The Lebanese Corporate Governance System

Paper Summary:

The paper explains that the Lebanese Corporate Governance system, evolving after 15 years of civil war (1975-1990), is built on family business structure, block shareholdings and an active banking system and is moving to a market-based system. The author points out that the regulatory initiatives aim to develop an equity finance culture where external mechanisms allow firms to improve their performance, to reduce their cost of capital and to enhance the long-term economic performance. The paper relates that several positive regional developments will improve the local equity culture but significant challenges lie ahead.

Table of Contents
An Overview of the Lebanese Corporate Governance System: Main Challenges
The Origins of Corporate Governance Systems: the Lebanese Case
The Characteristics of Corporate Governance Systems: Toward a Lebanese CG System.
The Financing Sources: Market- versus Bank-based System
The Control and Decision-making: External-Markets versus Internal-Committees
The Future of the Lebanese CG System: Further Issues

From the Paper:

"The existence of widespread public and private sector corruption is key. While this may help answer why the legal and institutional framework for corporate governance is so weak, the existence of significant corruption goes farther by making the overall business environment less attractive to investors, particularly foreign investors. This is especially true with respect to investment opportunities with firms that depend on significant contractual relations with the government. Lebanon, to quote the US Embassy Country Commercial Guide 2003, has "laws and regulations to combat corruption but historically these laws have not been enforced." Based on the 2003 Corruption Perception Index developed by Transparency International, where the higher the ranking the greater the level of corruption, Lebanon ranked 78 out of 133. On a scale from 0 to 10, with 0 being highly corrupt, Lebanon scored only 3. Furthermore, according to the Lebanese research company Information International, Lebanon loses over $1 billion a year due to corruption. It is widely reported that significant bribes have been paid to win key public contracts. Such a level of corruption is a major cause for concern as the judicial system lacks the ability to provide shareholders and other corporate stakeholders with ample opportunity to receive proper redress for grievances."

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