The Securities and Commodities Authority of the United Arab Emirates (SCA) has intervened substantially post the global financial crisis in 2008 to re-establish investors’ confidence in the financial markets and improve corporate governance. The introduction of a myriad of laws, regulations, and directives has kept the legal aspects of corporate governance at the forefront of SCA’s focus. As a result, the MSCI has upgraded the status of the UAE from a frontier market to an emerging market. Further, due largely to the promulgation of the new commercial companies law No. 2 of 2015 (CCL), SCA has been coordinating with the relevant committees of the World Bank prior to the issuance of the new corporate governance rules, which aim to complement the new CCL.
On 28 April 2016, the Chairman of SCA issued the Decree No. 7 R.M of 2016 which sets out the new set of corporate governance rules (the “Governance Rules”), which repeal the old governance rules issued under the Decree No. 518 of 2009. SCA has ensured that the Governance Rules include almost all of the key issues and recommendations of the World Bank. The new rules have strengthened the normative framework for conduct of public joint stock companies and established stiffer penalties for non-compliance in the hope of preventing, or at least limiting, public companies deviation from the Governance Rules. In doing so, SCA are demonstrating that they accept responsibility for maintaining a fair and efficient market whilst putting local and international investors on notice that the UAE stock markets now follow a more modern and transparent governance regime. In principle, the Governance Rules are more exhaustive and detailed compared to the repealed rules. The rules include a lot of incremental reforms, a number of which have been developed by SCA and the World Bank. This article aims to highlight some of the key aspects proposed by the World Bank and thereafter adopted by SCA:
A striking development is the requirement for fair gender representation on the board of directors of public joint stock companies. The repealed governance rules required publicly listed companies to have at least one female board member. However, the new rules require publicly listed companies to ensure female representation on their board of not less than 20% of the total number of board members. As with the repealed governance rules, companies which do not satisfy this requirement will need to disclose to SCA why such requirement is not satisfied and to report the percentage of female board representation in the annual governance report.
In an attempt to fine tune the caliber of board members of publicly listed companies and to ensure that nominated directors have a clean and sound track record, the Governance Rules stipulate that for a candidate to be nominated to sit in the board directors of a public company, the candidate must not have been dismissed from his position as a board member in any publicly listed company for the 12 months prior to the date of nomination.
Enhanced shareholder rights
The Governance Rules now allow shareholders who own 10% of the issued share capital of public companies to call for an urgent general assembly meeting to discuss urgent matters. Similarly, the rules allow shareholders who own 5% of the issued share capital to submit a written request to SCA to include an additional item to the agenda of a shareholders’ meeting, even if the invitation to the meeting has already been published.
In a further attempt to bolster shareholders’ rights, and in particular with respect to economic rights and benefits, the new rules oblige public joint stock companies to deposit cash dividends to those shareholders registered on the tenth day following the date of the general assembly meeting that approved the distribution of dividends, provided that in all cases distribution of dividends may not be delayed for more than 30 days from the date of the general assembly.
We genuinely believe that the new rules will have a very positive impact on investors’ confidence in the UAE stock market with this impact being twofold, namely: (i) a direct impact as international investors will be more comfortable to invest in the UAE stock market due to the more robust governance requirements; and (ii) an indirect impact as it is most likely that the new rules will enhance and upgrade the UAE’s ranking within the World Bank’s ‘doing business’ reports, which will in turn enhance inbound investments to the UAE market.
There are other interesting developments and more detailed provisions are included in the Governance Rules to complement the new concepts set out in the new CCL. In the future, we consider it likely that SCA will introduce further rules to safeguard any legal vacuum left by the CCL.