The Enforcement Of Corporate Governance Practices In Saudi Arabia: Is Arbitration The Way Forward?

Corporate governance has increasingly gained predominance globally following the enormous failure and consequent collapse of companies such as ‘Enron’; ‘WorldCom’; and most recently those that collapsed as a result of the 2007 – 08 financial crises and the ‘credit crunch’. Poor corporate governance has been attributed to the spread of corruption and fraud that resulted in the dramatic failures witnessed in the United States and Western Europe. As a result, significant interest has been expressed worldwide in efforts to establish and develop corporate governance principles and enforcement mechanisms that bolster investor confidence and protection. Enforcement mechanisms are dependent on a combination of factors and striking the right balance between public and private enforcement mechanisms is challenging. Specific interest was also expressed in determining whether corporate governance frameworks have evolved uniformly or ‘converged’ or if they have persisted against changing forces and retained their characteristics. In the context of Saudi Arabia, there is a dearth of research investigating the adequacy of corporate governance enforcement and its impact on investment and there is no research published that examines the possibility of arbitrating corporate governance disputes in the Shari’ah-ruled Kingdom in general and, particularly, those that came before its current legal system. The present study addresses this matter. Through an integrated framework using theoretical and doctrinal methods in combination with empirical methods, the first stage of the study set out to examine the enforcement of corporate governance practices and standards in Saudi Arabia, assess their adequacy and identify problems, if any. In achieving this end the study considered the sustainability of the Saudi business environment and the role of Islamic Shari’ah law on enforcement in light of Saudi Arabia being a Shari’ah-based jurisdiction. On the basis of the findings of the first stage, the second stage sought to investigate, through a comparative analysis, whether arbitration could be used effectively in determining corporate governance disputes, and if so what are the requirements for introducing such a mechanism of dispute resolution? Thus, the central aim of the research was to propose and recommend a new practical mechanism by which the enforcement of corporate governance standards and provisions in Saudi Arabia could be improved, that would facilitate access to legal compensation and that would strengthen the reputation of the enforcement regime. The study concludes with recommendations for reform and suggests possible areas for future research.