Friday, May 29, 2009

Focus On: Corporate Governance

There is widespread confusion in Oman about the applicable standards for companies with respect to transparency and conflicts of interest. A conflict of interest arises when a person has an interest that may compromise his reliability. For example, if company A is negotiating a contract with company B, and a director of Company A has a close relative working at Company B, this would be a conflict of interest. The director has a duty to act in the interests of his company, but he has a personal interest that may conflict with that duty. Even if there is no improper result, conflicts of interest can sometimes give the appearance of impropriety. For this reason, the government of Oman has issued several regulations related to conflicts of interest, or related party transactions, as they are also known.

In Oman, there are different laws and regulations applicable to different company structures. Specifically, there are different requirements for publicly traded companies (SAOGs), closely held companies (SAOCs), and limited liability companies (LLCs).

For SAOGs, Article 108 of the Commercial Companies Law states that members of the board or related parties shall not have any direct or indirect interest in the transactions or contracts concluded in respect of the company except when such transactions or contracts are in accordance with the regulations issued by the Capital Market Authority.
The Capital Market Authority has issued the Code of Corporate Governance (Circular 11/02) which defines related party transactions and the disclosure rules that apply to such transactions and contracts.

For SAOCs, the applicable rule is provided in Ministerial Decision 92 of 2003 titled “Rules regulating the Election of Board of Directors and the liabilities of Board Members”. These rules state that the Ministry of Commerce & Industry shall investigate violations that undermine the rights of shareholders in a closed joint stock company that are committed by members of the board of directors.

Sometimes, corporations operating in Oman are concerned about which standard applies, and particularly whether they need to comply with the Code of Corporate Governance. In some instances, there have been attempts to force SAOCs to comply with the Code. The Code of Corporate Governance only applies to SAOGs in Oman. SAOCs do not fall under the requirements of the Code of Corporate Governance because they are not publicly listed. Similarly, LLCs are not subject to the requirements of the Code of Corporate Governance.