Below are highlights from ISS’ newly released 2021 Market IQ for United Arab Emirates. The full report is available to institutional subscribers by logging into ProxyExchange then selecting the Governance Exchange and its Report Center tab and to corporate subscribers by logging into Governance Analytics then selecting the Governance Exchange and the Report Center tab.
The UAE has been actively seeking to diversify its economy from crude oil to other sectors including tourism, construction, transportation, logistics and financial services.
In 2016, it sought to improve gender equality by requiring a minimum of 20 percent of board seats to be accorded to female candidates, according to UAE’s Securities and Commodities Authority (SCA). ISS Data of female board membership shows 14 percent of larger widely-held companies had at least one woman on the board in 2018 as compared to 18.6 percent in 2020 (the term “widely-held” refers to companies that ISS designates as such based on their membership in a major index and/or the number of ISS clients holding the securities).
The UAE has also updated its corporate governance guide, foreign ownership restriction and Companies Law to support its economic transformation.
2020 Corporate Governance Guide
The SCA issued a new corporate governance guide in February 2020 based on four key principles: accountability, equity, transparency and responsibility.
The key governance changes the new guide focuses on include:
- Replacing the minimum one-third of board independence with a majority independence requirement and expanding directors’ independence criteria to exclude directors selected for a fourth consecutive term;
- Providing investors transparency into a company’s organizing documents by requiring public companies to publish their bylaws and any amendments on the SCA’s website;
- Calling for publication of an annual integrated report to include board report, auditor report, annual financial data and their notes, governance report and Shariah Control Committee Report;
- Introducing the dual governance structure through which a public company may choose to apply a dual governance model for its management consisting of control and executive committees; and
- Submitting the corporate social responsibility policy to shareholder vote.
The 2020 governance guide also introduces new provisions requiring a power of attorney to be delivered for shareholder representation at general meetings. Listed companies are then required to appoint two representatives or more to attend general meetings to vote on behalf of shareholders. As the appointment of representatives must be ratified by shareholders, it has appeared on ballot at Emirati companies since the beginning of the 2021 proxy season.
Foreign Ownership Restriction
The Federal Decree-Law No. 26 of 2020 issued in Nov. 2020 provides that an onshore UAE company can be owned by foreigners up to 100 percent, provided that it does not carry out activities with a “strategic impact”. Local authorities of each relevant Emirate will have the right to fix local ownership and board participation threshold for companies established within the scope of their jurisdiction and to approve establishment applications and fees according to the Cabinet’s regulations. This will likely result in different foreign ownership restrictions between different Emirates.
2015 Companies Law Revision
The Federal Decree-Law No. 26 of 2020 requires companies to apply the provisions of the 2015 Companies Law revision within one year after the law goes into effect on Jan. 2, 2021.
The main provisions are the following:
- Invitations for general meetings should be sent at least 21 days ahead of the meeting, instead of the 15 days previously;
- General meetings may be held through modern communication methods and electronic voting to be implemented according to the authority’s directives;
- The authorized capital system has been removed. Companies will be required to seek shareholder approval of agenda items providing the board the authority to issue share capital for a maximum period of 3 years;
- Auditors’ term at a listed company may not exceed 6 years, instead of the 3-year limit previously in effect; and
- Shareholders holding a minimum of 10 percent of the company’s share capital can request the convocation of a general meeting, the previous minimum threshold being 20 percent.
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May Hosny, Associate, UAE Research, ISS Governance