As part of Saudi Arabia’s efforts to enhance the business environment and strengthen institutional oversight, corporate governance has emerged as a key regulatory framework governing the relationship between shareholders, management, and stakeholders.
The Capital Market Authority has played a leading role in advancing this framework through the issuance of the Corporate Governance Regulations, aligning global best practices with the Kingdom’s legal environment.
What is corporate governance in Saudi Arabia?
Corporate governance refers to the system of rules, practices, and processes that direct and control companies, ensuring accountability, transparency, and protection of shareholders’ rights.
In Saudi Arabia, governance is regulated under the Companies Law issued by Royal Decree No. (M/132), alongside the Corporate Governance Regulations issued by the Capital Market Authority.
Key governance principles include:
- Fair and equal treatment of shareholders
- Transparency and disclosure of material information
- Accountability before the general assembly
- Effective internal control through independent audit and risk committees
Companies are also required to establish audit committees and adopt clear dividend and remuneration policies.
Importance of corporate governance
Corporate governance plays a vital role in:
- Attracting local and foreign investments
- Reducing financial and administrative corruption
- Strengthening trust with stakeholders (creditors, partners, suppliers)
- Ensuring regulatory compliance
- Enhancing the sustainability of family-owned businesses
These objectives align closely with the goals of Saudi Vision 2030, particularly within the Financial Sector Development Program.
Governance model for limited liability companies
Although governance regulations primarily apply to listed joint-stock companies, limited liability companies can adopt internal governance frameworks.
Key elements include:
- Defining managerial powers and responsibilities
- Establishing decision-making procedures for major actions
- Appointing external auditors and, where possible, internal auditors
- Holding periodic partner meetings with proper documentation
Embedding governance rules in the company’s articles of association ensures stability and accountability.
Governance model for family businesses
Family businesses represent a significant portion of the Saudi economy but often face challenges related to succession and conflicts of interest.
A structured Family Constitution is recommended to regulate:
- Appointment of family members in executive roles
- Profit distribution policies
- Voting mechanisms and strategic decisions
- Governance structure (family council and board of directors)
Dedicated governance policies and committees—such as family employment and investment committees—can further enhance stability.
Conclusion
Corporate governance is a fundamental pillar for ensuring integrity and efficiency in business management. Saudi regulations provide a solid framework while allowing flexibility for different business structures.
Adopting a well-designed governance model is not only a legal necessity but also a strategic advantage for long-term success.