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The United Arab Emirates (‘UAE’) Securities and Commodities Authority (‘SCA’) issued new corporate governance rules under Chairman of SCA Board Decision No. (03 R.M.) of 2020 concerning adopting the Corporate Governance Guide for Public Joint Stock Companies (‘New Rules’). The New Rules, which were published on 27 February 2020 and came into force on 28 April 2020, repeal the previous corporate governance rules (Chairman of SCA Board Decision No. (7 R.M) of 2016 concerning the Standards of Institutional Discipline and Governance of Public Shareholding Companies). The New Rules apply to Public Joint Stock Companies (‘PJSCs’) listed on the Abu Dhabi Securities Exchange or the Dubai Financial Market. This article provides a summary of the key elements of the New Rules.
What is corporate governance?
Corporate governance is the collection of rules, practices, mechanisms and processes by which corporate entities are operated, directed and controlled. Good corporate governance should create a balance between the interests of an entity’s shareholders, its senior management, its other stakeholders and the wider community.
Good corporate governance should promote the rule of law, transparency, responsiveness, inclusion, efficiency, equality, accountability and participation and should be executed through a cultural mindset rather than treated as a ‘tick-box’ compliance exercise. Corporate governance best practices for PJSCs can assist in building and maintaining investor confidence and can mitigate the risks of corruption and mismanagement, all of which can enhance the reputation of a PJSC, and potentially improve its share price. It is very important for PJSCs to remember the “G” for governance in ESG (Environmental, Social and Governance) that is having an increasing impact on investor decision-making.
Corporate governance should not interfere in the day-to-day activities of the PJSC; instead, it should set out the framework for the different roles and responsibilities of the stakeholders in the PJSC such as its shareholders, board members, committee members, senior management, and auditors.
What do the Corporate Governance Rules require?
The Corporate Governance Rules set out the minimum corporate governance standards required of a PJSC. The constitutional documents of the relevant PJSC may impose higher standards.
The New Rules provide certain protections and rules relating to a PJSC’s shares. These include the following:
The board of directors (the ‘Board’) manages and supervises a PJSC’s business and operations. The New Rules place a number of obligations on members of the Board including the following:
The New Rules introduce the option for a PJSC to implement a dual governance structure under which the management function is separated from the supervisory function. This is achieved by establishing two Board committees: (i) a supervisory committee; and (ii) an executive committee. These committees will be required to co-operate to realise the PJSC’s objectives.
Application to banks
The New Rules apply to all PJSCs without exception, including banks. However, there are additional separate rules issued by the Central Bank that apply to banks. Accordingly, this article should not be considered a summary of corporate governance requirements for banks or a complete list of requirements for PJSCs. This is a summary only of the New Rules.
Corporate governance aims to create a check-and-balance system within a PJSC so it may realise an acceptable level of professionalism, accountability, impartiality and independence. This should lead to better performance by the PJSC, a potential uptick in share price, and increased investor confidence in the PJSC.
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