The Corporate Governance Regulations of the Ministry of Commerce are one of the main pillars that aim to enhance transparency, accountability, and sustainability in the business sector within the Kingdom of Saudi Arabia.

This regulation represents a regulatory framework that helps companies improve their administrative and financial performance, and ensure their commitment to international best practices, which contributes to raising the level of confidence among investors and stakeholders. With the increasing importance of governance in the business world.

Continue reading the article to learn more about corporate governance.

Corporate Governance Concept

Corporate governance refers to the system by which companies are directed and managed. This system includes a set of rules and procedures that determine how decisions are made within the company, taking into account the rights of shareholders and other stakeholders. This system aims to achieve a balance between different interests, and ensure transparency and accountability in all company operations.

The Corporate Governance Regulation issued by the Ministry of Commerce in the Kingdom of Saudi Arabia is a regulatory framework that aims to enhance transparency, accountability, and fairness in the corporate sector. This regulation aims to regulate the relationship between the various stakeholders within the company, including shareholders, the board of directors, executive management, and other stakeholders.

Corporate Governance Regulation Objectives

The Corporate Governance Regulation aims to achieve a set of main objectives, the most prominent of which are:

Promote transparency and disclosure: Ensure that accurate and reliable information is provided to shareholders and stakeholders in a timely manner.

Protecting shareholders' rights: Affirming shareholders’ right to obtain information and participate in making major decisions.

Enhancing the efficiency of the Board of Directors: Defining the duties and responsibilities of the Board of Directors to ensure that decisions are made in the best interests of the company and shareholders.

Achieving justice and equality:Ensuring that all shareholders and stakeholders are treated fairly and without discrimination.

What is the scope of application of the regulation?

The Corporate Governance Regulations apply to all joint-stock companies listed on the Saudi Stock Exchange, and are considered a guide for unlisted joint-stock companies, with the aim of encouraging them to adopt best practices in the field of governance.

The regulation sets out a clear organizational structure for governance within companies, including:

General Assembly of Shareholders: The highest body that has the power to make major decisions, such as appointing board members and approving financial reports.

Board of DirectorsResponsible for developing strategies, supervising their implementation, and ensuring the achievement of the company’s objectives.

Specialized Committees: Such as the Audit Committee and the Nominations and Remuneration Committee, which support the Board of Directors in performing its duties effectively.

Shareholders and Stakeholders Rights

The regulation confirms a set of basic rights for shareholders, including:

Right to information: Enabling shareholders to access the information necessary to make informed decisions.

Right to participate in general assemblies: Allowing shareholders to attend meetings and vote on decisions.

right to distribute profits: To get a fair share of the distributed profits.

In addition, the Regulation recognizes the rights of other stakeholders, such as employees, customers, and suppliers, and urges companies to take their interests into account.

Board of Directors Responsibilities

The Board of Directors is entrusted with a number of vital responsibilities, including:

Setting strategies and goals: Determine the company's vision, mission and strategic objectives.

Supervising the executive managementMonitoring management performance and ensuring implementation of approved strategies.

Risk management: Identify potential risks and develop plans to deal with them.

Ensure compliance:Ensuring that the company complies with applicable laws and regulations.

Disclosure and Transparency

The regulation emphasizes the importance of disclosure and transparency in all aspects of the company’s business, including:

Financial Disclosure: Provide accurate and timely financial reports.

Governance Disclosure: Publish reports on governance practices, such as board and committee composition and remuneration policies.

Disclosure of Related Party Transactions:Disclose any transactions that may involve a conflict of interest.

The role of the Ministry of Commerce in implementing the regulation

The Ministry of Commerce plays a supervisory and regulatory role to ensure that companies comply with the regulation, including:

Follow up on the implementation of governance controlsThrough periodic inspection and monitoring of companies’ implementation of the provisions of the regulation.

Study of violations of the companies system:And take appropriate action regarding it.

Providing advice and support: To ensure that companies understand and correctly implement the requirements of the regulation.

Reliable support systems

In addition to the Corporate Governance Regulations, there are several systems and regulations that support the implementation of governance principles, including:

Companies system: It defines the legal framework for establishing and managing companies in the Kingdom.

Governance Regulations for Government-Owned Privatization Projects CompaniesIt is concerned with regulating the governance of companies in which the government participates within privatization projects.

Registration and listing rules: Regulates the process of registering and listing companies in the Saudi financial market.

Corporate governance is an essential tool for ensuring effective and transparent corporate governance in Saudi Arabia. By adopting good governance principles, companies can enhance investor confidence, achieve sustainable growth, and contribute to the development of the national economy.

Challenges of implementing corporate governance regulations and how to overcome them

Despite the many benefits of corporate governance, some organizations face challenges when implementing it, such as resistance to change, lack of clarity about roles and responsibilities, and difficulty complying with all disclosure requirements.

To overcome these challenges, companies need to enhance the corporate governance culture within the organization, provide training programs for the board of directors and executive management, and rely on advanced electronic systems that help manage documents and procedures efficiently.

Among the most prominent technical solutions that can help companies in this field are electronic management systems such as:DocSuite, which makes it easy to automate administrative processes and comply with governance requirements.

The Future of Corporate Management in the Modern Era

With technological advancement, digital governance has become an essential element in enhancing efficiency and transparency within companies. Digital governance relies on the use of technologies such as artificial intelligence, big data analysis, and blockchain technologies to ensure transparency, reduce manipulation, and simplify administrative processes.

These technologies enable companies to improve decision-making processes, reduce human errors, and enhance operational efficiency. Many companies in the Kingdom have begun adopting smart governance management systems, such as “DocSuite and Diligent Boards, which provide integrated digital solutions for document management and internal communications, helping companies fully comply with the Ministry of Commerce’s Corporate Governance Regulations.

The role of governance committees in improving corporate performance and ensuring compliance

Governance committees are effective tools to ensure the implementation of the basic principles of corporate governance. These committees include:

Internal Audit Committee: Monitors compliance with financial and operational policies.

Risk Committee: Identifies potential risks and develops strategies to deal with them.

Nominations and Remuneration Committee: Ensures the selection of board members according to specific criteria and determines incentive and reward policies.

These committees play a key role in ensuring that all governance requirements are implemented, helping to improve companies’ performance and enhance their credibility with investors and stakeholders.

The Impact of Corporate Governance on Business Sustainability and Social Responsibility

Corporate governance is no longer limited to financial and administrative aspects, but also includes sustainability and social responsibility. Corporate governance regulations require companies to take into account the impact of their activities on society and the environment. This includes developing strategies to conserve natural resources, support community initiatives, and promote a fair and sustainable work environment.

By implementing these practices, companies can not only comply with regulations, but also enhance their reputation and increase the loyalty of customers and investors who prefer to deal with socially responsible companies.

In light of the rapid economic developments, the implementation of the Corporate Governance Regulations of the Ministry of Commerce has become a fundamental factor in the success of institutions and achieving financial and administrative sustainability. By enhancing transparency, adopting modern technologies, and establishing specialized governance committees, companies can achieve high levels of efficiency and compliance, which enhances their competitiveness in the local and global market.

With the move towards digital transformation, the use of advanced systems such asDocSuite – Diligent Boards – Oracle Governance, Risk, and Compliance Cloud- “can make it easier for businesses to efficiently manage governance processes, ensuring full compliance with regulations and effectively achieving strategic objectives.