Recent Developments in Corporate Governance Codes in Gulf Region

Dr. Mohammed Haitham Salman has recently presented in The 3rd International Conference on Organization and Management (ICOM) 2017 a study which concluded the following findings:

  1. The development of corporate codes has progressed dramatically in GCC region since 2014 and many countries have been shifted from voluntary basis to towards “comply-or-explain” or mandatory basis. Furthermore, the recent structural legislative amendments in companies laws in the region have also contributed to integrate the efforts to improve corporate governance infrastructure in the region.

  2. Considering the vital role of the board of directors, the recent changes in the region have particularly emphasized on adopting new requirements or expanding the existing requirements related to Board of Directors either regarding BoD composition, roles and responsibilities, structure, rights and duties, members’ skills and competencies, access to information, ethical duties, or regarding the structure of the board of directors with having at least one third of independent members and the majority of members to be non-executive. The UAE has exceptionally requires that 20 % of the board members must be female.

  3. Although company legislation in the most of GCC Countries stipulate the basic rights of the shareholders and the procedures for shareholders meetings, the updated codes have detailed these rights and requirements to assure that the rights of shareholders, who just have the code, are detailed enough to understand their rights and claim them when they need.

  4. The duty to disclose related party transactions has been adopted or detailed in the new codes to cover all the requirements in accordance with the international best practice to enhance the trust and confidence in the transactions of corporates and limit possible corruption.

  5. The provisions of appointing permanent remuneration, audit, and nomination committees with the roles and responsibilities of each committee and its structure have been detailed to activate their roles and functions in the management and operation in the company.

  6. Both external and internal auditors related to provisions have been detailed to enhance and improve both the credibility and trust in the operation and in external auditor’s reports issued to the shareholders and public.

  7. Submitting an annual CG Report to cover the necessary information required for public and shareholders becomes mandatory in the most updated CG Codes.

  8. Setting up a professional code in each corporation and developing policies to ensure proper implementation are mandatory in most of GCC countries.

  9. Most of GCC Countries have recently encouraged corporations through the updated CG Codes to participate in social development process through their CSR programs with the necessary certain disclosure requirements.

  10. Since CG Codes in all GCC States are only applied to listed companies, all institutional investors like State Owned Enterprises (SOEs), pension funds, and Sovereign Wealth Funds (SWFs) are not subject to apply CG Codes. Therefore, the requirements related to institutional investors, covered under Chapter III of G20/OECD of 2015, have not been met in all CG Codes in GCC region. The region needs to consider adopting a separate CG Code to be applied to such investors in order to meet the requirements of transparency and disclosure of their policy when they own shares in the listed companies.

  11. Except the third principle related to institutional investors, most of G20/OECD Principles of CG of 2015 have been applied in the updated CG Codes in GCC region. Bahrain needs to update its old CG Code of 2010 to be in line with the recent developments worldwide.

  12. The main challenge in GCC region is not only to adopt CG Codes according to international best practices, but to implement CG principles through enabling a specialized authority with effective, transparent and fully explained supervisory role, which necessitate having necessary technical resources to fulfill their duties in a professional and objective manner.

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