Corporate Governance

In a broad definition, Corporate Governance is a system of principles, rules and processes that govern a company’s direction. It involves balancing the interests of a company's many stakeholders, such as shareholders, management, customers, suppliers, financiers, government, and the community. It provides the framework for attaining a company’s long and short term objectives in the external environment that they operate within. The framework also outlines how power is exercised and controlled within a company, and how information flows between the various internal and external stakeholders. The purpose of corporate governance is to ensure the accountability of the company to its stakeholders, and to provide a structure through which the company's objectives can be achieved.

Why is it important?

Corporate governance is important because it helps to ensure that a company is run in an ethical and transparent manner. It sets out the rules and procedures for how the company is directed and controlled and helps to protect the interests of the company's stakeholders, including its shareholders, management, and employees. Good corporate governance can also improve a company's reputation and credibility, which can lead to increased investor confidence and a higher valuation. In summary, corporate governance is important because it helps to promote fair and responsible decision-making in the company, which can have positive long-term consequences for the company and its stakeholders.

Main Principles

There are many principles of corporate governance, but some of the most important ones include:

• Transparency: This principle requires that a company's decision-making processes and financial information be open and transparent.

• Accountability: This principle requires that those who exercise power within a company be held accountable for their actions.

• Fairness: This principle requires that all stakeholders be treated fairly and with respect.

• Responsibility: This principle requires that a company act ethically and be socially responsible in its business practices

• Independence: This principle requires that a company's board of directors be independent and not subject to undue influence from management or other stakeholders.

• Fiduciary duty: This principle requires that those who manage a company act in the best interests of the company and its shareholders.

• Ethical leadership: This principle requires that a company's leaders set a good example and demonstrate ethical behavior in all their actions.

These principles are not exhaustive, and the specific principles that are emphasized may vary depending on the company and its industry.

Corporate Governance in Saudi Arabia

The Kingdom of Saudi Arabia is striving to position itself as an attractive economy for investors and there have been significant efforts to transform ease of doing business, with an approach that seeks to continuously assess and improve the business environment, particularly for the private sector. Among these efforts is strengthening corporate governance practices to reflect international standards and best practices in areas such as the appointment of independent directors, the role of the audit committee, and the rights of minority shareholders.

In June 2022, Saudi Arabia approved the New Companies Law with the Ministry of Commerce and the Capital Market Authority (CMA) announcing that it will come into effect from 19 January 2023. Rashidi Consulting anticipates that these changes will provide added flexibility for companies to manage their affairs under a new regulatory framework that is more aligned with international standards. These include areas such as audit requirements, risk management, training, managing conflicts of interest, and disclosure policies.

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If you have any questions or concerns regarding the changes outlined in this publication or the potential impact of the New Companies Law on your business, please do not hesitate to reach out to us.