The new Corporate Governance Code for companies listed on the Muscat Securities Market in Oman came into force on 22nd July 2016, having been published in July 2015; this replaces the 2010 version.

The document lays out 14 principles that put the onus on the Board of Directors, as well as modifying a number of the earlier Code’s articles. The following is a summary of the key changes and additions:

• Board of Directors

The Code defines the Board as the highest administration body in the organisation, in charge of leading it, keeping track of its activities and monitoring its operations.

Board members should strive to achieve the firm’s goals and targets and will be entirely committed to the interests of the same, as also to those of the shareholders they represent.

Principle 3 of the Code specifies the Board members’ roles and responsibilities, which must be defined in the company’s articles of association and disclosed in the public domain. They should be aligned with the company’s purpose and objectives, promoting good governance and the maximisation of its contribution to the country's economy and society at large.

How it works

The Code stipulates that the Board should meet at least 4 times a year and that under no circumstances should more than 4 months elapse between meetings.

Composition

Unlike the earlier Code, which required a majority of the Board to be non-executive, the new Code requires them all to be and for at least two of them to be independent. In any event, the proportion of independent members should represent at least ⅓ of all Board members.

Principles 4 and 5 define the functions and competences of the Board’s Chairman and Secretary, with the former holding responsibility for promoting high standards of corporate governance in the Board itself and across the whole company.

It is more demanding than the previous Code in listing the criteria under which a board member may not be deemed independent:

• Being in possession –or representing a legal person that is in possession– of 10% or more of shares in the company, its subsidiaries or sister companies;
• Having held, during the two years prior to the appointment as board member, an executive position in the company, its subsidiaries or sister companies;
• Being a relative in the first degree of a board member or someone in the senior management of the company, its subsidiaries or sister companies;
• Being a board member of the company or any of its subsidiaries;
• Having been, during the two years prior to the board appointment, an employee of the company or one of its subsidiaries;
• Possessing 20% of the shares of any of the parties mentioned in the previous points, during the two years prior to the board appointment.

Transactions with related parties

The document also contains a detailed set of rules about when a person or entity is considered to be a related party.

In any event, all transactions carried out with related parties should be reviewed by the Audit Committee and approved by the Board of Directors or by the Shareholders General Meeting, as applicable.

• Committees

The Code requires the Board to set up an audit committee consisting of at least 3 board members, with a majority of these being independent, and chaired by an independent member. The Chair of the committee must not be a member of any other board committee.

The audit committee will be responsible for those functions inherent to auditing and also for those functions concerning the risk management system (Principle 10).

Specifically, the committee will be in charge of proposing the appointment of the company’s external auditors and for being the channel of communication between these and the internal auditor.

The company’s external auditors will be appointed by the Shareholders General Meeting for 4 consecutive years, and may be re-elected once two years have elapsed since the termination of their previous contract with the firm.

The Board must also set up an appointments and remuneration committee (Principle 11), comprising at least 3 board members, and holding at least one meeting every two months. The Chair of this committee must not be a member of any other board committee.

The committee will be responsible for supporting the Shareholders’ General Meeting in appointing directors, and the Board of Directors in appointing members of senior management. It must ensure that the remuneration policies for board members and senior management are transparent and suitably disclosed to shareholders. Similarly, among other competences, it will define the Board’s succession policy (or at least, that of its Chair) and that of senior management.

• Code of Conduct

The new Code requires companies to have a Code of Ethics & Conduct to which board members and members of senior management must adhere. The Board will be responsible for overseeing compliance with this code (Principle 7).

• Corporate Social Responsibility

Companies must align their mission and purpose with Corporate Social Responsibility (CSR). They will endeavour to play their part as good citizens and mitigate any adverse side effects their activities may have on the economy, the community at large or the environment in general.

The company’s Senior Management will be responsible for defining a strategy or annual plan laying down the company’s CSR philosophy, policies and principles.

The company’s annual report should contain a specific report on CSR activities carried out throughout the year, the expenditure on the same, and an impact study.

• Annual reports

Finally, Principle 14 of the Code specifies that  annual company reports should identify whether the actions of the Board, of board members and of senior management comply with corporate good governance principles, standards and good practice.

The content of the annual corporate governance report is defined in Appendix 3 of the Code. There are two other appendixes, one of them containing the minimum requirements for information that must be submitted to the Board (meeting minutes, quarterly Income Statements, regulatory compliance reports, risk exposure reports, etc) and another with professional standards that must be met by board members: professionalism, due diligence, integrity and legality, among others.