cg case study mobinets

Case study: mobinets | 1

Corporate Governance Case Study: mobinets

LEARNING OBJECTIVES

After reading and discussing this case study, you should be able to:

build the business case for good corporate governance; recognize some of the key challenges that impede good governance; and identify improvements to address those challenges.

INTRODUCTION

The foundation of capitalism is the Darwinian idea that the market will decide whether goods or services or stock should continue to exist.1

Simply described, corporate governance is about striking a balance between achieving organizational objectives and complying with applicable regulations, ethical norms, and contracts. In the short run, there appears to be some trade-off between these two sides of the scale; however, over the long run, achieving the latter actually serves the former by enhancing the companys sustainability and control of resources, and thus shareholders wealth. Corporate management must ultimately realize that, one way or another, they will be held accountable by the invisible hand of the market and by government.2

To this effect and notwithstanding that corporate governance is not a one-size-fits-all concept,3 common themes in the development of such governance include (a) changes at the board level and (b) improvements in management control, among a few others.

COMPANY BACKGROUND

Labib Shalak, a young national of northern Lebanon, completed his undergraduate studies in mechanical engineering at the American University of Beirut. His next sojourn was in France, where he obtained a masters degree in telecommunications from the cole Nationale Suprieure des Tlcommunications. In 2003, after having developed extensive expertise in these areas, he founded mobinets in the northern Lebanese city of Tripoliperhaps as a means to harness his entrepreneurial spirit on the one hand, his longing to give back to his community on the other, and, somewhere in between, his passionate vision for next-generation telecom operations support systems (OSS). But such a thrilling venture is not without challenges.

Overview of the Business: Products and ServicesMobinets Lebanon S.A.L. Offshore caters to telecom operators and suppliers. As such, it provides the following products and services:

1 Monks and Minow 2011: 36. 2 Monks and Minow 2011: 16.3 CIPE 2011.

2 | Corporate GovernanCe

NEP (Network Engineering Platform): Previously called NPT (network planning and optimization tools), NEP is the companys flagship product, a comprehensive next generation operations support system (OSS) [] that meets the challenges of new hybrid networks and changing technologies.4 It comprises a set of network and planning optimization toolsover 20 modules, each of which may be acquired separatelythat yield substantial savings in capital and operating expenditures for customers in addition to other strategic and security benefits. The product continues to be refined to meet evolving operator demands and provide more functionality.

Telecom consultancy services: Mobile operators are increasingly outsourcing the technical engineering workoften defined as managed servicesto suppliers or major consultancy firms. In this respect, mobinets enjoys the advantage of having on staff engineers with in-depth knowledge of mobile networks from existing NEP clients.

IT consultancy services: IT Project Management: mobinets has an operating and maintenance agreement with Gemalto, a leading

provider of SIM (subscriber identity module) cards, whereby Gemalto subcontracts/outsources to mobinets the IT project management for its own products. Mobinets has also agreed to provide Ericsson with IT and telecom professional services to supplement the latters internal resources in certain areas.

Value Added Services and Products: mainly in the m-payment and m-banking areas (where m stands for mobile). Hot competition means mobinets competitive advantage in this area is relatively lower, and thus value added services and products are offered only as opportunities arisethrough indirect sales via partners (major vendors and equipment suppliers) such as Ericsson.

StrategyMobinets has transitioned from a service to a product model. As a start-up, the companys twin-pronged strategy was to focus on IT and telecom consultancy services for revenue generation and to invest heavily in the development of NEP. Since 2010, when NEP was launched, the companys focus has been shifting towards product sales, with revenues driven primarily by NEP licensing feesgenerally charged on a site license basis (and thus nonrecurring)and related recurring NEP support fees for keeping the perpetual licenses alive and providing maintenance and technical support. Mobinets has a partnership agreement with Nokia Siemens Network whereby the latter resells NEP. Moreover, NEP product sales are expected to boost the sales of telecom consultancy services and related revenues. As for value added services and products, and IT consultancy services, these are offered as opportunities arise.

Geographical MarketMobinets geographical coverage spans a large number of countries in the Middle East and North Africa and in Europe. Examples include Austria, Kuwait, Morocco, Tunisia, France, the United Kingdom, Cte dIvoire, South Africa, Kenya, Saudi Arabia, and Moldova.

FIGURE 1. LEGAL STRUCTURE AND OWNERSHIP

Mr. Labib Shalak~80.42%

Others~1.37%

IFC~18.21%

mobinets Morocco SARL (registered in Morocco)

mobinets France SARL (registered in France)

mobinets Lebanon S.A.L. Offshore

100%100%

4 Mobinets' website, http://www.mobinets.com, accessed on August 3, 2012.


Mr. Labib Shalak, the company founder, is a telecommunications engineer by education and training. He has over 15 years of experience in the telecom and IT industry including consultancy work in mobile network planning for major companies such as Siemens in Germany, Nortel in France, T-Mobile in Austria, and Cingular Wireless in the United States.

Up to 13 percent of Mr. Shalaks share of the company is expected to be distributed as stock options to employees.

IFC, a member of the World Bank Group, is the first institutional investor in mobinets, and provided the company with venture capital that otherwise would have been difficult to obtain for a small to medium-sized enterprise (SME) located in Tripoli, a frontier region of Lebanon. Moreover, having IFC on board enhances the companys credibility relative to that of its competitors.

Mobinets Morocco was set up in 2008 as a backup site to ensure business continuity in response to the deteriorating political situation in Lebanon, and then maintained for business development in North Africa.

Mobinets France is critical because national regulations lead many customers in Europe prefer to contract with a European company.

Mobinets NEP Sales and Collections CycleIn the first year or so following the launch of NEP, mobinets had to provide potential clients with on-site pilotsa process that generally requires two man-monthsas a proof of concept. Now that the products credibility and reputation are growing rapidly, the sales force is able, more often than not, to cut through this phase and go straight to negotiations.

Time requirements at this stage are very variable: they are a function of the clients ability to quickly secure its internal budget, which can take several months, and of the clients internal purchasing process (for example, if it requires issuing a request for proposal, the process is slowed down further). Once a purchase order is placed, product deliverycustomization, integration, and implementationcan take anywhere from three to nine months of on-site activities by two or three mobinets engineers, depending on the size of the project, the number of modules acquired, the extent of customization needed, and other factors.

Client payment schedules are also variable and contingent on the agreement reached. Although payment terms are typically within 3090 days of the invoice date, some clients are invoiced while the work is being performed and others only after the work is complete. Generally speaking, about 90 percent of the contract amount is usually collected within 90 days of receipt of the provisional acceptance certificatea document attesting that the client preliminarily accepts the product as delivered pending any issues that surface when the product is put to actual use. Ten percent is usually kept until final acceptance, which may be up to a year after provisional acceptance.

As a result, the sales cycle can easily exceed a year, and the cash cycle takes even longerboth of which exert heavy pressure on operating cash flows to meet running obligationssuch as salaries, operating expenses, and suppliersas they fall due.

WorkforceThe mobinets workforce, composed of only 3 individuals in 2003, grew to 44 by the end of 2009, more than half of whom were dedicated to research and development for NEP software. By the first half of 2012, the workforce had almost doubled (to more than 90 employees) and was expected to reach 120 by the end of 2012. Senior specialists have an average of 14 years of IT/telecom industry experience.


CASE IBUILDING THE BUSINESS CASE FOR GOOD GOVERNANCEHow much is the confidence of the marketplace worth? 5

Mobinets is headquartered in Lebanon and has offices in Morocco and France. As part of its growth strategy, it plans to open sales offices in the United Kingdom, Dubai, the Russian Federation, South Africa, Singapore, and cities in both North America and Latin America.

Time to market for NEP is a critical success factor for mobinets; the company needs to rapidly solidify its sales and marketing functions to exploit the unique features of NEP so as to gain market share, establish its foothold in the industry, and assume its position in the global arena before competitors catch up.

To support its growth plans within the constraints of the NEP sales and collections cycle, mobinets may well have to go for another round of financing.

In addition to managing its cash flows, developing its flagship product, growing its staff, and expanding its customer base, mobinets is developing an appropriate corporate governance frameworkwith all the resource commitment that this entailsto support its operations. This has been a conscious decision. One step in this direction is the development of a Code of Ethical Conduct, which is in progress.

Questions to ponder: 1. Is the timing right to pursue changes in corporate governance? Or is mobinets adding one more burden at

a critical time when it needs to optimize resources? What benefits is this commitment likely to yield?2. The mobinets Code of Ethical Conduct should be finalized within a short time. What related impact do you

foresee?3. Take a look at figure 2 (SME Stages of Growth); at which stage of the continuum would you place mobinets?

FIGURE 2. SME STAGES OF GROWTH

Key factors dictating CG framework Ownership structure/company type Size (employees, revenue) Nature and complexity of business Where the business is going

Capital, Stewardship, & Control needed throught to varying degrees

STAGE 1

Owned by a single/couple individuals;

Small # employees

Simple business

STAGE 2

Few SHs;

Small to medium # employees;

Simple/moderate complexity

STAGE 3

Few to multiple SHs

Medium # employees

Moderate complexity

STAGE 4

Go Public (IPO)

Medium # employees growing

Medium complexity growing

5 Monks and Minow 2011: 80.


CASE IITHE BOARD OF DIRECTORS[] Creating tomorrows corporation out of todays 6

Board EffectivenessMobinets board of directors has undergone substantial change: having consisted of Mr. Shalak, his sister, and her husband originally, today it consists of five members:

The chairman: Labib Shalak, who also is the CEO. He comes from an engineering background and enjoys extensive experience in telecommunications and IT.

Four independent directors seats, one of which is vacant and the other three occupied: Joseph Hitti (all names but chairmans are fictitious) comes from an IT background. In addition to membership

on numerous boards in Lebanon and abroad, he enjoys impressive experience in venture capital projects and private equity financing.

Tom Wilson has 23 years of experience in the telecommunications industry. At one point, he was vice president of two NASDAQ-quoted companies. He spent his first 10 years in the industry with a globally renowned provider of telecommunicationsparticularly mobileequipment and data communication systems. He also serves on a number of boards.

Wajih Mortada is a managing director at a multibillion-dollar investment group that manages investment vehicles focused on emerging markets across the world. He is also the CEO of a company that specializes in business development and mergers and acquisitions in the technology sector in the Middle East. Mr. Mortada has richly diversified expertise in IT and telecomin emerging markets particularlyas well as a PhD in computer science and a degree in computer engineering.

Members of the board are very busy individuals. Those who live abroad are not easily accessible. They meet up to four times a yearusually in person, but sometimes over the phone given the difficulty of aligning their schedules. Board meetings basically address financial performance and actual/potential projects. So far, Mr. Shalak and Mr. Hitti have been most instrumental in such strategic activities as promoting the company, fostering business relationships, and providing prompt feedback to management. Other current and former board members have also lent themselves to these activities, though to a much lesser extent.

The board does not have a formal corporate secretary; that role is currently played by the financial director. There are no active board committees.

The company also has an advisory board composed of the following members:

Elias Khoury: With 25 years of worldwide management consulting experience in a variety of economic sectors in North America, Europe, and the Middle East, Mr. Khoury is now a retired partner of an internationally renowned consulting firm and currently involved in governance functions with a variety of Middle East companies and nonprofit organizations.

Hani Koleilat: With 22 years of senior executive telecommunication experience in the Middle East and Africa, Mr. Koleilat serves as advisor to the chair of a highly reputed telecom company and as a member of its board. He also serves on the board of another telecom company in South Africa.



Bassem Barakat: With over than 17 years of experience in the telecommunications industry, acquired through engagements in the Middle East, Europe, North America, and Asia, Mr. Barakat is currently a partner at an esteemed consulting firm and a member of its communications and technology practice services.

Mobinets is in the process of setting up an audit committee headed by one executive board member and consisting of two other board members. The goal is to have the committee fully operational before the end of June 2013.

Questions to ponder: 1. What is the merit of having an advisory board? Do you think that the use of such a board is appropriate in

the case of mobinets? Or do you think that a full (regular) board of directors would be sufficient?2. Is the boards role vis--vis management clearly defined and well understood? Do the directors fully

understand their duties and responsibilities to the company and its shareholders?3. The roles of chair and CEO are not separate; does that pose a problem?4. Is the board size appropriate for the company?5. Does the board include an appropriate mix of

a. executive, nonexecutive, and independent directors? b. skill sets, given the future direction of the company?

6. Are the board procedures (e.g., meeting proceedings, frequency, and formality) effective and efficient?7. What sort of support structure should be built to provide the board with more adequate support? What do

you expect the role of the audit committee to be? Is an internal audit function part of this structure? Why or why not?

CASE IIIMANAGEMENT CONTROL

Unquestionably, the biggest challenge a company faces is not failure, but success. [] When a company is failing, it will try almost anything. On the other hand, a company that is successful generally does not know where the roots of that success lie. There is consequently a tendency to fall into a pattern of not changing anything. 7

Moving ForwardAs a start-up company from the frontier region of a developing country such as Lebanon, mobinets has certainly come a long way in building a very impressive international customer portfolio and notable business partnerships. The company has successfully built its brand equity, and the demand for its product is increasing at a much faster rate than its staffing. As a result, a significant challenge that mobinets faces is flawless delivery, or as Zein Balhas, the financial director, puts it: meeting this rising demand without compromising quality. To this effect, while being very selective about the projects that it undertakes, the company is improving its supply capabilities locally and in Morocco, the United Kingdom, and Dubai, by building its project management team (currently six individuals). However, it is no easy task to find new recruits with the right qualificationscandidates with networking and telecom experience at internationally renowned industry players are primary targetsand then train them in-house to become adequately familiar with NEPs unique features. That said, as part of its ongoing restructuring activities, mobinets has brought on board a telecom and IT international consultant to help it restructure the production and delivery departments, and implement best practices in accordance with the international standards of CMII and Six Sigma.

Organizational Structure and Decision MakingBecause of the companys rapid growth, its organizational structure is still in the making. A staff recruitment plan is being pursued to achieve the organizational hierarchy depicted in figure 3.



FIGURE 3. ORGANIZATIONAL HIERARCHY

The positions marked with asterisks in figure 3 are currently empty, as are a number of positions within the functions under them. Among the most prominent vacancies that mobinets is actively seeking to fill are those of quality assurance, training manager, and sales director. In the meantime, the company is understaffed but employees are very devoted and cooperative; many of them currently fill multiple positions concurrently. It follows that job descriptions and divisions of responsibilities are still not very clear and that the decision-making responsibility is shouldered to a large extent by Mr. Shalak because of his seniority in and vision for the company. Mobinets plans to apply for ISO certification during the summer of 2013 with the goal of streamlining all its horizontal processes across its six departments (Human Resources, Finance, Product Management, Production, Delivery, Sales and Marketing).

Business Planning and Monitoring and CommunicationMobinets strategic plan is clear in the mindset of senior management and the board of directors. It is documented in the current-year budget and the high-level budget for the following two years. Communication of these plans, budgets, and key performance indicators (KPIs) to lower-level management and staff is done in an informal setting.

In terms of monitoring, management keeps a very close eye on things; it meets practically daily to address operational issues. Development of an internal dashboard to report performance on a monthly basis is under way, as is development of an in-house accounting function. These developments will enable access to financial and management information in real time for planning and monitoring purposes and will greatly enhance internal communication across the organization, both vertically and horizontally.

CEO

Quality Assurance**

Internal Auditor**

VP HR Manager

Chief Commercial Officer/ Chief

Marketing Officer

Chief Technical Officer

Chief Information

Officer

Chief Financial Officer

Product Management

Human Resources

Sales SupportSoftware

DevelopmentFinance

Research & Development

Admin Technical SalesProject

ManagementSolution Architect

Accounting & Budgeting

Project Management

MarketingTelecom Delivery

IT Admin/ System

IntegrationCollection

Business Development


Risk Management Although no formal process is in place, risk management is carried out. Mobinets has identified two key risks:A. Insolvency, due to the inherent nature of the companys cash collections cycle. Appropriate cash management is

thus critical: all disbursements (except for petty cash payments) have to be approved by the financial director, to ensure that obligations are met in order of priority.

B. Quality and timeliness of delivery, given the rapid growth in demand giving rise to the robust workforce growth, which is certainly much needed but entails a notable percentage of newcomers who have yet to become well-versed with the unique features of mobinets products and services.

Internal Controls and Transaction Cycle ProcessesWhile mobinets is actively working to add staff, employees are filling multiple roles. Policies, procedures, authorities, and job descriptions have yet to be formally articulated. An internal audit function is definitely part of the long-term human resources plan.

Meanwhile, management is exercising hands-on control over the different processes; all purchases, expenditures, and disbursements are subject to approval by senior managementnamely the financial director, Mr. Shalaks sister. The final approval of all sales transactions lies with Mr. Shalak.

Questions to ponder: 1. After reviewing the elements of mobinets management control structure, what are some of the key challenges

that the developing company faces as it outgrows its current organizational setup? 2. How is mobinets handling those challenges? 3. What further steps need to be taken?4. How can mobinets attract, develop, and retain good talent as a smaller company with more limited financial

means than larger competitors?5. The internal audit function is part of the long-term plan. Should efforts be made to put it into effect sooner?

Do you think the company should develop it in-house or simply outsource it? Why?

CASE IVDISCLOSURES AND SHAREHOLDER PRACTICESIs it fair to assume that shareholders have [] knowledge? That they can act on it in a meaningful way? What is the evidence to support your answer?8

Financial Reporting and DisclosurePrior to 2012, the accounting function was being outsourced, so at this point the in-house accounting and reporting function is still being developed. The financial director is therefore very closely involved in the preparation of the financial statements, consolidated and otherwise, to ensure their compliance with applicable standards. Mobinets recently hired a consultant from Ernst & Young for two months to help structure the financial department.

In addition to its annual reporting, mobinets reports to IFC on a quarterly basis. The accounting for the French and Moroccan subsidiaries is centralized at the Lebanese headquarters. In 2012, mobinets appointed as its external auditor Deloitte, a Big Four firm with the appropriate industry expertise and cross-border reach.



Questions to ponder: 1. Mobinets has recently switched auditors. How would you expect this move to affect the quality of its financial

reporting? The perception of the company in the marketplace? The effectiveness of the board of directors? 2. Who is (are) mobinets key stakeholder(s)?3. Are the financial statements sufficient to ensure that all relevant information is made available to the key

stakeholder(s)? What is the benefit of providing additional disclosures?4. If mobinets were to develop an annual report, what types of disclosures would be included? 5. So far, mobinets has but a few shareholders. Moving forward, what key shareholder practices and protective

measures would you recommend be put in place to attract future investment?

Case I: Suggested Answers

1. Yes, the timing is right because substantive positive effects are anticipated, including the following:

Enhanced firm reputation to support bidding for contracts and growth of market share

Enhanced efficiency and optimization of organizational resources

Improved crisis response and enhanced sustainability

Improved profitability

Enhanced ability to access financing, especially by institutional investors and creditors, and anticipated valuation premium

2. Ethics code should help set tone at the top; clearly articulate to staff a formal commitment to ethical conduct, provided it is clearly communicated to all; send a strong signal to the marketplace.

3. Mobinets would be considered a Stage 3 company per the framework below, growing quickly towards Stage 4 (except no planned IPO as of now).

Case II: Suggested Answers

1. The advisory board can help fill some of the current gaps in the regular board. For example, management consulting skills are needed to guide the company in developing a management structure that suits its growth plans.

2. For the boards role vis--vis management to be clearly defined and well understood and for the directors to fully understand their duties and responsibilities to the company and its shareholders, it is highly recommended to develop a board charter for the formal board and terms of reference for the advisory board (including an authority matrix that clearly distinguishes decision-making roles between the board, management, and shareholders).

3. Two roles are combined in the person of the founder. Separating these positions at this stage of the companys growth may be premature.

4. The board size of five is appropriate for now. If/when the company grows to stage 4 (currently at stage 3) and/or takes on several new shareholders, it may consider revisiting this size (perhaps expanding it to seven).


Case III: Suggested Answers

1. Challenges include understaffing and shifting management structure; large number of newcomers makes it difficult to standardize quality of delivery; unclearly defined job descriptions and responsibilities; lack of communication to lower-level management and staff; unformalized business monitoring/risk assessment mechanisms and training programs; key-person risk is very much concentrated in Mr. Shalak.

2. Steps currently taken include being selective about new undertakings while putting into effect a defined staffing plan for a defined organizational hierarchy; hands-on control by upper management over cash, operations, and key decisions; developing the in-house accounting function; appointing a Big 4 audit firm.

3. Further steps:

The strategic plan, budget, objectives, and KPIs (long term and short term) need to be documented for the organization as a whole as well as for individual business units. Carrying out staff training should be part of those plans. Management should schedule monthly meetings to review overall performance against targets. Periodic meetings should be scheduled for all employees.

Case II: Suggested Answers continued

5. Very good structure overall, provided vacancies are filled. Good collection of skills overallwith plenty of industry expertise (IT and venture capital). For future seats, might benefit from filling with people who have experience in new markets (e.g., francophone Africa) and/or key business relationships. Also need someone who can provide guidance to help set up management structure (e.g., management consulting type background)but they have an advisory board member who can fill that role for now.

6. The board meets with adequate frequency but could improve its procedures such as developing a work plan, formal agenda, minutes, reporting requirements, etc.

7. Support structure for the board of directors:

A corporate secretary, with clear terms of reference, to focus on improving board procedures, including an annual plan for the board, developing a work plan, formal agenda, minutes, reporting requirements, exploring some training (offered around the region), etc.

Audit Committeeultimately to be composed only of nonexecutives/independents who are financially literateto monitor and review the financial reporting process as well as the internal control and risk management systems, among other things; to meet at least quarterly; Audit Committee charter to be approved by board.

Internal Auditbringing a systematic, disciplined, approach to evaluate and improve the effectiveness of risk management, control, and governance processes (IIA Definition); independently reporting to the board of directors and/or Audit Committee the information that they need to effectively discharge their responsibilities.

The switch to a Big Four audit firm is expected to have a favorable impact on the reporting process, the quality of reported information, and the companys understanding of best practices for disclosure as well as relevant regulatory requirements; should help in ultimately developing an annual report (which includes key nonfinancial information, including a summary of its corporate governance framework)all of which enables the board to be better informed as they carry out their fiduciary duties.


Case III: Suggested Answers continued

A KPI-based scheme to formally evaluate staff coupled with related financial and nonfinancial incentives is to be put in place. To ensure appropriate motivation, staff should be well informed (trained) about the scheme.

Develop a board charter and an authority matrix that identifies roles, key decisions and which individuals/bodies are authorized to make them, and that ensures the division of decision-making roles between the board, management, and shareholders are clear to all.

The (medium-term) organizational structure is to be finalized. Prepare a policies and procedures manual that clearly identifies roles, responsibilities, and accountabilities and segregates duties appropriately.

Mobinets should set up a management committee to help set policies and procedures, take over some decision-making responsibilities, and thereby free Mr. Shalaks time for the more strategic issues, reduce key-person risk, and help with communication.

There should be a formal system for routinely identifying business risks, assessing their impact, and developing corresponding mitigation strategies. This process is imperative for more realistic planning/budgeting, improved loss/cost control, and enhanced probability of realizing objectives.

For each department, set a threshold for approving/making cash disbursements and other transactions above which approval by senior management is required.

4. As a relatively smaller company, there are different means by which to attract, develop, and maintain good talent:

On the financial level: Creating performance-based financial incentives (such as a KPI-based scheme); educating employees about these incentives to ensure appropriate motivation; offering employee stock options

On the nonfinancial level: offering greater growth opportunities for employees as new positions/markets open up; creating a positive work environment and a close-knit culture of honesty, openness, and assistance in which employees take ownership of the organizations endeavors/successes/failures (by demonstrating commitment to the development/training and empowerment of staff members; rewarding employees commitment to the job/company; maintaining open lines of communication; etc.)

5. The company should consider expediting somewhat the setting up of an internal audit function, which would greatly assist management by (a) providing a formal, impartial review and appraisal of the operational activities and of the risk management, control, and governance processes; and (b) reporting findings and recommendations. Everything else being equal, in-house audit functions are generally more effective but, at this stage, it may be more cost-effective for mobinets to outsource this service. That being said, it may prove rather difficult to put in place an effective in-house audit function after the company is fully grown; so it may not be a bad idea to establish a small internal audit function (for example, A chief audit executive plus an assistant) that would perform part of the tasks and coordinate with a professional service firm for the rest of the tasks. Such a function would gradually grow with the rest of the company, in terms of size and expertise, until it is capable of standing alone without external support.


Case IV: Suggested Answers

1. The switch to a Big Four audit firm is expected to have favorable impacts on the reporting process, the quality of reported information, and the companys understanding of best practices in disclosure and also relevant regulatory requirements. These effects are expected to enhance the credibility of the financial information reported and thus the general perception of the company in the marketplace. Higher-quality information enables the board to be better informedand consequently more effectiveas it carries out its fiduciary duties.

2. The primary shareholder/stakeholder is IFC. Although Mr. Shalak is a majority owner, his management role keeps him well informed and up-to-date.

3. No, the financial statements are insufficient in themselves: although they contain primarily financial information, some key nonfinancial information is necessary for proper interpretation of the statements and to improve the transparency of the reporting entity.

4. Other than legal requirements, there is no all-inclusive list of required disclosures. Deciding which disclosures to include requires the preparer to exercise judgment while drawing on his or her profound knowledge of the organization, its operations, and its decisionmakers information needs.

As a privately held offshore company with but a few shareholders, mobinets has less extensive reporting requirements than its publicly held counterparts. For instance, it is not required to publish its financial statements. Access to its valuable information is thus restricted to selected parties whose specific needs can be easily understood and addressed.

That being said, following are a few suggestions for disclosures:

A summary of its corporate governance framework, which it is now strengthening The companys policies on social and environmental responsibilities and related key initiatives Management discussion and analysis of key strategic issues Related-party transactions Risk concentrations Subsequent events Pending lawsuits

5. Suggested shareholder practices:

Establish preemptive rights for shareholders Establish a board nomination committee and task it with developing procedures and a board profile;

consider using a search firm to select candidates Require minority shareholder representation on the board Adopt fair and transparent voting procedures including a one share, one vote policy Adopt policies and procedures to ensure that equitable information is provided to all shareholders Adopt a written policy defining the treatment of related-party transactions, conflicts of interest, and

insider trading, and require board approval of all related-party transactions and conflicts of interests, to be based on written criteria.

Require directors and senior executives to list all interests with other companies, to facilitate monitoring. Adopt a written policy defining how dividends are determined each year and the corresponding approval

process.


REFERENCESMonks, Robert A. G., and Nell Minow. 2011. Corporate Governance. 5th ed. United Kingdom: Wiley.

CIPE (Center for International Private Enterprise). 2011. Advancing Corporate Governance in the Middle East and North Africa: Stories and Solutions. Global Corporate Governance Forum, February.

Mobinets website, http://www.mobinets.com, accessed on August 3, 2012.

ACKNOWLEDGEMENTS

This case study was developed by IFC, a member of the World Bank Group, and authored by Rania Uwaydah Mardini, CPA, LCPA, MBA, Suliman S. Olayan School of Business at the American University of Beirut. IFC and the author would like to thank Labib Shalak, CEO and Chairman of the Board, and mobinets for being part of this case study. The hope is that other fast-growing small and medium enterprises can learn from this experience.

cg case study mobinets

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