CME-1 Corporate Governance — Questions and Answers
Question 1: What is the primary regulation governing corporate governance of listed companies in Saudi Arabia?
- Banking Control Law
- Corporate Governance Regulations issued by the CMA (Correct answer)
- Companies Law alone
- Saudi Vision 2030 guidelines
Correct answer: Corporate Governance Regulations issued by the CMA
The Corporate Governance Regulations (CGR) issued by the CMA establish governance requirements for companies listed on Tadawul, covering board composition, committees, disclosure, and shareholder rights.
Question 2: What is the minimum number of independent directors required on the board of a Saudi-listed company?
- One independent director
- At least two independent directors or one-third of the board, whichever is greater (Correct answer)
- Half the board must be independent
- No minimum requirement
Correct answer: At least two independent directors or one-third of the board, whichever is greater
CMA Corporate Governance Regulations require that independent directors constitute at least one-third of the board or a minimum of two directors, whichever is greater, to ensure adequate independent oversight.
Question 3: Which committees are mandatory for Saudi-listed companies under CMA governance regulations?
- Only the audit committee
- Audit committee and remuneration committee
- Audit committee, remuneration committee, and nomination committee (Correct answer)
- No committees are mandatory
Correct answer: Audit committee, remuneration committee, and nomination committee
Saudi-listed companies must establish at least three mandatory committees: an audit committee, a remuneration committee, and a nomination committee. Each has specific composition and responsibility requirements under the CGR.
Question 4: What is the role of the audit committee in a Saudi-listed company?
- Managing daily operations
- Overseeing financial reporting, internal controls, and the external audit process (Correct answer)
- Setting executive salaries
- Approving new product launches
Correct answer: Overseeing financial reporting, internal controls, and the external audit process
The audit committee oversees the integrity of financial statements, reviews internal control systems, recommends appointment of external auditors, and reviews compliance. It must have at least one member with financial expertise.
Question 5: Under Saudi corporate governance, what disclosure obligations apply to board members regarding conflicts of interest?
- No disclosure is required
- Board members must disclose any direct or indirect interest in transactions with the company (Correct answer)
- Disclosure is only required for amounts above SAR 1 million
- Only the chairman must disclose conflicts
Correct answer: Board members must disclose any direct or indirect interest in transactions with the company
Board members must disclose any direct or indirect interest in contracts or transactions with the company. The interested director must not participate in voting on such matters, and these transactions require shareholder approval.
Question 6: What rights do minority shareholders have under Saudi corporate governance regulations?
- No special rights beyond voting
- Rights to cumulative voting, access to information, and bringing derivative actions (Correct answer)
- Only the right to attend annual meetings
- Rights are limited to dividends only
Correct answer: Rights to cumulative voting, access to information, and bringing derivative actions
Minority shareholders have several protections including cumulative voting for board elections, the right to access company information, the ability to bring derivative actions, and protection against related-party transactions that harm their interests.
CME-1 Corporate Governance
What is the primary regulation governing corporate governance of listed companies in Saudi Arabia?