Corporate governance in the Middle East and North Africa: A systematic review of current trends and opportunities for future research

• Published date: 01 November 2021
• Author: Bassam Farah,Rida Elias,Ruth Aguilera,Elie Abi Saad
• Date: 01 November 2021
• DOI: http://doi.org/10.1111/corg.12377

REVIEW ARTICLE

Corporate governance in the Middle East and North Africa:

A systematic review of current trends and opportunities for

future research

Bassam Farah

1

| Rida Elias

1

| Ruth Aguilera

2

| Elie Abi Saad

3

1

Olayan School of Business, American

University of Beirut, Beirut, Lebanon

2

D'Amore-McKim School of Business,

Northeastern University, Boston,

Massachusetts, USA

3

HEC Montréal, Montréal, Quebec, Canada

Correspondence

Bassam Farah, Olayan School of Business,

American University of Beirut, P.O. Box

11-0236, Riad El-Solh, Beirut 1107 2020,

Lebanon.

Email: bassam.farah@aub.edu.lb

Abstract

Research Question/Issue: We systematically review the corporate governance

(CG) literature on the Middle East and North Africa (MENA), organize it into six

main themes and their subthemes, and propose several opportunities for future

research.

Research Findings/Insights: We highlight CG's unique characteristics in the MENA

region as well as differences and similarities across MENA countries. We shed light

on how organizations are governed in this region especially that their ownership

structures are centered on families and the state, and that Islam plays a major role in

their governance. Our review establishes a solid foundation for future research

directed at CG practices in the MENA region and encourages policymakers and prac-

titioners to improve CG in the region.

Theoretical/Academic Implications: To the best of our knowledge, this is the first

systematic literature review covering CG in the MENA region. In an effort to encour-

age the continuing evolution of this research stream and augment its contributions to

the broader CG literature, we develop an extensive research agenda focusing on

several key topics that deserve further attention such as ownership and countries'

political regimes, family business and royal families, Sharia law, and executive com-

pensation, among others.

Practitioner/Policy Implications: This review invites policymakers and investors to

consider implementing better policies aimed at improving CG practices, specifically

by fomenting transparency, developing financial markets, providing stronger protec-

tions for minority shareholders, and enhancing compliance with existing and new

regulations.

KEYWORDS

corporate governance, board of directors, financial disclosure, Middle East and North Africa

(MENA), ownership

1|INTRODUCTION

Corporate governance (CG) research has exploded over the past few

decades and adopted different perspectives from management,

finance, and sociology, among other fields. Significant corporate

scandals, public protests against excessive managerial greed

(Dorff, 2014), the recklessness of some major financial institutions

leading to the 2008 financial crisis (Aguilera et al., 2016), and height-

ened attention to sustainability (Jamali et al., 2008) have played a role

in scholars' and practitioners' growing interest in CG. This governance

Received: 5 September 2019 Revised: 26 February 2021 Accepted: 18 March 2021

DOI: 10.1111/corg.12377

630 © 2021 John Wiley & Sons Ltd Corp Govern Int Rev. 2021;29:630–660.wileyonlinelibrary.com/journal/corg

refers to the allocation of resources and responsibilities in public and

private organizations, hence influencing their individual organizational

performance as well as the countries' attractiveness for foreign direct

investments (FDIs) (Aguilera & Crespi-Cladera, 2016). Given CG's

importance to the economic, environmental, and social health of orga-

nizations and countries, researchers have conducted multiple litera-

ture reviews to advance the CG field and improve its theoretical and

practical foundations (e.g., Aguilera et al., 2016; Aguilera et al., 2019b;

Aguilera & Jackson, 2010; Hambrick et al., 2008).

Cross-national CG research has discarded the one-rule-fits-all of

CG models (Aguilera & Jackson, 2010) and also rejected the universal-

ity of the two dominating CG models, the Anglo-American (share-

holder-oriented) and Continental (stakeholder-oriented) models, for

non-Western world regions (Aguilera et al., 2019b; Aguilera &

Jackson, 2010). Instead, there is a call for a more contextualized study

of CG, as most countries, regions, or markets have unique characteris-

tics and adopt CG models and practices that fit their institutional and

national contexts (Fainshmidt et al., 2018).

We decided to undertake this review to take stock of CG

research on the Middle East and North Africa (MENA) region for two

key reasons. First, although there exist multiple reviews of cross-

national CG in continental Europe and South East Asia as geo-political

regions, to our surprise, there is no review discussing the body of

work on CG in MENA countries (see Table S1 for a comprehensive list

of all literature reviews on CG). In fact, existing research is quite frag-

mented across disciplinary fields and mainly focuses either on individ-

ual country studies or on small group of countries studies, thus

requiring an additional exercise of comparing cross-national gover-

nance norms and practices in the region.

Second, even though the majority of MENA countries have devel-

oped codes of good governance (see Table 1), most do not fall into a

specific shareholder or stakeholder-oriented CG model; rather, many

have their own unique CG characteristics, representing a hybrid model

with its own Islamic focus that is reflected in the Sharia law that gov-

erns commercial transactions (Foster, 2006). Moreover, MENA coun-

tries share important governance vacuums in terms of institutional

rules and their enforcement, generating higher rates of corruption and

economic instability (Aguilera et al., 2019a). In fact, some of these

countries have witnessed the irruption of civil society, leading to revo-

lutions against corruption and the lack of good governance, starting

with the Arab Spring in Tunisia in 2010. This suggests that most of

the MENA countries' governance systems require important improve-

ments and reforms.

A simple test to show that the MENA region does not fit into any

of the two existing CG models is to explore the nature of common CG

practices in MENA countries, posing various questions: Would exter-

nal corporate control work in a country where there is high concentra-

tion of family-owned companies? Would board monitoring be

effective in a culture where respect for hierarchy is most important?

And would incentivized pay align executives' and owners' interests in

places where there is a systemic lack of transparency and accountabil-

ity? The answer is mostly “no”to all the above questions because

financial markets are not fully developed, the ability to enforce the

law is weak, firms nurture close government relations, trust among

stakeholders is key to enter into contracts, and kinship and other

informal institutions might be much more prominent in defining how

corporations are governed.

To conclude, in this review article, we discuss CG research in the

MENA region by identifying the key research questions asked to date,

the main concepts used, the key countries studied, and the multiple

explanations offered drawing on different perspectives: economic,

management, cultural, legal, and political. Our goal is to provide some

forward-looking direction to improve future CG research in the MENA

region given the area's unique attributes and help this region imple-

ment and update economic and legal reforms to attract more private

and foreign direct investments (Sarhan & Ntim, 2018).

2|METHODOLOGY

In this review, we include 23 countries in the MENA region. We iden-

tified these 23 MENA countries based on the World Bank (2021)

19 MENA countries. However, we added four additional countries

(Mauritania, Somalia, Sudan, and Turkey) as they are considered

MENA countries either by the International Monetary Fund (2019)

MENA countries' classification or by the World Atlas (2021) MENA

countries' classification and due to their geographical and cultural

proximity to the other MENA countries (see Table 1 for a list of the

23 MENA countries). The MENA region is understudied (Fainshmidt

et al., 2018). One of the main common denominators of this region is

Islam, which is followed by approximately 95% of the total MENA

population (Budhwar & Mellahi, 2007) and also influences how com-

panies are governed to a great extent. Another important characteris-

tic of this region is that most MENA countries have crude oil and

13 out of the 23 MENA countries are considered oil-rich, as they rank

among the top 30 richest countries in crude oil worldwide (see

Table 2). A further characteristic of this region is that most MENA

countries suffer from weak governance systems and rank below the

world's average (see Table 3). Tables 2 and 3 offer some additional

socioeconomic, cultural, and governance comparative descriptive sta-

tistics across these oil-rich versus oil-dry countries (Naciri, 2008).

Similar to other systematic CG literature reviews (e.g., Aguilera

et al., 2019b; Nguyen et al., 2020), we adopted Tranfield et al. (2003)

three-step process: planning the review, collecting relevant articles,

and analyzing their findings. In terms of planning, we first gathered all

existing literature review articles on CG and international CG, in gen-

eral. We list 181 literature reviews on CG in Table S1. This allows us

to confirm that, to our knowledge, a comprehensive review systemati-

cally discussing CG in the MENA region does not exist. The one that

comes closest is Dalwai et al.'s (2015) review of the relationship

between CG and firm performance in the banking sector in Gulf

Cooperation Council (GCC) countries. Second, we aimed to collect as

many keywords as possible used in previous CG literature reviews

and applied them to our search. We compiled all these keywords in a

table, reviewed articles, and kept adding keywords until we reached

an exhaustive list. Table 4 includes all the search keywords used.

FARAH ET AL.631