Augmenting corporate governance and minority shareholders' safeguards in the State of Qatar : lessons from the United Kingdom

The problem of corporate governance and minority shareholder protection in the State of Qatar is path dependent. The permanency of agency cost, as a result of path-dependent variables, such as cultural and political factors, is believed to have a negative impact on an investment-friendly environment within the legal framework. While the agency problem in the United Kingdom seems to share similar issues with agency attributes, the situation in state-owned enterprises in Qatar, is different. Qatar suffers from principal-principal agency problems due to the abnormal ownership structure in its financial markets. The agency problem becomes more complex because of the influence of cultural, political and historical arrangements in the structure of corporate governance, especially when the government decides to do business by being a shareholder alongside private-sector investors. This thesis argues that previous reforms of the legal design were not investor-driven but state-driven. Thus, Qatar has hitherto suffered from insufficient corporate governance legal strategies afforded to investors to curb the expropriation practices of controlling shareholders that arise from the role of a path dependency that sought to limit the development of shareholder remedies in the interest of controlling shareholders. The grounds of insufficiency in providing adequate safeguards for minority shareholders in corporate law and corporate governance come from the non-recognition of minority rights in a highly concentrated environment in which the state and family have the main role in shaping corporate governance. The presence of minority investors in a highly concentrated ownership environment is prone to a divergence of interests due to opportunist practices by majority shareholders. This thesis argues that Qatar has not yet sufficiently addressed the principal-principal agency issue and, therefore, it needs different tactics unlike those existing in Organisation for Economic Co-operation and Development countries. External and internal legal strategies for corporate governance are underdeveloped in Qatar owing to the legal culture of path dependence, the concentration of ownership among families and the state, the proximity of the state to the lawmaking processes, and the non-independence of corporate and security regulators. Qatar still suffers from a gap in external legal strategies that prevents minority shareholders from enforcing directors' duties and pursuing the interests of the company after a wrong has occurred. The persistence of the gap in the protection of minority shareholders is due to a lack of interest in enhancing private enforcement methods. The gap is associated with the undeveloped legal culture and the presence of the state triumvirate as a shareholder, regulator and lawmaker. Internal legal strategies for corporate governance suffer from the problem of shareholders' apathy and free-riding. Moreover, institutional investors face stiff challenges due to the dominance of the controlling shareholder and their role being passive, thus similar to that of retail investors. Based on the above findings, this thesis argues that modernising the legal design of minority shareholder protection is not sufficient inasmuch as the institutional setting of Qatar's financial markets is rudimentary. Reforming the legal framework of minority shareholder protection must be accompanied by a remodelling of the legal culture of financial investment and curbing political intervention in the development of the financial market. The embedded path dependency norms in the investment culture and political interventionists will lead to the persistence of structural difficulties in corporate governance and minority shareholders' problems. Finally, this thesis proposes the Qatar Financial Centre as an alternative model of reforming the system of minority shareholders and corporate governance. The structural problems plagued by Qatar civil law framework allows the platform of the Qatar Financial Centre to avoid the complexity and path-dependence problems suffered by the civil law framework. The Qatar Financial Centre has been constructed as a common law platform with a robust judicial system. The deeply rooted path-dependent problems have had less effect on the development and structure of the Qatar Financial Centre. Minority shareholders have access to multi legal strategies to curb controlling shareholders self-interest practices.