AN ANALYSIS OF THE EFFECTIVE ROLE OF INSTITUTIONAL INVESTORS AND THEIR EFFECT ON CORPORATE GOVERNANCE IN SAUDI ARABIA.
Abstract
The corporate governance framework in the Kingdom of Saudi Arabia has been the subject of research. For a long time, the country did not have any formal mechanisms in place to regulate corporate governance. However, over the last few decades, the government, along with other government agencies, have made numerous changes that have put in place a strong legal framework that seeks to protect investors, with the aim of increasing the country’s attractiveness to foreign investors. This study attempts to establish if there exists a link between the growing participation of institutional investors in the Saudi Arabia capital market and its corporate governance regime. An analysis of published literature reveals that institutional investors have the capacity to influence the development of capital governance through their role as monitors, company owners, and through their activism activities. Further, the review identifies elements of western models of corporate governance, such as shareholders, stakeholders, board of governs, and other principles such as transparency, accountability and independence, all of which are now ingrained in Saudi Arabia’s corporate laws. Despite this, there is still a divergence between this western conceptualization of governance with Islamic values, norms and ethics. This study proposes that harmony can be attained by abandoning the anti-Muslim pursuit of individual wealth, in the form of shareholder/stakeholder interests in support of an Islamic model of governance that combines the preferred Western feature with the principles and ethics of Islam