KSA Corporate Governance | Compliance Legal Services

Strong corporate governance, amid the rapid pace of transformation in KSA, builds bridges of trust, opens up growth opportunities, and gives businesses lasting resilience. Robust corporate governance is not just a formality, but a key strategic factor for building trust, growth, and sustainability. For businesses operating in the Kingdom, whether local companies or international investors, understanding and applying the governance framework is crucial. Here is a guide to help you ensure compliance and integrity in your operations.

Regulatory framework and importance

The corporate governance framework in the KSA is based on several key laws and regulations, including:

• Companies Law (Saudi Arabia) (Royal Decree M/132 dated 1/12/1443 AH), which sets out the basic obligations of all companies.
• Corporate governance regulations issued by the Capital Market Authority (CMA) (February 2017, amended in January 2023), applicable to listed joint stock companies. These regulations bind such companies to comply with standards relating to board structure, disclosure, committees, and shareholder rights.
• Ministry of Commerce and Investment regulations on unlisted companies, which provide (mostly optional) guidance for entities not covered by the CMA regulations.

The importance of this framework: Effective governance boosts investor confidence, safeguards minority shareholder rights, helps reduce the risk of misconduct, and aligns the company with local practices and international expectations.

Basic governance requirements and practical procedures

Below are some key elements of a governance framework, with practical insights you can apply to your business:

• Shareholder rights and general meeting

The regulations ensure fair treatment of shareholders, transparency of rights, access to information, and the proper conduct of general meetings.

Practical advice: Ensure that the shareholders' agreement and the company's articles of association include provisions for minority shareholder participation, a clear agenda for the general meeting, and appropriate notice in both Arabic and English as applicable.

• Composition and independence of the Board of Directors and committees

For listed companies, as a minimum, the following requirements shall be met:

• A minimum number of independent directors must be appointed.
• The main committees shall be formed: Audit Committee, Remuneration Committee, Nomination Committee.
• A clear separation between the positions of chairperson and chief executive officer shall be established, or adequately justified.

Practical advice: Review your board charter. Are the committees' terms of reference defined? Do independent directors enjoy genuine independence in accordance with the regulations? Are their roles and competencies documented?

• Disclosure, transparency, and reporting

Businesses can maintain transparency regarding financial results, transactions with related parties, remuneration of board members, and risk management.

Practical advice: Review your disclosure procedures. Ensure that regular and accurate financial reports are provided (in accordance with international financial reporting standards where applicable), that internal controls are robust, and that communication with stakeholders is timely and in different languages as needed.

• Internal controls, risk management, and compliance

Governance extends beyond organisational structures; it includes management oversight, internal auditing, risk committees, and conflict of interest protocols.

Practical advice: Establish or review your risk management framework. Ensure that the audit committee and internal audit functions comply with regulatory requirements.

• Duties and responsibilities of the board of directors and executives

Board members and senior executives are subject to duties of loyalty, care and avoidance of conflicts of interest, and may face regulatory penalties if they breach these duties.

Practical advice: Conducting training courses for board members on job duties under Saudi law, ensuring that remuneration policies are aligned with performance and risk, and providing specialist advice.

Why is good governance a competitive advantage?

Sound governance offers tangible commercial benefits, including:

• Attracting investors: Foreign investors often view good governance as a sign of stability and risk mitigation.
• Operational flexibility: Clear structures reduce the risk of deadlock, disagreement, or conflict in boards of directors.
• Regulatory readiness: As the KSA reforms its commercial laws and enforcement environment, governance readiness protects companies from surprises.
• Reputation and sustainability: In sectors such as energy, environmental, social and corporate governance, and technology, good governance aligns with broader global standards, enhancing market access.

Hypothetical scenario: Governance in practice

Consider a joint venture in the manufacturing sector, based in Saudi Arabia, with both local and foreign shareholders. The foreign partner is concerned about minority shareholder rights, data transparency, and exit options. Here is how governance planning can contribute to this:

• The joint venture's articles of association stipulate the appointment of an independent director nominated by the foreign shareholder, in line with the CMA's criteria for independence.
• Audit and Nomination Committee meetings are documented and are held quarterly, with minutes recorded.
• The agenda of the general assembly shall be circulated in Arabic and English two weeks in advance, with the rights of shareholders clearly stated.
• The risk management framework includes compliance with export controls, coordination on localisation, and environmental oversight.

When disputes arise over capital expansion, governance mechanisms enable foreign partners to access information and rely on committee oversight rather than interactive conflict, thereby preserving the commercial relationship. This demonstrates that governance is not merely a formal requirement, but rather the foundation for the actual conduct of business.

How can Sadany & Partners Law Firm support your governance journey?

Providing customized consulting services to help you establish sustainable governance structures for the future that comply with regulations and align with your business objectives:

• Reviewing corporate governance policies, board charters, committee terms, and disclosure practices.
• Aligning the Articles of Association/Shareholders' Agreements with Saudi governance regulations and international best practices.
• Providing training to board members on governance duties and compliance risks.
• Establishing communication channels for minority shareholder rights, related party transactions, and internal audit oversight.
• Providing pre-listing or restructuring advice to Gulf/Saudi companies seeking to prepare for entry into capital markets.

Conclusion 

As the KSA's economy continues to transform under Vision 2030, corporate governance is emerging as a strategic lever for success. By adopting smart frameworks for sound governance, companies operating in the KSA ensure compliance, promote integrity, attract investment, and support long-term growth.

If you wish to strengthen your business governance structure in Saudi Arabia, whether you are a national, regional, or international business, contact us today. Our team will help you build a sound and sustainable governance structure that aligns with your business ambitions.