Corporate governance in the Middle East: A guide for newcomers

Corporate governance in the Middle East: a guide to the basics for anyone starting their boardroom careers in the region, or moving there from overseas. 

Governance is changing the Middle East. We are seeing a shift from less formalised, relationship-based management to one rooted in robust frameworks. And what’s more, we’re seeing more responsibility placed on directors. For that reason, it’s essential to know the core rules and expectations now, especially if you’re just starting in your boardroom career or part of a company that’s beginning to do business in the region.

Ownership structures are a key defining feature of how corporate governance works in the Middle East. Historically, each economy would only have a small number of large companies, providing goods and services in a variety of sectors. Most of them had a significant portion owned by state bodies, as opposed to the more diverse range of stakeholders in publicly listed companies of Europe and North America, for example.

Also, there has long been a heavy concentration of family-owned businesses. It’s estimated that the family-owned structure accounts for up to 90% of the private sector across the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE). 

Structurally, the single-tier model consisting of both executive and non-executive directors has been dominant in the Middle East. Some bigger companies are exploring the two-tier model, with an independent supervisor board working alongside an executive management board, but this isn’t happening frequently enough to tip the scales. 

From a regulatory perspective, many Middle Eastern states began exploring stricter standards from the year 2000 onwards. Some of this work drew direct inspiration from countries like the UK, with its “comply or explain” model. Later developments have tended to follow a “hard law” approach. A prime example is the Saudi Corporate Governance Regulations, which consist of 93 specific articles, overseen by the Capital Market Authority (CMA), and designed to give a structure that’s clear and firm enough to attract foreign investment with maximum confidence.

While the region shares many similarities in governance culture, there are some notable differences and standouts which are worth exploring. 

• In Saudi Arabia, governance is a central pillar of Vision 2030, the country’s plan to diversify its economy and society. In recent years, the country has modernised its corporate regulations with the stated aim of encouraging innovation. You can read more about it here. 
• The United Arab Emirates has put a lot of energy into boosting standards around the different pillars of ESG. For example, it has new rules in the “G” space requiring the majority of public joint-stock boards to be independent, in addition to setting some of the highest standards in the region for mandatory ESG reporting.
• Since the pandemic, multiple countries like Qatar and Bahrain have updated their corporate governance codes to reflect wider international standards. 
• Oman was the first country to issue a formal corporate governance code for listed companies in 2002.

The basic governance structures will be similar to what’s common elsewhere in the world: a single-tier board setup, with a varying amount of independent directors, in charge of key corporate decisions and answerable to stakeholders. 

The nature of those stakeholders, however, is the key difference. Directors will have far more exposure to state bodies and family networks, and it’s essential to know the intricacies of this before you begin your governance journey in the Middle East.

These dynamics are quite unique in terms of relationship-building. State bodies increasingly demand higher standards with limited room for error in their push for greater alignment with global principles. At the same time, family-owned businesses tend to carry their unique challenges and sources of conflict that you’ll need to navigate. 

Outside of the core relationship dynamics, the main areas of focus largely mirror those of other global regions. ESG, digital transformation, and AI governance – all are important governance agenda items in the Middle East as well. 

The one major exception is geopolitical risk. While other regions view it as an increasing problem demanding a more short-term, adaptive governance mindset, the urgency is far more pronounced in the Middle East. It is, after all, at the centre of some of the biggest conflicts of the 2020s. This adds extra, immediate concerns around safety and security, which are likely to dominate board agendas in the short to medium term. As long as the threats of war and other military actions continue, the risk profile for Middle Eastern companies will likely remain at these highest levels of urgency.

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