Change at a Limited Pace
In February 2009, the Qatar Financial Markets Authority (QFMA) announced Board approval for a Corporate Governance Code for public and listed companies (the Code). At the time of publication this may already be enacted as a Ministerial Decree. The Code would appear to be an effort to bring management of public companies in Qatar in line with corporate governance principles that exist in the developed world.
Like many other jurisdictions, the Code would operate on a semi-voluntary basis. Whilst companies may publicly disclose which parts of the Code they do not follow and the reasons for so doing (Article 2), the Code grants the QFMA a discretionary authority to enforce provisions of the Code (Article 31).
The Code outlines a number of corporate governance principles to be followed. These are:
Commitment to Corporate Governance
Each company should establish professional conduct rules and regularly review, assess and adapt its corporate governance practices (Article 3) and publish an annual Corporate Governance Report (Article 30).
Proper Company Management
A company should adopt a Director's Charter detailing Board functions (Article 4). Each company should have an "effective Board of Directors" with an ability to delegate to committees (Article 5). Each Director has fiduciary duties and must at all times in good faith and with proper care and diligence act in the best interests of the company (Article 6). The roles of the Chairman (Article 8) and Non-Executive Directors (Article 10) are also defined and Boards are to be composed of Executive, Non-Executive and Independent Directors with at least one third of directors being independent and a majority being non-executive (Article 9). In addition, a Board Secretary role is to be established (Article 12).
Separation of powers
The Chairman position and that of the Chief Executive Officer are not to be held by the same person (Article 7)
Identification of conflicts
Companies must have what is termed a "Related Party Policy" in order to deal with related party transactions and rules for employee and board member share trading must be adopted (Article 13).
Proper appointment of Officers
What is known as "formal, rigorous and transparent procedures" are to be adopted regarding appointment of directors with "encouragement" for establishing a Nomination Committee and proper examination of Director's skills, knowledge and experience to take place (Article 15).
Transparent remuneration practices
A company should establish a Remuneration Committee to set out the remuneration policy for directors and senior management, and the policy has to be approved by shareholders in General Assembly (Article 16).
Audit guidelines
An Audit Committee must be established comprised of Non-Executive Directors (the majority of whom must be Independent Directors). The role of the Audit Committee is to adopt audit policy, monitor the external auditors and monitor the financial practices of the company (Article 17). There is also a definition of the role of the external auditor (Article 19).
Risk Management Procedures
An internal control system is to be established to evaluate means and procedures for risk management (Article 18)
Transparency and Disclosure
There are provisions dealing with provision of financial reporting and the necessity for accurate and non-misleading information (Article 20) including dividend policies (Article 28), information concerning directors prior to elections (Article 26) and shareholders' agreements and capital structures (Article 28).
Shareholders' Rights
Companies should respect shareholders' rights (Article 21) on an equitable basis (Article 25) and ensure access to the Share Register (Article 22) and information (Article 23). The right to call meetings and place agenda items on such meetings is to be allowed (Article 24). Protection mechanisms for minority shareholders must be put into place for "major transactions" (Article 28)
Stakeholders' Rights
Stakeholders' rights are to be respected with specific emphasis on employee's rights to equitable treatment and fair remuneration and protection for whistle-blowers (Article 29).
Whilst establishing the Code will clearly be a good thing for corporate governance matters in Qatar, before having the code become law there are other areas of corporate governance that apply in other jurisdictions and may be worthy of inclusion as well. These include:
Definitions
There is no definition of "director". It would be worth considering a definition to include persons so appointed under the company's Articles of Association or persons exercising real control.
The definition of "independent director" could be clarified further. There is no mention of whether holding of shares negates the person being independent although there are other negating factors, such as employment and contractual relationships. If an Independent Director could own shares and with associates have sufficient shares to have an effective control this defeats the purpose of requiring independent directors and, as public companies go, one does not need to control 51% of the shares to have control.
The definition of "major transaction" is much vaguer than we would find in other jurisdictions. Conversely the definition of "related party" is much narrower than in other places. It does not take into account spouses, business relationships, or "relatives" beyond the "fourth degree".
Directors' fiduciary duties
Fiduciary duties of care loyalty and the like really are probably best suited to being matters of law rather than corporate governance. The same would be the case with "good faith" and "effectiveness".
Board Meetings
The requirements concerning conduct and timing of meetings would already be in the Company's Articles of Association and perhaps would be better contained in the law rather than in a corporate governance code.
Conflicts of interest and insider trading
Similarly to other matters, related party transactions and insider trading may be better to be matters of law rather than governance. The term "insider trading" is contained in the heading to Article 13 but is not mentioned anywhere else, other that to state rules for employee and board member share trading must be adopted. If it is contemplated that the company can set its own insider trading policy, this is probably not the most satisfying outcome. In most jurisdictions insider trading is a criminal offence, not a voluntary governance principle or an internal company policy.
Disclosure
The provision talks about complying with all "disclosure requirements" without setting out what the same are. Certainly there is no commitment to disclosure of information which may have a material effect on the price of shares, which is something that other jurisdictions apply to ensure fair market activities and will likely assist in attracting business to Qatar.
Stakeholder's rights
Whilst the QFMA is going no further that its equivalent bodies in developed jurisdictions in considering stakeholder's rights, with regard to employees and investors these are laudable, but in the writer's opinion giving "rights" to other stakeholders such as creditors, clients, customers and suppliers is really something that companies could do without in conducting their business activities/
© Al Tamimi & Company 2009
