by the crown prince of the city. Formed in 1988, it is tasked with supervising all oil and gas companies in the UAE in addition to acting as the board of directors for ADNOC.

Since its inception, ADNOC has played a critical role in the economic development of Abu Dhabi by managing and preserving the oil reserves on behalf of the government. It is currently under the management of Sultan Ahmed Jaber who is working on modernizing the company to make it more profitable (International Directory of Company Histories, 2018). Over the course of its operation, it has diversified its portfolio to include refining and petrochemical businesses. This includes gas and petrol service stations and modern transport facilities, such as bulk carriers, LNG and LPG carriers, container vessels, and oil and chemical tankers. To remain competitive, the company aims to increase its oil production, maximize operational efficiencies and optimize costs. It intends to do this by consolidating its offshore and onshore operations and reducing production costs. The CEO has also stated that the company plans to increase value by leveraging synergies, enhancing strategic investments, and adopting practices that are compatible with the goals of the organization.

Ownership and Management Structure

A business can be organized into six different structures as will be highlighted below.

Sole Proprietorship

This is a type of business structure where the owner and the business are inseparable. Usually, it does not require to be registered with the government, and the owner does not have to go through any formal or legal process while establishing it (Dignam, & Lowry, 2016). Moreover, the owner files the business' taxes just like his own and not separately like other big corporations.

Partnerships

Just like a sole proprietorship, partnerships do not require one to go through the complex process of registering a business. They are formed when two people come together to start a small or middle sized business (Dignam, & Lowry, 2016). Each party files taxes as individual returns which means the government recognizes the business according to the percentage of ownership. Additionally, partnerships do not require a lot of investments, therefore do not always incur huge loans and debts.

Limited Partnerships

This type of partnership involves two people or entities (a general partner and a limited partner) coming together to start a business. A general partner is responsible for the day-to-day running of the business while a limited partner only contributes financially. The latter is not liable for any debts or anything that happens to the business (Kallamu, 2016). These kind of partnerships are usually costly to set up and generally more complicated to manage.

Corporations and LLC's

Corporations and Limited Liability Company (LLC) are large entities that are identified separately from their owners (they are independent legal entities). Therefore, owners do not pay these entities' taxes as personal tax returns since governments recognize them individually. Moreover, they limit the owner's liability concerning debts and court cases. LLCs are somewhat different from corporations in the sense that they have some characteristics of partnerships; for instance, owners pay their taxes on their personal tax returns, according to their specific shares of the business (Kallamu, 2016). However, they provide little liability against issues such as debts.

Non-profit Corporations

These are corporations formed to carry out charitable activities which can be educational, religious, or scientific (Gasparski, 2016). Typically, they get funds from private and public companies as donations. They are also not usually taxed by the government since the money is directed toward noble courses. They are also considered beneficial to society and therefore not subject to the typical process that other corporations go through.

Cooperatives

These are institutions formed by two or more people who unite voluntarily to pursue their needs, be it social or economic (Gasparski, 2016). They can also be formed to run an already existing business, such as a food chain or an art show. They are sometimes considered informal setups rather than legal labels. Countries have different laws regarding the formation of cooperatives. In the UAE, people are yet to embrace these institutions as Kallamu (2016) notes. He adds that although they are well established and somehow widespread, their socio-economic role is not well understood, not only by the people but also the government. Nonetheless, the cooperative society in the country has achieved remarkable success since its inception after the oil boom.

ADNOC Share Market and Ownership Structure

Majority of the ADNOC board of governors comprises non-executive members as per the provisions of the UAE Governance Rules. Additionally, a third of the board is made up of independent members (three in total) namely; Mr. Emmanuel Beau, Mr. Jassim Mohammed Alseddiqi, and Mr. Pedro Miro Roig. The board has set up two committees to assist in the running of the company; the first, the audit committee is mainly responsible for financial matters: It reviews the integrity of financial reports and statements, assessing the efficiency of the internal control review function, monitoring any...