On March 14, 2021 and February 13, 2022, the board of the UAE’s Securities and Commodities Authority (“SCA”) held meetings in which it amended some provisions of the Guide to the Governance of Public Joint-Stock Companies. Some of the changes related to key governance and ESG issues, namely the representation of women on Public Joint Stock Companies’ (“PJSCs”) boards, the appointment of shareholder representatives to attend general meetings, and the ratio of independent members on PJSCs boards.

Women on PJSCs boards

Gender diversity requirements have been reduced, but are now mandatory rather than voluntary. Previously, in order to promote diversity in the UAE, Articles 9(3) and (4) of the Chairman of SCA Board Decision no. (3/Chairman) of 2020 Concerning Approval of Joint Stock Companies Governance Guide (the Governance Code) stipulated that a minimum 20% of directors on the board of a PJSC should be women. Further, a PJSC was required to disclose the percentage of women on the board in its annual governance report and set policies on gender diversity, including specific objectives and actions to meet these objectives. While compliance with all of the obligations of the Governance Code is mandatory, exceptionally, compliance with Article 9(3) of the Governance Code was on a “comply or explain” basis whereby non-compliance was acceptable as long as this was reasonably explained in the company’s annual governance report.

Going forward, pursuant to the issuance of Chairman of SCA Board Decision no. (8/Chairman) of 2021 concerning amendment to the Governance Guide, the minimum gender diversity requirement for PJSCs has been reduced from 20% of the board to at least one woman; however, this requirement is now mandatory, rather than applying on a comply-or-explain basis. As such, a “reasonable explanation” will no longer be acceptable in lieu of compliance.

Local PJSCs listed on the ADX or DFM were required to comply as soon as possible with the minimum board gender diversity requirement to avoid the imposition of any of the penalties for breaches under Article 82 of the Governance Code. The amendment to the Governance Code came into effect on April 1, 2021.

Appointment of shareholder representatives to attend general meetings

Through the issuance of Chairman of SCA Board Decision no. (6/Chairman) of 2022, Article 40(4) of the Governance Code was amended so that the appointment of a representative to attend general meetings on behalf of shareholders of PJSCs has become optional, not mandatory.

According to the ADX and DFM, the actual implementation of the provision mandating the appointment of a shareholder representative to attend and electronically vote at general meetings demonstrated the importance of elaborating further on this provision in light of the increasing usage of electronic voting. An SCA poll, targeting a sample of shareholders, also produced the same result.

Ratio of independent members on PJSCs boards

Under the same Decision no. (6/Chairman) of 2022, Article 9(5) of the Governance Code was amended to reduce the required ratio of independent members on boards from a majority of independent members, to one-third. Decision no. (6/Chairman) of 2022 was issued on February 24, 2022 and came into effect on February 28, 2022.

The SCA has not provided a rationale behind this amendment, however, it stated that the changes were made to enhance the performance of, and investment in, the country’s financial markets while underpinning its legislative structure to match international best practices.

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Glass Lewis continually monitors regulatory developments across the globe so that our clients stay up to date on emerging best practices and local market expectations for gender diversity, shareholder representation, board independence, and other key governance and ESG topics. Get in touch to learn more about how Glass Lewis can help you meet your proxy voting and stewardship obligations in hundreds of markets around the world.