Monday 13 / January / 2025
Muscat: The Ministry of Commerce, Industry, and Investment Promotion issued a ministerial decision regarding the principles of governance for closed joint-stock companies.
The ministerial decision No. (5/2025) states that closed joint-stock companies must operate in accordance with governance principles, except for those in which the government holds stakes. The decision requires companies to amend their articles of association in a way that does not conflict with the provisions of these principles, and the ministry will monitor the company's compliance with this requirement.
Dr. Saleh Masan, Undersecretary of the Ministry of Commerce, Industry, and Investment Promotion for Trade and Industry, stated that the decision on the principles of governance for closed joint-stock companies contributes to stimulating companies and frames their operations according to the best practices in company management, aligning with global standards. He emphasized that it is a fundamental pillar in developing their operations and enhancing the performance of these companies from administrative, technical, and commercial perspectives, which in turn strengthens the position of these companies and contributes to building a strong and resilient economy.
He explained that corporate governance enhances the continuity of companies by delivering the best practices in company management. It also encourages companies to optimally and prudently invest their capabilities and resources by creating a work environment based on responsibility, oversight, and compliance, with clarity and transparency as its foundation. This includes ensuring the best responsibilities are upheld by boards of directors and executive management, defining authorities, and establishing decision-making mechanisms that ensure the sustainability of the companies' operations.
Enhancing transparency
Nasra bint Sultan Al Habsi, Director General of Trade at the Ministry of Commerce, Industry, and Investment Promotion, emphasized that the principles of governance for closed joint-stock companies aim to enhance transparency, ensure good management of companies, and protect the rights of shareholders and stakeholders. She also noted that governance comes with a range of benefits and incentives that encourage companies to adopt it.
She added that governance helps to build trust and transparency, ensuring that financial and administrative reports are clear and up-to-date, which strengthens the confidence of shareholders and investors. Governance also aids in the systematic identification and management of risks that the company may face, with fair and equal standards available to all shareholders, including small investors. It ensures appropriate representation of the interests of all stakeholders, such as employees, suppliers, and customers. Furthermore, governance makes the board of directors and executive management more accountable to shareholders and contributes to improving the quality of administrative decisions, which positively impacts the overall performance of the company.
Al Habsi further stated that applying governance principles enhances a company’s reputation in the market, making it more attractive to both local and international investors, and enables it to access top sources of funding at better prices and terms. It also ensures that companies comply with the laws and regulations in the Sultanate of Oman, including the Commercial Companies Law, reducing risks and penalties resulting from poor management or breach of obligations. Governance also offers significant advantages for commercial companies, facilitating their processes and supporting sustainable development, helping companies enhance their social and environmental values.
Achieving institutional discipline
Mohammed bin Salem Al Hashmi, Director of the Commercial Establishment Control Department at the Ministry of Commerce, Industry, and Investment Promotion, highlighted that the principles of governance for closed joint-stock companies aim to implement standards and procedures that ensure institutional discipline in company management, in accordance with the established standards and methods, and in line with the Commercial Companies Law No. 18/2019 and the Commercial Companies Regulations 146/2021. This is achieved by clearly defining the responsibilities and duties of the board of directors and executive management, while safeguarding the rights of shareholders and stakeholders.
Al Hashmi added that the decision allows for the establishment of communication mechanisms with the company’s stakeholders to ensure quality operations, in addition to setting a framework for auditing, risk management, and emphasizing the quality of reports.
Disclosure and transparency standards
The ministerial decision on the principles of governance for closed joint-stock companies also stipulates that companies must adhere to the disclosure and transparency standards outlined in these principles. Companies are required to prepare unaudited semi-annual financial statements, along with audited statements at the end of the financial reporting period, and submit them to the Ministry within two working days of approval by the board of directors. Additionally, an annual report must be prepared at the end of each financial period, which should be audited by an external auditor.
The decision also specifies that the board of directors must consist of members who possess competence, experience, and skills, meeting the required membership criteria, with independent members included. The company’s articles of association should specify the number of board members, which must be between a minimum of three (3) and a maximum of eleven (11) members. The composition of the board must be individual.
The ministerial decision also stipulates that, before starting the procedures for holding a general assembly meeting listed on the agenda to elect the board of directors, the company must issue a public announcement at least fourteen (14) days prior to the meeting date, inviting those interested in running for board membership as independent members. The list of candidates for the board of directors must be submitted to the company’s legal advisor at least seven (7) days before the date of the general assembly meeting.
Board of Directors’ duties
The chairman of the board must possess strong leadership skills that qualify them to manage the board effectively. Upon its election, the board must appoint a secretary from among individuals with expertise and qualifications in law, accounting, auditing, or corporate secretarial work. The appointed secretary must have practical experience in management for a period of no less than three (3) years.
The board of directors is required to hold at least four (4) meetings per year. According to the decision, the responsibilities of the board include determining the company’s future vision, its organizational structure, and setting actionable performance indicators within a reasonable timeframe, which should be updated periodically. The board is also responsible for approving commercial and financial policies related to the company’s operations and achieving its objectives, reviewing these policies periodically, and developing necessary plans to execute the company’s strategy, as well as reviewing and updating it from time to time.
The board must also approve internal regulations concerning the company’s operations, adopt a policy for disclosing periodic data, and review the company’s governance report and ensure its implementation. Additionally, the board is responsible for approving policies related to delegating authority to the executive management and updating them regularly. These delegations encompass various functions related to financial and administrative affairs, personnel matters, and other essential functions needed for the efficient operation and management of the company.
Audit and risk management committee
The decision also stipulates that no board member is allowed to make any statements, data, or information without prior written approval from the board or its chairman. The board must designate one or more official spokespersons to represent the company.
Furthermore, the ministerial decision prohibits combining the chairmanship of any of the committees established by the board. It also prohibits combining the chairmanship of the Audit and Risk Management Committee with the chairmanship of the board, unless the Risk Management Committee is separated from the Audit Committee.
The Audit and Risk Management Committee is specifically responsible for several duties, including overseeing the internal audit activities within the company, reviewing and assessing the internal control system, ensuring the adequacy and effectiveness of the company’s internal controls, recommending the appointment and termination of external auditors, determining their fees, reviewing the audit offices’ work plans and the results of the auditing process, as well as examining the company’s accounting policies and providing recommendations to the board on the matter, among other responsibilities.
The decision also specifies that the board of directors should undergo performance evaluations at least once per term. The Ministry will determine the criteria for measuring the board’s performance and hold its members accountable. Each board member must adhere to professional conduct principles, ethical business practices, possess adequate knowledge to fulfill their duties, stay informed about developments related to the company's activities, act with integrity, impartiality, and independence when making decisions, avoid conflicts of interest, and maintain transparency in all company-related matters.
Principles of professional conduct and business ethics
The board of directors is responsible for approving and disseminating the principles of professional conduct and business ethics, ensuring that all board members, executive management, and employees are aware of them, and monitoring their commitment to their application.
Upon approval by the board, the executive management is tasked with establishing internal regulations and systems to govern the company’s operations and agreeing on performance standards and indicators, including those for measuring the performance of the executive management. Additionally, the company’s compensation and incentive structure must be attractive to exceptional talent and contribute to retaining existing competencies, with wage levels and incentives aligned with the labor market in the Sultanate of Oman.
The board must also approve the company’s policy regarding social responsibility requirements, ensuring that it aligns with global best practices, government policies, and directions, while avoiding duplication of the activities carried out by other companies as part of their social responsibility efforts.
Furthermore, the company must detail in its annual report the activities it has undertaken in the context of its social responsibility, the financial resources allocated to these activities, and assess their impact and sustainability.
