The Importance of the Corporate Economic Performance Department in Light of the Egyptian Companies Law
The economic performance of companies is not merely accounting figures recorded in an annual financial statement; rather, it is a true reflection of management’s ability to take prudent decisions and to employ resources in a manner that achieves the interests of shareholders while preserving the legal stability of the company’s entity. For this reason, the Egyptian legislator, in the Companies Law, has accorded utmost importance to this department, linking the soundness of economic performance to the legitimacy of management and its decisions, and to the approval of such decisions by the General Assembly, as it is considered the supreme authority in the company.
Economic performance, as a legal concept, is not confined to profits and losses, but extends to the efficiency of capital utilization, the effectiveness of management in facing challenges, and the extent of the commitment of the manager or the board of directors to transparency in presenting results before the assemblies. Hence, arises the complementary relationship between the manager and the General Assembly, between individual and collective decisions, and between daily management and supreme oversight.
The Nature of Corporate Economic Performance
Economic performance may be defined as the aggregate outcome of the activity carried out by the company during a given period, reflecting the extent of the success of the management in achieving its objectives. This performance is embodied in multiple elements:
- The general financial position: reflecting the company’s status at the end of each fiscal year.
- The profit and loss account: showing whether management decisions have resulted in a surplus or in losses.
- Cash flows and investments: highlighting the ability of the manager to manage liquidity and direct funds into safe investment channels.
- Non-financial indicators: such as customer satisfaction, market expansion, and product development, all of which reflect managerial decisions.
Accordingly, economic performance is not confined to the purely accounting aspect, but rather represents a complete picture of management’s success in leading the company. It is also the essential tool through which decisions are assessed and their validity measured.
The Role of the Manager and the Management in Shaping Economic Performance
The manager or the board of directors are primarily responsible for economic performance, as management undertakes planning, sets general policies, and issues the daily decisions that determine the company’s course.
If the manager takes prudent decisions, this is reflected in the achievement of profits and in increased shareholder confidence. Conversely, if decisions are hasty or in violation of governance principles, this results in losses and economic decline.
However, the law has not granted the manager absolute freedom in management. His decisions shall be embodied in annual financial reports presented to auditors and the General Assembly. It thus becomes clear that economic performance represents the “language of dialogue” between the manager and the assemblies, where the manager presents his decisions and their results, and the assembly evaluates them before issuing its resolution to adopt or reject them.
The Role of the General Assembly in Assessing Economic Performance
The General Assembly is the supreme authority in the company, representing all shareholders, and vested with the original right to approve the financial statements and the profit and loss account. This means that the economic performance presented by the manager does not acquire legitimacy unless the General Assembly approves it.
Furthermore, the adoption by the General Assembly of the annual reports entails an important legal effect: the discharge of liability of the manager or the board of directors for the preceding fiscal period. If the Assembly grants approval, management is discharged from liability, except in cases of fraud or manipulation. Conversely, if the Assembly rejects the reports, the management’s decisions become subject to accountability, and the manager may face legal action from shareholders in respect of violations committed.
This demonstrates that economic performance is not merely a reflection of managerial ability, but also a criterion of the confidence granted by the General Assembly. The Assembly’s resolution of approval constitutes a legal attestation of sound performance, whereas its rejection indicates managerial deficiency.
Managerial Decisions and Their Effect on Economic Performance
The decisions taken by the manager or the board of directors throughout the fiscal year ultimately constitute the company’s economic performance.
These decisions may relate to investing in new projects, borrowing to finance activities, distributing profits, or restructuring resources. Each decision has a direct economic effect that appears in the financial statements.
For this reason, the law connects the manager’s liability for his decisions with their economic outcomes. If the decisions result in serious losses, the manager is held accountable before the General Assembly, and liability may even extend to personal liability if gross fault or negligence is established.
Economic Performance as a Criterion for the Continuity or Dissolution of the Company
One of the most important aspects of the legislator’s regulation of economic performance is its use as a criterion for the company’s continuance. If the financial statement reveals that losses exceed half of the shareholders’ equity, the management is obliged to convene the Extraordinary General Assembly to take a decisive resolution:
- Either the continuation of the activity of the company with a reform plan, or
- the dissolution and liquidation of the company.
This provision clearly reflects that economic performance is not merely a financial report, but an existential decision determining the destiny of the company. The manager presents the financial position, and the Assembly issues the final decision regarding continuation or dissolution.
The Balance Between the Management and the Assemblies in Light of Economic Performance
Economic performance represents the point of balance between the authority of the manager and the authority of the Assembly:
- The manager makes decisions and manages the company’s resources on a daily basis.
- The Assembly exercises oversight and adopts or rejects such decisions through reviewing their results.
- Thus, balance is achieved between the individual decisions issued by management and the collective decisions issued by the Assembly.
This balance is the fundamental guarantee for protecting the shareholders and creditors of the company and for preserving its financial stability.
Conclusion
By examining the provisions of the Egyptian Companies Law, it becomes evident that the economic performance of companies is not merely an accounting activity, but an integrated system linking management and oversight.
The manager or the board of directors is responsible for shaping performance through their decisions, but such performance does not become legitimate without the resolution of the General Assembly.
Accordingly, economic performance represents a true mirror of management and a criterion for the extent of the manager’s success in taking sound decisions. At the same time, it serves as a legal instrument for the Assembly in granting or withdrawing confidence. Therefore, any deficiency in economic performance threatens not only profits, but also the legitimacy of decisions and the very continuity of the company itself.