The biggest changes in GCC corporate governance

The biggest changes in GCC corporate governance: a look back over two and a half decades of extraordinary shifts. 

Gulf Cooperation Council states (Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain, and Oman) continue to expand their appeal as global business heartlands. Since the year 2000, many areas like Dubai, Abu Dhabi, Doha and Riyadh have emerged as focal points within global commerce. 

With that has come a renewed focus on corporate governance. In general, the standards and practices for company leadership have evolved considerably alongside the growing economies. Ownership models have shifted, as have stakeholder demographics, and the level of compliance responsibility placed on directors themselves. 

Here’s an in-depth guide to the biggest changes over the last 25 years.

From the beginning of the 21st century, Middle Eastern states began implementing more robust rulebooks for corporate governance. Oman got the ball rolling by introducing an extensive corporate governance code in 2002. Other nations have followed since then: Saudi Arabia and the UAE in 2007, Qatar in 2009, Bahrain in 2011, and Kuwait in 2013. 

The general goal has been to emulate earlier codes like that of the United Kingdom, released in the early 90s. Its core principle of “comply or explain” (in short: you must follow the rules or give a good reason why you can’t) has been emulated in several codes to give organisations flexibility in adhering to more modern standards.

It’s an extension of number 1 above: while “comply or explain” was championed in many earlier versions of GCC governance codes, the more recent trends have favoured hard rules. 

The areas of focus vary. There’s a lot of attention on things like mandatory ESG reporting requirements and regulations around board structure, but they are by no means the only issues. 

The reasons vary as well. Attracting international investment remains a major factor, but enhancing domestic standards, as well as combating the negative side-effects of the very common “family-ownership” structure in the region, are also significant challenges. 

Practically, it means boards in the GCC are faced with more structured and direct responsibility nowadays, with less wiggle room than they might have enjoyed ten or twenty years ago.

Historically, there wasn’t much in the way of board composition requirements for GCC countries. As with the rest of the world, financial crises and scandals have played a big part in changing that. 

For the GCC, it has become an increasingly common goal to have more independent directors on boards, as well as to separate the roles of chair and CEO. Neither was that common in previous decades. Many companies had few stakeholders and/or were family-run, so independent thinking and challenges were hard to come by. Nowadays, GCC governments are committed to changing that.

Some areas of the world – notably the United States – are backpedalling from ESG compliance out of political principle. In the GCC, the trend is the exact opposite, being far closer to that of the European Union than the US. 

Environmental, Social, and Governance (ESG) considerations have received a large amount of regulatory backing in recent years. It means that many boards in the GCC now need verifiable expertise in areas like climate-related risks, greenhouse gas emissions, disclosure, data verification and supply chain management. For many regulators, the goal is to stop boards from talking about ESG like it’s an optional extra. Now, they want cold, hard data to back up claims and root out greenwashing.

As you might expect, new skillsets mirror the increased pace of new regulation in the GCC. In general, boards have to be more agile and diversify their personnel to be able to meet modern challenges.  

Here are the top skills most modern boards will end up requiring at some stage:

• Digital and AI literacy. It’s a no-brainer. AI has its risks but, used properly, can be revolutionary when it comes to data processing and compliance. Capable GCC boards should have a baseline level of fluency in this area, especially while the sector continues to see rapid innovation every year. Remember when most companies didn’t have generative AI? That was just four short years ago, and look how far we’ve come. 
• ESG and sustainability. Mandatory reporting requirements and continuing international drives for sustainability mean it remains important for boards to have capable people within their ranks. In particular, someone who understands the minutiae of ESG reporting is essential. The biggest pitfall in the GCC is being called out for greenwashing. You don’t want to end up in that position, because it will lose you confidence among stakeholders and regulators very quickly. 
• Formalised succession planning. An expert in this area is a must for future generations. Why? Many GCC companies are adapting their governance structures to include more independence and less influence from traditional leaders, especially in family-owned ventures. A side-effect of this is that leadership transitions might not be as clear-cut as they once were, so you need expertise on your board to deal with that efficiently.

In the GCC, the biggest trend over the last 25 years has been a transition to higher standards, stricter rules and more scrutiny. 

It started slower and more flexible, but modern regulations place even more pressure on directors to be at the top of their compliance game. 

For that reason, it’s important to ensure your board is as prepared as possible.

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