Corporate Governance and Board of Directors Quiz ch 9

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Questions and Answers

What are the fiduciary duties of directors?

  • Duty of compliance, duty of innovation, duty of risk-taking, duty of cost-cutting
  • Duty of care, duty of loyalty, duty to act in good faith, duty to promote success (correct)
  • Duty of disclosure, duty of transparency, duty of accountability, duty of profitability
  • Duty of honesty, duty of independence, duty of responsibility, duty of fairness

What happens when a director breaches their fiduciary duties to the company?

  • The director is fined by the regulatory authority
  • The company may be entitled to claim any profit made from the breach (correct)
  • The company is dissolved
  • The director is automatically removed from their position

What is the role of the Board of Directors?

  • To handle financial audits
  • To represent shareholders and make decisions on their behalf (correct)
  • To manage day-to-day operations of the company
  • To oversee marketing and sales strategies

What is the consequence when a director's personal interest conflicts with their duty to the company?

<p>The director may be in breach of their fiduciary duties (D)</p> Signup and view all the answers

What is the purpose of incorporating bylaws?

<p>To outline rules and procedures for the company's governance (D)</p> Signup and view all the answers

In what situation are directors prohibited from certain acts deemed prejudicial to the company?

<p>When they are in a fiduciary relationship with the company (A)</p> Signup and view all the answers

What is the consequence if a director purchases property that was their duty to acquire for the company and then sells it to the company?

<p>The company may be entitled to claim any profit made from that transaction (A)</p> Signup and view all the answers

In what scenario can a contract entered into by a director be held not binding on the company?

<p>When it is primarily for personal benefit rather than benefiting the company (A)</p> Signup and view all the answers

What are some elements included in fiduciary duties?

<p>Duty to act in good faith, duty to promote success (A)</p> Signup and view all the answers

What did Roith's contract with the company aim to provide?

<p>A pension for his wife upon his death (D)</p> Signup and view all the answers

What was held regarding Roith's contract with the company?

<p>It was not intended for the benefit of the company (B)</p> Signup and view all the answers

What is the role of the Capital Market Authority (CMA) in Saudi Arabia?

<p>To regulate and develop Saudi companies by providing appropriate rules and regulations (C)</p> Signup and view all the answers

How is the board of CMA managed?

<p>By a board that includes 5 members appointed by the prime minister (A)</p> Signup and view all the answers

What are the main parts of the corporate governance code in Saudi Arabia?

<p>Preliminary provisions, Shareholders' rights, Disclosure and transparency, Board of directors' functions, Publication and coming into force (B)</p> Signup and view all the answers

What are the functions of the board of directors according to the corporate governance code?

<p>Approving strategic scheme and supervising implementation, representing shareholders (C)</p> Signup and view all the answers

What are the criteria for forming the board of directors according to corporate governance regulations?

<p>Should contain at least 3 members and not more than 11; majority should be non-executive; chairman must not hold an executive position; majority should be fully independent; members should not act as directors in more than 5 JSC at the same time (D)</p> Signup and view all the answers

What are CMA’s phases of approaching to implement improved corporate governance?

<p>Phase One: publishing the CGR. Phase Two: educate market participants. Phase Three: revision of CGR (A)</p> Signup and view all the answers

What is Corporate Social Responsibility (CSR)?

<p>When businesses voluntarily choose to behave ethically and responsibly considering societal and environmental impacts. (D)</p> Signup and view all the answers

Is Corporate Social Responsibility (CSR) relevant in Saudi Arabia?

<p>Yes, it has gained attention worldwide but is limited in Saudi due to recent recognition supported by Saudi Arabia’s 2030 vision. (D)</p> Signup and view all the answers

What are the key principles of corporate governance?

<p>fairness, honesty, responsibility, and independency</p> Signup and view all the answers

What are the fiduciary duties of directors?

<ol> <li>Duty of care 2. Duty of loyalty 3. Duty to act in good faith 4. Duty to promote success</li> </ol> Signup and view all the answers

What are the consequences when a director breaches their fiduciary duties to the company?

<p>The company is entitled to claim any profit made from the breach of duty.</p> Signup and view all the answers

In what scenario can a contract entered into by a director be held not binding on the company?

<p>When the contract is not for the benefit of the company.</p> Signup and view all the answers

When are directors prohibited from doing acts deemed prejudicial to the company?

<p>When they are in a fiduciary relationship with the company.</p> Signup and view all the answers

What was held regarding the contract between Roith and the company?

<p>The whole object of the contract wasn't to benefit the company.</p> Signup and view all the answers

What are the roles of the Board of Directors according to the text?

<p>They're responsible for the company's affairs, sometimes required to represent shareholders and make decisions on their behalf.</p> Signup and view all the answers

What are incorporation bylaws responsible for?

<p>Incorporation bylaws are responsible for articles of the company's affairs.</p> Signup and view all the answers

What happened when a director purchased property that was their duty to acquire for the company and then sold it to the company?

<p>The company was entitled to claim the profit made from that transaction.</p> Signup and view all the answers

What is the consequence of a director's personal interest conflicting with their duty to the company?

<p>They breach their fiduciary duties to the company.</p> Signup and view all the answers

What is the purpose of the duty of loyalty for directors?

<p>To ensure directors act in the best interest of the company.</p> Signup and view all the answers

What did the case of Roith's contract with the company demonstrate about fiduciary duties?

<p>It demonstrated that the contract should benefit the company, not the director or their family.</p> Signup and view all the answers

What are the duties of the Capital Market Authority (CMA) in KSA?

<p>The duties of the CMA include developing and regulating the Saudi Stock Market, creating greater security by protecting investors and the public from unfair practices, increasing the efficiency and transparency of the market, reducing transaction risks, and monitoring all activities and transactions on the Saudi market.</p> Signup and view all the answers

When was corporate governance established by the board of CMA in KSA?

<p>Corporate governance was established by the board of CMA in 2006 and amended in 2010.</p> Signup and view all the answers

What are the main parts of the corporate governance code in KSA?

<p>The main parts of the corporate governance code in KSA include preliminary provisions, rights of shareholders and the general assembly, disclosure and transparency related to a company’s policy, functions and responsibilities of the board of directors, and publication and coming into force involving implementation.</p> Signup and view all the answers

What are the functions of the board of directors according to the corporate governance code in KSA?

<p>The functions of the board of directors according to the corporate governance code include approving the strategic scheme and main aim of the firm, representing the shareholders, and supervising the implementation of plans, policies, performance, capital structure, risks, and organizational and financial structure.</p> Signup and view all the answers

What are the criteria for forming the board of directors according to corporate governance regulations in KSA?

<p>The criteria for forming the board of directors include having at least 3 members but not more than 11, the majority of directors being non-executive, the chairman not holding an executive position, the majority of members being fully independent, and members not acting as a member of the board of directors of more than 5 JSC at the same time.</p> Signup and view all the answers

What are the phases of approaching to implement improved corporate governance according to CMA in KSA?

<p>The phases of approaching to implement improved corporate governance according to CMA in KSA include publishing the corporate governance regulations, educating market participants on how to apply the regulations, and possibly making parts or all of the regulations mandatory.</p> Signup and view all the answers

What is Corporate Social Responsibility (CSR)?

<p>Corporate Social Responsibility (CSR) is when businesses voluntarily choose to behave ethically and responsibly, taking into consideration how their actions affect society and the environment.</p> Signup and view all the answers

How has Corporate Social Responsibility (CSR) been relevant in Saudi Arabia?

<p>Corporate Social Responsibility (CSR) has gained attention worldwide, but it has been limited in Saudi Arabia. However, in recent years, there has been more recognition of its importance due to Saudi Arabia’s 2030 vision, supported by the Saudi Government.</p> Signup and view all the answers

What are the benefits of Corporate Social Responsibility (CSR) for Saudi companies?

<p>The benefits of Corporate Social Responsibility (CSR) for Saudi companies include enhancing corporate image, attracting investors and customers, and helping employee engagement and talent attraction.</p> Signup and view all the answers

What rules allow the Ministry of Commerce, or CMA for public companies, to make & issue the rules and steps for companies to take the CSR initiative?

<p>Article 278 allows the Ministry of Commerce, or CMA for public companies, to make &amp; issue the rules and steps for companies to take the CSR initiative.</p> Signup and view all the answers

Directors are responsible for incorporating bylaws responsible for the ______ of company’s affairs

<p>governance</p> Signup and view all the answers

Directors are in a fiduciary relationship with the company they’re prohibited from doing any acts deemed prejudicial to the ______

<p>company</p> Signup and view all the answers

Roith (company director), entered into a contract with the company for the purpose of providing a pension for his wife whenever he die, without taking into consideration whether the contract was for the ______ of the company

<p>benefit</p> Signup and view all the answers

When directors are in a fiduciary relationship with the company they’re prohibited from doing any acts deemed prejudicial to the ______

<p>company</p> Signup and view all the answers

A director of a company purchased property which was his duty to acquire it for the company not for himself, thereafter he sold it to the company, it was held that the company was entitled to claim the profit that he had made out from that transaction, and that’s because he breached his ______ duties to the company where he shouldn’t let his personal interest conflict with his duty

<p>fiduciary</p> Signup and view all the answers

Concept of corporate governance – fairness, honesty, responsibility, and independency Role of the Board of Directors: they’re , and for the , sometimes they’re even required to represent shareholder & made decisions on their behalf ______ bylaws responsible for articles of company’s affairs

<p>incorporating</p> Signup and view all the answers

Roith (company director), entered into a contract with the company for the purpose of providing a pension for his wife whenever he die, without taking into consideration whether the contract was for the ______ of the company

<p>benefit</p> Signup and view all the answers

The whole object of the contract wasn’t to be binding on the company as it was to benefit mrs. roith and not the ______

<p>company</p> Signup and view all the answers

Fiduciary duties such as: 1. Duty of care 2. Duty of loyalty 3. Duty to act in good faith 4. Duty to promote ______

<p>success</p> Signup and view all the answers

When directors are in a fiduciary relationship with the company they’re prohibited from doing any acts deemed prejudicial to the ______

<p>company</p> Signup and view all the answers

Directors are in a fiduciary relationship with the company they’re prohibited from doing any acts deemed prejudicial to the ______

<p>company</p> Signup and view all the answers

Corporate governance regulations in KSA, Capital Market Authority (CMA)

<ul> <li>Its the agency in charge of issuing regulations and instructions and insuring that all regulations and instructions are implemented properly. - The role of CMA is to regulate and develop Saudi companies by providing appropriate rules and regulations that contribute to increase investment and enhancing transparency and disclosure standards and to protect investors and dealers. - It's managed by a board that includes 5 members appointed by the prime minister. - These members are not allowed to engage in any commercial activities. Duties of the CMA: § To develop and regulate the Saudi Stock Market (Tadawul) and enhance appropriate standards and transactions. § To create greater security by protecting investors and the public from unfair practices which include fraud and manipulation. § To increase the efficiency of the market and transparency in transactions of securities. § To reduce the risks of transactions by developing suitable measures and standards. § To monitor all activities and transactions on the Saudi market. * Corporate governance was established by the board of CMA in 2006 and amended in 2010. * Saudi listed companies are required to disclose in the annual report the provisions that had been implemented and those which hadn’t been implemented and to explain the reasons for noncompliance. The code (corporate governance) main parts: É 1- Preliminary provisions, explaining and defining some terms associated with regulations. 2- highlights the rights of Shareholders and the General assembly. 3- reveals the disclosure and transparency related to a company’s policy. 4- introduces the board of director’s functions and responsibilities. 5- includes publication and coming into force and involves implementation. * Among corporate governance regulations, the board of directors and its committees are both considered as the first line of defense against incompetent management. Functions of the board of directors according to the code: - Approving the strategic scheme and main aim of the firm and supervising their implementation, which includes: 1- plans. 2- policies. 3- performance. 4- capital structure. 5- risks. 6- organizational and financial structure. - Represents the shareholders, even if a company sets up committees or delegate some of its powers to a 3rd party. Formation of the board of directors criteria: 1- Should contain at least 3 members and not more than 11. 2- The majority of the directors should be non-executive. 3- The chairman of the board of directors must not be conjoined with any executive position such as CEO. 4- The majority of the members should be fully independent. 5- The member of the board of directors shouldn’t act as a member of board of directors of more than 5 JSC at the same time. CMA’s phases of approaching to implement improved corporate governance: Phase One: publishing the CGR. Phase Two: educate market participants on how to apply the regulation. Phase Three: revision of the CGR, and possibly making parts or all of the regulation mandatory. We’re currently in phase two. What is Corporate Social Responsibility (CSR) – Corporate Social Responsibility (CSR) is when businesses voluntary choose to behave ethically and responsibly, taking into consideration how their actions affect society and the environment. Is CSR relevant in Saudi. – It has gained attention worldwide, but it’s limited in Saudi - Saudi companies in the oil and finance fields have been hesitant to adopt Corporate Social Responsibility (CSR) practices, but in recent years there has been more recognition of its importance and it’s because of Saudi Arabia’s 2030 vision, which is supported by the Saudi Government. The government has been promoting and highlighting social responsibility as fundamental aspects of the nation’s progress. - The government has made rules and guides to help businesses carry out CSR, the support helps them invest in sustainable businesses Benefits of CSR for Saudi companies – 1. Enhanced the corporate image: it makes their reputation better. When companies do things that are ethical and good for society, customers, investors, and people in general often see them in a better way, this can make people loyal to the brand &amp; trust it more 2. Attracted investors &amp; customers: Attracting Investors and Customers especially those who care about ethics and sustainability, to grow their customer base 3. Helped employee engagement and talent attraction: Employees usually feel good about working for companies that help society and the environment Article 278 – allows the Ministry of Commerce, or CMA for public companies, to make &amp; issue the rules and steps for companies to take the CSR initiative. These rules are issued based on a decision by the council of ministers.</li> </ul> Signup and view all the answers

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Study Notes

Fiduciary Duties of Directors

  • Directors have a fiduciary duty to act in the best interests of the company and its shareholders.
  • Key elements include the duty of care, duty of loyalty, duty to act in good faith, and duty to promote the company's interests.

Consequences of Breaching Fiduciary Duties

  • Breach of fiduciary duty can result in legal actions and possible financial restitution to the company.
  • If a director's personal interests conflict with the company's interests, it may lead to penalties or the cessation of their role.

Role of the Board of Directors

  • The Board oversees company management, represents shareholders, and makes strategic decisions on their behalf.
  • Responsible for incorporating bylaws that govern the company's operations and affairs.

Conflicts of Interest

  • Directors are prohibited from engaging in acts that are prejudicial to the company.
  • Personal conflicts can result in directors being compelled to forfeit any profits gained from self-dealing transactions.

Incorporating Bylaws

  • Bylaws are vital for outlining the rules and responsibilities that govern a company's operations.
  • They provide a framework for decision-making and accountability within the company.

Prohibited Acts

  • Certain actions deemed prejudicial to the company's interests are specifically prohibited, such as self-dealing or mismanagement.
  • This includes scenarios where a director purchases property meant for company use and subsequently sells it back to the company, requiring any profits to be returned to the firm.

Binding Contracts and Company Interests

  • A contract not entered into for the company's benefit may be deemed non-binding.
  • Contracts that primarily serve a personal interest, such as Roith's pension plan for his wife, illustrate potential conflicts that can invalidate a director's agreements.

Capital Market Authority (CMA) in Saudi Arabia

  • The CMA oversees corporate governance practices and regulates financial markets in Saudi Arabia.
  • It puts forth regulations that uphold best practices in governance and compliance within companies.

Corporate Governance Code in Saudi Arabia

  • The code consists of main components designed to enhance transparency, accountability, and fairness in corporate activities.
  • Functions of the board include strategic direction, oversight, and ensuring adherence to governance standards.

Criteria for Forming the Board of Directors

  • Regulations dictate the qualifications and criteria necessary for board member selection to ensure effectiveness and integrity.

Phases of Corporate Governance Implementation

  • The CMA has established phases to facilitate gradual improvements in corporate governance, focusing on compliance and best practices.

Corporate Social Responsibility (CSR)

  • CSR refers to a company's commitment to ethical behavior, societal impact, and environmental stewardship.
  • In Saudi Arabia, CSR is gaining relevance as companies recognize its benefits for reputation and sustainability.

Benefits of CSR for Saudi Companies

  • Implementation of CSR initiatives can enhance corporate image, increase customer loyalty, and attract investment opportunities.
  • The Ministry of Commerce and CMA issue regulations guiding companies in adopting CSR practices to foster community engagements.

Further Insights on Roith's Contract

  • Roith's contract aimed to provide a pension for his wife but failed to consider the company's best interests, leading to its invalidation.
  • Legal precedents underscore the importance of aligning director contracts with the company's welfare to avoid conflicts.

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