Legal Aspects of the Board Secretary's Role Under Saudi Law
In the Kingdom of Saudi Arabia (KSA), the role of the board secretary is pivotal to the corporate governance framework, ensuring legal compliance, procedural integrity, and effective communication within the company's leadership. This article provides a comprehensive exploration of the legal aspects of the board secretary's role, referencing pertinent legislation and regulations, and including verbatim quotations of the relevant legal articles.
Relevant Legal Framework
The duties and responsibilities of the board secretary in Saudi Arabia are governed by several foundational legal instruments:
1. Companies Law: Issued by Royal Decree No. M/132 dated 1/12/1443H (the "Companies Law"),
this law provides the primary legal framework for corporate governance in the Kingdom. It outlines the rights, duties, and organizational structures of companies operating in Saudi Arabia, forming the backbone of corporate governance.
Article 26 of the Companies Law: "A company's manager or board member shall exercise duty of care and duty of loyalty, particularly in: (a) carrying out his duties within the scope of his powers; (b) acting in the interest of the company and promoting its success; (c) making decisions or voting independently thereon; (d) exercising reasonable and expected due diligence, skill, and care; (e) avoiding conflict of interest; (f) disclosing any direct or indirect interest he has in the transactions."
2. Corporate Governance Regulations: Issued by the Capital Market Authority (CMA) under
Resolution Number 8-16-2017 and amended by Resolution Number 8-5-2023 (the "Corporate Governance Regulations"), these regulations supplement the Companies Law by detailing specific corporate governance standards. They emphasize transparency, accountability, and shareholder protection.
Article 30 of the Corporate Governance Regulations: "The Board shall appoint a Secretary from among its members or otherwise to document the meetings of the Board and its resolutions in a special register, as well as to maintain the reports submitted to and from the Board."
3. Implementing Regulations of the Companies Law: These regulations, issued by Ministerial
Decision No. 12864 dated 25/12/1443H (24 July 2022) by the Ministry of Commerce (the "Implementing Regulations of the Companies Law"), provide detailed guidance on its application, including procedural and operational nuances for companies in Saudi Arabia.
For purposes of this article, these legal sources will collectively be referred to as (the "Governance Framework").
Application and Scope
In this article, the analysis primarily applies to joint-stock companies, as the board secretary role is explicitly mandated for this form of company under the Corporate Governance Regulations and the Companies Law. Specifically, the following points are noted:
1. Joint-Stock Companies:
- The role of the board secretary is required under Article 30 of the Corporate Governance Regulations, which specifies the responsibilities related to maintaining records and ensuring governance compliance.
- The appointment and duties of the board secretary for joint-stock companies are further clarified in Articles 35 and 36 of the Corporate Governance Regulations.
- In the case of Simplified Joint-Stock Companies: the founding shareholder(s) enjoys the flexibility to opt out of the governance requirements relating to appointing a board, and a board secretary compared to a Joint-Stock Companies.
2. Limited Liability Companies (LLCs):
While not explicitly mandated to have a board secretary, LLCs that elect to establish a governance framework akin to joint-stock companies may benefit from appointing a secretary to fulfill similar governance and compliance roles. This is particularly relevant for larger LLCs or those with significant external investment, such as venture-backed companies.
3. Exempt Forms:
General Partnerships and Limited Partnerships are not required by Saudi law to appoint a board secretary. These forms of companies typically operate with fewer formal governance requirements, as outlined in Article 4 of the Companies Law.
Relevance to Venture Capital and Startups
Article 20 of the Implementing Regulations states: "The company must maintain transparency and ensure that its governance framework supports investment attraction and operational stability."
The role of a board secretary is a role adopted by companies in many sectors as a matter of good governance. Accordingly, this role is no less important to Venture Capital ("VC") funds investing or operating in KSA and startups seeking to establish in or expand operations to the Kingdom. For VC funds, the board secretary ensures that portfolio companies adhere to governance best practices, which can be crucial for mitigating risks and maximizing returns.
Startups, on the other hand, benefit from the board secretary's expertise in navigating complex regulatory landscapes. By ensuring compliance with the Governance Framework, startups can focus on innovation and growth. Although it is not a requirement to specifically have legal qualifications, we typically see the General Counsel fulfill the role of board secretary in most well-run companies. In the next part, we elaborate on how the law addresses the qualifications of a board secretary.
The Board Secretary's Appointment and Qualifications
The Governance Framework mandates that the board secretary is appointed by the board of directors through a formal resolution, as stipulated in Article 35 of the Corporate Governance Regulations.
"The Board of Directors shall issue a resolution appointing a Secretary, specifying his duties, authorities, and remuneration. The Secretary must possess the necessary qualifications and experience to carry out his duties effectively."
This formal appointment process ensures that the individual assuming the role has the full confidence of the board and possesses the necessary qualifications and legal standing/authority to perform his / her duties effectively.
Article 36 of the Corporate Governance Regulations outlines the required qualifications for a board secretary.
"The Secretary of the Board shall have adequate knowledge of corporate governance, legal matters, and administrative management. The Secretary must also be capable of maintaining confidentiality and managing the Board's documentation."
This standard of qualifications covering three elements (governance, law and administrative management) underscores the strategic importance of the role, positioning the secretary as a key player in corporate governance.
Core Responsibilities of the Board Secretary
1. Documentation of Meetings: One of the primary responsibilities of the board secretary is to prepare and document the minutes of board meetings, as mandated by Article 30 of the Corporate Governance Regulations.
"The Secretary shall document the deliberations and resolutions of the Board in a minutes register, which shall include the date and time of the meeting, attendees, agenda items, and the resolutions passed."
2. Safeguarding Records: Maintaining a secure archive of the company's official documents, including the board's resolutions, is a key duty of the board secretary under Article 33 of the Corporate Governance Regulations.
"The Secretary is responsible for maintaining a secure repository of all Board-related records, including meeting minutes, resolutions, and reports submitted to or issued by the Board."
3. Facilitating Communication: The board secretary acts as a liaison between the board, executive management, and stakeholders. Article 37 of the Corporate Governance Regulations:
"The Secretary shall ensure that Board members receive timely and accurate information necessary to make informed decisions."
4. Compliance Oversight: According to Article 38 of the Corporate Governance Regulations, the board secretary must ensure that the board's activities and resolutions comply with the Companies Law and other applicable regulations.
"The Secretary shall oversee compliance with the provisions of the Companies Law, Corporate Governance Regulations, and other applicable rules."
5. Ethical Standards and Conflict Resolution: As per Article 40 of the Corporate Governance Regulations, the board secretary plays a significant role in upholding ethical standards within the organization.
"The Secretary shall assist the Board in preventing conflicts of interest and ensuring ethical conduct by all members."
Enhancing Corporate Governance
The board secretary's role is integral to fostering effective corporate governance. By ensuring adherence to the Governance Framework, the secretary helps safeguard shareholder interests and promotes transparency as per Article 26 of the Companies Law which states:
"The manager or board member must act in the company's best interest, avoiding conflicts of interest and promoting its success through careful and diligent conduct."
This alignment with best practices in corporate governance not only enhances the company's reputation but also mitigates risks associated with regulatory non-compliance and ethical lapses.
Strategic Contributions
Beyond administrative duties, the board secretary is uniquely positioned to contribute to the company's strategic initiatives. By attending all board meetings and maintaining comprehensive records, the secretary gains deep insights into the company's strategic direction and operational priorities.
1. Providing Governance Advice: The secretary advises the board on legal and regulatory compliance matters. Article 30 of the Corporate Governance Regulations states:
"The Secretary shall ensure that the Board receives timely updates on regulatory changes impacting the company's operations."
2. Aligning Decisions with Corporate Goals: The secretary plays a role in ensuring board decisions align with the organization's objectives in accordance with Article 33 of the Corporate Governance Regulations:
"The Secretary shall maintain records demonstrating how Board decisions align with strategic goals."
Conclusion
In conclusion, the board secretary is not just an administrative function but a strategic enabler of corporate success in Saudi Arabia. By upholding the legal and ethical standards set forth in the Governance Framework, the board secretary enhances organizational resilience, fosters stakeholder trust, and supports the Kingdom's vision of becoming a leading global hub for investment and business. Companies that invest in well-qualified and empowered board secretaries are positioning themselves to excel in an increasingly competitive and regulated environment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
