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Corporate Governance Regulations - PDF
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1 Corporate Governance Regulations
2 Contents Part 1: Preliminary Provisions Article 1: Preamble... Article 2: Definitions... Part 2: Rights of Shareholders and the General Assembly Article 3: General Rights of Shareholders... Article 4: Facilitation of Shareholders Exercise of Rights and Access to Information... Article 5: Shareholders Rights Related to the General Assembly... Article 6: Voting Rights... Article 7: Dividends Rights of Shareholders... Part 3: Disclosure and Transparency Article 8: Policies and Procedures Related to Disclosure... Article 9: Disclosure in the Board of Directors Report... Part 4: Board of Directors Article 10: Main Functions of the Board... Article 11: Responsibilities of the Board... Article 12: Formation of the Board... Article 13: Committees of the Board... Article 14: Audit Committee... Article 15: Nomination and Remuneration Committee... Article 16: Meetings of the Board... Article 17: Remuneration and Indemnification of Board Members... Article 18: Conflict of Interest within the Board... Part 5: Closing Provisions Article 19: Publication and Entry into Force
4 Part 1 Preliminary Provisions
6 Preliminary Provisions Article 1: Preamble (a) These Regulations include the rules and standards that regulate the management of joint stock companies listed in the Exchange to ensure their compliance with the best governance practices that would ensure the protection of shareholders rights as well as the rights of stakeholders. (b) These Regulations constitute the guiding principles for all companies listed in the Exchange unless any other regulations, rules or resolutions of the Board of the Authority provide for the binding effect of some of the provisions herein contained. (c) As an exception of paragraph (b) of this article, a company must disclose in the Board of Directors` report, the provisions that have been implemented and the provisions that have not been implemented as well as the reasons for not implementing them. Article 2: Definitions (a) Expression and terms in these regulations have the meanings they bear in the Capital Market Law and in the glossary of defined terms used in the regulations and the rules of the Capital Market Authority unless otherwise stated in these regulations. (b) For the purpose of implementing these regulations, the following expressions and terms shall have the meaning they bear as follows unless the contrary intention appears: Independent Member: A member of the Board of Directors who enjoys complete independence. By way of example, the following shall constitute an infringement of such independence: 1) He/she holds a five per cent or more of the issued shares of the company or any of its group. 2) Being a representative of a legal person that holds a five per cent or more of the issued shares of the company or any of its group. 3) He/she, during the preceding two years, has been a senior executive of the company or of any other company within that company s group. 4) He/she is a first-degree relative of any board member of the company or of any other company within that company s group. Corporate Governance Regulations 5
7 5) He/she is first-degree relative of any of senior executives of the company or of any other company within that company s group. 6) He/she is a board member of any company within the group of the company which he is nominated to be a member of its board. 7) If he/she, during the preceding two years, has been an employee with an affiliate of the company or an affiliate of any company of its group, such as external auditors or main suppliers; or if he/she, during the preceding two years, had a controlling interest in any such party. Non-executive Director: A member of the Board of Directors who does not have a fulltime management position at the company, or who does not receive monthly or yearly salary. First-degree Relatives: father, mother, spouse and children. Stakeholders: Any person who has an interest in the company, such as shareholders, employees, creditors, customers, suppliers, community. Accumulative Voting: a method of voting for electing directors, which gives each shareholder a voting rights equivalent to the number of shares he/she holds. He/she has the right to use them all for one nominee or to divide them between his/her selected nominees without any duplication of these votes. This method increases the chances of the minority shareholders to appoint their representatives in the board through the right to accumulate votes for one nominee. Minority Shareholders: Those shareholders who represent a class of shareholders that does not control the company and hence they are unable to influence the company. 6 Capital Market Authority
8 Part 2 Rights of Shareholders and the General Assembly
10 Rights of Shareholders and the General Assembly Article 3: General Rights of Shareholders A Shareholder shall be entitled to all rights attached to the share, in particular, the right to a share of the distributable profits, the right to a share of the company s assets upon liquidation; the right to attend the General Assembly and participate in deliberations and vote on relevant decisions; the right of disposition with respect to shares; the right to supervise the Board of Directors activities, and file responsibility claims against board members; the right to inquire and have access to information without prejudice to the company s interests and in a manner that does not contradict the Capital Market Law and the Implementing Rules. Article 4: Facilitation of Shareholders Exercise of Rights and Access to Information (a) The company in its Articles of Association and by-laws shall specify the procedures and precautions that are necessary for the shareholders exercise of all their lawful rights. (b) All information which enable shareholders to properly exercise their rights shall be made available and such information shall be comprehensive and accurate; it must be provided and updated regularly and within the prescribed times; the company shall use the most effective means in communicating with shareholders. No discrepancy shall be exercised with respect to shareholders in relation to providing information. Article 5 1 : Shareholders Rights Related to the General Assembly (a) A General Assembly shall convene once a year at least within the six months following the end of the company s financial year. (b) The General Assembly shall convene upon a request of the Board of Directors. The Board of Directors shall invite a General Assembly to convene pursuant to a request of the auditor or a number of shareholders whose shareholdings represent at least 5% of the equity share capital. (c) Date, place, and agenda of the General Assembly shall be specified and announced by a notice, at least 20 days prior to the date of the meeting; invitation for the meeting shall be published in the Exchange s website, the company s website and in two newspapers of voluminous distribution in the Kingdom. Modern high tech means shall be used in communicating with shareholders. 1 The Board of the Capital Market Authority issued resolution Number ( ) Dated 17/ 2 / 1434H corresponding to 30 / 12 / 2012G making paragraphs (i) and (j) of Article 5 of the Corporate Governance Regulations mandatory on all companies listed on the Exchange effective from 1/1/2013G. Corporate Governance Regulations 9
11 (d) Shareholders shall be allowed the opportunity to effectively participate and vote in the General Assembly; they shall be informed about the rules governing the meetings and the voting procedure. (e) Arrangements shall be made for facilitating the participation of the greatest number of shareholders in the General Assembly, including inter alia determination of the appropriate place and time. (f) In preparing the General Assembly s agenda, the Board of Directors shall take into consideration matters shareholders require to be listed in that agenda; shareholders holding not less than 5% of the company s shares are entitled to add one or more items to the agenda. upon its preparation. (g) Shareholders shall be entitled to discuss matters listed in the agenda of the General Assembly and raise relevant questions to the board members and to the external auditor. The Board of Directors or the external auditor shall answer the questions raised by shareholders in a manner that does not prejudice the company s interest. (h) Matters presented to the General Assembly shall be accompanied by sufficient information to enable shareholders to make decisions. (i) Shareholders shall be enabled to peruse the minutes of the General Assembly; the company shall provide the Authority with a copy of those minutes within 10 days of the convening date of any such meeting. (j) The Exchange shall be immediately informed of the results of the General Assembly. Article 6: Voting Rights (a) Voting is deemed to be a fundamental right of a shareholder, which shall not, in any way, be denied. The company must avoid taking any action which might hamper the use of the voting right; a shareholder must be afforded all possible assistance as may facilitate the exercise of such right. (b) In voting in the General Assembly for the nomination to the board members, the accumulative voting method shall be applied. (c) A shareholder may, in writing, appoint any other shareholder who is not a board member and who is not an employee of the company to attend the General Assembly on his behalf. (d) Investors who are judicial persons and who act on behalf of others - e.g. investment funds- shall disclose in their annual reports their voting policies, actual voting, and 10 Capital Market Authority
12 ways of dealing with any material conflict of interests that may affect the practice of the fundamental rights in relation to their investments. Article 7: Dividends Rights of Shareholders (a) The Board of Directors shall lay down a clear policy regarding dividends, in a manner that may realize the interests of shareholders and those of the company; shareholders shall be informed of that policy during the General Assembly and reference thereto shall be made in the report of the Board of Directors. (b) The General Assembly shall approve the dividends and the date of distribution. These dividends, whether they be in cash or bonus shares shall be given, as of right, to the shareholders who are listed in the records kept at the Securities Depository Center as they appear at the end of trading session on the day on which the General Assembly is convened. Corporate Governance Regulations 11
14 Part 3 Disclosure and Transparency
16 Disclosure and Transparency Article 8: Policies and Procedure Related to Disclosure The company shall lay down in writing the policies, procedures and supervisory rules related to disclosure, pursuant to law. Article 9 2 : Disclosure in the Board of Directors Report In addition to what is required in the Listing Rules in connection with the content of the report of the Board of Directors, which is appended to the annual financial statements of the company, such report shall include the following: (a) The implemented provisions of these Regulations as well as the provisions which have not been implemented, and the justifications for not implementing them. (b) Names of any joint stock company or companies in which the company Board of Directors member acts as a member of its Board of directors. (c) Formation of the Board of Directors and classification of its members as follows: executive board member, non-executive board member, or independent board member. (d) A brief description of the jurisdictions and duties of the Board s main committees such as the Audit Committee, the Nomination and Remuneration Committee; indicating their names, names of their chairmen, names of their members, and the aggregate of their respective meetings. (e) Details of compensation and remuneration paid to each of the following: 1) The Chairman and members of the Board of Directors. 2) The Top Five executives who have received the highest compensation and remuneration from the company. The CEO and the chief finance officer shall be included if they are not within the top five. For the purpose of this paragraph, compensation and remuneration means salaries, allowances, profits and any of the same; annual and periodic bonuses related to performance; long or short- term incentive schemes; and any other rights in rem. (f) Any punishment or penalty or preventive restriction imposed on the company by the Authority or any other supervisory or regulatory or judiciary body. (g) Results of the annual audit of the effectiveness of the internal control procedures of the company. 2 The Board of the Capital Market Authority issued resolution Number ( ) Dated 12/ 11 / 1429H corresponding to 10/ 11 / 2008G making Article 9 of the Corporate Governance Regulations mandatory on all companies listed on the Exchange effective from the first board report issued by the company following the date of the Board of the Capital Market Authority resolution mentioned above. Corporate Governance Regulations 15
18 Part 4 Board of Directors
20 Board of Directors Article 10 3 : Main Functions of the Board of Directors Among the main functions of the Board is the fallowing: (a) Approving the strategic plans and main objectives of the company and supervising their implementation; this includes: 1) Laying down a comprehensive strategy for the company, the main work plans and the policy related to risk management, reviewing and updating of such policy. 2) Determining the most appropriate capital structure of the company, its strategies and financial objectives and approving its annual budgets. 3) Supervising the main capital expenses of the company and acquisition/disposal of assets. 4) Deciding the performance objectives to be achieved and supervising the implementation thereof and the overall performance of the company. 5) Reviewing and approving the organizational and functional structures of the company on a periodical basis. (b) Lay down rules for internal control systems and supervising them; this includes: 1) Developing a written policy that would regulates conflict of interest and remedy any possible cases of conflict by members of the Board of Directors, executive management and shareholders. This includes misuse of the company s assets and facilities and the arbitrary disposition resulting from dealings with the related parties. 2) Ensuring the integrity of the financial and accounting procedures including procedures related to the preparation of the financial reports. 3) Ensuring the implementation of control procedures appropriate for risk management by forecasting the risks that the company could encounter and disclosing them with transparency. 4) Reviewing annually the effectiveness of the internal control systems. 3 The Board of the Capital Market Authority issued resolution Number ( ) Dated 3/ 12 /1432H corresponding to 30/ 10 /2011G making paragraph (b) of Article 10 of the Corporate Governance Regulations mandatory on all companies listed on the Exchange effective from 1/ 1 /2012. The Board of the Capital Market Authority issued resolution Number ( ) Dated 17/2/1434H corresponding to 30/12 /2012G making paragraphs (c) and (d) of Article 10 of the Corporate Governance Regulations mandatory on all companies listed on the Exchange effective from 30/ 6 /2013G. Corporate Governance Regulations 19
21 (c) Drafting a Corporate Governance Code for the company that does not contradict the provisions of this regulation, supervising and monitoring in general the effectiveness of the code and amending it whenever necessary. (d) Laying down specific and explicit policies, standards and procedures, for the membership of the Board of Directors and implementing them after they have been approved by the General Assembly. (e) Outlining a written policy that regulate the relationship with stakeholders with a view to protecting their respective rights; in particular, such policy must cover the following: 1) Mechanisms for indemnifying the stakeholders in case of contravening their rights under the law and their respective contracts. 2) Mechanisms for settlement of complaints or disputes that might arise between the company and the stakeholders. 3) Suitable mechanisms for maintaining good relationships with customers and suppliers and protecting the confidentiality of information related to them. 4) A code of conduct for the company s executives and employees compatible with the proper professional and ethical standards, and regulate their relationship with the stakeholders. The Board of Directors lays down procedures for supervising this code and ensuring compliance there with. 5) The Company s social contributions. (f) Deciding policies and procedures to ensure the company s compliance with the laws and regulations and the company s obligation to disclose material information to shareholders, creditors and other stakeholders. Article 11 : Responsibilities of the Board (a) Without prejudice to the competences of the General Assembly, the company s Board of Directors shall assume all the necessary powers for the company s management. The ultimate responsibility for the company rests with the Board even if it sets up committees or delegates some of its powers to a third party. The Board of Directors shall avoid issuing general or indefinite power of attorney. (b) The responsibilities of the Board of Directors must be clearly stated in the company s Articles of Association. (c) The Board of Directors must carry out its duties in a responsible manner, in good faith and with due diligence. Its decisions should be based on sufficient information from the executive management, or from any other reliable source. (d) A member of the Board of Directors represents all shareholders; he undertakes to carry out whatever may be in the general interest of the company, but not the 20 Capital Market Authority
22 interests of the group he represents or that which voted in favor of his appointment to the Board of Directors. (e) The Board of Directors shall determine the powers to be delegated to the executive management and the procedures for taking any action and the validity of such delegation. It shall also determine matters reserved for decision by the Board of Directors. The executive management shall submit to the Board of Directors periodic reports on the exercise of the delegated powers. (f) The Board of Directors shall ensure that a procedure is laid down for orienting the new board members of the company s business and, in particular, the financial and legal aspects, in addition to their training, where necessary. (g) The Board of Directors shall ensure that sufficient information about the company is made available to all members of the Board of Directors, generally, and, in particular, to the non-executive members, to enable them to discharge their duties and responsibilities in an effective manner. (h) The Board of Directors shall not be entitled to enter into loans which spans more than three years, and shall not sell or mortgage real estate of the company, or drop the company s debts, unless it is authorized to do so by the company s Articles of Association. In the case where the company s Articles of Association includes no provisions to this respect, the Board should not act without the approval of the General Assembly, unless such acts fall within the normal scope of the company s business. Article 12 4 : Formation of the Board Formation of the Board of Directors shall be subject to the following: (a) The Articles of Association of the company shall specify the number of the Board of Directors members, provided that such number shall not be less than three and not more than eleven. (b) The General Assembly shall appoint the members of the Board of Directors for the duration provided for in the Articles of Association of the company, provided that such duration shall not exceed three years. Unless otherwise provided for in the Articles of Association of the company, members of the Board may be reappointed. (c) The majority of the members of the Board of Directors shall be non-executive members. 4 The Board of the Capital Market Authority issued resolution Number ( ) Dated 12/ 11 /1429H corresponding to 10/ 11 /2008G making paragraphs (c) and (e) of Article 12 of the Corporate Governance Regulations mandatory on all companies listed on the Exchange effective from year The Board of the Capital Market Authority issued resolution Number ( ) Dated 17/ 2 /1434H corresponding to 30/ 12 / 2012G making paragraph (g) of Article 12 of the Corporate Governance Regulations mandatory on all companies listed on the Exchange effective from 1/ 1 /2013G. Corporate Governance Regulations 21
23 (d) It is prohibited to conjoin the position of the Chairman of the Board of Directors with any other executive position in the company, such as the Chief Executive Officer (CEO) or the managing director or the general manager. (e) The independent members of the Board of Directors shall not be less than two members, or one-third of the members, whichever is greater. (f) The Articles of Association of the company shall specify the manner in which membership of the Board of Directors terminates. At all times, the General Assembly may dismiss all or any of the members of the Board of Directors even though the Articles of Association provide otherwise. (g) On termination of membership of a board member in any of the ways of termination, the company shall promptly notify the Authority and the Exchange and shall specify the reasons for such termination. (h) A member of the Board of Directors shall not act as a member of the Board of Directors of more than five joint stock companies at the same time. (i) Judicial person who is entitled under the company s Articles of Association to appoint representatives in the Board of Directors, is not entitled to nomination vote of other members of the Board of Directors. Article 13: Committees of the Board (a) A suitable number of committees shall be set up in accordance with the company s requirements and circumstances, in order to enable the Board of Directors to perform its duties in an effective manner. (b) The formation of committees subordinate to the Board of Directors shall be according to general procedures laid down by the Board, indicating the duties, the duration and the powers of each committee, and the manner in which the Board monitors its activities. The committee shall notify the Board of its activities, findings or decisions with complete transparency. The Board shall periodically pursue the activities of such committees so as to ensure that the activities entrusted to those committees are duly performed. The Board shall approve the by-laws of all committees of the Board, including, inter alia, the Audit Committee, Nomination and Remuneration Committee. (c) A sufficient number of the non-executive members of the Board of Directors shall be appointed in committees that are concerned with activities that might involve a conflict of interest, such as ensuring the integrity of the financial and non- 22 Capital Market Authority
24 financial reports, reviewing the deals concluded by related parties, nomination to membership of the Board, appointment of executive directors, and determination of remuneration. Article 14 5 : Audit Committee (a) The Board of Directors shall set up a committee to be named the Audit Committee. Its members shall not be less than three, including a specialist in financial and accounting matters. Executive board members are not eligible for Audit Committee membership. (b) The General Assembly of shareholders shall, upon a recommendation of the Board of Directors, issue rules for appointing the members of the Audit Committee and define the term of their office and the procedure to be followed by the Committee. (c) The duties and responsibilities of the Audit Committee include the following: 1) To supervise the company s internal audit department to ensure its effectiveness in executing the activities and duties specified by the Board of Directors. 2) To review the internal audit procedure and prepare a written report on such audit and its recommendations with respect to it. 3) To review the internal audit reports and pursue the implementation of the corrective measures in respect of the comments included in them. 4) To recommend to the Board of Directors the appointment, dismissal and the Remuneration of external auditors; upon any such recommendation, regard must be made to their independence. 5) To supervise the activities of the external auditors and approve any activity beyond the scope of the audit work assigned to them during the performance of their duties. 6) To review together with the external auditor the audit plan and make any comments thereon. 7) To review the external auditor s comments on the financial statements and follow up the actions taken about them. 5 The Board of the Capital Market Authority issued resolution Number ( ) Dated 12/ 11 /1429H corresponding to 10/ 11/ 2008G making Article 14 of the Corporate Governance Regulations mandatory on all companies listed on the Exchange effective from year Corporate Governance Regulations 23
25 8) To review the interim and annual financial statements prior to presentation to the Board of Directors; and to give opinion and recommendations with respect thereto. 9) To review the accounting policies in force and advise the Board of Directors of any recommendation regarding them. Article 15 6 : Nomination and Remuneration Committee (a) The Board of Directors shall set up a committee to be named Nomination and Remuneration Committee. (b) The General Assembly shall, upon a recommendation of the Board of Directors, issue rules for the appointment of the members of the Nomination and Remuneration Committee, terms of office and the procedure to be followed by such committee. (c) The duties and responsibilities of the Nomination and Remuneration Committee include the following: 1) Recommend to the Board of Directors appointments to membership of the Board in accordance with the approved policies and standards; the Committee shall ensure that no person who has been previously convicted of any offense affecting honor or honesty is nominated for such membership. 2) Annual review of the requirement of suitable skills for membership of the Board of Directors and the preparation of a description of the required capabilities and qualifications for such membership, including, inter alia, the time that a Board member should reserve for the activities of the Board. 3) Review the structure of the Board of Directors and recommend changes. 4) Determine the points of strength and weakness in the Board of Directors and recommend remedies that are compatible with the company s interest. 5) Ensure on an annual basis the independence of the independent members and the absence of any conflict of interest in case a Board member also acts as a member of the Board of Directors of another company. 6) Draw clear policies regarding the indemnities and remunerations of the Board members and top executives; in laying down such policies, the standards related to performance shall be followed. 6 The Board of the Capital Market Authority issued resolution Number ( ) Dated 30/3/1431H corresponding to 16/3/2010G making Article 15 of the Corporate Governance Regulations mandatory on all companies listed on the Exchange effective from 1/1/2011G. 24 Capital Market Authority
26 Article 16: Meetings of the Board 1) The Board members shall allot ample time for performing their responsibilities, including the preparation for the meetings of the Board and the permanent and ad hoc committees, and shall endeavor to attend such meetings. 2) The Board shall convene its ordinary meetings regularly upon a request by the Chairman. The Chairman shall call the Board for an unforeseen meeting upon a written request by two of its members. 3) When preparing a specified agenda to be presented to the Board, the Chairman should consult the other members of the Board and the CEO. The agenda and other documentation should be sent to the members in a sufficient time prior to the meeting so that they may be able to consider such matters and prepare themselves for the meeting. Once convened, the Board shall approve the agenda; should any member of the Board raise any objection to this agenda, the details of such objection shall be entered in the minutes of the meeting. 4) The Board shall document its meetings and prepare records of the deliberations and the voting, and arrange for these records to be kept in chapters for ease of reference. Article 17: Remuneration and Indemnification of Board Members The Articles of Association of the company shall set forth the manner of remunerating the Board members; such remuneration may take the form of a lump sum amount, attendance allowance, rights in rem or a certain percentage of the profits. Any two or more of these privileges may be conjoined. Article 18: Conflict of Interest Within the Board (a) A Board member shall not, without a prior authorization from the General Assembly, to be renewed each year, have any interest (whether directly or indirectly) in the company s business and contracts. The activities to be performed through general bidding shall constitute an exception where a Board member is the best bidder. A Board member shall notify the Board of Directors of any personal interest he/ she may have in the business and contracts that are completed for the company s account. Such notification shall be entered in the minutes of the meeting. A Board member who is an interested party shall not be entitled to vote on the resolution to be adopted in this regard neither in the General Assembly nor in the Board of Directors. The Chairman of the Board of Directors shall notify the General Assembly, when convened, of the activities and contracts in respect of which a Board member may have a personal interest and shall attach to such notification a special report prepared by the company s auditor. Corporate Governance Regulations 25
27 (b) A Board member shall not, without a prior authorization of the General Assembly, to be renewed annually, participate in any activity which may likely compete with the activities of the company, or trade in any branch of the activities carried out by the company. (c) The company shall not grant cash loan whatsoever to any of its Board members or render guarantee in respect of any loan entered into by a Board member with third parties, excluding banks and other fiduciary companies. 26 Capital Market Authority
28 Part 5 Closing Provisions
30 Closing Provisions Article 19: Publication and Entry into Force These regulations shall be effective upon the date of their publication. Corporate Governance Regulations 29
32 Issued by the Board of Capital Market Authority Pursuant to Resolution No Dated 21/10/1427H Corresponding to 12/11/2006 Based on the Capital Market Law issued by Royal Decree No. M/30 dated 2/6/1424H Amended by Resolution of the Board of the Capital Market Authority Number Dated 30/3/1431H corresponding to 16/3/2010G English Translation of the Official Arabic Text Arabic is the official language of the Capital Market Authority Important Notice: The current version of these Rules, as may be amended, can be found at the Authority website:
Rabigh Refining & Petrochemical Company, Petro Rabigh Corporate Governance Code Version 2.0 1/27 Contents Part 1: Preliminary Provisions 3 1: Preamble 3 2: Definitions 3 Part 2: Rights of Shareholders