Corporate Investment (MoCI) and the Capital Market Authority

Corporate Governance

 Student Name Muneera Nasser Alobaidallah

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Student ID   214410740

Name of the college university Prince Sultan University – Women Law College

Name of the Instructor: Dr.Rehana Parveen




Abstract: Corporate Governance (CG) is needed in order to create a conscious, transparence corporate culture. The purpose of this research is to see how Saudi Arabia is regulating Corporate Governance for the joint stock companies (JSC) listed in the Saudi Stock Exchange, which are publicly offered, and how the Capital Market Authority (CMA) and the Ministry of Commerce and Investment (MoCI) are implanting it as well. This research aims to simplify and clarify the concept of Corporate Governance and the new changes according to the new Company Law. As well as how the new Capital Market Authority regulations will affect the Joint Stock Companies and how it protects the rights and duties. In this paper, we will discuss how corporate Governance enables Joint Stock Companies to make their value higher in long term and how good will it affect the performance of it. Corporate Governance must grantee dignity, courtesy and respect for all of the company’s functions and transactions.

Keyword: Corporate Governance; Transparence; Regulations; Authority; Openness; investors





Corporate Governance nowadays is considered to be a very important topic locally and internationally which attracted the general attention due to its importance. On 26 April 2016 (Rajab 1437), the Ministry of Commerce and Investment (MoCI) and the Capital Market Authority (CMA) published the first draft of Corporate Governance Regulations (Draft CG Regulations). This joint effort by the Ministry of Commerce and Investment and the Capital Market Authority shows the public how good the collaboration is between Saudi Arabia government entities which will help all the investors to trust the companies even more due to the high transparency and openness. Corporate Governance regulations in the whole world tries to limit and reduce the misuse of shareholders interests by Board of directors or the top management.




Corporate Governance Definition:

According to the Corporate Governance Regulations published by the Capital Market Authority ” rules to lead and guide the Company that includes mechanisms to regulate the various relationships between the Board, Executive Directors, shareholders and Stakeholders, by establishing rules and procedures to facilitate the decision making process and add transparency and credibility to it with the objective of protecting the rights of shareholders and Stakeholders and achieving fairness, competitiveness and transparency on the Exchange and the business environment.”

As mentioned before Corporate Governance is a framework that explains and determine both responsibilities and rights for different parties. Which can be:

1.       Board of Directors.

2.       Executive Management.

3.       Shareholders.

4.       Stakeholders.

Why corporate Governance?

All types of companies specially the joint stock companies when they apply corporate governance principles, it will decrease the amount of trust and assurance of the shareholders regarding their investment, because it will show that the Board of Directors and the Executive management are being more aware of the risks facing the company and it’ll help them as well with the management and the limitation of the risks.

These principles should help the shareholder (investor) to make the right decisions for his investment. Whenever a company uses the Corporate Governance, effectively this will help in attracting and gaining the trust of the investors, another advantage of using the Corporate Governance effectively is the good reputation and transparency for the company.

Usually people who invest in companies lack time and experience so they hire experts to manage their investment in the company. Therefore, this will show how important it is to implement Corporate Governance to make the inventors more confident in the board of directors and executive management; because the investors will feel that, the board of directors and executive management are more committed to achieve the objective of the company to maintain their rights.

The real challenges company face regard this that the experts (managers) most likely are not owners of the company. Therefore, the manager may put his interests over the owners. That is why Corporate Governance is needed to be established in order to strengthen the relationship between the management and different stakeholders, owners for fairness and openness.


Importance and Benefits of CG

·   Corporate Governance effect the economy by increasing how efficient it is. Because it will help within the stability of the capital market by increasing the transparency. As well as attracting external and internal investments, and reduce the risks that faces the economic system.

·   The implementation of the principles of governance helps companies to create a sound working environment that helps the company to achieve better performance and therefore the economic value of the company is better.

·   Corporate governance aims to protect investments from loss due to misuse of power that is not in the interest of the investors. The company’s commitment to the implementation of governance standards does the role of shareholders in participating in the key decisions related to the management of the company and knowledge of everything related to their investments.

·   Governance seeks to build a close and strong relationship between the company’s management, employees, suppliers, creditors and others. Good governance enhances the level of confidence of all customers to contribute to the company’s performance and achieve its strategic objectives.


Corporate Governance in the Kingdom of Saudi Arabia

Shareholders’ Rights

One of the most important aspects of corporate governance is that shareholders have access to all their rights related to the share. In particular the right to receive a share of the dividends to be distributed. In addition, the right to receive a share of the Company’s assets upon liquidation. The right to attend shareholders’ assemblies participate in its deliberations and vote on its decisions. The right to dispose of the shares, the right to monitor the work of the Board of Directors and bring the claim of liability on the members. And the right to inquire and request information in a way that does not harm the interests of the company and does not contradict with the financial market regulations.

One of the most important mechanisms for shareholders to obtain their voting rights for the selection of board members is the cumulative vote.

Cumulative voting

Is a voting method for selecting the members of the Board of Directors, which grants each shareholder the ability to vote in the number of shares he owns, so that he is entitled to vote for one candidate or to divide him or her among the selected candidates without repeating these votes.

Proxy Voting

Finally the voting mechanism was implemented in order to increase the size and facilitate the participation of the shareholders in the General Assembly meeting and thus increase the efficiency and effectiveness of these meetings, as the need arises to apply this modern mechanism to keep abreast of developments and applying the latest technologies that will overcome the obstacles that may prevent Shareholder participation or assembly. Under this mechanism, the shareholder can exercise the right to vote without the need to attend the assembly premises. In addition, this helps companies to ensure the quorum and assemblies, as well as reduce the expenses of listed companies resulting from non-compliance the convening of the Assemblies at the specified times.

Corporate Governance, Transparency, Disclosures

Disclosure and transparency are among the most important principles of corporate governance to enable shareholders to obtain the required information transparently and fairly. Therefore, listed companies in the financial market are required to set their disclosure policies, procedures and supervisory systems in writing.

Companies should also accompany their financial statements Report by the Board of Directors, containing a presentation For the Company’s operation during the last financial year. Moreover, the factors influencing its business that assist the investor to assess the assets, liabilities and position of the Company Financial statements. In addition, to including the Board of Directors’ report Of the provisions of the Governance Regulation, What is applied and what is not applied Companies issued by the Capital Market Authority with mention Reasons for non-application.

The Board of Directors

The Board of Directors represents all the shareholders. Therefore, they must take care and loyalty in the management of the company and all that will safeguard and develop its interests and maximize its value.

The board of directors have many functions, such as:

v  Drawing plans, policies, strategies and objectives of the company.

v  Develop regulations and controls for internal control and general supervision.

v  Develop policies and procedures to ensure that the Company complies with its rules and regulations and its obligation to disclose material information to shareholders and stakeholders.

v  Preparation of the Board of Directors’ Report

v  Ensure the accuracy and integrity of data and information to be disclosed.

v  Establishing effective channels of communication that allow shareholders to continuously and continuously review the various aspects of the company’s activities and any significant developments.

v  The formation of specialized committees emanating from it by decisions specifying the duration of the committee, its powers and responsibilities, and the manner of supervision by the Council. The decision also includes naming members and defining their duties, rights and duties, and evaluating the performance and work of these committees and their members.

Classification of Board Members

The Board of Directors should maintain the required level of autonomy in making decisions that would achieve the objectives of the company and its shareholders. The majority of the members of the Board must be non-executive members and the number of independent members should not be less than two members or one third of the members of the Board.

Executive Member: A member of the Board of Directors who is a full-time executive director of the company and participates in daily business.

Non-executive member: A member of the board of directors who is not a full-time member of the company’s management and does not participate in its daily business.

Independent Member: A non-executive board member who enjoys full independence in his position and decisions, and does not apply any of the symptoms of independence, for example, but not limited to:

1.       He must be the owner of five per cent (5%) or more of the shares of the company or of the shares of another company of its group or has a relationship with the owner of this percentage.

2.       To be a representative of a separate legal entity standing who owns five per cent (5%)or more of the shares of the company or of another company in its group.

3.       To have a relationship with any of the members of the board of directors of the company or another company of its group.

4.       To have a relationship with any of the senior executives of the company or in another company of its group.

5.       To be a member of the board of directors of another company of the company group nominated for membership of its board of directors.

Board of Directors Responsibility

The Board of Directors is fully responsible for the Company even if it has formed committees or delegated to other entities or individuals to perform certain of its functions. The Board of Directors may not issue general or indefinite mandates. The responsibilities of the Board of Directors must be clearly defined in the Company’s Articles of Association. The Board of Directors must carry out its duties with responsibility, good faith, seriousness and interest. A member of the Board of Directors shall be committed to the interest of the Company in general and not to the interests of the group he or she has voted to appoint on the Board of Directors.

Committees and independence

The Board of Directors shall be specialized committees in accordance with the need of the company to enable it to carry out its tasks effectively. The formation of the committees shall be in accordance with general procedures established by the Board, which shall specify the mission of each committee, the duration of its work and the powers vested therein. The Committee shall inform the Board of its findings and decisions in a transparent manner, and the Board of Directors shall follow up the work of these committees on a regular basis to verify the exercise of the tasks assigned to it. The number of committee members must be at least three and not more than five.( minimum 3 and maximum 5)



The Audit Committee

A committee formed by a resolution of the ordinary general assembly of shareholders or others, including at least one independent member and not including any of the executive board members. The number of members shall not be less than three and not more than five, Financial and accounting affairs. The functions of the Committee include, in particular, the following: financial reports, internal audit, auditor, assurance of compliance.

The Rewards Committee

A committee formed by a decision of the board of directors of the company other than the executive board members, including at least one independent member.

The Remuneration Committee shall be competent to:

1.       Prepare a clear policy for the remuneration of the members of the Board of Directors and the Committees of the Board and the Executive Management and submit them to the Board for consideration in preparation for their adoption by the General Assembly, taking into account the following standards related to performance, disclosure and verification of their implementation.

2.       Clarify the relationship between the bonuses awarded and the applicable remuneration policy, and indicate any material deviation from this policy.

3.       Periodic review of remuneration policy, and evaluation of its effectiveness in achieving its objectives.

4.       Recommending to the Board of Directors the remuneration of members of the Board of Directors, its committees and senior executives in accordance with the approved policy.

The Nomination Committee

It is a committee formed by a decision of the Board of Directors of the Company other than the members of the Board of Directors, including at least one independent member.

The Nominations Committee shall be competent to:

1)       Propose clear policies and criteria for membership in the Board of Directors and Executive Management.

2)       Recommending to the Board of Directors the nomination and re-nomination of members in accordance with the approved policies and standards, taking into consideration that no person has been nominated for a crime against the Secretariat.

3)       Prepare a description of the capabilities and qualifications required for board membership and fill executive management functions.

4)       Determine the time a member should allocate to the board of directors.

5)       Annual review of the necessary skills or experience requirements for board membership and executive management functions.

6)       Review the structure of the Board and Executive Management and make recommendations on possible changes.

7)       Annual verification of the independence of independent members, and the absence of any conflict of interest if the member is a board member of another company

8)       Develop a functional description of executive members of non-executive members, independent members and senior executives.

9)       Special procedures shall be established in the event of the vacancy of a member of the Board of Directors or senior executives.

10)   Identify weaknesses and strengths in the Board of Directors and propose solutions to address them in line with the Company’s interests.


Merger of the Rewards and Nominations Committees

The Company may merge the Remuneration and Nomination Committees into a single committee that shall include the Remuneration and Nominations Committee. In this case, the Remuneration and Nominations Committee must meet the requirements of either of them and meet periodically at least every six months.







In conclusion, since all the investors nowadays are being aware of the benefits and the consequences of Corporate Governance and the restrictions applied to the companies, all companies are trying to develop their Corporate Governance in order to achieve the trust of the investors. In addition, to attract them to increase the investments in their company as well as showing more transparency and openness to the investors. Moreover, Corporate Governance requires a lot of hard working and balancing between the board of directors and the interest of the shareholders (investors). The culture of governance aims to achieve the optimal and rational investment of the capabilities of companies and their resources, by creating a working environment based on responsibility, control and commitment. In addition, taking into account the principles of clarity and transparency in determining the objectives of the company and its strategic business plans, the rights of each entity and its obligations, as well as managing its relationship with suppliers, financiers, consumers, regulators and activities.



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