Corporate Governance in UAE Board Structures

Report
Corporate Governance in UAE
THE COSTS OF NON-COMPLIANCE: THE BENEFITS OF CHOOSING
THE RIGHT PATH
Musthafa Zafeer
Founder & Managing Partner
Musthafa & Almana
LONDON - DUBAI - MUMBAI - NEW DELHI - RAS AL KHAIMAH - THRIUVANANTHAPURAM
UAE LEGAL SYSTEM
• Civil law system
• Regulation is broadly comprised of Federal
laws which generally apply to all Emirates
• Local laws which apply to specific Emirates
only
“CORPORATE GOVERNANCE”
• “Corporate governance is the system by which
companies are directed and controlled, in the
interest of the shareholders and other
stakeholders, to sustain and enhance value.”
• “Corporate governance involves a set of
relationships between a company’s
management, its board, its shareholders and
other stakeholders.”
MAIN STAKEHOLDERS GROUP
EXTERNAL
• SHAREHOLDERS
• DEBT HOLDERS
• TRADE CREDITORS
• SUPPLIERS
• CUSTOMERS
• COMMUNITIES
INTERNAL
• BOARD OF DIRECTORS
• EXECUTIVES
• OTHER EMPLOYEES
Definition of Corporate Governance
Shareholders
Regular reporting and update
Guidance and supervision
Board of
Directors
Management
5
APPLICABLE LAW FOR CORPORATE GOVERNANCE
• The UAE regulatory framework of corporate governance comprises of
three components:
(1) The UAE Federal Law No. 8 of 1984;
(2) Civil Code No.5 of 1985
(3) The Federal Law No.3 of 1987 or UAE Penal Code
(4) Corporate Governance Rules (UAE Ministerial Resolution 518 of 2009)
(the Governance Rules)
FIVE ACTIONS FOR MANAGERS & OWNERS TO ENSURE
LEGAL COMPLIANCE
1.
2.
3.
4.
5.
Corporate governance in the UAE follows a different model
that reflects local conditions.
PROTECT YOUR REPUTATION
DEVELOP EFFECTIVE CORPORATE GOVERNANCE CULTURE
ENSURE COMPLIANCE WITH THE CORPORATE GOVERNANCE
CODE
BE A PROACTIVE INVESTOR, OR ENCOURAGE YOUR OWNERS
TO BE
BUILD ON THE LONG TRADITIONS OF SOCIALLY RESPONSIBLE
BUSINESS IN THE REGION
FOREIGN JURISDICTIONS ON CORPORATE
GOVERNANCE
USA
UK

The U.S. passed the Foreign Corrupt Practices
Act (FCPA) in 1977, with subsequent
modifications
 The UK passed the Bribery
Act in 2010.

The Sarbanes-Oxley Act of 2002 was enacted
in the wake of a series of high profile
corporate scandals.
The law required: -

The Public Company Accounting
Oversight Board (PCAOB) be established to
regulate the auditing profession
 This law made it illegal to
bribe either government or
private citizens or make
facilitating payments.
 Required corporations to
establish controls to prevent
bribery.
 The Chief Executive Officer (CEO) and Chief
Financial Officer (CFO) attest to the financial
statements

Board audit committees to have
independent members

External audit firms must rotate their
lead partner every 5 years
OECD PRINCIPLES
One of the most influential guidelines has been the OECD Principles of
Corporate Governance—published in 1999 and revised in 2004.
This internationally agreed benchmark consists of more than fifty distinct
disclosure items across five broad categories: 1.
2.
3.
4.
5.
Auditing
Board and management structure and process
Corporate responsibility and compliance
Financial transparency and information disclosure
Ownership structure and exercise of control rights
• OECD conducted their first survey in the MENA region including UAE in the
year 2005 .
UAE COMPANIES LAW
• Article 13 states that: “The objectives of the company must be legitimate”
• Article 197 states that: “The company may not grant cash loans or
guaratee any loans to the chairman of its board of directors or to a
member of the board”
• Article 103 sets out limitations on the powers of directors for certain
business activities which directors cannot undertake, including entering
into loan agreements for periods in excess of three years, the sale or
mortgage of the company’s real estate assets and the cancellation of
debts owed to the company
• Article 110 provides that a company is bound by the actions of its board of
directors
• Article provides that a Director is personally liable for acts of fraud,
mismanagement and abuse of power
DIFC Law – A common law perspective
•DIFC companies law No. 2 of 2009
•Imposes on all directors fiduciary duties and duty of care and skill.
•Article 53 of DIFC companies law.(fiduciary duties of directors towards
the company)
•Article 33 of DIFC companies law.
PENAL PROVISIONS
Articles 234 to 239 of the Code contain provisions which criminalise the bribery or
attempted bribery of both public and private sector employees.
PUBLIC SECTOR
the relevant parties subject to
prosecution : • Recipient
• Offeror
• Facilitator of Bribe
Penalties
• fine equivalent to the benefit
accepted by them (provided the fine
is not less than AED 1,000),
• confiscation of the actual benefit
accepted and, depending on the
circumstances of each case,
• imprisonment ranging from five to a
maximum of ten years.
PRIVATE SECTOR
Individuals accepting bribes in exchange for
duties.
Penalties
•
•
•
fine equivalent to the benefit accepted by
them (provided the fine is not less than
AED 1,000).
confiscation of the actual benefit accepted
and, depending on the circumstances of
each case.
Imprisonment not exceeding five years.
Thank you.

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