Corporate governance in Oman has undergone a period of renaissance in 2016 with the new Code of Corporate Governance for Public Listed Companies (the Code) coming into effect on 22 July. The Capital Market Authority (CMA) has prescribed 14 new Principles that are in keeping with internationally accepted standards of corporate governance. This forms part of a drive by the government to ensure better regulation and administration of public companies listed on the Muscat Securities Market and a renewed stimulus to attract greater foreign investment.
Public listed companies and their advisers have been gearing up to navigate the new corporate governance terrain in Oman. In a Circular issued on 1 December 2016 (Circular E/10/2016), the CMA offers fresh guidance on aspects of the Code that have been queried since it came into effect.
The Circular clarifies that compliance with the provisions of the Code are mandatory as they form part of the listing requirements under Article 50 of the Capital Market Law (SD 80/89). It is also now clear that the explanatory notes under each Principle are also binding and that they represent the minimum requirements that listed companies should implement or comply with.
The Circular touches on a number of aspects of the Code including director sitting fees, director independence, the role of the audit committee, the nomination committee and the board secretary, related party transactions, public disclosure requirements and procedures on holding board meetings. We will follow with a further update covering some of these aspects however, in this article we discuss one of the key areas of the Code that the Circular offers some much needed guidance on.
Under the Code, listed companies are now required to appraise and evaluate their boards on an annual basis using an independent consultant appointed by the shareholders at the AGM.
Many public companies will be preparing to hold their AGMs during the first 3 months of 2017 and there has been some ambiguity as to how companies will comply with the new board appraisal requirements for the first time. The Circular’s guidance is that:
- the criteria and mechanism for board appraisal may be proposed by the directors but ultimately must be approved by the shareholders at a general meeting; and
- the timing of the board appraisal should also be decided on by resolution of the general meeting.
Further direction offered in the Circular is that the general meeting may resolve to form a committee to appraise the performance of the board consisting of shareholders who hold 5 per cent or less of the share capital (of course whilst doing so, if a shareholder is also a director, they should abstain from such participation). This seems to be a suggestion rather than a mandatory requirement and would be in addition to the requirement for appointing an independent consultant.
Finally, the Circular also clarifies that there are no minimum requirements for the selection of the independent consultant, except that the consultant should not be a member of the executive management or be the external auditor of the company (the direction in the Code itself is that neither the external nor the internal auditor of the company may be engaged).
The general tone of the Circular is to assist and provide guidance on the Code. It is clear that the CMA realises that uncertainty in interpreting the Code does exist and that companies will at first require guidance and direction on the new corporate governance landscape in the Sultanate. Overall, the message is that the CMA is committed to improving and enhancing the legislative and regulatory framework in the interest of public companies.