Challenges Facing Corporate Governance

The term "corporate governance" refers to an integrated system that includes laws, policies, procedures, and mechanisms that guide the management and operation of companies with the aim of achieving transparency, fairness, accountability, and improving the financial and operational performance of the company.

According to this concept, governance plays a vital role in attracting investments and improving economic performance, which Kuwait seeks to achieve. It has made significant progress in preparing the legislative infrastructure in recent years to enable and enhance governance in companies. In this context, the corporate governance system in Kuwait is based on a set of laws, primarily the Companies Law and its subsequent updates, which serve as the cornerstone in regulating company management.

It establishes a clear framework for the responsibilities and authorities delegated to boards of directors and executive management and defines shareholders' rights and decision-making mechanisms within companies. The Companies Law has undergone several amendments aimed at improving the business environment and facilitating company establishment procedures by simplifying the required documents for establishing limited liability companies and joint-stock companies, introducing new internal control systems to ensure transparency and good governance, in addition to tightening penalties for violations related to non-compliance with mandatory disclosures and governance and updating control and inspection regulations to keep pace with recent developments in the business environment.

The law, with its amendments, has achieved a qualitative balance between facilitating company establishment on one hand and ensuring sound governance and compliance with laws on the other. As for the Capital Markets Authority Law, it regulates the capital market and sets mandatory governance rules for companies listed on the stock exchange, which also aim to ensure compliance with international governance standards, including those related to fair representation of shareholders in company decisions and enhancing disclosure and transparency practices.

Related laws include the Bankruptcy Law and the Anti-Money Laundering Law, which contribute to strengthening the legislative environment associated with corporate governance, seeking to enhance transparency and ensure clarity of activities and policies within companies in a way that limits administrative and financial corruption, protects shareholders' rights, and ensures their access to correct information.

This ultimately creates an attractive environment for investments, as companies' compliance with governance standards serves as positive signals to local and international investors. Despite this, we cannot overlook the existence of some challenges currently facing companies in implementing governance practices, most notably the lack of awareness of its importance, which results in incomplete compliance with laws and regulations.

However, based on our professional legal work in the trade and investment sectors, I believe this is a matter of time, and rapid changes in the business environment will push companies toward greater awareness of the importance of adhering to governance standards, especially with the government's intention to continue updating investment legislation in the country in line with international standards.

Written by:

Abdulrahman Alhouti | Dar AlMuhama