Laws vs. Ethics in Yemen

Recently, CIPE and its partners in Yemen released the results of two important pieces of research: a survey of corporate governance awareness and practice among 200 businesses in five governorates across all sectors, and a comprehensive analysis of the legal and regulatory framework in Yemen as it relates to corporate governance principles. This is the first time that this kind of information has been gathered in Yemen and will prove to be a useful resource, not only for CIPE but other partners and international organizations such as the IFC and the World Bank. Most importantly, the studies will form the basis for drafting the Guidelines for Corporate Governance Best Practices in Yemen, a process currently underway with the local Task Force on Corporate Governance (see http://www.cipe.org/regional/menacg/index.php).

Not surprisingly, the studies show that decent laws are on the books, but they are applied in a piece-meal fashion, if at all. The banking sector is regulated, but most other companies get away with avoiding many of the legal requirements – either by ignoring them, paying fines, or providing bribes. Companies know that the regulatory agencies are weak, and are willing to play their hand by simply evading the laws, such as tax payments and registration requirements.

For our partners, the most likely way to achieve success in Yemen will be to develop a culture of ethical responsibility. Corporate governance cannot be separated from ethical behavior, and both are powerful tools to fight against corruption. As noted in the recent Focus publication from the Global Corporate Governance Forum, “The Moral Compass of Companies: Business Ethics and Corporate Governance as Anti-Corruption Tools,” authored by John D. Sullivan, when regulatory institutions are weak, ethics play a much more important role. Corporate governance will take hold in Yemen not because it is required and imposed, but rather as a result of moral leadership and translating ethical principles into practice.

While it is difficult to conclusively prove, current research shows the link between ethical behavior and improved financial performance, and if nothing else, this should be a motivating factor. It’s easy to see that non-ethical practices waste resources, scare away investors, and drive down employee morale – all of which stymies economic growth. Strong ethical practices help to ensure more sustainable businesses. However, if there is no real commitment at the top level, then any ethical framework will become empty words on paper.

I often hear the excuse that corruption (along with being late, canceling appointments, and chewing qat) is an endemic part of the culture. This is debatable, but even so, it does not absolve business leaders from providing moral leadership to management, employees, suppliers and the community at large. In a country like Yemen, the pressure to perpetuate corrupt practices is strong and resisting this may put businesses at a competitive disadvantage in the short run. But, in the long run, there can be no doubt that it will pay dividends – both financial and non-financial. Our partners see this, and they will be the ones to build a more ethical environment and cultivate others to appreciate the real value of corporate governance.