Corporate Governance UAE: Boosting Company Compliance with Updated Regulations and Governance Codes

Corporate Governance UAE refers to the rules, procedures, methods, and processes that regulate the operation, direction, and control of business enterprises. Good corporate governance should strike a balance between the interests of an organization’s shareholders, senior management, other stakeholders, and the larger community. Corporate governance in the UAE has undergone a tremendous shift, fueled by the region’s rising economies and the need for increased foreign direct investment.

Read more: Commercial Contracts UAE: Navigating Law and Dynamic Legal Transactions in Dubai and Beyond

---

Evolution of Corporate Governance UAE

Several major variables have formed and continue to affect corporate governance practices throughout the Middle East, particularly in the UAE. In 2020, the UAE Securities and Commodities Authority (SCA) issued rules requiring at least 20% female representation on all boards. This directive emphasizes the commitment to gender diversity by mandating enterprises to disclose representation percentages in annual governance reports and implement gender diversity programs.

For the first time in 2023, the UAE will levy a Federal Corporate Tax on firm profits. Looking ahead, boards are now responsible for assuring compliance and implementation across enterprises, and they anticipate that these financial ramifications will require additional board attention in 2024. Amid economic uncertainty, UAE enterprises are increasingly recognizing the importance of robust board reviews. To elevate the status of corporate governance, these evaluations will be viewed as tools for improving transparency, accountability, and decision-making efficacy, as well as addressing board diversity gaps.

Dubai, UAE, continues to attract global investors and enterprises, where the importance of strong corporate governance frameworks has never been higher. This article explores the evolution of corporate governance in the UAE, providing insights into its impact on the business landscape.

Read more: Commercial Leasing UAE: Navigating Dubai’s Real Estate and Dynamic Property Market

---

Corporate Governance UAE

Corporate governance in the United Arab Emirates (UAE) is mostly concerned with listed enterprises. All public joint stock companies (JSCs) listed on onshore UAE markets are subject to Resolution No. 3/RM of 2020 and its amendments (Corporate Governance Laws), which repealed and replaced Decree No. 7/RM of 2016 (the UAE’s first iteration of corporate governance laws). The following corporate governance regulations (Private JSC Governance Regulations) have also been issued for private JSCs in the UAE:

• Ministerial Resolution No. 228 of 2015 addresses governance controls and corporate discipline norms.
• Ministerial Resolution No. 539 of 2017 on private JSC controls, which implements the provisions of the Commercial Companies Law.

Read more: Market Research UAE: Unveiling Dynamics of Dubai’s Business Landscape

---

New Corporate Governance UAE Regulations

On January 2, 2022, Federal Decree-Law No. 32 of 2021 on Commercial Companies (Commercial Companies Law) went into effect, repealing the previous Commercial Companies law (Federal Law No. 2 of 2015, as amended). The new Commercial Firms Law governs the many types of firms in the UAE. The Ministry of Economy will issue corporate governance regulations that will apply to various onshore companies (including limited liability companies but excluding public JSCs, which will continue to be supervised by the Emirates Securities and Commodities Authority) (Article 6, Commercial Companies Law).

Cabinet Decision No. 77 of 2022 on limited liability firms covers provisions on governance and management (such as board member election and termination and related party transactions). However, no ministerial resolution has been issued outlining a precise corporate governance framework for limited liability businesses. Ministerial Resolution No. 2 of 2018 (CSR Regulation) created a new corporate social responsibility (CSR) system in the UAE. The most popular types of “onshore” corporate entities in the UAE (excluding Free Zone businesses) are:

• Limited liability companies.
• Public joint-stock companies (JSCs).
• Private Joint Stock Companies (JSCs).
• Civil firms.

Read more: Business Opportunities UAE: Profitable Ideas for Successful Businesses in Dubai

---

UAE Corporate Governance Rules and Commercial Company Laws

The company governance rules and the Commercial Companies Law are the primary pieces of legislation that govern company governance in the UAE. The Private JSC Governance Rules establish a “general framework for governance” for private JSCs in the UAE. Circular 2019/83 outlines the corporate governance requirements that apply to banks. Corporate governance compliance is enforced by the following authorities:

• ESCA, which oversees public JSCs.
• The UAE’s Central Bank oversees banks and other financial organizations.
• Other types of corporations are handled by the appropriate Emirate’s Department of Economic Development.

The Hawkamah Institute for Corporate Governance, the Abu Dhabi Centre for Corporate Governance, and the GCC Board of Directors Institute are organizations dedicated to fostering effective corporate governance in both public and private UAE enterprises. Corporate Governance Rules:

• Cover board composition, committees, director salary, and audits.
• Apply to all of the mentioned public JSCs.
• Do not apply to publicly traded overseas corporations.

Read more: Employee Benefits UAE: A Comprehensive Guide to Employment Perks and Compensation

---

Compliance with Corporate Governance Rules

Compliance with the Corporate Governance Rules is mandatory, and public businesses cannot take the “comply or explain” approach. The ESCA has the authority to impose fines for violations of the regulations, which include:

• A formal warning to the defaulting corporation, its board of directors, and/or auditors.
• The Commercial Companies Law provides for a monetary fine up to a maximum limit.
• Referring the breach to public prosecution if it merits criminal action.

The Private JSC Governance Rules apply solely to private JSCs. Private JSCs have less stringent corporate governance obligations than public JSCs, and because they are not publicly traded, they are not subject to the same disclosure requirements. The Corporate Governance Rules require listed public JSCs to have a policy addressing the local community and environment.

A public JSC’s general assembly must also, based on the board’s advice, establish a policy to ensure a balance between the company’s objectives and those of the community to improve local socioeconomic conditions. The company’s board must also design plans and select how to propose socioeconomic objectives for the organization. The CSR Regulation also established a new CSR system in the UAE.

Read more: UAE Industry Trends; Forecast growth for ICT sector & Construction Market Size

---

Key Elements of the CSR Regulation

While the law stipulates that social responsibility is founded on voluntary principles and that CSR contributions will continue to be voluntary, filing a CSR return and listing on the aforesaid platform is required for all UAE enterprises subject to the CSR law. The main features of the CSR Regulation are:

• Establishment of a federal CSR fund (CSR Fund) to coordinate and regulate CSR efforts and corporate contributions to such projects.
• The CSR Fund plans to create an online platform to showcase its CSR projects and programs.
• The companies that contribute to such projects.
• All UAE “onshore” commercial enterprises, such as banks, financial institutions, and international company branches, must be included on the CSR platform.
• Companies that are partially or fully owned by the federal or local governments.
• A yearly contribution to the CSR Fund of AED1,500 (additional expenses and requirements will apply to organizations pursuing higher CSR certification).
• CSR reporting requirements.

Read more: Employee Compensation UAE: A Complete Guide to Labour Laws and Benefits for Optimal Employment

---

A Closer Look for Corporate Governance Regulations in the Insurance Sector

Good corporate governance promotes an integrity, openness, and accountability culture within a corporation. It provides the framework and structure for aligning a company’s commercial objectives with its legal and regulatory requirements, promoting effective decision-making through processes, practices, and rules. Corporate governance regulations in the United Arab Emirates (UAE) are largely concerned with listed public enterprises. Onshore insurance and reinsurance companies in the UAE must be registered as public joint stock companies (PJSCs) and listed on one of the UAE’s onshore stock exchanges, the Dubai Financial Market (DFM) or the Abu Dhabi Exchange (ADX).

As a result, UAE re/insurers are subject to the Corporate Governance Guide, which is issued and regulated by the UAE Securities and Commodities Authority (SCA) and establishes precise rules and guidelines for PJSC governance. Amendments to the Corporate Governance Guide in January of this year brought about some substantial improvements at a time when corporate governance is in the spotlight around the world.

Read more: Working Hours Regulations UAE: Navigating Labour Laws for Employment Success

---

Corporate Governance Guide of the Central Bank of UAE

Historically, aside from the Corporate Governance Guide, which applies to all listed PJSCs, there have been few corporate governance standards controlling insurance businesses in the UAE. To fill this gap, the Central Bank of the UAE (CBUAE) issued corporate governance regulations and related requirements for insurance businesses for the first time in December 2022.

In recent months, the CBUAE has also produced a consultation document requesting opinions on proposed new regulations for insurance brokers, including corporate governance regulations. This follows the issuance of a new insurance law, which went into effect on November 30, 2023, and states that the CBUAE will establish the general framework for the governance of insurance companies, heralding a wave of regulatory change in the UAE’s insurance sector in terms of corporate governance.

Interestingly, in September 2022, the CBUAE and the Insurance Authority (IA) of the Kingdom of Saudi Arabia (KSA) signed a memorandum of understanding (MOU) in which the two regulators agreed to promote cooperation and common interests in the supervision and regulation of the insurance sector and its development. The MOU anticipates that the CBUAE and the IA will eventually agree on corporate governance criteria for the insurance business.

While it is expected that the CBUAE will soon issue corporate governance regulations for insurance brokers and will begin a similar consultation for other insurance businesses, such as insurance consultants and third-party administrators (TPAs), in the meantime, the CBUAE uses the Regulations and the IA’s corporate governance regulations for insurance companies (as a result of the MOU) as a benchmark. In Saudi Arabia, the IA takes a similar approach in that, in the absence of corporate governance regulations for other insurance businesses, the IA considers the corporate governance regulations applicable to insurance companies to be best practice and encourages insurance brokers and other insurance professionals to follow such standards.

The Regulations align with the CBUAE’s goal of enhancing corporate governance practices in the UAE’s insurance sector. They prioritize the skills, responsibility, and accountability of the board of directors (Board) and establish minimum standards for insurance companies to ensure sound management and oversight that protects the interests of stakeholders.

Read more: Business Insurance UAE: Safeguarding Dubai’s Corporate Ventures

---

Corporate Governance UAE & Regulations for Insurance Companies

The Central Bank aims to foster the effective and efficient development and operation of the insurance industry. To achieve this aim, companies must adopt robust corporate governance structures to safeguard their resilience and overall financial stability. Companies and groups, in particular, must have strong corporate governance rules and practices in place that address, among other things, strategy, organizational structure, the control environment, risk management duties, and board and staff compensation.

The Central Bank’s purpose in implementing this regulation and the related standards is to guarantee that companies’ corporate governance practices are consistent with leading worldwide standards. The Central Bank expects each company to create and execute a corporate governance framework that ensures sound and responsible business management and oversight, as well as proper recognition and protection of policyholders’ interests.

This Regulation and its related Standards constitute the broad prudential framework for corporate governance. Separate Central Bank Regulations and Standards define regulatory standards for certain areas of governance, such as risk management, internal controls, compliance, outsourcing, and financial reporting. This Regulation and related Standards are issued under the Central Bank’s authority under the Central Bank Law.

Read more: Business Networking UAE: The Power of Uniting Dubai’s Top Networking Events and Companies

---

Corporate Governance Codes for UAE PJSCs

The United Arab Emirates Securities and Commodities Authority (‘SCA’) released new corporate governance regulations following Chairman of SCA Board Decision No. (03 R.M.) of 2020, which adopted the Corporate Governance Guide for Public Joint Stock Companies (‘New Regulations’). The new guidelines, which were published on February 27, 2020, and went into effect on April 28, 2020, abolish the existing corporate governance guidelines (Chairman of SCA Board Decision No. (7 R.M. of 2016 about the Standards of Institutional Discipline and Governance of Public Shareholding Companies). The Corporate Governance Rules establish the minimum corporate governance standards expected of a PJSC. The applicable PJSC’s constitutional provisions may set stricter standards.

The new rules allow a PJSC to create a dual governance structure in which the management function is separate from the supervisory function. This is accomplished by forming two board committees: (i) the supervisory committee, and (ii) the executive committee. These committees will be required to work together to achieve the PJSC’s goals.

The new rules apply to all PJSCs, including banks. However, the Central Bank has enacted additional distinct rules that apply to banks. As a result, this article should not be regarded as an overview of corporate governance requirements for banks or a comprehensive list of criteria for PJSCs.

The new rules apply to public joint stock companies (PJSCs) that are listed on the Abu Dhabi Securities Exchange or the Dubai Financial Market. Corporate governance seeks to establish a check-and-balance structure within a PJSC so that it can maintain an appropriate degree of professionalism, responsibility, impartiality, and independence. This should result in improved PJSC performance, a potential share price increase, and higher investor confidence.

Corporate governance should not interfere with the PJSC’s day-to-day operations; rather, it should establish the framework for the various duties and responsibilities of its stakeholders, including shareholders, board members, committee members, senior management, and auditors.

Read more: Business Incorporation UAE: Dubai’s Path to Company Formation and Registration

---

---

Corporate Governance UAE continues to be a cornerstone for enhancing company compliance and transparency. By adhering to good corporate governance practices, private UAE companies can stay ahead of the biggest corporate governance trends. The updated Corporate Governance Guide and regulations ensure that businesses in the United Arab Emirates are well-prepared for the future. With strong governance frameworks in place, including the nomination of qualified board members, UAE companies can achieve sustained growth and foster investor confidence. Corporate governance in the UAE sets a benchmark for excellence and accountability.