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.