The system of governance of a company is aimed at ensuring the best management practices in order to preserve the rights of shareholders and to prevent anything that may harm them such as negligence or the misuse of power by the members of the board of directors. It is therefore imperative for a company to reveal all of its data, instructions, rules and regulations. A company must also make it clear if its rules have been implemented or if they have not. In the case of non-implementation, the reasons must be provided so that all shareholders will know why the rules have not been followed. The rules of governance specify certain times for the declaration and announcement of all the company's statements in a crystal clear manner. The system places special emphasis on the general assembly and the right of the shareholder to learn about its meetings in order to be able to attend and to review the agenda so as to discuss and vote on any issue. The system also refers to the question of the conflict of interests. A board member, for example, should not serve his own private interests at the expense of the company in which he is a board member. The system prevents any other company which the member owns from entering into tenders offered by the company in which he is a board member. The system, however, allows him to do so if the general assembly approves and if his offer is the best of all offers made. However, it is surprising that the system of governance permits the general assembly to approve something which contradicts its rules and regulations. Paradoxically, the general assembly has no role in directing a company's actions. It cannot control a company or hold it accountable for any shortcomings. Whoever attends the meetings of a general assembly will realize that the opinions, ideas, queries and proposals of the assembly members are usually ridiculed by the board members or at best are met with general talk and irrelevant answers. The purpose is to silence an assembly member who dares to come up with ideas, remarks or proposals. They want to teach the general assembly member that it is only the members of the board who know the company's interests and that their time should not be wasted in fruitless discussion. For these very reasons a number of general assembly members are not interested in attending assembly meetings. Those who do attend must have their own private reasons. Many companies postpone the meetings of their general assemblies because of lack of a quorum. The next meeting is considered valid no matter how many members are present. If this is the condition of a general assembly, how can the company's governance system allow the members of an assembly to vote on matters which the system prevents? The system does not allow the chairman or any other board member who has another company with similar activities to have transactions with the company in which he is a member of the board. The other company might have the best price quotation and this is why it has won the tender. This is, of course, very natural since its owner has presented the best price quotation. Of course he knew the price that would win him the offer because he was a member of the board. Realizing this fact, other companies will refrain from bidding because for them the result is already known. They will feel that however low their price quotation might be, it would not be accepted. They cannot compete with the prices offered by the board member. We also find that some family-owned companies have offered their shares or some of them for public subscription, and their Initial Public Offering (IPO) includes issuance fees. They will tell the public that the performance of the company was outstanding so as to persuade them to buy shares. After collecting the issuance fees, the family will continue to control the company and may do this through the appointment of their relatives and close friends as board members. In so doing, about half the members of the board will be family members and the other half will be composed of relatives and friends. The owner of the family's company will continue to make transactions with this company and other companies in which he may be a board member. Therefore, he will be violating the governance system. The governance system which all companies should abide by has in fact become meaningless because of the numerous violations either by members of the board or by general assemblies. There is, therefore, a pressing need to review the corporate governance systems of shareholding companies and to reduce the powers of general assemblies since they are useless and since there is little or no respect for the remarks, ideas and proposals of their members. The owners of companies which have become shareholding firms should be in full control of these new public companies. Their board members, who are relatives and friends, should only act as advisers to them. The system of forming boards of directors must also be reviewed so that boards are not monopolized by those who hold the largest number of shares. — Dr. Ali Al-Ghamdi is a former Saudi diplomat who specializes in Southeast Asian affairs. He can be reached at [email protected]
