Corporate governance is one of the most essential elements that aim to create an attractive environment of investment for shareholders and stakeholders. The definition of governance as CMA cited on its regulation is setting specific rules and procedures to facilitate the decision-making process featured with transparency and credibility in order to protect the rights of shareholders and stakeholders and achieve justice, competitiveness and transparency in the market and business environment.
The boards of directors are the body responsible for activating and monitoring the company’s governance, and the role of the shareholders in governance is to elect the boards members and appoint auditors and to ensure the existence of the appropriate supervisory structure. The responsibilities of the board of directors include defining the company’s strategic objectives, nominating and selecting the company’s senior management, supervising the control systems, presenting reports to shareholders and regulators bodies, creating tools and departments that enable the board to carry out its duties and responsibilities effectively, and ensuring that all procedures and operations are consistent with the principles and guidelines of governance.
In addition, the board shall provide through its committees, analysis and advice in various scope of works that shall be reported to the board of directors to take further actions according to its recommendations. however, several board committees are formed by the General Assembly such as the audit committee whereas other committees are formed and approved by the board of directors in compliance with CMA and other regulations bodies in the Kingdom.
Good governance is supposed to eliminate the direct interference of the board of directors in the company's operational activities, as it defining the roles and responsibilities of both the board of directors and the executive management and form the supervisory relationship by providing clear guidelines and principles that shall strength the supervisory role of the board and enable it to review the financial reports, and taking appropriate decisions according to the results of the analyzes, reviewing the performance of senior executives, determining salaries and benefits, and reviewing the granted authority to the executive management on an annual basis.
It can be said that one of the most important principles of corporate governance is the recognition of shareholders’ rights and the right of profit-sharing, the right to vote and elect the board of directors, review and approved of the proposed amendments of the articles of association in relation to the annual dividend, approval of the annual report and financial statements and the right to access any of the information and data in accordance with the CMA instructions. The policy of allowing shareholders to elect the board of directors also plays a vital role in protecting shareholders' interests and cumulative voting facilitate the opportunities for minority representation on the board of directors by concentrating the cumulative votes on one candidate.
The audit and control departments must have unrestricted access and appropriate resources within the organization to enable them to perform roles assigned to them in an effective manner and ensuring that all shareholders will obtain clear and accurate information.
In order to ensure that the applied governance is effective, an evaluation needs to take place to the role of governance and its effectiveness in protecting shareholders and facilitating to them gaining their rights, ensuring the optimal strategic direction of the company is being adopted, as well as evaluating the monitoring procedure of the executive management and operational activities as well as activating the accountability of the Board of Directors to shareholders.