Regulatory Revisions of Corporate Governance by the CMA

The world of corporate governance is evolving rapidly, with new regulations aiming to increase transparency, enhance accountability, and protect stakeholders. The latest changes to governance frameworks in Saudi Arabia are no exception, introducing stricter compliance guidelines by the Capital Market Authority (CMA) and redefining how companies operate internally and externally. The changes were published in 2023 as a revision to the 2017 standards and encompass numerous areas of stricter governance and enhanced transparency.

One of the most significant updates targets the Board of Directors, often seen as the cornerstone of corporate governance, which faces expanded responsibilities. New rules mandate comprehensive risk management practices, regular assessments of risk exposure, and active oversight of compliance with evolving regulations. Independent directors are now held to higher standards to prevent conflicts of interest and maintain board independence.

Committees like Risk, Governance, and Investment have been restructured to ensure better monitoring and accountability. These committees must document their meetings meticulously and submit detailed reports to the Board, ensuring transparency across decision-making processes.

The updated Conflict of Interest Policy broadens its scope, covering not just Board Members but also employees and major shareholders. Key stakeholders are now required to disclose any transactions or contracts that could create conflicts, with public announcements mandated for deals exceeding 1% of the company's revenue.

Transparency has emerged as a key theme in the updated disclosure policies. Companies must report material development at least 30 minutes before the next trading session, providing investors with timely and accurate information. Rules for engaging with financial analysts and responding to rumors are also clearer, ensuring that no group of investors is privileged with selective / insider information.

With regards to shareholders' rights, companies are now required to resolve complaints within five business days, ensuring quicker dispute resolution. Shareholders also have direct access to Audit Committee heads, strengthening their ability to raise concerns about financial irregularities. The updates also focus on building fair and equitable relationships with stakeholders. Codified policies now ensure that employees, customers, and suppliers are treated with fairness and respect. Mechanisms for addressing complaints have been formalized, and whistleblowers are protected from retaliation.

We observe a strong emphasis on internal controls and risk management. Companies must conduct regular astress tests to assess their risk tolerance and ensure that their internal audit systems align with the latest governance standards.

In essence, these updates represent a leap forward in corporate governance. By prioritizing transparency, accountability, and stakeholder protection, the new regulations aim to build trust and resilience in the corporate sector. For Saudi businesses, this is not just about compliance, it’s an opportunity to adopt global best practices and foster long-term growth.