Corporate governance has become an urgent necessity to ensure transparency and sustainability in the business environment. Although unlisted joint-stock companies are not subject to the supervision of the financial markets, the Unlisted Joint-Stock Companies Governance Regulation comes as a regulatory framework aimed at promoting good governance practices within.

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What is the governance regulation for unlisted joint stock companies?

The Corporate Governance Regulations for Unlisted Joint Stock Companies are a set of rules and standards that regulate the relationship between the company’s board of directors, executive management, shareholders, and other stakeholders. These regulations aim to facilitate the decision-making process, enhance transparency and credibility, and protect the rights of all stakeholders.

The regulation aims to:

• Promote transparency and accountability in corporate operations.
• Protecting shareholders’ rights and ensuring their effective participation in decision-making.
• Organizing the work of the Board of Directors and Executive Management to ensure that informed strategic decisions are made.
• Promote compliance with applicable laws and regulations.
• Reducing administrative and financial risks and enhancing sustainability and sustainable growth of companies.

The most important axes of the governance regulation

Board of Directors and its powers

The regulation defines the role and powers of the Board of Directors, which is considered the body responsible for general supervision of the company’s performance and making strategic decisions. Its responsibilities include:

• Appoint and supervise executive management.
• Ensuring the company's compliance with applicable regulations and legislation.
• Developing long-term company plans and strategies.
• Monitoring the company's financial and operational performance.

Shareholders' rights and mechanisms for their protection

The regulation emphasizes the need to protect shareholders’ rights through:

• Enabling them to participate in general assembly meetings.
• Ensure their right to vote on important decisions.
• Providing transparent disclosure of the company's financial and operational status.
• Ensuring fairness in the distribution of profits and other rights.

Disclosure and Transparency

The regulation requires companies to disclose all financial and non-financial information that affects the decisions of investors and shareholders, including:

• Preparing accurate periodic financial reports.
• Announcing important decisions that affect the company.
• Disseminate information related to investment risks and opportunities.

Internal Control and Risk Management

The regulation sets standards to ensure a strong internal control system that helps in:

• Assess potential risks and find strategies to deal with them.
• Prevent financial manipulation and administrative corruption.
• Enhancing compliance with regulations and laws.

The importance of applying the governance regulations in unlisted joint stock companies

Implementing the governance regulations improves companies’ performance and increases investor confidence, which contributes to strengthening the business environment in the Kingdom. It also reduces internal disputes and helps in making more accurate and sustainable decisions. Its importance lies in:

Promoting transparency and accountability

The regulation contributes to enhancing transparency within unlisted joint stock companies by specifying clear procedures for disclosing financial and non-financial information. This enhances accountability and ensures that decisions taken are based on accurate and reliable information.

Protecting shareholders' rights

The regulation ensures the protection of shareholders’ rights by establishing mechanisms that enable them to participate effectively in making strategic decisions, access necessary information, and participate in general assembly meetings.

Effective Conflict Management

By setting out clear procedures for dealing with potential disputes between shareholders or between board members, the bylaws help reduce disputes and ensure that they are resolved in fair and efficient ways.

Enhancing administrative efficiency

The regulation sets clear frameworks for the distribution of tasks and responsibilities between the Board of Directors and the Executive Management, which contributes to improving the efficiency of operations and decision-making within the company.

Basic principles of the governance regulations for unlisted joint stock companies

There are these principles for the governance regulations for unlisted joint stock companies, which are:

1. Separation of roles and responsibilities

The regulation emphasizes the need to separate roles between the Board of Directors and the executive management to ensure that powers do not overlap and to achieve balance in decision-making.

2. Disclosure and Transparency

The Regulation emphasizes the importance of comprehensive disclosure of financial and non-financial information, including periodic reports and financial statements, to ensure that information reaches all stakeholders in a timely manner.

3. Protecting the rights of stakeholders

In addition to shareholders, the Regulation recognizes the rights of other stakeholders such as employees, customers, and suppliers, and emphasizes the need to take their interests into account in decision-making processes.

4. Risk management

The regulation includes mechanisms to identify, assess and manage potential risks that unlisted joint stock companies may face, ensuring business continuity and minimising negative impacts.

Reliable governance systems

To effectively implement governance practices, unlisted joint stock companies can benefit from the following systems and legislation:

Companies system: It defines the legal framework for establishing and managing companies in the Kingdom, and includes provisions related to governance.

Corporate Governance RegulationsIssued by the Capital Market Authority, it provides standards and guidelines for implementing governance in companies.

Governance Regulations for Unlisted Joint Stock CompaniesIssued by the Ministry of Commerce and Investment, it aims to regulate governance practices in unlisted joint-stock companies.

Potential challenges in implementing the regulation

Despite the many benefits of implementing governance regulations, companies may face some challenges, such as:

Resistance to changeThere may be reluctance on the part of some management or shareholders to adopt new practices.

Lack of awarenessSome companies may lack sufficient knowledge of governance principles and their importance.

Implementation costsSome governance practices may require financial and human investments to be implemented effectively.

The Corporate Governance Regulations for Unlisted Joint Stock Companies are an essential tool for enhancing transparency, protecting shareholders’ rights, and ensuring corporate sustainability. By adopting these regulations, companies can enhance investor and stakeholder confidence and achieve sustainable growth in a competitive business environment.

The role of governance in improving the performance of unlisted joint stock companies

Governance is an effective tool for controlling administrative and financial performance within unlisted joint-stock companies, as it contributes to organizing the relationship between the various stakeholders in the company, such as shareholders, the board of directors, and executive management. The regulation helps improve the decision-making process within unlisted joint-stock companies, which reduces operational errors and enhances the efficiency of resource allocation. In addition, the presence of a clear governance framework helps to accurately define responsibilities, which reduces internal conflicts and facilitates the achievement of the company's strategic objectives.

How to Balance Regulatory Flexibility and Compliance

The Governance Regulation seeks to strike a delicate balance between giving companies the freedom to manage their business and ensuring compliance with regulatory standards. The Regulation therefore sets a general framework for governance practices without imposing strict restrictions on all operational details, giving companies the flexibility to implement internal policies that are consistent with the nature of their activity. This balance allows companies to develop competitive strategies, while maintaining a high level of transparency and compliance with ethical standards.

Digital solutions, such as document management and administrative communications systems, provide effective mechanisms for implementing governance, helping to document meetings, manage risks, and facilitate disclosures.

Systems likeDocSuite and SAP GRC provide integrated solutions to organize company operations according to governance standards, which enhances compliance, reduces human error, and improves decision-making efficiency.

The Corporate Governance Regulations for Unlisted Joint Stock Companies are an essential tool for enhancing administrative discipline and ensuring adherence to fair and transparent practices. By adopting these principles, companies can achieve sustainable growth, enhance shareholder confidence, and reduce operational and financial risks.