Financial Crime World

Corporate Governance in the United Arab Emirates

Corporate Governance Structure

In the UAE, listed companies must adhere to a strict corporate governance structure. This includes:

  • A board of directors with at least 3 members
  • A chairman responsible for ensuring compliance with regulatory requirements and overseeing management
  • Several key duties, including:
    • Maintaining accurate financial records
    • Submitting annual reports to shareholders
    • Providing information on key matters to be decided by the general assembly

Shareholder Meetings

Shareholders’ meetings are required annually, with financial statements and administrative reports submitted prior to May 31st for companies whose fiscal year ends on December 31st. The statutory auditor must also submit its report and sign off or not on the company’s financials.

  • Agenda Items: Shareholders can take decisions based on information presented on the agenda.
  • Decision-Making Process: Decisions are typically made by majority vote, with members who objected having their objections documented in meeting minutes.

Shareholder Activism

Shareholder activism is common in the UAE. Recent examples include shareholders requesting forensic investigations into management and board activities that led to a listed company suffering financial losses. This action ultimately led to reports convicting certain board members and management members, prompting legal proceedings.

Liability and Enforcement

Members of the board of directors are liable for:

  • Fraudulent Acts: Any acts that involve fraud or misuse of power
  • Law Violations: Violations of the law or company articles of association
  • Unanimous Decisions: All board members are liable if an error arises from a unanimous decision
  • Majority Vote Decisions: Members who objected must have their objections documented in meeting minutes

Regulators

The Emirates Securities and Commodities Authority (SCA) has the authority to investigate breaches of corporate governance rules by directors and impose sanctions accordingly for listed companies.

Stakeholders

Other stakeholders, including:

  • Debt-Holders: Have no direct role in corporate governance but may have recourse to courts or authorities if they have claims against the company
  • Employees: Suppliers, customers, regulators, government, and communities also have no direct role in corporate governance but may have similar recourse

ESG Issues

Environmental and social corporate responsibility are governed by:

  • SCA’s Chairman Decision No 3: Related to corporate governance
  • UAE Cabinet Resolution No 2/2018: Key requirements include:
    • Setting a policy to balance company objectives with community socio-economic conditions
    • Developing indicators linking company performance with socio-economic initiatives
    • Disclosing social responsibility objectives to employees and raising awareness

Investor Responsibilities

Investors have no regulatory or legal requirements for:

  • Stewardship: Disclosure, or other responsibilities regarding the corporate governance of entities in which they are invested.