CAPÍTULO 2: ABORDANDO REALIDADES CONSTRUYENDO SABERES
2.3. Aportes teóricos para pensar la resistencia
This section highlights the major regulations that cover the business of companies and are related to corporate governance, such as the UAE Commercial Companies Law No. 8 (1984), the ES&CA Disclosure and Transparency Regulation No. 3 (2000), the UAE Code of Corporate Governance (Emirates Security and Commodity Authority (ES&CA) decision R/32 of 2007) and the ME published Ministerial Resolution No. 518 of 2009 Concerning Governance Rules and Corporate Discipline Standards.
2.7.1UAE Commercial Companies Law No. 8 (1984)
This law provides the basis for companies’ practices in the UAE. It includes articles about Act 8 and has formed rules related to the board of directors’ selection, composition, duties and management processes. Article 95 emphasises that board size must be at least three members but no more than 15 members for a three-year term only, although any member can be elected for more than one period. Article 96 requires that the board of directors be elected at a general meeting of a company by secret ballot. Article 98 calls for a director to be allowed to be a director of only five companies, and no person can hold the chairman or vice chairman position for more than two companies. Article 99 requires that a board elect a chairman and vice chairman, and that the chairman be a UAE national. Article 100 highlights that the majority of directors in a UAE company must be of Emirates nationality. Article 105 directs that a board meeting be held by the majority of members. In Article 111, the board of the company is accountable to shareholders for an act of fraud, abuse of power, violation of law and/or the corporation bylaws and wrongful management. According to Article 118, the company system determines the remuneration of the board to be no more than 10% of net profits after distributing profit worth at least 5% of the capital of the company to shareholders (Federal Law No. 8, 1984).
In Articles 190–198, the Corporation Act 1984 requires a company board to prepare financial records, including an income statement, balance sheet and cash flow statement. In addition, at the end of the year, it should provide a report about company activity that is signed by the chairman of the corporation as an integral part of the board director’s report to the shareholder at the annual general meeting. Commercial Law 1984 calls for all companies to have an external auditor who is nominated at the general
meeting of the company, and it also determines that the remuneration of the auditor for one year may be renewed for the same external auditor (Article 144). Moreover, the external auditor should audit company accounts and examine the balance sheet and financial income, noting the application of law and system of the company, and provide a report at the annual general meeting (Article 146). The external auditor must confirm the financial reports and highlight any irregularities to shareholders (Article 150).
2.7.2ESCA Disclosure and Transparency Regulation
The regulation of ES&CA outlines the rules of disclosure concerning disclosure of ES&CA (Articles 8–16), disclosure of stock market (Articles 17–27) and disclosure of corporations (Articles 28–39) to improve transparency and enhance the accountability system. ES&CA decision No. 3 (2000) requires that the Authority ensures that disclosure and transparency are regulated in accordance with the law, regulations and resolutions in the UAE (Article 8). The board may carry out an examination of market members regularly or upon request by a concerned party in order to determine the level of compliance with the law, and the rules and regulations in application (Article 9). Article 10 highlights that the Authority will not conduct commercial activities or have an interest in any particular project or own or issue any securities (ES&CA, 2000).
The regulation of ES&CA requires that the market monitors listed companies’ responsibilities to disclose important matters and information and financial statements, and the timing of such publications, and ensures that the disclosures of companies are clear and reveal the facts that they express (Article 17). In addition, the market board director should issue the press notices necessary to ensure transparency of information and disclosure (Article 18). The members of the board in the market are not nominated in these positions if they are members of the board of that company or a financial or broker representative of a financial broker (Article 22). The market should provide the board with the balance sheet, the profit and loss account, and the annual financial statements audited by an accredited auditor within 90 days from the end of its financial year (Article 25) (ES&CA, 2000).
ES&CA requires corporations to fully disclose, with a proper level of transparency, assured corporate governance-related information. For instance, decision No. 3 of 2000, Article 29, 36, requests listed corporations to provide information about:
• the assessment of the board director supported by the figures of the corporation performance and accomplishments as compared with the plan made
• the names of the members of the board of directors and the executive managers, with a statement of the shares owned by each of them and their relatives to the first degree, and the membership of any of them on the boards of directors of other public joint-stock companies
• the names of those who own, or whose holdings, coupled with those of their minor children, amount to, 5% or more of the shares of the company
• the percentage of the holdings of persons who are not nationals in the company’s capital
• the amendments introduced into the company’s articles of association as soon as these amendments are approved
• any change relating to the company’s management structure at the level of the board of directors and the executive management (ES&CA, 2000).
2.7.3Corporate Governance Code for small and medium enterprises
Dubai small and medium enterprises (SMEs) commissioned Hawkamah to draft a Corporate Governance Code for Dubai SMEs in 2011. The Code is based on international best practices, which are adapted to the Dubai market. The aim of the Code and the Handbook are to provide basic guidance for SMEs to assist these companies to achieve structures that will facilitate and enhance growth, profitability and sustainability. The key elements are rooted in international best practices and adapted to the Dubai economy. The Code provides guidance on the areas in which companies should develop their corporate governance practice. It outlines the general elements of good corporate governance and sets out a number of steps that companies should consider when constituting their corporate governance framework, while taking into account that the implementation of good corporate governance is a gradual process (Dubai SME, 2011).
The understanding and implementation of a good corporate governance framework presents SMEs with a structured path to infusing better management practices, effective oversight and control mechanisms, which lead to opportunities for growth, financing, exit strategies and improved performance. The aspects of this Code are based on international best practices, which are adapted to the Dubai market. Companies will be
responsible for implementing these pillars in a manner that is practicable for them, taking into account their own individual circumstances and needs. The Code sets out six sections of corporate governance for Dubai SMEs: corporate governance policies and procedures; transparency and shareholder relations; board of directors; control environment (internal controls, audit and risk management); stakeholder relations; and family governance (Dubai SME, 2011).
2.7.4Development of corporate governance in the UAE
Corporate governance has received substantial support from the UAE government since the global crisis in mid 2008 and the Dubai crisis that followed. Corporate governance is becoming an essential subject in the UAE business environment, and the debate on the development of the corporate governance system is of significant interest. In 2007, ES&CMA introduced the UAE Code of Corporate Governance (ES&CA decision R/32 of 2007 amended by Ministerial Resolution No. 518 of 2009). The ME published Ministerial Resolution (MR) No. 518 of 2009, which aims to enhance corporate governance rules and discipline standards for UAE PJSC. These companies should be listed on one of the UAE’s two stock exchanges: the ADX or the DFM (Ahmad, 2010).
The ES&CA established this code based on common international norms and practice. In particular, the OECD Principles of Corporate Governance and listed companies have been given a three-year period to comply with this rule, which will be mandatory by May 2010 (Pierce, 2008). Resolution No. 518 of 2009 consists of the 15 articles, the main ones being: Article 3. Board of Directors; Article 4. Chairman of the Board of Directors; Article 5. Members of the Board of Directors; Article 6. Board of Directors Committees; Article 7. Remuneration of Directors; Article 8. Internal Control; Article 9. Audit Committee; Article 10. The External Auditor; Article 11. Management Authorization; Article 12. Shareholder Right; Article 13. Professional Conduct Rules; Article 14. Governance Report; Article 15. Penalties; and Article 16. Implementation (ES&CA, 2009).
The elements of the corporate governance code should be comprehensively consistent with the UAE Corporation Act 1984 and ES&CA decision No. 3 of 2000 regarding Transparency and Disclosure. The Code requires listed companies to arrange a governance report as an integral part of their annual reports (Hassan, 2011). In addition, the UAE government’s efforts to regulate UAE capital markets in line with corporate
governance standards of leading international financial centres are supported by MR 518. A central theme of the new rules is the emphasis on the management oversight function of the board of directors (ES&CA, 2009).
The UAE business environment has recently experienced development that has contributed to reinforcing the UAE’s economy, such as the enhancement of regulations, including those for the UAE market, commercial ‘companies’ law, disclosure and transparency, and corporate governance. The rules governing each mechanism of the UAE Corporate Governance Code covered in the next section present a clear vision of corporate governance mechanisms.