CME-1 Corporate Governance 2 — Questions and Answers
Question 1: What is cumulative voting and why is it important for shareholders?
- A method where each share gets one vote per candidate, favoring large shareholders
- A method where shareholders can concentrate all their votes on fewer candidates, helping minority representation (Correct answer)
- A government-mandated voting system for all elections
- A method only used for voting on dividends
Correct answer: A method where shareholders can concentrate all their votes on fewer candidates, helping minority representation
Cumulative voting allows shareholders to multiply their votes by the number of board seats and allocate them across candidates as they choose. This enables minority shareholders to concentrate votes and gain board representation.
Question 2: What is a related-party transaction under CMA governance regulations?
- Any transaction between two listed companies
- A transaction between the company and its directors, senior executives, major shareholders, or their relatives (Correct answer)
- Only transactions between parent and subsidiary companies
- Transactions that exceed SAR 10 million
Correct answer: A transaction between the company and its directors, senior executives, major shareholders, or their relatives
Related-party transactions involve dealings between the company and insiders including directors, senior executives, shareholders holding 5% or more, and their relatives. These require disclosure, board approval (excluding the interested party), and potentially shareholder approval.
Question 3: How does Saudi corporate governance address executive compensation disclosure?
- Compensation is confidential and never disclosed
- Companies must disclose aggregate and individual compensation of board members and top 5 executives (Correct answer)
- Only total board compensation is disclosed
- Disclosure is voluntary
Correct answer: Companies must disclose aggregate and individual compensation of board members and top 5 executives
Listed companies must disclose detailed compensation information for board members and the top five executives in their annual report, including fixed and variable pay, bonuses, and other benefits.
Question 4: What is the maximum term for a board member of a Saudi-listed company?
- 2 years
- 3 years, renewable (Correct answer)
- 5 years
- No maximum term
Correct answer: 3 years, renewable
Board members of Saudi-listed companies are appointed for a maximum term of 3 years, which can be renewed. This ensures regular board refreshment while allowing continuity of experienced directors.
Question 5: What role does the company secretary play in Saudi corporate governance?
- Managing the company's finances
- Facilitating board meetings, maintaining records, and ensuring compliance with governance requirements (Correct answer)
- Replacing the CEO when absent
- Only managing shareholder communications
Correct answer: Facilitating board meetings, maintaining records, and ensuring compliance with governance requirements
The company secretary is responsible for recording and maintaining meeting minutes, ensuring regulatory compliance, managing board communications, maintaining corporate records, and facilitating shareholder meetings.
Question 6: What are the CMA's enforcement powers if a listed company violates corporate governance regulations?
- The CMA can only issue warnings
- The CMA can impose fines, suspend trading, refer for criminal prosecution, and require corrective actions (Correct answer)
- The CMA has no enforcement powers for governance violations
- Only the courts can take action
Correct answer: The CMA can impose fines, suspend trading, refer for criminal prosecution, and require corrective actions
The CMA has broad enforcement powers including imposing financial penalties, suspending or canceling listings, requiring corrective actions, and referring violations to the public prosecutor for criminal proceedings when appropriate.
CME-1 Corporate Governance 2
What is cumulative voting and why is it important for shareholders?