SUMMARY OF RISK FACTORS
D- Risks Related to the Offer Shares
5. ORGANIZATIONAL STRUCTURE AND CORPORATE GOVERNANCE
5.5 Corporate Governance .1 Overview
The key sources of corporate governance for the Company are the Corporate Governance Regulations issued by the CMA, certain provisions of the Companies Law and corporate governance best practices in the Kingdom.
The framework under the Corporate Governance Regulations regulates the various relationships between the Board, Executive Directors, shareholders and other stakeholders, by establishing rules and procedures to facilitate decision making processes with the objective of protecting the rights of shareholders and other stakeholders and promoting the values of credibility, fairness, competitiveness and transparency in the Company’s conduct on the Exchange and in the business environment.
These regulations, which entail the implementation of a clear and transparent disclosure process, ensure that the Board acts in the best interests of the Shareholders and presents a clear and fair view of the financial condition of the Company and the results of its operations.
The Company’s policy is to adopt high standards of corporate governance. The Corporate Governance Regulations shall apply to the Company from the date of Listing. However, the Company is currently complying with the majority of the Corporate Governance Regulations and will fully comply with the Corporate Governance Regulations from the date of Listing. The Company considers ongoing compliance with these regulations to be an important factor in its continued success.
5.5.2 Key Corporate Governance Requirements
The key corporate governance requirements that the Company complies, and will comply, with are set out in the Corporate Governance Regulations. These cover the following broad areas:
■ General shareholder rights (Articles 4 to 9);
■ Rights relating to general assembly meetings (Articles 10 to 15);
■ The Board of Directors: formation, responsibilities, competencies, procedures and training (Articles 16 to 41);
■ Conflicts of interest (Articles 42 to 49);
■ Company Committees (Articles 50 to 72); and
■ Internal controls, external auditors, company reports and policies, and various other matters (Articles 73 to 98).
5.5.3 Corporate Governance Manual and Internal Policies
As part of the preparations for the Company to become a public listed company, the General Assembly approved the Company’s Corporate Governance Manual on 22/12/1442H (corresponding to 01/08/2021G).
The Company’s Corporate Governance Manual includes the following internal policies and charters:
■ General Rights of Shareholders and General Assembly Policies (Part 2);
■ Board Membership Policies, Standards and Procedures (Part 3);
■ Company Committees (Part 4);
■ Auditor (Part 5);
■ Dividend Distribution Policy (Part 6);
■ Ethics and Ways of Managing the Company (Part 7);
■ Disclosure and Transparency Policies (Part 8);
■ Conflict of Interest Policy and Competition Standards (Part 9);
■ Internal Control Regulations (Part 10);
■ Remuneration Policies for members of the Board of Directors, Board Committees, and the Executive Management (Part 11); and
■ Retaining of Documents (Part 12).
5.5.4 Corporate Governance Compliance
The Board of Directors declares that the Company is currently complying with the majority of the Corporate Governance Regulations and will fully comply with the Corporate Governance Regulations from the date of Listing.
The majority of the Company’s Board of Directors, which currently consists of nine (9) Directors, are non-executive members, and amongst the Board members are three (3) independent Directors. In addition, the Shareholders adopted the cumulative voting method in relation to the appointment of Directors at the Conversion General Assembly meeting held on 28/11/1441H (corresponding to 19/07/2020G). This method of voting gives each Shareholder voting rights equivalent to the number of Shares he holds. Each Shareholder has the right to use all of his voting rights for one nominee or to divide their voting rights between his selected nominees without any duplication of votes. This method increases the chances of minority shareholders appointing their representatives to the Board by exercising their cumulative voting rights in favor of a single candidate.
In compliance with the Corporate Governance Regulations, the Ordinary General Assembly of the Company formed the Audit Committee, consisting of three (3) non-executive members, on 28/11/1441H (corresponding to 19/07/2020G), and the Board of Directors formed the Nomination and Remuneration Committee on 18/04/1442H (corresponding to 03/12/2020G) and the Executive Committee on 18/04/1442H (corresponding to 03/12/2020G). The Company has also prepared its Committee charters, which were approved by the Board in its session held on 18/01/1442H (corresponding to 06/09/2020G), and recommended to the General Assembly for ratification. The Extraordinary General Assembly ratified the Committee charters during its session held on 22/12/1442H (corresponding to 01/08/2021G).
Furthermore, the Company has put in place measures to comply with provisions that deal with conflicts of interest and competing interests (Articles 71, 72 and 73 of the Companies Law and Articles 44 and 46 of the Corporate Governance Regulations). The Company has obtained the approval of the General Assembly for Related Party transactions described in Section 12.8 (“Transactions and Contracts with Related Parties”).
Pursuant to the Corporate Governance Regulations, each board member is prohibited from voting on a decision taken by the Board or the General Assembly regarding transactions and contracts that are executed for the Company’s account, if such member has a direct or indirect interest in those transactions or contracts (Article 44(b)(1)). The Companies Law sets out similar requirements to the effect that a Director, without prior consent from the Ordinary General Assembly, may not have any direct or indirect interest in transactions or contracts made for the account of the Company. The Director also has an obligation to inform the Board of Directors of any personal interest he may have in such transactions or contracts and may not participate in voting on resolutions to be adopted in this respect by the Board of Directors or shareholder assemblies. The Chairman of the Board of Directors must inform the General Assembly of any transactions and contracts in which any Director has a direct or indirect personal interest and accompany that with a special report from the company’s external auditor (Article 71).
The Corporate Governance Regulations also provide that if a member of the Board wishes to engage in a business that may compete with the Company or any of its activities, he must notify the Board of the competing businesses and abstain from voting on the related decision in the Board meeting and General Assemblies; the Chairman of the Board must inform the Ordinary General Assembly of the competing businesses that the member of the Board proposes to be engaged in; and the authorization of the Company’s General Assembly must be obtained for the member to engage in the competing business. The Companies Law sets out similar requirements (Article 72).
The Company currently complies with the mandatory governance requirements that apply to Saudi public joint stock companies, excluding some provisions mandatory only with respect to listed companies, which the Company is not currently in compliance as the Company’s shares are not currently Listed on the Exchange, as follows:
■ Paragraph (a) of Article 8 providing that upon calling for the General Assembly, the Company shall announce on the Exchange’s website information about the nominees for the membership of the Board.
■ Paragraph (c) of Article 8 providing that voting in the General Assembly shall be limited to the Board nominees whose information have been announced as per Paragraph (a) of Article 8.
■ Paragraph (d) of Article 13 providing that the invitation to the General Assembly shall be published on the Exchange’s and the Company’s websites, as well as in a daily newspaper published in the area where the Company’s head office is located.
■ Paragraph (c) of Article 14 providing that the shareholders shall be allowed through the Company’s and the Exchange’s websites to obtain the information related to the items of the General Assembly’s agenda, particularly the reports of the Board and the external auditor, the financial statements, and the Audit Committee’s Report.
■ Paragraph (e) of Article 15 providing that the Company shall announce to the public and inform the CMA and the Exchange of the results of a General Assembly meeting immediately following its conclusion.
■ Paragraph (d) of Article 17 providing that the Company shall notify the CMA of the names of the Board members and description of their memberships, as well as any changes that may affect their membership, within 5 business days from such changes.
■ Paragraph (b) of Article 19 providing that upon the termination of the membership of a Board member, the Company shall promptly notify the CMA and the Exchange and shall specify the reasons for such termination.
■ Paragraphs (a) and (b) of Article 57 providing that the audit committee shall convene periodically, provided that at least four meetings are held during the Company’s financial year, and shall convene periodically with the Company’s external auditor and internal auditor, if any.
■ Article 68 providing that the Company shall publish the nomination announcement on the websites of the Company and the Exchange to invite persons wishing to be nominated to the membership of the Board, provided that the nomination period shall remain open for at least a month from the date of the announcement.