A comparative analysis of the UK’s and Saudi Arabia’s compliance with international corporate governance standards, with a particular focus on shareholder rights and conflicts of interest

Abstract

International corporate governance standards, particularly the G20/OECD Principles of Corporate Governance 2015 (OECD Principles), provide important guidance for legislators around the world to enhance the institutional, regulatory and legal regime for corporate governance and thereby promote financial stability, sustainable growth and economic efficiency. This research compares how the United Kingdom (UK) and the Kingdom of Saudi Arabia (KSA) comply with the voluntary OECD Principles, especially in respect of shareholder rights and conflict of interest. Corporate governance theories fall within two different paradigms - the shareholder primacy model and the stakeholder model - and the OECD Principles lean more towards the shareholder primacy model. As a result, shareholder rights play a pivotal role and are comprehensively addressed by the OECD Principles. The OECD Principles also discuss conflict of interest, albeit not in a dedicated chapter. Both the UK and KSA follow the Anglo-American shareholder primacy model. Although KSA has until recently not fully embraced the idea of market discipline which is a central feature of the shareholder primacy model, thereby possibly curtailing the efficiency rationale associated with the Anglo-American approach. Nonetheless, both the UK and KSA afford shareholders numerous rights to different degrees in accordance with the OECD Principles. However, intermediary institutions are often holding shares for beneficiaries, raising new questions for corporate governance scholars because this changes the underlying premise of the shareholder primacy model that shareholder ownership is dispersed. Furthermore, the UK and KSA have enacted statutory provisions which deal with the legal problem of conflict of

interest and their respective corporate governance code/regulations also address this topic. However, KSA could further align its Companies Law of 2016 with the Corporate Governance Regulations of 2021. KSA has also not yet taken any steps to prevent conflict of interest by institutional investors, contrary to what the OECD Principles suggest.