Corporate Governance Index

Purpose

The Corporate Governance index was established to monitor and promote good governance practices in Saudi Arabia

Development

Index developed by a team from Corporate Governance Center and the College of Business at Alfaisal University in collaboration with consultants from Harvard University and Kobirate International Credit Rating and CG Service Inc.

Components

The Corporate Governance Index (CGI) captures the governance of corporations in terms of their STRUCTURE, POLICIES, PROCESS and PRACTICES, across the following categories (equally weighted)

• Board of Directors
• Shareholders’Rights
• Public Disclosure & Transparency
• Stakeholders’Rights

We believe it is essential to develop a sound Corporate Governance Index (CGI) to monitor and promote good governance practices among corporations doing business in Saudi Arabia. The CGI will raise the country’s overall corporate governance standards and provide possible financial and investment benefits as a result of making governance improvements. That is why many countries around the world have set up CGIs in the past decade.

Hence, The Corporate Governance Center at Alfaisal University is have taken a major study to develop CGI for companies trading on the Saudi Stock Markets. On 2015, a dedicated team from the College of Business partnered with Saudi Arabia General Investment Authority SAGIA (Currently Ministry of Investment) with the support from well-experienced consultants to work on a project aimed at increasing the society awareness of corporate governance and its value for the economy. The CGI is based solely on good CG principles set by the Saudi Capital Market Authority (CMA), Saudi Central Bank (SAMA), and The Organization for Economic Co-operation and Development (OECD).

CGI is a way to assess companies in terms of their compliance to the related governance rules in the country and best governance practices around the world. Those rules are expected to promote equal treatment of shareholders; ensure transparency through constant flow of relevant information related shareholders and stakeholders; provide effective structure to hold decision makers accountability for their business decisions; and ensure responsible acts in terms of complying with related laws and regulations. The ultimate benefit of good governance is to develop efficient and effective rules and institutions for higher productivity and long-term economic success. Companies are expected to develop certain written rules and culture for good governance. They are also expected to have strong-will, mechanism, and institutions to implement those rules and report the outcome. Particularly, good governance offers solution for principle-agent problems and conflict of interest issues aligning the goals of everyone toward long-term corporate growth, profitability and social responsibility.

CGI provides data-based independent guidance to Saudi companies helping them to adopt good governance. We believe that the adoption of those principles would help companies to make better decisions and resolve any problem between corporate executives, shareholders, and stakeholders. We define shareholders as any individual or institution holding company shares. We consider board members and top managers as corporate executives. We treat the followings as stakeholders: company’s employees, customers, suppliers, creditor, regulatory bodies, society and others. The project also aims at developing CG culture. It will engage and train students into the issues and processes of CG. Opportunities will be provided for the students to enroll in CG course/s; conduct research in CG; and internship in CG.