How Corporate Governance practice in Saudi Arabia and Anglo-American model

Corporate governance has existed since antiquity, when tribal communes supervised the activities of tribal members to ensure that they conformed to tribal norms. In the agricultural communities that followed, family councils performed family-centric monitoring for the same reasons as the tribes. The Roman Empire appointed municipal bodies to manage public affairs and compel administrators to be transparent in order to serve the public good. Elsewhere, nomadic tribes in the Arabian region held councils to enforce fair play and equitable dealings with one another. Later, when the great religions of Christianity and Islam arose, the religious hierarchies performed the function of oversight of community members. On the other hand, corporate governance refers to the set of rules, processes and practices that direct and control a company. Such activities may essentially entail the balancing of the interests of the stakeholders of the company such as the shareholders, the management, suppliers, customers and others. Corporate governance gives a framework that helps in the attainment of the objectives of a company through its encompassing of all spheres of management. Capital and securities markets are those concerned with financial investments that relate both indirectly and indirectly with capital. Therefore the laws that govern such processes are what this work will refer to as securities and capital market regulations.
During the Renaissance and the era of discovery, traders and explorers from Europe travelled the seas to set up the first centres of global trading, and the earliest corporations were formed to conduct trade along these routes. Global traders reported their activities to their monarchs, similar to the modern concept of corporate governance in which corporate auditor’s report to government regulators or oversight agencies. Among the 16th century naval voyagers, the best, most active traders came from England, which became the most powerful trading nation in the world. To ensure the accountability, efficiency, effectiveness and optimal performance of trading

companies to the satisfaction of shareholders, the Bank of England formulated rules and a regulatory framework with which trading companies were required to comply.
The early beginnings of corporate governance are evident in the development of regulations and compliance procedures. These became institutionalized and adopted as common practices in industry. Many rules survived to form the basis for modern corporate governance, which was formalized in the 1970s and which continues to be the subject of serious debate worldwide.
Reforms aimed at developing a world model for corporate governance that address cross-border investments in a global economy are expected to emerge as foreign shareholders are concerned with the exercise and enforcement of their rights in their overseas investments. To meet such concerns, corporate directors’ duties and powers might be expanded significantly in order to ensure they maintain their legal accountability and their duty of loyalty to shareholders and the company.
Modern discussions on corporate governance tend to reference three official documents released since 1990: the 1992 UK Cadbury Report, the 1998 and 2004 OECD Principles of Corporate Governance and the 2002 United States (US) Sarbanes-Oxley Act. In addition, numerous models of corporate governance exist around the world. Such debates provide the background against, which Saudi Arabia’s business entities could learn the approaches of corporate governance even while the country does not have a similar approach to corporations as the west. The arguments provide some of the best practices that provide the similarities between the two economies especially with regard to the rules of disclosure and transparency. Such rules also provide the framework against which the rest of the countries across the world perceive investment in Saudi Arabia.
The differences in these models depend on the extent to which they have adopted capitalism. For example, the Anglo-American model emphasizes the shareholder’s interests, and the Japanese model shares these principle. Corporations are created according to and governed by the rules and regulations of a specific jurisdiction. When exploring the issue of corporate governance, it is prudent to evaluate the legal environment, specifically the applicable codes and guidelines. Key parties in corporate governance include government agencies, corporate management and stock exchanges. All corporate governance settings need mechanisms and controls that lessen the occurrence of inefficiencies which can arise within a corporation.

Dr. Khalid Alhabshan
PhD in “Corporate Governance disclosure Practice, and minority shareholder protection in Saudi Arabia”
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