This presentation describes the key highlights of the draft Saudi Arabian Corporate Governance Regulations, published by the Ministry of Commerce and Investment and the Capital Market Authority.

1. DRAFT CORPORATE GOVERNANCE
REGULATIONS
BY DR. ZAID MAHAYNI
22 May 2016

2. PUBLICATION AND REQUEST FOR COMMENTS
• On 19 Rajab 1437 (26 April 2016), the Ministry of
Commerce and Investment ("MoCI") and the Capital
Market Authority ("CMA") published the draft
Corporate Governance Regulations ("Draft CG
Regulations"). The MoCI and CMA (together, the
"MoCI/CMA") invited the public to submit comments
on the Draft CG Regulations by 19 Shaban 1437 (26
May 2016).
• The Draft CG Regulations are described as being
binding on listed joint stock companies but are only
indicative for closed joint stock companies, unless any
separate legislation requires otherwise.
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3. RIGHTS OF THE SHAREHOLDERS
• The Shareholders have the right to consult the books and
documentation of the Company relating to its activities and
operational and investment strategies.
• The Shareholders have the right to supervise the
performance of the Company and the Board.
• Shareholders cannot interfere with the works of the Board
of Directors or those of the Executive Management, except
by way of the Annual General Meeting and within the
scope of this meeting.
• The Companies Law states for example that Auditors
cannot reveal to the Shareholders (outside of the General
Meetings) any confidential information relating to the
Company.
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4. MEETINGS OF THE SHAREHOLDERS
• If a resolution is passed at a General Meeting despite
strong dissidence, the Board of Directors must take
steps (and clarify beforehand the steps that it intends
to take) to understand the rationale behind the
dissidence.
• Shareholders may appoint proxies to attend and vote
on their behalf, provided that the proxy is not a
Director or Employee in the Company.
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5. COMPOSITION OF THE BOARD
• Board size between 3 and 11 (same as what the
Companies Law requires).
• The number of Directors be commensurate with the
nature of the activities of the Company.
• There needs to be a number of independent Directors
no lesser than two, or the equivalent of a third of all
Directors (whichever is greater).
• The majority of Directors must be independent or non-
Executives.
• Directors must have demonstrated leadership, ability
to guide, ability to understand financial information,
and must be physically fit.
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6. COMPOSITION OF THE BOARD
• The Draft CG Regulations (and the Companies Law)
require the use of cumulative voting in the election of
Directors. Cumulative voting grants each Shareholder a
single vote per share owned and the ability to split her/his
votes between multiple candidates.
• The Draft CG Regulations specify circumstances in which
a Director shall not be considered to be independent.
These include, amongst other situations, if the person:
- owns 5% or more of the shares in the Company or of
the shares of an affiliated Company;
- has worked as a Senior Executive or employee of the
Company or any affiliated Company in the previous
two years;
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7. COMPOSITION OF THE BOARD
- is a relative (up to the fourth degree) of any other
Director or any Senior Executive or any consultant of
the Company or any affiliated Company;
- is a Director in any other affiliated Company;
- is a Shareholder or Director in an entity which has
substantial dealings with the Company;
- receives remuneration from the Company in excess
of what is paid for her/his directorship role; or
- has acted as a Director of the Company for a period
exceeding nine years.
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8. COMPOSITION OF THE BOARD
The Draft CG Regulations define 'relatives' as follows:
- First degree relatives: fathers, mothers,
grandparents, grandmothers, their upwards lineage
and spouses.
- Second degree relatives: children and downwards
lineage;
- Third degree relatives: brothers, sisters, half-
brothers, half-sisters and their children; and
- Fourth degree relatives: maternal and paternal
uncles and aunts and their children.
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9. COMPOSITION OF THE BOARD
• Directors shall not have the right to hold directorship
roles in more than five listed companies.
• The Chairman and Vice-Chairman shall not have the
right to hold executive roles at the level of the
Company.
• The Secretary of the Board does not need to be a
Director. However, the Secretary must have a
university degree in law or finance or accounting or
management and must have at least three years of
experience.
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10. MEETINGS OF THE BOARD
• The Board of Directors must hold at least six
meetings each year and must meet at least once
every two months. (The Companies Law only requires
2 meetings per annum)
• Meetings of the Board of Directors must be attended
by at least half of its members (which shall not be
lesser than 3), at least 1 of whom must be
independent. (The Companies Law requires the
presence of half and at least 3 of all Board members)
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11. ROLE OF THE BOARD
• Protect the rights of shareholders as well as fairness
and equality amongst them.
• The Board of Directors must inform its members
(especially non-executive and independent members) of
any comments of the Shareholders. In its annual report,
the Board of Directors must describe the processes that
it has adopted to comply with these duties.
• The Board of Directors must put in place a clear policy
regarding the distribution of dividends. This policy must
espouse the best interests of the Company and those of
its Shareholders. It must be disclosed at the General
Assembly and must be referred to in the annual report of
the Directors.
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12. ROLE OF THE BOARD
• The Board of Directors must establish a clear conflicts
of interests policy and such policy must be supported
by illustrative examples.
• The Board of Directors is not entitled to issue broad
delegations or delegations which are not restricted in
time.
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13. ASSESSMENT OF THE PERFORMANCE OF THE
BOARD
• The Board of Directors must, based on the
recommendations of the nomination committee, put in
place mechanisms to measure the performance of the
Board of Directors and its individual members and
that of the Executive Management. Performance must
be assessed each year on the basis of these
mechanisms.
• An external performance assessment must be
obtained from a professional consultant every three
years.
• The Company must offer Directors the training
needed for them to deepen their understanding of the
sectors in which the Company is engaged.
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14. CHAIRMAN
• The Companies Law prohibits that the position of
Chairman be conjoined with any other position. Any
person who had acted as the CEO is disqualified from
acting as its Chairman.
• The Chairman and the CEO to relay Shareholders'
recommendations and observations to the Board of
Directors for discussion.
• Non-executive Directors must assess the
performance of the Chairman each year.
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15. AUTHORITIES
• Authorities must not be consolidated in a single
person.
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16. EXECUTIVES
• The Draft CG Regulations distinguish between
'Executive Management', the 'Executive Members'
and 'Senior Executives'.
• Executive Management means those individuals
vested with the daily management of the Company.
• Executive Members refer to any member of the Board
of Directors that are members of the Executive
Management and receive a salary for such role.
• Senior Executives refer to any person with authority
to propose and/or implement strategic decisions, such
as the CEO, her/his deputies and the financial
director.
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17. EXECUTIVES
• The internal policy of the company must specify the
respective roles of the Board and the Executive
Management. The Executive Management must report on
the accomplishment of its roles.
• The Board is responsible for the creation and oversight of
the Executive Management.
• The Board must regularly meet with the Executive
Management to understand work progress and any issues
faced.
• The Executive must implement the general strategies and
policies. It must provide to the Board all information
required for the performance of its duties. It must suggest
to the Board staffing charts, major capital expenditures,
and asset ownership.
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18. AUDIT COMMITTEE
• The Audit Committee must be created by a resolution
at the Ordinary General Assembly (Also required
pursuant to the Companies Law)
• The Audit Committee must consist of 3 to 5 members
and must include individuals who are versed in
financial and accounting matters.
• Executive Directors and anyone who has acted as an
auditor of the Company during the past two years
cannot form part of the Audit Committee.
• The Audit Committee must meet at least once every 3
months.
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19. REMUNERATION COMMITTEE
• The Remuneration Committee must be composed of
three members.
• At least one of the members of this Committee must be
an Independent Director.
• Executive Directors may not be members of the
Remuneration Committee.
• The Remuneration Committee must recommend, for the
ultimate decision of the General Assembly, a clear policy
regarding the remuneration of the Directors and
Executives. Such remuneration must attract and retain
talent, and incentivize the Directors and Executives to
perform. The Committee must also report on all
remuneration disbursed to Directors and Executives.22 May 2016 19

20. REMUNERATION COMMITTEE
• If the remuneration of a Non-Executive or
Independent Director exceeds SR 250,000, a report
must be produced by the Remuneration Committee
describing whether the remuneration is tied to the
performance of the Director and the Company.
• The Remuneration Committee must meet at least
once every 6 months.
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21. NOMINATION COMMITTEE
• The Board of Directors must establish a Nomination
Committee composed of 3 members.
• Executive Directors may not be members of the
Nomination Committee. At least 1 of the members of
this Committee must be an Independent Director.
• Amongst other roles, the Nomination Committee must
verify each year the continued independence of
Independent Directors, review the skillsets required
on the Board, and review the organizational chart for
the Executive Management.
• The Nomination Committee must meet at least once
per year.
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22. RISK MANAGEMENT COMMITTEE
• The Risk Management Committee must be composed
of 3 members.
• Executive Directors may not be members of the Risk
Management Committee. At least one of the
members of this Committee must be an Independent
Director.
• The Risk Management Committee must place
recommendations for the management of risks (such
as any risks threatening its continuation during the 12
coming months).
• The Risk Management Committee must meet at least
once every 6 months.
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23. INTERNAL AUDIT
• The system shall assess the policies and processes
relating to risk management, the application of
corporate governance rules, and conformity with
applicable legislation.
• The Internal Audit Unit must be composed of at least
1 member appointed by, and reporting to, the Audit
Committee.
• The Internal Audit Unit must submit: (i) a quarterly
report to the Board of Directors regarding its activities,
as well as any recommendations that it may have,
and (ii) an annual report to the Risk Management
Committee about the Internal Audit Unit's assessment
and findings for the year.
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24. STAKEHOLDERS
The Board of Directors must put in place clear policies
and processes for the regulation of the relationships
between Stakeholders for the purposes of protecting
their respective rights. These policies must include
mechanisms for:
‾ the treatment of any complaint by any of them;
‾ the settlement of any differences between
Stakeholders; and
‾ the compensation of any damages caused to any of
them as a result of the breach of any of their
respective legal or contractual rights.
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25. INCENTIVE SCHEMES
• The Company must put in place schemes to
incentivize employee engagement. For example,
committees should be created and workshops should
be held to discuss employees' views on important
issues.
• Also, programs must be created for their benefit,
either in the form of shares in the profits, shares in the
Company, or pension plans.
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26. POLICIES TO BE PUT IN PLACE
The Board of Directors must put in place policies
regarding:
‾ corporate governance, which shall not conflict with
the Draft CG Regulations;
‾ the conduct of individuals within the Company;
‾ the dissemination of corporate social responsibility
programs; and
‾ transparency and disclosure.
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27. THANK YOU