Executive Magazine

Still sanctioned

by Jeremy Arbid March 9, 2016

written by Jeremy Arbid

Merhi Abou Merhi, a Lebanese business tycoon and former board member of IBL Bank, has not been acquitted by federal prosecutors, sources at the United States Department of Justice and the Department of Treasury told Executive March 8. A report carried by Lebanon’s state-run National News Agency (NNA) on March 7 claimed that Abou Merhi, family members and their companies had been acquitted of charges of facilitating a narcotics and money laundering ring overseen by the Joumaa Criminal Organization.

The Treasury Department says that the report is false and that sanctions are still in place for the Abou Merhis and 11 companies. “They all remain designated. Claims that Mr. Merhi has been “found innocent of the claims by OFAC” are inaccurate and there has been no action regarding Mr. Merhi that would change his status as a Specially Designated National and Blocked Person,” says Betsy Bourassa, spokeswoman for Terrorism and Financial Intelligence at Treasury.

Treasury’s Office of Foreign Assets Control (OFAC) had sanctioned Abou Merhi, alongside three family members that held management positions in eleven designated companies, in October 2015 for alleged business dealings with members of the Joumaa network that had previously been sanctioned by OFAC. Acting Director of OFAC, John Smith, said in a statement announcing the sanctions that, “Merhi Ali Abou Merhi operates an extensive maritime shipping business that enables the Joumaa network’s illicit money laundering activity and widespread narcotics trafficking. The Joumaa criminal network is a multi-national money laundering ring whose money laundering activities have benefited Hizballah.”

Treasury sanctioned Abou Merhi pursuant to the Kingpin Act and added him and the family members to the OFAC’s Specially Designated Nationals (SDN) list. A listing on the SDN freezes the financial assets of the Abou Merhis and eleven companies held in banks under US jurisdiction and blocks them from accessing the international financial system. Getting off the OFAC list is an arduous process requiring those listed to sever business and personal relationships and provide financial records. Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics and former deputy assistant secretary at the Treasury Department, has previously told Executive that it is an expensive and timely process that places the burden of proof on the designated entities. Designation under the Kingpin Act also carries possible fines of up to $5 million and criminal penalties of up to 30 years in prison for each listed individual. The designated companies could each be fined up to $10 million.

When the NNA broke the news that a US court had acquitted the Abou Merhis of any alleged wrongdoing Executive was skeptical. The timing of the report is peculiar in that only 6 months have passed since the sanctions were announced, a very short period of time considering the allegations they face.

According to the NNA, the US Attorney’s Office for the Eastern District of Virginia (EDVA) has dropped the case against Abou Merhi, his family and the companies. But Joshua Stueve, a Justice Department spokesman for the EDVA, told Executive that “The reports are false.” Stueve did not elaborate and did not respond to follow-up questions sent by email.

The NNA says the statement was issued by the EDVA and reported by its correspondent in the United States. Executive reached the NNA’s director, Laure Saab, by telephone and was told that all pertinent information regarding the source of the statement and any other details could be found in the Arabic version of its article published Monday, March 7. But the article neither indicates whether the NNA correspondent actually spoke with the prosecutor’s office or with the Abou Merhis’ legal counsel.

According to the statement obtained by the NNA, “the United States has conducted a lengthy and broad investigation into the allegations against Merhi Abou Merhi, his family and companies. It turned out that the allegations made void of any party, but the prosecutor’s office in the United States has taken the decision to close this case and has informed OFAC of the innocence of Abou Merhi, his family and companies and there is no need to carry the investigation any further.” The NNA stands by its report that the statement acquitting the Abou Merhis came from the EDVA.

The fact that the NNA does not clearly identify and attribute sources, even anonymous ones, is an alert to the need of higher reporting standards when tackling such issues that have implications for the Lebanese–American relationship, Lebanon’s financial system and the business community at large. These stakeholders need to have reliable information because any type of business relationship with a sanctioned entity can raise red flags with Treasury.

March 9, 2016 0 comments

Steering through stormy times

by Michael Karam March 9, 2016

written by Michael Karam

I was appointed Editor of Executive in the late summer of 2002. I’d been a freelancer with the magazine for just over six months, but had been out of journalism for nearly two years. My metaphorical footprints in the sand were in danger of being washed away and I needed to get back into a managerial editing job.

Then, in August 2002, the editor very publicly resigned. It was a week before going to print. I was in the office and heard it all. I waited for the dust to settle before popping my head around Yasser Akkaoui’s door and telling him I was willing to help bring out the issue. He agreed. I stayed for five years.

And what a five years they were, capturing arguably the most amazing (and often sad) period in Lebanon’s short history. They were five years of hope, dismay, more hope, unbounded joy, fear and eventually solidarity as we reported on an economy hamstrung by occupation; driven by reconstruction, defined by prosperity, terror, revolution, assassination, war and even more reconstruction.

But back in 2002, the Downtown, Solidere, Beirut Central District – we never quite knew what to call it – had just opened up for business and it appeared that Prime Minister Rafik Hariri’s “build-it-and-they-will-come” dream just might morph into a money-spinning reality. The fallout from 9/11 meant that Beirut was once more the darling of the Arab World and we truly felt that the soul of the city had returned.

And even though Syria ran the show (and regularly arched an eyebrow at our content, some of which sailed very close to the Baathist wind) there was a feeling that economically Lebanon was back in the saddle. Hariri and his Trade and Economy Minister Basil Fuleihan organized a second Paris donor conference in November 2002, while other money (clean or otherwise) was flowing in, be it tourist dollars, remittances or from growth in banking, real estate, hospitality and retail. Hotel chains inked deals, international brands arrived and life was good.

But we forgot, or chose to forget, or figured we couldn’t do anything about, the fact that Syria was in charge and, on Valentine’s Day 2005, things changed forever. Hariri, the man who had single handedly gripped Lebanon by the scruff of its neck and convinced us we could get back on our feet, and Basil Fuleihan, the poster boy for a postwar generation who wanted to give back to its country, were murdered along with 20 other innocent passersby in front of the St. Georges Hotel. We realized then that we could no longer turn a blind eye. The whole office, like a quarter of the country, descended on Martyr’s Square on March 14 to demand that Syria leave. And when Syria did leave, we couldn’t quite believe what we had done.

In the run up to the 2005 elections in a two-part cover story, we decided to ask the parties contesting the first Syrian-free polls about their economic policies. We called Hezbollah, we called the PSP; we even called Michel Aoun in Paris. They thought we were mad; we thought they were clueless. History has proved us right.

The 2006 war nearly closed us down but the owners decided, bravely and defiantly, to reinvest and go regional. During that month long war, we didn’t miss an issue even as the Israeli Air Force rained bombs on southern Beirut and other strategic targets. We then had to contend with the occupation of the Beirut Central District by the pro-Syrian, and, it would appear, anti-business, March 8 bloc, the repercussions of which are still felt to this day.

2007 was my last year as managing editor. If I close my eyes I can still hear the daily arrival of army helicopters ferrying the wounded soldiers from the battle of Nahr el Bared onto the roof of Hotel Dieu Hospital. Lebanon was still reeling from the momentous events of 2005 and it would not be until the next summer, after a failed coup by Hezbollah and its allies and the subsequent election of a new president, that the country would once more bask in the sun of economic optimism.

Today Lebanon faces arguably greater challenges, with the fallout of the Syrian Civil War once again forcing Lebanon to adapt to the shifting tectonic plates of the region. Executive continues to hold the government to account. The private sector is the heartbeat of the country, and the political class can play regional clientelism as much as it wants as long as it lets the business class do what it has always done: keep the country working. In this way, Executive has not shirked away from its duty, be it in asking what has happened to Lebanon’s scandalously managed oil and gas files, the corruption at Electricite du Liban, or the more recent garbage crisis – an event that is a stain of shame on our entire political class.

When I was appointed full time editor in October 2002, I was determined to make the relatively young magazine a success in a cutthroat market. To do this I knew I had to defend my editorial corner, and I am grateful to have been able to work with such a wise team. We all knew that the magazine could not survive without ads, but we also recognized that our readers would desert us in a millisecond if they knew our content was just rehashed PR. We played it smart. The sales department made it clear what the commercial imperatives were if we were to stay in business and it was up to us to satisfy these without selling our editorial soul. It worked. Even the stories I’d have rather not included in the magazine were never sell-outs, and the vast majority of our content was fresh, original, dynamic, daring and, most importantly, credible. It was content that made me proud to put my name to the masthead for over 60 issues.

So, to the talented and committed people I worked with who became like a second family, and to the contributors, who I always thought would desert me from one month to the next but who always came back for more work – thanks. It was one hell of a ride.

March 9, 2016 0 comments

Celebrating 200 issues

Once upon a magazine

by Thomas Schellen March 9, 2016

written by Thomas Schellen

Snapshots of an environment with many wants

Looking at the world from a Lebanese vantage point, 1998 was an ominous year. Hopes for a prosperous future were still as ubiquitous as the construction cranes that dotted the Beirut cityscape. But optimism was being tested by harsh realities that had not been included in the scripts written back in 1989 – 1992 when war-ravaged Lebanon embarked on its ambitious path of reconstruction and development into the third millennium.

As the epitome of faith in a new future, the second half of the 1990s saw the Beirut Central District return in increments from a state of total physical ruin. On the outskirts of the Lebanese capital, construction highlights included road and transportation infrastructure and the Sports City Stadium, which in 1999 would be filled to capacity – a rare occurrence ever since – for a Pavarotti concert. In Beirut proper, the highlights of urban building were still mainly restorative, such as the reconstruction and enlargement of the Grand Serail in 1998 – including historic limestone cladding sliced from stones salvaged from destroyed downtown structures – and the re-erection of the American University of Beirut’s College Hall and Clock Tower, solemnly inaugurated in 1999. It was still years before anyone would start talking about the city as being defined by its skyline.

[pullquote]It was a complex time that called for the articulation of smart and authentic voices in Beirut-based (business) journalism[/pullquote]

International recognition of the country’s sovereignty was real, in theory. In all other terms, the lingering presences of two occupying neighbors were impeding the national identity and the daily lives of everyone: citizens, Palestinian residents and foreign labor of all classes. Until July 1997, United States passport holders were still in violation of US law when they traveled to Lebanon. Amid Israel’s military occupation, Syria’s armed presence and various foreign political pressures, the Lebanese vigor and spirit of the period were acknowledged in a fundraiser – the Friends of Lebanon conference in Washington in December 1996 – and a pastoral visit, the celebration of Lebanon “as a message” of coexistence in Pope John Paul II’s 48-hour visit in May 1997.

Life in Beirut was rediscovering freedom. While some visiting writers speculated glumly that the city might never return to its pre-conflict multiculturalism and relaxed intermingling of communities, Lebanese writers and thinkers told international conferences that the country had preserved its amazing character of being a mosaic of identities. Having fast food meant eating at Juicy Burger or Barbar. The young and the hip sought places to party and celebrate the now in clubs and pubs. The old cafes on Hamra Street couldn’t keep up with that. Modca faded into history. Shopping centers popped up in unsuitable indoor spaces in Verdun. Taxi drivers from the different communities learned to find routes in parts of the city that they had not navigated for 20 years and new public bus lines crisscrossed the metropolitan area, with varying degrees of success in punctuality and efficiency of service. People worshipped their cars while being oblivious to rules, and traffic lights were the rarest of street ornaments. Traffic was chaos (as if that was likely to ever change).

Phoenix moments

When compared with the political environment, the economic realm was a haven of confidence. The stability of the Lebanese Lira encouraged financial inflows into the banking system. The Beirut Stock Exchange was expected to see new listings and investment companies were hanging out their shingles. Companies in construction and development, hospitality and even waste management services were all engaged in new projects. New schools and institutions of higher education were taking shape. And perhaps most importantly, Lebanese expatriates from all continents were heeding the call to return and invest in their homeland. They arrived with the knowledge and experience of doing business in the most competitive places and were prepared to contribute to, and profit from, Lebanon’s expected rise.

In global economic affairs, the 1990s were a period of increased international integration of goods, capital and labor markets. The establishment of the World Trade Organization and of two regional trade agreements in North America and Europe enhanced globalization in conjunction with innovations in the information technology sector. Embedded in this environment, Lebanon’s post-Civil War economic aspirations shifted from the fragmented structures of the 1975-91 era of internal conflict into a desired role as a trade and services hub for economies of the Middle East and North Africa and bridge between MENA economies and markets in Europe, Africa and the Americas. As a continuation of Lebanese positions in global trade from historic and even semi-mythical perceptions, this desire was perhaps mainly intuitive and implicit in the words and actions of business leaders. It was not formulated by policy makers in the context of a national economic strategy and could not have been, given that there was no trace of any unified economic policy making.

The quagmires of restoration

Administered by three representative stakeholders of the country’s three largest communities, efforts at social and physical reconstruction from the center out were extremely costly and required investing own, borrowed and donated resources. Paying off the huge development drive of a new downtown, new economic infrastructure and the return of the displaced required making a bet on the recovery of the once pivotal Lebanese role in regional finance and trade, combined with anticipation of a peace dividend which was expected to result in an economic boom in southern and eastern Mediterranean countries.

[pullquote]In the 1990s, it was the waning days of what some historians had identified as the century of totalitarianism[/pullquote]

But in the second half of the 1990s, the Middle East was sliding back into a dark and stormy political night. Less than 10 years after the fall of the Berlin Wall epitomized the hopes for an end to the Cold War, United Nations-driven efforts at peacebuilding in crisis regions such as Somalia had proven ineffectual. In the Near East, the Palestinians were waiting for the state promised by the Oslo Accords under a 1999 deadline, while Israel was becoming increasingly preoccupied with national security at the expense of implementing the peace deal. In Lebanon, people were waiting for the full implementation of the Taif Accord, which had declared the end of internal violence and a reboot of the state based on a concept of national unity and the promised arrival of meritocratic politics. Regional rulers and the shakers of geopolitics, however, had other concerns than rooting for Lebanon. It was a complex time that called for the articulation of smart and authentic voices in Beirut-based (business) journalism.

In the 1990s, it was the waning days of what some historians had identified as the century of totalitarianism. The seachange of political and economic systems in favor of democratic capitalism led some other historians to talk of the end of history. Other scholars spoke of the clash of civilizations and there was much speculation on the feasibility of a new world order. The markets for explanations were brimming with ideological propositions and information markets started to see the dissolution of entrenched patterns of both media ownership and media consumption. The World Wide Web was the new kid in town and digital publishing was coming. The epic battle between propaganda and journalism was shifting from the political and ideological realm to competition over influencing the thinking of consumers.

Admission to an economic future

Within this wider context of a changing communications landscape, the media culture of the Middle East was searching for new beginnings. Newspapers and state-owned or aligned media entities were in deep need of developing their own angles and communicating the reality of Arab politics, business and social life beyond delivering propagandistic perspectives and announcement-style information on who the ruler of each realm had met or talked to on the previous day. From Qatar, the region’s most daring new media venture had just started to roll out – but as the Al Jazeera Media Network sent its marketing representatives to communication-themed trade shows in Beirut in the late 1990s, the Jazeera news brand was still unknown even among many Arabic-speaking audiences.

The stirrings of independent journalism were feeble. In countries with limited freedom, formal barriers and informal obstacles were used to keep the media controlled. Lebanon, one of the region’s historic hubs of freer expression since the Arab Awakening, saw the relaunching of its English-language print media with the return of The Daily Star and the establishment of Lebanon Opportunities as well as other, shorter-lived broadsheets and economic publications. The ticket to ride to success in any form of serious journalism was economic and business writing, albeit from within an environment where entrenched communication patterns were obstructive to analytical/critical writing and investigative reporting. Moreover, the tech was not up to speed. Internet penetration rates were minimal and there was no digital media culture worth mentioning. In Beirut, journalists at forward-thinking daily or periodical publications would typically have a dial-up connection to ultra-slow internet service at a rate of one per newsroom.

It was into this environment where two twenty-something Lebanese, banker-to-be Antoun Sehnaoui and entrepreneur Dany Rizk, returned from their university studies in California. Having been inspired by mature US business periodicals and brands such as Forbes and Fortune, they carried with them the idea of creating an independent business magazine for Lebanon. Throughout 1998, they set up the framework for creating Executive, the Lebanese business magazine. Working from a not quite purpose-built newsroom in the Brazilia district in Hazmieh, they contacted prospective editors and journalists. Rizk, wearing the hat of editor-in-chief noted in one conversation with a freelance contributor that neither his partner nor he had any experience in journalism or publishing. “But we don’t believe this to be a detriment,” he said.

It was probably better to not be too aware of the demands involved in developing an independent professional publication in the Lebanese setting and it was almost certainly an even bigger advantage not to know what challenges and costs the coming years would throw in the way of this venture. We have come a long way since those early days. The rest of the story is in the timeline.

March 9, 2016 0 comments

Leaders Opinion

A magazine to be proud of

by Executive Editors March 8, 2016

written by Executive Editors

There’s plenty we’re proud of after 200 issues of publication. We’ve worked with hundreds of talented people and have honored a commitment made in our first editorial from September 1998 to provide high quality business reporting in Lebanon. In that editorial, we noted, “This issue is our first step in playing a part in Lebanon’s energetic and expanding business world.” Both the magazine and the country have come a long way in nearly 18 years. In this issue, you’ll find a look back at our evolution and a much-deserved thank you to all the people who have made it possible. But first, we’d like to re-commit ourselves to the promise of providing exceptional business journalism. We’re renewing our vows, if you will, motivated not by a fear that the fire is dying, but by the happy realization that our passion for this work still burns strong.

Our content commitment

As a monthly magazine, we’re not burdened by the pressure of daily news coverage. While we often attend and ask probing questions, we don’t cover individual events or product launches as such. We may mention them to discuss trends within an industry or to exemplify a company’s strategy, but we abhor marketing speak like “iconic.” We don’t re-word press releases. We invest the time and energy to fully understand a topic so we can relay the most important information to our readers. The research and reporting that inform our journalism are conducted as impartially as possible. “Question everything” is office ethos, and we’re not afraid to challenge each other during the editing process. Have the facts been corroborated? Have assumptions or bias crept in? Have we engaged enough stakeholders to get the full picture?

While we strive for objectivity when collecting information, we don’t take everything we’re told at face value. If a company says it wants to grow 20 percent in 2016, we remember it said the same thing in 2010. We ask about the earlier projection and find out what went right or wrong to put the latest target in the proper context. Our pieces are analytical not because we want to be difficult or cynical, but because context and historical performance are key to fully understanding any issue or event. If a minister makes a promise his or her predecessors also made – and broke – several times in the past, we demand to know what has changed. Why should we believe the promise will be kept this time? If the answer is unconvincing, we don’t hesitate to point that out.

Producing quality analytical content month after month requires dedication. There’s an industry adage that goes, “A journalist is only as good as the last thing he or she published.” Whether we’re speaking of individual writers or the magazine as a whole, coasting on past success is not what Executive does. Every month is a new challenge and a new opportunity. Do we promise to continue providing in-depth, analytical business journalism? We do.

Our digital commitment

Optimizing use of the internet to reach an even wider audience has proven a challenge for Executive (see On the road to Oz). We have a web page and social media accounts, but we recognize that we lack an aggressive digital strategy. We know our website needs a better search engine and are more frustrated than anyone when we can’t find an article we know we published. That said, we’re going to approach our digital strategy prudently. We offer added value which is not available anywhere else. Marketing that value online will take planning, time and money (just as it took time to build our brand offline – see Intelligent designs). It will require identifying and working with the best talent for our purposes. We realize the future is online and we need to find our place there. Do we promise to invest more in developing our digital strategy? We do.

Our shareholders’ commitment

No Lebanese media outlet (be it a TV station, newspaper, website or magazine) is financially independent. They all have one or more wealthy sponsor. Executive is no different. While our marketing and sales teams have consistently done great work (see The business team: A question of balance) bringing in ad revenue (drawing from an ever shrinking stream – see Battle for the ad dollar), the truth is we’re not profitable and never have been. In some publications, you know the sponsor as soon as you turn the cover, because his or her face gleams from every second page. In even worse cases, the editorial content is a one-to-one reflection of the financial backers’ political views, business interests, or both. We can credit Executive’s backer for doing neither. Our sponsor does not attend editorial meetings nor demand homage paid on the pages of this magazine. The subsidy we receive each year does not come with strings attached. Our conclusions are not foregone. Our stories are not cleared before publication. We’re not told what to cover and what to ignore. We’re not told whom to speak to and whom to avoid. We’re lucky. And in debt.

What the process of reflecting on 200 issues has made clearer than ever is that we’re sitting on a gold mine. We have a strong reputation and both content assets and human capital that simply must be better monetized. The how is tricky and no doubt related to our digital strategy, but we owe it to ourselves and that special someone whose generosity through the years has made building this legacy possible to increase revenues however we can. Do we promise to look for innovative ways to reduce our financial backer’s burden? We bet’cha.

March 8, 2016 0 comments

Business

Defying superstition

by Thomas Schellen March 8, 2016

written by Thomas Schellen

The boardrooms of modern corporations are nerve centers. The decisions made here influence the course of the entire corporation, which in this sense can be compared to a ship. Biases and blind spots in the boardroom can easily ruin the entire voyage, and superstitions against inclusion of capacious people on a board of directors can be deadly. Misogynistic attitudes and superstitions are facts of history on ships and on corporate boards.

There were times when seafaring superstitions were not gender biased. This can be seen in the powerful narrative of a man who was thrown overboard to calm the seas in a vicious Mediterranean storm. The man, a certain Jonah, ended up under a tree where he complained about a city that averted divine wrath because of listening to his warnings, but that is a different story. Yet for many centuries in Western maritime history, women were targets of male superstition that prohibited their presence on board ships, and especially on military vessels.

By way of female equality trivia, the first women (other than nurses) to serve on vessels of the United States Navy and in the United Kingdom’s Royal Navy came during World War I. The Germans’ resumption of unrestricted submarine warfare was the trigger that caused the US Navy to accept the first active-duty woman. Loretta Perfectus Walsh was sworn in as chief yeoman, a petty officer rank, in March 1917, exactly 99 years ago. The Royal Navy introduced a women’s branch in the same year but only for service on shore. It took falling recruitment figures and the First Gulf War in 1990 for women to officially serve on one of Her Majesty’s operational warships, the HMS Brilliant.

Given that women are of immeasurable value for devising corporate strategies and implementing governance at publicly traded companies, one wonders how long it will take for the numbers of women to rise on corporate boards in the Middle East and North Africa. But first one needs to know how many women currently serve on Arab corporate boards.

Quotas and other avenues

Recent years have seen the introduction of female board quotas in some European countries and research into boardroom successes has produced evidence of positive correlation between corporate performance and the presence of female board members. A media-savvy initiative by Morgan Stanley made use of the correlation by launching a gender lens investment strategy in 2013. One of this “parity portfolio’s” investment requirements was the presence of at least three women on the invested company’s board. This strategy was based on research findings suggesting that such companies outperform their peers.

Advocates for greater boardroom influences by women highlight the ratio of women on the boards of listed companies in a number of developed economies, using inclusion in major indices as criterion for coverage. According to 2014 data from advocacy group Catalyst, the ratio of female board membership in companies included in the S&P 500 index of Standard and Poor’s is 19.2 percent. Corresponding numbers from Canada were 20.2 percent. In developed Europe, ratios were highest in Norway, a country where legislation in 2006 made a 40 percent female board quota mandatory. Norway’s ratio was 35.5 percent, followed by Finland and France at near 30 percent. Female participations in Austria, Ireland and Portugal were at the low end of the European range with 13, 10 and 8 percent, respectively. Ratios for companies listed on East Asian exchanges were lower still, stretching from around 10 percent in Hong Kong and India, to little over 3 percent in Japan.

Arab boardroom compositions

Latest inquiries into the board roles of women in Arab countries show that rates of female presence are similar to Japan on a regional basis; when looking at the most culturally conservative societies, the rates are lower still but they are not zero.

Executive has gained access to a study by consulting firm Capital Concept (note: the company was founded and raised by Executive’s minority shareholder, Managing Director and Editor-in-Chief Yasser Akkaoui) that unveils female board participation rates in listed companies of the Middle East and North Africa. Different from studies that accounted only for companies included in major indices, the Capital Concept figures examine female participation ratios for all companies with available board membership information in all MENA securities exchanges.

According to the research, the female participation rate in Arab corporate boards as of early 2016 stands at 336 individuals, or 3.7 percent, when accounting for 1507 companies with a combined 9057 board members. When analyzing the data market by market, participation rates range from 10 percent in Tunisia and Morocco to less than 1 percent each in Qatar and Saudi Arabia.

The data series is too recent and thus too preliminary to allow for drawing any hard conclusions. From taking an emotional intelligence or conventional wisdom angle, however, one can have the conviction, or the gall, to point out a few possible implications of these numbers.

In favor of gender equality prospects, the percentages of companies with women in board roles are not 100 percent dismal in any Arab market. In the context of the extreme negative perception biases against Saudi society, for example, the fact that almost five percent of listed Saudi companies have one female board member each can actually be read as a positive. Were a harshly enforced barrier in place, these corporations would desist from naming female board members at all.

The implication behind the ratios of companies with any female board member and the actual percentages of women on boards are at the same time highly ambiguous. On one hand, Arab markets on average have female board members in one of five companies. That is much lower than the ratios in most developed economies, but it suggests that women on Arab boards can increase their presence and impact at least in principle. The Iraqi stock exchange was shown in the research as the only jurisdiction with less than ten percent of listed companies having at least one female board member – and this data point had better be excluded from interpretation at this time, because it is a downward outlier in terms of information availability.

On the other hand, the data suggests that women are not represented to substantial degrees on any Arab boards. Noting that the backgrounds of board position holders may include not necessarily merit-based ownership factors such as inheritance and family belonging, only very few – if any – boards can be expected to have the three or more female members that have been described as the threshold for impact generation in research undertaken on corporate boards in developed markets.

The low numbers of existing female board membership in Arab companies therefore imply more than anything that there is a need to invest in a culture of opening career ladders to women and keeping leadership roles accessible for women. Any recommendation as to the best pathway for reaching greater diversity on Arab corporate boards would probably be best arrived at from further questioning and research. The increase in diversity on European and American corporate boards, which still has a long way to grow, emerged from a painfully slow process. Regional policies in MENA could benefit from a dual approach. Firstly, by investigating corporate performances through the lens of positive impacts of diversity. Secondly, from non-partisan reviews of the practices – such as mandatory quotas and non-binding quota recommendations and lobbying – that are being applied in Europe and the United States.

To offer a small flashback to the lessons from women’s long and slow ascent in the navies of the top Western naval powers, it is amazing how great need – such as the eruption or acceleration of conflicts – can contribute to the discovery of equality. In light of global economic competition, uncertainty and loss of commodity-based revenue streams, the need for greater boardroom efficacy in Arab companies is current, clear and compelling. The indications from developed economies are that increased boardroom diversity is a low-risk, high-reward path to better boardroom guidance and consequently, improved corporate performances. The question is if it could take another 99 years for Arab boards to wake up to that need.

March 8, 2016 0 comments

Opinion

Because it’s 2016

by Matt Nash March 7, 2016

written by Matt Nash

Successful Lebanese businesswomen are usually extra busy at the beginning of March, four of them tell Executive. It’s not the imminent close of the first quarter demanding increased attention, but rather requests from media outlets paying their annual homage to International Women’s Day on March 8. Frankly, this kind of coverage is demeaning. Equality is not advanced by speaking to female business leaders once a year and asking questions like: “How did you do it?” or “Is it hard being a woman and being successful in business?” If anything, this type of reporting only helps to reinforce in the audience’s mind the notion that a successful businesswoman is somehow an anomaly. Equality means we’re not surprised a woman is successful in business, just as we’re not surprised when men succeed in business. This is even more true because of the cyclical nature of it. Every other month of the year, the voice of female businesswomen is nearly inaudible in the local press.

Human capital – meaning the talent of women and men – is one of Lebanon’s greatest assets. We can’t maximize our economy’s earning potential by undervaluing or ignoring roughly 50 percent of our possible workforce. Providing women the same career opportunities as men is not only a goal for reaching gender equality in the workplace, it’s an economic imperative. And for those who are unconvinced by equality as a moral argument, there is an increasing body of research suggesting that gender diversity gives corporate performance a boost.

A study by the US-based Peterson Institute for International Economics released in February 2016 suggests “that the payoffs of policies that facilitate women rising through the corporate ranks more broadly [than only having seats on corporate boards] could be significant.” Unlike some earlier research, the Peterson study did not find significant positive or negative correlations between a gender diverse board and company performance, although the authors note “the statistical analysis may be too crude to detect such effects.” The research looked at 21,980 companies across 91 countries. One limitation is that it only assessed performance in 2014, but, as noted, the study found statistically significant correlations between gender diversity in corporate leadership and better performance when compared with peer companies lacking gender diversity in corporate leadership positions. And the study’s authors elaborate, “The estimated magnitudes of these correlations are not small: For profitable firms, a move from no female leaders to 30 percent representation is associated with a 15 percent increase in the net revenue margin.” Based on these findings, the study’s authors highlight “the importance of creating a pipeline of female managers and not simply getting women to the very top.”

These findings have important implications globally, of course, but particularly for Lebanon and the wider Middle East and North Africa region. According to a 2016 report by the UN’s International Labour Organization, “The MENA region has the lowest representation globally for women in management and leadership positions [within corporations].” Region-wide, the study found, women’s formal labor force participation is only 27 percent, compared to 77 percent for men. Women in the region, however, tend to leave the labor force in their early 30s, which the study notes is “a time when women are experienced enough to assume higher positions and more responsibilities at work.” For those who continue working, structural barriers to advancement remain, in part because “within the corporate world, women tend to manage mainly the support functions such as human resources, public relations and other similar functions. Women in these functions may climb up the ladder, yet such experience rarely allows them to move along the central pathways that lead to the very top of corporations.”

Lebanese corporates must recognize gender diversity as a pro-growth strategic policy. Internal corporate mentorship programs are one way to invest in female employees and expose them to the experience needed to rise through a company’s ranks. There are also potential legislative ways to increase the number of women in corporate leadership positions, and various women’s rights organizations are pushing hard on that track, but we don’t have to wait for legislation alone. Corporations can act today. One way to encourage them is to normalize the idea of women as business leaders. Here, the media have an obvious role to play. Local NGO Women in Front produced a useful directory of contact information for female business leaders that journalists can use to find sources to quote on a regular basis. The directory is available free – in English and Arabic – on Women in Front’s website. The media should give businesswomen the same attention that they routinely award to men. By covering their stories instead of calling them once a year for a courtesy interview, media must set signs for corporations and lawmakers to follow.

Executive wrote this article based on a 90-minute conversation with Asmahan Zein, president of the Lebanese League for Women in Business and general manager of InfoFort, a data management company; Joelle Abou Farhat Rizkallah, co-founder of Women in Front and general manager of Jô, an advertising company; Lama Oueijan, a senior specialist in the regional office for Arab states with the International Labour Organization; and Rana Ghandour Salhab, a partner with Deloitte.

March 7, 2016 0 comments

Economics & Policy

An eye on Turkey

by Mona Sukkarieh March 4, 2016

written by Mona Sukkarieh

Despite being labeled “historic,” the trilateral summit held in Nicosia on January 28 among Cyprus President Nicos Anastasiades, Israeli Prime Minister Benjamin Netanyahu and Greek Prime Minister Alexis Tsipras did not yield concrete results. The 2013 Memorandum of Understanding (MoU) between Cyprus, Greece and Israel formally established the three countries’ will to strengthen energy cooperation and protect important infrastructure. The MoU also included a joint declaration of intent to lay an undersea electric cable linking Israel, Cyprus and Greece (Crete). But political wishes have yet to translate into actual projects. And on that front, the trilateral summit did not make significant advances.

In Nicosia, the three leaders reiterated their “readiness to further explore projects such as the EastMed Pipeline” (emphasis added). The carefully worded statement rules out any commitment, not surprising given the question marks that surround the project, even before a feasibility study is completed. Given the technical challenges, the project carries an exorbitant price tag, which makes its commercial viability doubtful in current conditions.

The first summit between the three leaders took place after a warming of ties between Israel and Turkey last December, which is hoped to bring about normalization between the two countries. Whether in the preparatory meeting leading to the summit (held in Jerusalem on December 16) or during the summit itself, Israeli officials were careful not to provoke Turkey. On the day the summit was held, Israeli Energy Minister Yuval Steinitz even said Israel wanted to have the ability to export gas through both Greece and Turkey, before adding that the Turkish option would be cheaper.

Despite the numerous official visits, declarations of intent, expressions of interests and MoUs, Cyprus and Israel have yet to translate their political wishes into actual projects. The two countries have been negotiating a unitization agreement for years and have yet to conclude it. According to former Israeli ambassador to Jordan, and senior research fellow at the Institute for National Security Studies, Oded Eran: “The unitization agreement between Israel and Cyprus will be signed if the internal political dispute in Cyprus is solved, and if gas from the countries can be exported to Turkey.”

Regardless if it is right or wrong, Turkey appears to be omnipresent in Cypriot-Israeli relations, much to the dismay of Cypriots.

One project in particular embodies Cypriot frustration: the now dormant plans to establish a liquefied natural gas (LNG) plant in Vasilikos. The amount of gas in Cyprus’ only confirmed find, Aphrodite, does not, on its own, justify the construction of this multi-billion dollar facility. More gas needs to be committed to make the plant economically viable. And despite certain positive (yet never decisive) signals, Cyprus waited in vain for Israeli gas. By not committing gas that would justify building an LNG facility on the island, Cyprus does not have the autonomy it badly needs to exploit its own gas. Instead, Cyprus now has to grapple to develop Aphrodite.

More than any other country in the region, Israel views its gas resources as a strategic commodity. Beyond their obvious economic benefits, contributing to meeting local demand, Israel hopes these resources would provoke a geopolitical change that would strengthen its position in the region. The idea is to weaken animosity towards it by creating shared interests with countries in the region. This largely explains why first export deals were negotiated with clients in Jordan, Egypt and Palestine (although precious few were finalized). Israel is also keeping an eye on Turkey, not only for its vast market, but also because Turkey enjoyed good relations with Israel long before Jordan or Egypt established relations with it, breaking a near perfect Arab and Muslim boycott of Israel. Today, Ankara still has the potential to play that role and cooperation between the two countries continues to be accorded high priority, despite ups and downs, and despite a sometimes virulent rhetoric.

For Israel, Cyprus and Greece contributed to filling a void left by Turkey over the past few years. A partnership with these two countries offered Israel a “breathing space,” in a region that is mostly hostile to it. But, important as it is, this partnership does not provide Israel the strategic edge it is hoping its newfound resources would give it in this part of the neighborhood. Turkey on the other hand (and other countries in the region) can offer Israel a strategic gain that Cyprus and Greece cannot offer: a breakthrough into the Muslim world, hoping that it would contribute to controlling hostility towards it. As long as Israel believes there is room to improve relations with Turkey, it will not take its relations with Cyprus and Greece to a place that would threaten its relations with Turkey.

This explains why Israel still perceives Turkey as an important strategic partner, despite strained relations since 2010. If reconciliation between Israel and Turkey is sealed – in large part motivated by energy considerations – future gas cooperation between the two countries hinges on Cyprus if a pipeline is to be laid from Israel’s Exclusive Economic Zone to Turkey. Which provides both Israel and Turkey with an incentive to encourage Greek and Turkish Cypriots to settle their conflict, though it remains to be seen how strong they perceive this incentive to be.

March 4, 2016 0 comments

Leaders

Lebanon’s flawed acquiescence

by Executive Editors March 3, 2016

written by Executive Editors

Sometimes it’s good to learn from history. It was the year 1075 and the Holy Roman Empire, ruled by German king Henry IV, stretched over much of central Europe. As ruler of the Empire it was Henry IV’s divine right to ordain bishops and other clergymen, an authority that the new pope Gregory VII, a reformer, canceled by papal decree. The German king renounced the pope and in turn the pope excommunicated and dethroned Henry IV. The Pope had the tool of excommunication to make Henry IV abide by his wishes. The end result of this enforcement was that the Germans became more and more against the powers of the pope, which ultimately deteriorated relations between the papacy and the monarchy, and the bond of trust with it.

In late February, Saudi Arabia announced it was withdrawing $4 billion in grant money it had pledged to Lebanon in 2014 but had not delivered. The generous $4 billion pledge is not some sort of PR notion or coffee talk; there was definite Saudi Arabian interest in a strong state and Lebanese Army to defend Lebanon from military intrusion. Riyadh made a promise to Lebanon that was in their own interests. For Lebanon, the kingdom’s decision diminishes an already weak state and raises concerns about national security negatively affecting trust and reducing confidence in the local economy.

The relationship of trust between you and your friends is predicated on maintaining a level of independence within interdependence. By accepting a Saudi gift, Lebanon owes the kingdom its allegiance. But even without that event, Saudi Arabia was perceived in Lebanon as one of the most reliable friends the country could have, despite the fact that some Lebanese had misgivings about the relationship. And Saudi is burning that capital of trust by telling the Lebanese that if they don’t play by Saudi rules then the friendship is over.

The Lebanese, for their part, by show of their procession to the Saudi ambassador, neglect their sovereign duties and reinforce the idea that the Lebanese are not ready to stand on their own feet in matters that are crucial. This is a violation of their national duty and a very indignified show of subservience that no sovereign state should ever accept – if it has to be done then Lebanon is not sovereign.

Saudi Arabia’s best interest is to have a reliable friend in Lebanon rather than a puppet that may flip flop in terms of shifting alliances. In terms of end game, what we can only speculate is that the Saudis have changed tack and are now pursuing their regional agenda under a new strategy. The Saudis are thinking neither of the long term repercussions to mutual trust, nor to what effect their actions might hold for Lebanon’s economy. A huge number of Lebanese are employed in the kingdom – a driver of remittance payments to family back home. Saudi Arabia is also the largest importer of Lebanese agricultural products, an important sector in terms of local employment. The Saudis also hold significant financial interests in Lebanon, whether through exposure to sovereign debt and shares in Eurobonds or shareholdings in projects and companies. Tourism, in which the KSA and its Gulf buddies are a driver, has already been targeted by Gulf travel bans. And yet the Lebanese are acting like spoiled children whose daddy canceled the credit card.

The single minded focus of Lebanon’s political leaders in responding to the Saudi decision again highlight that they cannot or will not make choices in the interest of Lebanese citizens without first checking up with the Saudi overlord. Lebanon needs its leaders to make decisions and present solutions to the many pressing crises that face the nation – an economy on life support, an unending garbage fiasco and a neighboring civil war that threatens to spill into Lebanon. Our leaders need not kiss the ring hoping Saudi approval will solve Lebanon’s problems. Instead, they should roll up their sleeves and get to work. The impression our leaders give is that they cannot, or are unwilling to, fulfill their duties. For the sake of our economy, our national security and our sovereign reputation, Lebanon needs now, more than ever, a vision for the future. Leadership change is a must.

March 3, 2016 0 comments

Companies & Strategies

Inside a corporate nation

by Yasser Akkaoui February 29, 2016

written by Yasser Akkaoui

Three of the world’s top five companies by market value – Apple, Microsoft and Google – today run like nations unto themselves. Each has a utopian headquarters – home base for an army of employees with global reach and influence. Their aim is wealth creation both for employees and shareholders, but their products also help businesses grow, adding value to the global economy. Increasingly, it is the un-elected leaders of these influential entities who are changing everyday lives in the far-flung corners of the globe. The failed or failing states in our region should look to the boardrooms of Apple, Microsoft and Google for inspiration on how best to develop rather than pinning our hopes on mimicking the ballot boxes in the United States or Europe.

If properly calibrated, an authoritarian system can be a good thing. For proof, we can look to the value creation in the United Arab Emirates, Qatar and Singapore. These countries are arguably akin to overprotective and undemocratic corporates, duplicating prosperity instead of poverty and driven by meeting the needs of what business people require. Creating investment-friendly climates not only draws in the big international players, but also helps local enterprises flourish and gives hope to young graduates eager to begin climbing the corporate ladder. Contrasting the success these three jurisdictions can boast of in the past quarter century with Lebanon – where progress on this front has been continuously thwarted by warlords turned politicians keen on increasing ethnic, religious and geographic segregation – makes the solution to our chronic emigration problem all the more clear.

After an inside look at how the new world order is being shaped, I’m all the more convinced that this new corporate-nation model is the key for unlocking growth in the Middle East and beyond.

Touring “The Campus”

When I paid a visit to Microsoft’s Redmond campus last November, it became clear how this new political and cultural form has evolved. The campus is an ideological epicenter for Microsoft’s 100,000 worldwide staff – a truly diverse citizenry comprised of an educated, innovative and creative class. Space on the campus is designed in a way that brings everyone together to work as one. Like its competitors Apple and Google, Microsoft knows that isolating employees and pitting them against each other will not build a great company.

Life on campus revolves around the Holy Land – the famed garage where the company was founded. Microsoft’s Holy Land does not inspire competition and conflict. It re-enforces the company’s mission by being a space that fosters innovation and creativity. It is through the garage, Microsoft’s visitors are told, that the company has managed to keep a startup culture. Kathleen Hogan, chief people officer, explains that merit is the only qualifier in this multicultural environment. Productivity, she says, is assessed by the watchful eye of higher management. And while the atmosphere and dress code screamed “carefree”, CEO Satya Nadella was omnipresent. Nadella’s name pops up in every speech and presentation. Everyone walks in step with the leader’s vision of a human-centric approach to problem solving (coincidentally the basis for new product development).

Design by inclusion

Jeanette Wing, corporate vice president for research, explains that all new Microsoft solutions are intended to let individuals and corporates do more. At the heart of how the company does this is abductive reasoning – or using human behavior to inform product development. It all starts by identifying possibilities – the “what if”s, as Wing puts it. Using an iterative approach infused with creativity and innovation, engineers and scientists studiously observe client instincts, wants, needs and behaviors when creating something new. Helping inform this process is enhanced data collection gleaned from each and every Microsoft device.

Wing stresses that failure is not reprimanded at Microsoft. Product development teams are encouraged to iterate their way to workable solutions. And once those solutions begin looking viable, there is no shortage of cash to incubate and develop them. All of this is geared toward helping Microsoft beat competition to the next tech breakthrough. And it is not unique to Microsoft. Companies in all sectors are increasingly realizing that any new product or service must incorporate client wants and needs from the very beginning. More and more, companies are designing experiences instead of products alone. With their entrenched bureaucracies and resistance to change, national governments could never be this nimble or successful in service provision.

With great power…

While the 1990’s fear of humanity becoming an identical hoard of robot-like creatures is being replaced by the excitement over robots that are becoming more human, serious ethical questions remain. Reinventing productivity for an increasingly mobile client base using multiple devices requires an intelligent cloud. “[It] could do things for you and increase your productivity that is constrained with time and progress,” according to Tim O’Brien, general manager of global communications. In an attempt to mitigate the privacy and data security risks that come with this cloud, Microsoft gives control to users over how to manage information they store on the cloud. Corporates decide what and how they upload data, all from a singular platform available across all devices. Microsoft is also increasingly investing in several of their security programs: Credential Guard, Device Guard Hello and Defender to name a few. In addition, a Digital Crime Unit is busy improving the security of the products and services while protecting elders from tech scams and children from digital sexual exploitation.

Yet high-profile security breaches in the past few years have both made us all think twice about uploading naked selfies and raised questions about whether the corporate guardians of our private data are doing enough to keep our secrets safe. Time will only tell, but it is clear that corporations can adapt to these challenges quicker and more effectively than government. When my website or email servers get hacked, the nearest police station in Jnah is the last place I’d think to go. And hearing these promises of data protection, I remained skeptical about the privacy and security of my data in general but certain that Microsoft – and all tech giants – is doing more to protect me in cyberspace than my government is doing on the ground in Beirut.

At home abroad

Alma Kharrat, senior program manager, and Elias Bachaalani, security software engineer, are two Lebanese who made Microsoft their home and are now fully integrated in Microsoft’s community, contributing to the company’s ambitions. During a meeting with Kharrat and Bachaalani organized by Microsoft in one of its many dining venues on the Redmond campus, both became sentimental when I spoke about life back in Lebanon, but they also expressed the disappointment they felt when visiting family from time to time. Lebanon has failed and betrayed them. Microsoft has not.

They reminded me of countless friends in cities like Dubai, where everyone belongs to a different multinational company. I see corporate identity replacing national identity, especially among people who opt out of their broken national social contracts and chose to seek a new life within a sheltered corporate environment. With an average of four connected devices per person today, people are less isolated and more liberated from geography, local governance and territory. With globalization making national borders increasingly meaningless, our states need to adapt or risk being made obsolete by the corporate kingdoms to come.

February 29, 2016 1 comment

Business

The blue appeal

by Yasser Akkaoui February 26, 2016

written by Yasser Akkaoui

For many Lebanese travelers, Air France is not just any airline but an institution of memories. When times were tough, flying from Beirut to Paris represented a lifeline connection to personal safety, not to mention savoir vivre and commerce. Today, the links between Lebanon and Europe are numerous and airlines have to win over travelers with more than just their name. But the journey to Paris still has many meanings and commercial values, and Executive sat down to discuss these facets with Patrick Alexandre, Air France’s executive vice president commercial, sales and alliances.

E Beirut and Paris were joined last November in shared tragedies and there were news reports of flight cancellations and flight diversions because of bomb threats. Given that Beirut and Paris were both victimized by bomb attacks, did the Air France route to Beirut suffer too?

First of all, we never canceled any flights after the events of Paris. We maintained the full network and the full flight schedule everywhere. Secondly, the safety rules changed a bit, of course, in Charles De Gaulle [Airport] but traffic remained fluid and on track at all times. We kept the operations going with the safety measures that we have [always had in place] and with extra measures for airports like Charles De Gaulle and also for Rafic Hariri Airport in Beirut. For the second part of your question, the answer is that, yes indeed, Paris as a destination was hit during the last 15 days of November, but what I can tell you is that as far as we can see for January we have now a positive sense of booking. Is there a special impact on [the route to] Beirut? The answer is no. Beirut traffic to Paris has been affected more or less the same way as others. But to be frank with you, markets are not reacting the same way to those events. The more affected markets were Japan for individuals, groups and business; North America, the USA in particular, and a little bit the Gulf region. We have seen less effects on Africa and South America, and in Europe it depended on the situation.

E Lebanon has been requested to comply with Annex 17 of the Chicago Convention that relates to the security of airports. And while Lebanon has been trying hard to comply with these requirements, we know for a fact that there have been shortcomings in compliance. Given the heightened need for security in the current environment, to what extent does an airline like Air France see it as part of its duty to also put pressure on a government like the Lebanese government to comply with these globally recognized security regulations?

The application of international safety rules is an approach that we and the other airlines have everywhere, and that has a political expression through IATA (International Air Transport Association) and ICAO (International Civil Aviation Organization). Secondly, [adherence to] the rules and regulations for safety is a must for us. So you can imagine that we ask [in every country] for compliance with our safety rules mainly via those organizations and sometimes directly. The minimum that we request is more or less international. On top of those local measures, Air France itself applies some [safety] measures for its aircraft. But as long as we fly [to a destination] it means that we consider we can make [this destination safe]. And we fly [to] Beirut.

E What do you rate as the top challenges for the airline industry today?

I think it’s a mix of at least two things, maybe more. Of course there are challenges related to operations, such as what are the aircraft and the most problematic issues, such as safety etc. But then the story is about the combination of product and price. This is why we actually do invest in the best approach with the long-range product presented today, which we have been flying to Beirut for a few [months] now, since the 14th of September. So first of all [the challenge] was investing, and investing a lot. Talking for Air France, we have made an investment of more than 500 million euros only for the long-range as the first part of the investment [into our fleet of Boeing] 777 for all the cabins including La Premiere, Business, Economy Premiere and Economy.

The second important thing is the price. We are addressing [this issue] with this kind of product. It’s a mix of two, which makes the customer happy. On the other hand we are also working a lot on our [cost] savings and this is why the famous plans have been launched since a few years. The first plan [for improved efficiency] has been implemented and the second plan is for transforming all the categories of staff. I was making some efforts to be and remain competitive. Being competitive is a mix of cost, which drives the price, [and using] tools we have in review management. [Because of] this we now have a lot of facilities to offer interesting prices, with fares that are so low. Low fare is something we can do and [combine with] the quality of the product we can give to our passengers. [This product quality is present] not only in the cabins, and in the service given by cabin attendants but also [in our] stations. [There is] also the investment we are making in technology, mobile applications etc, and that mix is how we compete.

[Value for money] is a very interesting point, because Lebanon as a market covers all the segments of our business, which is not the case in all the stations and destinations. But in Lebanon we have the ‘La Premiere’ (first class) segment and the business segment. [People here] travel for business reasons and personal reasons. This makes it very interesting to manage [this market] and it allows us to deploy the whole range of products, at least in-flight products including La Premiere, in Beirut just as we do for instance in New York.

E Air France–KLM has seen a weakening of market shares and has been plagued by labor actions, whose only positive element might be that you are not the only big European airline to suffer in this regard. How, for you, do European carrier labor challenges, regulatory burdens and competitive pressures in Europe, rate when compared to changes in global traffic patterns, and rising competition from carriers in the Far East and Middle East?

It is true that not only Air France, but all the biggest European carriers are fighting to be competitive. So we have somewhere to benchmark ourselves, in order to have the right cost [of operations]. And what is the right cost to operate? [In other words] what depends on our efforts and what depends also [on the environment], which is labor, taxes and such. We have to address the labor cost through better productivity. It doesn’t mean we want to pay less.

Regarding fair competition [with other regions], some friends not far from here in the Gulf are playing games in which all the conditions for competition are [not] the same. So if for instance, a Gulf company is asking for open skies, the condition for it is transparency, reciprocity. I fully recognize that [the aviation industry] has been a tool used by those countries for their economic development, but do you really think that for instance there is traffic between Dubai and Orlando? Do you really think you can make it profitable? Do you really think you can open a daily Dubai–Panama City flight of 17 hours?

I recognize the fact that we have to make some efforts, as Lufthansa is doing. For me the reference is to be as competitive as Lufthansa and British Airways can be. Then there is a question of competition linked to European regulations and [with regard to] Europe and the Gulf carriers. Do we have the same rules? Can they go and take the market in Europe? And if yes, with what conditions? By the way the same [goes] for American companies. For me, it is a question of [how we compete], the rules of competition. That’s the main problem. But we will do our job. I really think today airline transport in Europe is bringing and creating value — not only by creating jobs. If one day European airlines are replaced by some Gulf line, there will be a lot of job losses — thousands. So the European airline business is creating value directly and indirectly.

E The Air France–KLM collaboration is now more than 10 years old. In the meantime we are seeing a growing variety of consolidation and collaboration models, from alliances and mergers to equity partnerships such as practiced by Etihad Airways and strategic partnerships such as Emirates–Qantas. From your perspective, what collaboration models make the most sense today for air travelers and for operators?

When we discuss consolidation, our future will first of all see more alliances. You have different steps for alliances and as you know Air France has taken part in collaborations first in Europe. Some [alliances] are big but the value of an airline is not only its number of aircraft. The value of an airline is the market share they have, [and] the grip they have on the market. Knowing this leads [airlines to enter into] joint ventures. We as Air France–KLM have a big joint venture for instance with Delta Airlines. This JV is a virtual company which is larger than British Airways; I’m talking about a $16 billion joint venture on a yearly basis. So this kind of thing will continue to develop and one example for that is that we as Air France–KLM already have a younger JV than the one with Delta, with China. This goes back to my remarks saying that when two airlines discuss [a partnership] they need to have market positions to exchange. If you don’t have two market positions to exchange, [the deal] remains a deal with money against market. When you do that I don’t think you have improved your industrial positions; [this is] part of my answer in response to the comment you yourself made concerning the Gulf companies. The next steps to this [process of forming alliances] is in reinforcing a JV. You are right to say that this will most likely involve equity moves, as Delta is making today with China [Eastern Airlines] or as Air France has done by investing into [owning] a few percent in Gol in Brazil. So [there is] no future without alliances. Those alliances range from complicated joint ventures to simple ones, where the alliance we have with Middle East [Airlines] is interesting.

E When you are looking at the Middle East and Africa, do you see any role for Beirut that could be larger than the role it’s playing now?

Beirut is a market for us because of Lebanese people and because a lot is happening with the diaspora all over the world. It is, as you say, a larger market than Beirut itself.

E How are your efforts progressing in Abidjan as far as making it a hub for Air France in Western Africa?

I was in Abidjan last Monday, just to give you an example [for how important it is for us]. As you know, we are developing [this hub] with a strong investment.

E Could you envision to have similar plans for Beirut as Air France has for Abidjan, for developing a hub for the Middle East or creating links between the Middle East and hubs in Africa?

That’s a good idea, linking Beirut to Abidjan. As Air France is currently investing in Ivory Coast into making the Abidjan hub, I think there is something to be done. Maybe I will take care of this tomorrow with [MEA Chairman] Mr. El Hout.

February 26, 2016 0 comments