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العربية
The
Board of Directors constitutes the cornerstone of the corporate governance
framework in any company. Its members bear the primary responsibility for
steering the company’s activities, formulating its policies, and overseeing its
performance to ensure the achievement of strategic objectives in accordance
with applicable laws and regulations.
In the
Kingdom of Saudi Arabia, the Companies Law issued by the Ministry of Commerce
and the Capital Market Authority places significant emphasis on the role of
board members by defining their powers, responsibilities, and appointment
requirements, thereby promoting transparency, accountability, and
sustainability in the business environment.
Given
the importance of this topic, this article outlines the mechanism for
appointing board members in both listed and non-listed joint stock companies,
as stipulated in the Saudi Companies Law and the Corporate Governance
Regulations.
Legal
Framework for Board Composition
The
Companies Law stipulates that the number of board members in non-listed joint
stock companies must range between three and eleven members, whereas listed
companies must have a minimum of three members with no specified maximum,
provided the number is always odd to avoid tie votes during decision-making
processes.
Each
shareholder has the right to nominate themselves or another qualified
individual for board membership in proportion to their ownership in the
company’s capital. Board members are elected by the Ordinary General Assembly
for a term not exceeding four years, with the possibility of re-election. In
non-listed companies, the Ministry must be notified of the names and titles of
the board members within ten days of the commencement of their term or any
changes thereafter.
To
ensure the effective functioning of the board, the Implementing Regulations for
Corporate Governance of Non-Listed Companies, although non-binding, provide
advisory guidelines. These include a recommendation that no individual serve as
a board member in more than ten companies simultaneously. The composition of
the board should also align with the size and nature of the company’s
activities.
Governance
Requirements for Listed Companies
For
listed companies, the mandatory Corporate Governance Regulations require that
the composition of the board reflect the size and nature of the company’s
operations. The board must include a majority of non-executive members and at
least two independent directors or one-third of the board—whichever is greater.
Additionally, a board member may not hold directorships in more than five
listed companies simultaneously.
Listed
companies must notify the Capital Market Authority (CMA) of the names and
membership statuses of board members within five business days from the start
of their term or any subsequent changes.
Board
Membership Qualifications
The
mandatory Corporate Governance Regulations for listed companies also specify
key eligibility criteria for board members. We recommend applying these
criteria even in non-listed companies, as they represent sound governance
principles beneficial to companies of all sizes and across all sectors. These
qualifications are as follows:
1.
Leadership ability – to
guide the company towards best motivational and managerial practices.
2.
Scientific and
professional competence – including relevant academic qualifications and
industry-specific experience.
3.
Strategic thinking and
decision-making – with the ability to plan effectively and maintain a
forward-looking vision.
4.
Financial literacy – to
evaluate the company’s financial performance and analyze data efficiently.
5.
Good health – ensuring
the board member can carry out their duties effectively and sustainably.
Conclusion
In
conclusion, the process of appointing board members in Saudi joint stock
companies goes far beyond the simple selection of individuals for leadership
roles. It is a fundamental component in building an effective governance system
that ensures transparency, sustainability, and the protection of stakeholder
interests. Implementing professional and institutional appointment practices
empowers companies to meet challenges, achieve strategic goals, and align with
Saudi Arabia’s Vision 2030 for a globally competitive private sector.
Prepared
by:
Attorney Youssef Ibrahim Al-Ahmad
