In February 2020, the Chairman of the Securities and Commodities Authority (SCA) has issued Board Resolution No. (03/R.M) of 2020 which adopts the new Corporate Governance Guide for Public Joint-Stock Companies (the Resolution). The Resolution will come into force on 28 April 2020 and will repeal the previous SCA Chairman Resolution No. (7 R.M) of 2016 on the Standards of Institutional Discipline and Governance of Public Joint-Stock Companies.
The Resolution introduces new corporate governance rules for Public Joint Stock Companies in line with international best practice and which aim to promote accountability, fairness, gender diversity and transparency.
Scope of application
The Resolution applies to local Public Joint-Stock Companies listed on the UAE stock market and does not apply to foreign companies listed on the UAE stock market.
What has changed?
The most notable changes introduced by the Resolution include:
- A requirement to appoint a secretary on the board of directors;
- A requirement that the majority of board members should be independent, non-executive members;
- A minimum female representation in the board of not less than 20% of the number of board members and an obligation on the company to disclose the percentage of female representation in its annual governance report, together with a requirement for the board to establish policies concerning gender diversity;
- A requirement for the board members to inform the company, on a quarterly basis and whenever needed, of any change of interest through a company adopted form, and an obligation on the secretary to review such form on a quarterly basis to verify its accuracy and completeness;
- The introduction of an elaborate fitness criteria for board members;
- The introduction of an optional adoption of a dual governance structure whereby two board committees are formed: an executive committee and a supervisory committee;
- Bringing more clarity and detail to the risk management procedures;
- Bringing more clarity to governance–related disclosures including the content of the annual corporate governance report and the requirement to submit the report for approval at the annual general meeting;
- The introduction of guidelines to regulate the governance of subsidiary companies, requiring the parent company’s board of directors to set out and approve the group’s corporate governance framework and ensure that the management of the subsidiary company adopts an appropriate corporate governance framework; and
- The introduction of revised provisions requiring the company to have in place corporate social responsibility policies and programs.
Penalties for breach
Application of the new guidelines is mandatory on all listed Public Joint-Stock Companies. The Resolution sets out the penalties for breaches, which include warnings, fines, and, in some cases, referral of the violation to the public prosecutor. Violations of the Resolution will be subject to the provisions of the SCA’s Board of Directors Resolution No. (42) of 2015 concerning the controls and procedures for reconciliation in crimes related to Public Joint-Stock Companies.
What does this mean for you?
All listed companies are required to review and amend their articles of association, internal policies and procedures to comply with the Resolution. The Resolution provides a grace period of until the end of 2020 for companies to comply with the new requirements.
For further information, please feel free to contact one of the lawyers below or your usual Baker McKenzie contact.