The Board of Directors constitutes the cornerstone of the corporate governance framework in any company. Its members bear the primary responsibility for steering the company’s activities, formulating its policies, and overseeing its performance to ensure the achievement of strategic objectives in accordance with applicable laws and regulations.

In the Kingdom of Saudi Arabia, the Companies Law issued by the Ministry of Commerce and the Capital Market Authority places significant emphasis on the role of board members by defining their powers, responsibilities, and appointment requirements, thereby promoting transparency, accountability, and sustainability in the business environment.

Given the importance of this topic, this article outlines the mechanism for appointing board members in both listed and non-listed joint stock companies, as stipulated in the Saudi Companies Law and the Corporate Governance Regulations.

Legal Framework for Board Composition

The Companies Law stipulates that the number of board members in non-listed joint stock companies must range between three and eleven members, whereas listed companies must have a minimum of three members with no specified maximum, provided the number is always odd to avoid tie votes during decision-making processes.

Each shareholder has the right to nominate themselves or another qualified individual for board membership in proportion to their ownership in the company’s capital. Board members are elected by the Ordinary General Assembly for a term not exceeding four years, with the possibility of re-election. In non-listed companies, the Ministry must be notified of the names and titles of the board members within ten days of the commencement of their term or any changes thereafter.

To ensure the effective functioning of the board, the Implementing Regulations for Corporate Governance of Non-Listed Companies, although non-binding, provide advisory guidelines. These include a recommendation that no individual serve as a board member in more than ten companies simultaneously. The composition of the board should also align with the size and nature of the company’s activities.

Governance Requirements for Listed Companies

For listed companies, the mandatory Corporate Governance Regulations require that the composition of the board reflect the size and nature of the company’s operations. The board must include a majority of non-executive members and at least two independent directors or one-third of the board—whichever is greater. Additionally, a board member may not hold directorships in more than five listed companies simultaneously.

Listed companies must notify the Capital Market Authority (CMA) of the names and membership statuses of board members within five business days from the start of their term or any subsequent changes.

Board Membership Qualifications

The mandatory Corporate Governance Regulations for listed companies also specify key eligibility criteria for board members. We recommend applying these criteria even in non-listed companies, as they represent sound governance principles beneficial to companies of all sizes and across all sectors. These qualifications are as follows:

1.         Leadership ability – to guide the company towards best motivational and managerial practices.

2.         Scientific and professional competence – including relevant academic qualifications and industry-specific experience.

3.         Strategic thinking and decision-making – with the ability to plan effectively and maintain a forward-looking vision.

4.         Financial literacy – to evaluate the company’s financial performance and analyze data efficiently.

5.         Good health – ensuring the board member can carry out their duties effectively and sustainably.

 

Conclusion

In conclusion, the process of appointing board members in Saudi joint stock companies goes far beyond the simple selection of individuals for leadership roles. It is a fundamental component in building an effective governance system that ensures transparency, sustainability, and the protection of stakeholder interests. Implementing professional and institutional appointment practices empowers companies to meet challenges, achieve strategic goals, and align with Saudi Arabia’s Vision 2030 for a globally competitive private sector.

Prepared by:
Attorney Youssef Ibrahim Al-Ahmad