Board of Directors under the Corporate Governance Regulations

Chapter Three: Board Composition, Independence, Term, and Responsibilities

First: Introduction

The Board of Directors is the governance hub in a joint-stock company. The Regulations dedicate the largest Chapter Three (Articles 10-30) to the details of its composition, powers, responsibilities, and meetings. This detailed attention reflects the Board’s central role: a balance between shareholders and executive management, guardian of strategic interests, and legally responsible for the company’s fate.

Recent amendments to the Regulations, especially 2023-2024, introduced substantive changes: increasing membership term from 3 to 4 years, transferring the authority to form the audit committee from the Assembly to the Board, mandatory training requirements, and strengthening independence requirements. These amendments reflect regulatory maturity and approach international best practices. This article reviews the full details of the Regulations’ requirements regarding the Board.

💡  Key Insight An effective Board of Directors is not a group of persons but an integrated system of competencies, independence, commitment, and powers. The Regulations do not deal with the Board as a formal structure but as a real governance mechanism, requiring a precise balance between different elements to achieve the desired effectiveness.

Second: Board Composition

1. Number of Members

1.1 Minimum and Maximum

• According to the company’s bylaws.
• Minimum: 3 members (Companies Law).
• Maximum: 11 members (Companies Law).
• Number appropriate to size and complexity.

1.2 Odd Number

Common practice:

• Odd number (5, 7, 9, 11).
• To avoid tied votes.
• In case of tie, Chair’s vote prevails.

2. Types of Members

2.1 Executive Member

Definition in the Regulations (Article 1):

• Member on the Board and in executive management.
• Full-time in executive work.
• Participates in daily activities.
• Receives executive salary.

2.2 Non-Executive Member

• Member only on the Board.
• Does not participate in daily management.
• Attends Board meetings.
• Receives only membership remuneration.

2.3 Independent Member

Strict definition in the Regulations:

• Non-executive member.
• Meets independence criteria.
• No financial or personal relationship affecting independence.
• Practices effective oversight role.

3. Mandatory Composition Ratios

3.1 Independent Members

Article (16) of the Regulations:

• Minimum: one-third of members.
• Or two independent members (whichever is more).
• Recommended practice: majority.
• In some sectors: higher requirements.

3.2 Non-Executive Members

• Majority of the Board.
• To ensure independent oversight.
• Balance with executives.

3.3 Executive Members

• Limited proportion.
• Often only the CEO.
• In some cases: other executive members.
• Balance with non-executives.

Category	Minimum	Recommended	Focus
Independent	One-third (or 2)	Majority	Independent oversight
Non-executive	Majority	Comfortable majority	Balance
Executive	Limited	1 (CEO)	Link to management

Third: Independence Criteria

1. Official Definition

Article (20) of the Regulations precisely specifies:

“Independent member: a non-executive member who enjoys complete independence in his position and decisions, with nothing preventing his independence.”

2. Situations Negating Independence

The Regulations precisely specify what negates independence:

2.1 Functional Relationships

• Previous work as executive in the company (during the past two years).
• Work in a subsidiary, sister, or parent company.
• Work in the auditing company (in the past two years).
• Relationship with the external auditor.

2.2 Financial Relationships

• Ownership of 5% or more of company shares.
• Significant financial relationships with the company.
• Large commercial transactions in previous years.
• Relationship with major shareholders.

2.3 Personal Relationships

• First or second degree relationship with:
• – Board members.
• – Executive management.
• – Major shareholders.

2.4 Temporal Relationships

• Board membership for more than 9 consecutive years.
• After 9 years, independence is negated.
• To prevent identification.
• To ensure renewal of perspective.

3. Definition of “Relatives”

The Regulations expand the definition of relatives to apply independence criteria:

• Spouse.
• Father and mother.
• Children.
• Brothers and sisters.
• Grandparents.
• In 2021 and 2023 amendments: expansion of the definition.

4. Disclosure of Independence

4.1 Annual Declaration

Every independent member submits:

• Annual declaration meeting independence criteria.
• Disclosing any change.
• Declaration signed and certified.

4.2 Committee Review

• Nominations and Remuneration Committee reviews.
• Verifying declarations.
• Reporting to the Board.
• Disclosure in the annual report.

⚠️  Caution Independence is not just a declaration but a practice. A member who claims independence but always votes with management, avoids difficult questions, or avoids disagreement is not actually independent. Real independence appears in voting against bad proposals, raising difficult questions, and maintaining an independent viewpoint even under pressure.

Fourth: Membership Conditions

1. General Conditions

1.1 Eligibility

• Age not less than 18.
• Full civil capacity.
• Good conduct and behavior.
• Not convicted of crimes affecting honor.

1.2 Competency

• Appropriate practical experience.
• Knowledge of company field (recommended).
• Ability to contribute.
• Sufficient time.

1.3 Professional Record

• Not previously dismissed from a company due to mismanagement.
• Not a bankrupt without rehabilitation.
• Not convicted of fraudulent bankruptcy.

2. Diverse Composition

2.1 Skills Diversity

The Board needs diverse experiences:

• Financial and accounting.
• Legal.
• Strategic.
• Operational.
• Technical (depending on sector).
• Marketing and relations.

2.2 Background Diversity

• Multiple professional.
• Different industries.
• International and regional.

2.3 Gender Diversity

Global and regional trend:

• Encouraging women’s representation.
• Disclosure of diversity policy.
• Specific goals (in some companies).

3. Professional Qualifications

3.1 Recommended Experience

• Previous leadership experience.
• Membership on other boards.
• Governance certifications (such as CGI, GIA).

3.2 Limits

• A member may not be on more than 5 listed joint-stock companies.
• To ensure focus.
• For time availability.

Fifth: Membership Duration

1. Specified Duration

1.1 Recent Amendment

2024 amendments (new Companies Law + Regulations):

• Current duration: 4 years.
• Increase from 3 years previously.
• Effective from 1/1/2024G.
• To provide greater stability.

1.2 Possibility of Re-election

• No limit on number of terms (for non-independent members).
• For independent members: 9 consecutive years constraint.
• Renewal is not automatic.
• Requires Assembly vote.

2. Renewal

• In the General Assembly.
• By nomination from the Nominations Committee.
• With announced criteria.
• After performance evaluation.

3. Succession

3.1 Succession Plan

Nominations Committee is responsible for:

• Succession plan for board members.
• Identifying required competencies.
• Building candidate database.
• Preparing for future changes.

3.2 CEO Succession

• Separate plan.
• Under Board supervision.
• Identifying alternatives.
• Continuous development.

Sixth: End of Membership

1. Natural Reasons

• End of term without renewal.
• Voluntary resignation.
• Death.
• Reaching retirement age (if any).

2. Dismissal

2.1 By the Assembly

• By Assembly resolution.
• With required majority.
• At any time.
• With or without cause.

2.2 Automatic Loss

A member automatically loses membership in cases of:

• Conviction of a crime affecting honor.
• Declaration of bankruptcy.
• Loss of capacity.
• Absence from 3 consecutive sessions without excuse.

3. Vacancies

3.1 Procedures

Upon seat vacancy:

• Board may appoint temporary replacement.
• Until Assembly convenes.
• Assembly ratifies or appoints another.

3.2 Limits

• If more than a quarter of seats become vacant.
• Assembly must be called immediately.
• For complete election.

Seventh: Board Powers and Responsibilities

1. Core Powers

1.1 Strategic Oversight

• Approving strategy.
• Monitoring implementation.
• Reviewing plans.
• Approving the budget.

1.2 Oversight of Management

• Appointing the CEO.
• Approving remuneration policy.
• Performance evaluation.
• Dismissal when necessary.

1.3 Financial Oversight

• Approving financial statements.
• Profit distribution policy.
• Approving budget.
• Monitoring financial performance.

1.4 Governance Oversight

• Applying Governance Regulations.
• Approving policies.
• Overseeing committees.
• Evaluating the Board.

1.5 Risk Oversight

• Approving risk management framework.
• Defining risk appetite.
• Monitoring material risks.
• Periodic reports.

2. Legal Responsibilities

2.1 Duty of Care

• Reasonable diligence in decisions.
• Reviewing necessary information.
• Consulting specialists.
• Complete understanding before decision.

2.2 Duty of Loyalty

• Prioritizing company interest over personal interest.
• Avoiding conflicts of interest.
• Disclosing interests.
• Refraining from exploiting opportunities.

2.3 Duty of Competency

• Possessing necessary knowledge.
• Preparing before meetings.
• Effective participation.
• Continuous development.

3. Responsibilities Toward Stakeholders

• Shareholders.
• Employees.
• Customers and suppliers.
• Regulatory authorities.
• Society and the environment.

Eighth: Board Meetings

1. Frequency

1.1 Minimum

• At least two meetings per year.
• Recommended practice: quarterly (at least 4).
• In large companies: monthly.

1.2 Emergency Meetings

• As needed.
• At Chair’s request.
• At one-third of members’ request.

2. Invitation

• Before the meeting by a reasonable period.
• With the agenda.
• And documents.
• By means specified in the bylaws.

3. Quorum

3.1 Minimum

• At least half of the members (Companies Law).
• Provided not less than 3.

3.2 Decisions

• By simple majority (generally).
• In case of tied votes, Chair’s vote prevails.
• Some decisions require strengthened majority.

4. Decisions by Circulation

4.1 Permission

• For urgent decisions.
• Under specified conditions.
• Approval of all members.

4.2 Presentation

• In the next meeting for ratification.
• For documentation.

5. Electronic Meetings

5.1 Permission

2023 amendments:

• Electronic meetings permitted.
• If permitted by bylaws.
• Under conditions of security and participation.

5.2 Requirements

• Ensuring full participation.
• Identity verification.
• Appropriate documentation.
• Cybersecurity.

Ninth: Chairman of the Board

1. Election

• From among members.
• By Board resolution.
• By majority of members.
• For period similar to his membership.

2. Separation Between Chairman and CEO Roles

2.1 The Requirement

Article (24) of the Regulations:

• Combining Chairman position with any executive position is not permitted.
• Including delegated membership and CEO.
• Mandatory.
• To ensure separation between oversight and execution.

2.2 Reasons

• Oversight independence.
• Avoiding excessive concentration.
• Balance.
• International best practices.

3. Chairman’s Responsibilities

• Leading the Board.
• Organizing meetings.
• Ensuring Board effectiveness.
• Communicating with shareholders.
• Ensuring effective participation of all members.

Tenth: Board Secretary

1. The Requirement

Article (26) of the Regulations:

• The company must appoint a Board secretary.
• By Board resolution.
• With specified qualifications.
• Mandatory.

2. Qualifications

• Appropriate university degree.
• Accounting, legal, or administrative experience.
• At least three years’ experience.
• Appropriate competency.

3. Responsibilities

3.1 Meeting Management

• Preparing the agenda.
• Distributing documents.
• Meeting notification.
• Quorum monitoring.

3.2 Documentation

• Preparing meeting minutes.
• Keeping records.
• Documenting resolutions.
• Communicating about them.

3.3 Governance

• Monitoring compliance with the Regulations.
• Coordinating with committees.
• Communicating with regulatory authorities.
• Disclosures.

Eleventh: Member Training

1. Training Requirements

1.1 New Amendments (2024)

Article (37) — became binding:

• Training mandatory for board members.
• For committee members.
• For executive management.
• Periodically.

1.2 Training Content

• Companies Law and Governance Regulations.
• Sector-related regulations.
• Cybersecurity.
• Strategy and planning.
• Risk management.
• International trends.

2. Initial Qualification (Onboarding)

2.1 For New Members

• Comprehensive qualification program.
• Knowledge of the company and its activities.
• Meetings with management.
• Reviewing documents.

2.2 Duration

• From a few days to weeks.
• Depending on size and complexity.

3. Continuous Development

3.1 Accredited Programs

• Certified Governance Institute.
• International training institutions (ICSA, INSEAD).
• Sector-specific programs.

3.2 Disclosure

• In the annual report.
• Training hours.
• Topics covered.
• Continuous development.

Twelfth: Board Performance Evaluation

1. Annual Evaluation

1.1 Mandatoriness

Article (41) of the Regulations:

• Annual evaluation of Board performance.
• Of member performance.
• Of committee performance.
• By specified methods.

1.2 Dimensions

• Board composition.
• Meeting effectiveness.
• Decision quality.
• Board’s relationship with management.
• Governance compliance.

2. Self-Evaluation

• Member questionnaires.
• Internal discussions.
• Reviews.
• Improvement recommendations.

3. External Evaluation

3.1 Recommended

• At least every 3 years.
• By an independent party.
• For objectivity.
• To overcome bias.

3.2 Specialized Bodies

• Spencer Stuart.
• Egon Zehnder.
• Heidrick & Struggles.
• Specialized institutes.

Thirteenth: Common Challenges

1. “Formal Independence” Challenge

Members claim independence but are not so:

• Solution: rigorous application of Regulations’ criteria.
• Periodic review.
• Culture of real independence.

2. “Low Meeting Frequency” Challenge

Very few meetings:

• Solution: applying the recommended (quarterly).
• Strategic meetings in addition.
• Electronic meetings for speed.

3. “Limited Expertise” Challenge

Scarcity of qualified members:

• Solution: continuous qualification.
• Governance institutes.
• International recruitment.

4. “Applying Amendments” Challenge

Many amendments:

• Solution: periodic follow-up.
• Updating policies.
• Training on new developments.

Fourteenth: Best Practices

1. At the Composition Level

• Independence: majority, not just the minimum.
• Diversity: skills, backgrounds, gender.
• Competency: real, not formal.
• Succession: planned.

2. At the Effectiveness Level

• Meetings: regular and effective.
• Preparation: complete.
• Participation: active.
• Decisions: considered.

3. At the Compliance Level

• Regulations: fully.
• Updates: kept pace with.
• Disclosure: comprehensive.
• Evaluation: honest.

4. At the Culture Level

• Constructive discussion: encouraged.
• Healthy disagreement: accepted.
• Respect: mutual.
• Continuous development: ongoing.

Conclusion

The Board of Directors under the Corporate Governance Regulations is not just an administrative structure but a real governance mechanism, requiring a precise balance between independence and competency, between oversight and leadership, between legal responsibility and added value. Recent amendments to the Regulations, especially 2023-2024, have raised Board standards to levels that intersect with international best practices, from increasing membership term to mandatory training to strengthening independence.

Leading Saudi companies no longer view Board formation as a regulatory procedure, but as a strategic decision determining the company’s future. Selecting members, balancing independence, diversifying skills, meeting effectiveness — all this makes the difference between an effective board adding value and a formal board consuming resources. With the ongoing Governance Regulations development initiative through 2026, the future portends higher requirements and greater opportunities for advanced boards. Companies that invest today in building a strong board reap the fruits tomorrow, in the form of better decisions, stronger governance, and deeper investor trust.

🎯  Essential Points to Remember (1) Board composition: 3-11 members, odd, mix of executives, non-executives, and independents. (2) Independence: at least one-third, majority recommended, strict criteria. (3) Criteria negating independence: functional, financial, personal, temporal (9 years). (4) Membership term: 4 years (since 2024), re-election possible. (5) Mandatory separation between Chairman and CEO positions. (6) Board secretary mandatory with specified qualifications. (7) Training mandatory (since 2024) for members and management. (8) Annual board evaluation, external every 3 years. (9) Meetings: at least 2 annually, practice 4 quarterly, electronic permitted. (10) Responsibilities: duty of care, duty of loyalty, duty of competency.

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FAQS

What is the minimum and maximum number of board members under the Companies Law?

A board must have at least 3 members and no more than 11, with the actual number determined by the company's bylaws based on its size and complexity, and an odd number is commonly preferred to avoid tied votes.

What are the mandatory composition ratios for independent and non-executive members?

Independent members must constitute at least one-third of the board or two members, whichever is greater, while non-executive members must form a majority of the board to ensure independent oversight and balance against executive members.

What situations negate a board member's independence under Article 20?

Independence is negated by functional relationships (such as prior executive work in the company within the past two years), financial relationships (such as owning 5% or more of company shares), personal relationships within the first or second degree with board members or executives, and temporal relationships (board membership exceeding 9 consecutive years).

References and Sources

• Corporate Governance Regulations — Chapter Three (Articles 10-30).
• Amendments to Governance Regulations 2023-2024.
• Saudi Companies Law (M/132) — Board Provisions.
• Implementing Regulations of the Companies Law.
• OECD Principles of Corporate Governance — Board Responsibilities.
• Spencer Stuart — Board Composition Study.
• Egon Zehnder — Board Effectiveness Review.
• ICSA / Chartered Governance Institute — Board Best Practices.
• NACD — Board Director Guidelines.
• Certified Governance Institute — Board Member Qualification Programs.