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Background
The Kuwaiti capital market was launched in the 1960s and from then on, a series of laws, regulations and regulatory bodies, such as Boursa Kuwait, the Capital Market Authority (CMA), Corporate Governance Rules and Module 15 on Corporate Governance of the CMA’s Executive Regulations, were established with the aim of regulating the market as best as possible and aligning it with international best practices.
More recently, Kuwait has also made considerable progress concerning ESG reporting, as Kuwaiti listed companies may, on a voluntary basis, now publish an annual sustainability report on their website and the website of Boursa Kuwait. The latter has published, on March 22, 2023, a set of non-mandatory guidelines meant to guide companies in preparing and publishing such a report. This initiative is in line with Kuwait’s ambitions in the field of sustainable development as set out in Kuwait Vision 2035 “New Kuwait,” the national development plan of Kuwait, and the goal to achieve carbon neutrality by 2060[1]“.
Key Corporate Governance Features in Kuwait
Positive features
- Shareholders have the right to attend and vote during a general meeting using modern technologies;
- Shareholders owning 5 percent of the company capital have the right to add items/proposals to the agenda of general meetings;
- The majority of the board members shall be non-executive directors and the board must include at least one independent member;
- A person is not permitted to serve as the chair of the board of directors of more than one public shareholding company whose headquarters are located in Kuwait, nor may he/she serve as a member of the boards of directors of more than five companies located in Kuwait, even when acting in the capacity of a representative of a natural or legal person;
- Shareholders owning at least one quarter of the company’s issued share capital may request, by an AGM resolution, to remove the chair, one or many members of the board of directors or dissolve the whole board of directors and elect a new board;
- Regarding related party transaction, companies shall have an independent risk unit aiming to assist the board of directors in reviewing transactions, and an independent expert is required to notify the board and the general meeting of any pending transaction with a value of 10 percent or more of the total assets of the company. Additionally, any transaction with a subsidiary, associate or parent company that has a value of 5 percent or more of the company’s assets shall have a description of its nature, value, conditions and the interest between the parties included in the annual report; and
- In order to attract foreign investment, diversify the economy and increase employment in the private sector[2], the Kuwaiti government passed a foreign direct investment law in 2013 that allows up to 100 percent foreign ownership in some industries such as insurance, hospitals, software development and tourism provided that the Kuwait Direct Investment Promotion Authority (KDIPA) approves it.
Room for improvement
- In practice, most Kuwaiti companies disclose only their financial statements ahead of the AGM. The annual report, which includes the board and corporate governance reports, is usually disclosed post-AGM. No requirement to publish such documents has been included in the Companies’ Law or in Module 15 of the Executive bylaws. However, Article 8-8 of Module 15, requires companies to create “a separate section on the company’s website for corporate governance where all new information and data that may help the shareholders, and current and potential investors to have access to the rights thereof and evaluate the company’s performance shall be presented“.
- Most companies do not disclose the names and biographies of proposed nominees up for election ahead of the general meeting, in breach of corporate governance best practices;
- Most Kuwaiti publicly listed companies (not to say all companies) have no diversity criteria especially in terms of gender, marking one of the lowest rates of female participation in public boards within the MENA region[3]. Additionally, no reference is made on board gender diversity in the Kuwaiti Companies’ Law or the Module 15 on Corporate Governance.
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Notes
[1] Chambers and Partners, Corporate Governance 2023 – Kuwait, https://practiceguides.chambers.com/practice-guides/corporate-governance-2023/kuwait/trends-and-developments/O13756
[2] 2019 Investment Climate Statements: Kuwait, U.S. Department of State, https://www.state.gov/reports/2019-investment-climate-statements/kuwait/#:~:text=In%20an%20attempt%20to%20attract%20foreign%20investment%20to,by%20the%20Kuwait%20Direct%20Investment%20Promotion%20Authority%20%28KDIPA%29.
[3] 3.7 percent of board seats held by women, on 890 companies with a total of 5,597 board seats (Hawkamah Institute, 2020)
Authored By
Sofia Essoulaimani
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