Corporate Governance and Board of Directors Responsibility in Appointing Senior Managers: A Case in Saudi Arabia

Ayman Mohamed Zerban,Abdullah Mohammed Abdullateef Madani

doi:10.5539/ijbm.v13n1p183

Abstract

Corporate governance is a cornerstone in improving efficiency and creating confidence to attract investors. After collapses of giant companies, worldwide business community are trying to infuse a culture of honesty and integrity in business. Commitment of board of directors and willing of top management and employees to strength corporate governance is essential. Failure to compliance with corporate governance rules will increase operational risk and hence impacting interests of stakeholders.Saudi Arabian Monetary Agency (SAMA) which is the central bank in the Kingdom of Saudi Arabia with Capital Market Authority (CMA) are thriving continuously to strength corporate governance rules for banks and financial institutions. One of the circulars for banks and financial institutions is the requirements for appointments of senior positions in financial organizations with the objective of appointing persons who possess integrity, honesty, and good reputation. Companies should obtain written non-objection form for the appointment of senior managers and it is the responsibility of board of directors to ensure compliance with this regulation. In addition, SAMA issued several guidelines for anti-money laundering, rules for countering fraud and a code of professional ethics of staff. Recently, banks are required to form compliance unit to make sure banks prepare their financials according to International Financial Reporting Standards (IFRS).The aim of this paper is to highlight a case of corporate governance and board responsibilities in one of the financial institutions in Saudi Arabia. The case will be presented to show the mechanism followed by the financial institution and whether it is complied with rules in appointing senior managers and if not what corrective actions are done in order to strength corporate governance principles.

Highlights

Corporate governance had gain popularity nowadays specially after the collapses of many companies who appeared giant and efficient while they were fragile
The position of compliance officer is a senior management position that is considered to be one of the leadership roles in financial companies as it was articulated in the definitions section in the first article of the Finance Companies Control Law
Assigning Mr CCC to handle the obligations of the compliance officer required from the company an obtainment of a written non-objection from Saudi Arabian Monetary Agency (SAMA) as the requirements for appointments to senior positions in financial institutions

Summary

Introduction

Corporate governance had gain popularity nowadays specially after the collapses of many companies who appeared giant and efficient while they were fragile. Expropriation of stakeholders by senior managers is widely evident with the collapses of companies such as Enron which is symbolic of shareholders failure to protect their interests due to asymmetrical information and conflict of interest in board of directors (Heath and Norman, 2004). After absorbing the impact of failure, many opinions call for re-designing corporate governance mechanisms to ensure board responsibility, accountability, risk management, transparency and disclosure in financial reports (Jensen, 2002). Despite the negative impact of Enron collapse, the case “has done for reflection on corporate governance what AIDS did for research on the immune system” (Norman, 2004). Ibid (2004, p.6) states: Boards of Directors often conspired with the executives

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