Corporate governance disclosure practices and protection of shareholders in Saudi Arabia

Abstract

Corporate governance in general has become the new crucible in which corporations are tested and declared worthy of the trust of international investors. In an age when countries compete in a global economy, compliance with corporate governance standards has become crucial to the survival of businesses. Especially in the Middle East, which is culturally and politically distant from the rest of the world, compliance with the internationally accepted principles of corporate governance has become a challenge. This thesis aims to examine how a specific aspect of corporate governance—disclosure and transparency—is viewed and applied in the Saudi Arabian context. The results of this study are important primarily for Saudi Arabian businesses positioned to play a significant role in the global economy. The Saudi economy is one that has a number of industries such as the oil industry, which forms the largest contributor of the GDP of the nation; about 67%. Other companies in the country include those, which deal in consumer goods, the financial sector, the media, retail, telecommunications, technology, travel and leisure and telecommunications. The largest conglomerates are those that deal in the oil and gas industry. These companies could benefit greatly from the financial strength provided by international investments, the technical and strategic advantages offered by partnerships and joint ventures with foreign companies and the market leadership obtained by gaining the trust and confidence of consumers in the global market. Achieving these benefits becomes feasible only if Saudi firms can comply with the minimum disclosure and transparency requirements. The thesis employs critical and comparative analyses. It explores the academic literature on corporate disclosure and discusses the theories and principles espoused in the context of the Saudi Arabian legal and regulatory framework. Also discussed is the vital role of the Islamic principles in Sharia law, which forms the basis of the Saudi legal system. This study proposes corporate disclosure practices as the basis for comprehensive reform of Saudi Arabia’s Capital Market Authority. The idea of corporations is alien to the Islamic law, but the idea of disclosure and transparency is a fundamental of the Islamic corporate governance. The disclosures that the organizations make have a target of attaining transparency and the promotion of market discipline concerning the same institutions. There is also the conceptualization of the fact that the effectiveness of the corporate organizations relies on how they complement the international standards. The study offers recommendations for increasing transparency, disclosure and the associated principles in the Saudi Arabian stock market and better protecting minority shareholders. These recommendations follow the United Kingdom’s corporate governance approach but reflect the interests, culture, treaties, Sharia principles and legislative reforms of the Kingdom of Saudi Arabia. The thesis concludes by presenting the Saudi perspective on disclosure and transparency and its prospects for future development.