SAUDI ARABIA: An Introduction

Legal Vulnerability in Corporate Leadership: Addressing the Risks Faced by Registered Managers in Saudi Arabia Through Arbitration

Registered Managers play a key role in overseeing operations and ensuring adherence to regulatory requirements, per the Commercial Register. Whilst this role and its significant responsibilities are integral to corporate stability, the regulatory framework governing managerial transitions and accountability can benefit from further enhancements to align with international best practices. This article will briefly explore the role of Registered Managers, key regulatory considerations, and the opportunity to optimise corporate leadership in the Kingdom of Saudi Arabia.

Corporate Governance and the Responsibilities of Registered Managers in Saudi Arabia

The regulatory framework in Saudi Arabia is designed to ensure that Registered Managers maintain high corporate governance standards, fostering accountability and compliance across all aspects of business operations. Their core roles and responsibilities include the following.

Ensuring corporate compliance

• Adherence to business regulations – Registered Managers can foster trust and confidence among investors and regulatory authorities, ultimately contributing to the long-term success and stability of the business by ensuring compliance with relevant laws and regulations.
• Maintaining corporate governance standards – Registered Managers are required to ensure alignment with the requirements and regulations set by key government entities, such as the Zakat, Tax and Customs Authority (ZATCA), Capital Market Authority (CMA) and Ministry of Commerce.
• Facilitating regulatory filings – Registered Managers are tasked with managing the submission of essential regulatory filings, such as financial statements and tax documentation, ensuring that businesses meet their statutory obligations. For example, a Registered Manager who fails to properly submit a tax return with 30 days of the deadline risks significant financial fines, which include a penalty up to 25% of the tax that should have been declared.

Overseeing business stability and leadership transitions

• Acting as key decision-makers – during periods of organisational change, including restructuring and financial adjustments, Registered Managers play a critical role in guiding the company through these transitions, ensuring business stability and continuity.
• Collaborating with shareholders – Registered Managers must work closely with shareholders, fostering a collaborative approach to leadership transitions and other significant events in order to ensure the consistent application of corporate governance principles.

Supporting investor and regulatory confidence

• Enhancing corporate credibility – Registered Managers should strengthen the credibility and reputation of their organisations upholding high standards of corporate governance, reflecting Saudi Arabia’s ongoing commitment to promoting business transparency and fostering a robust investment climate.

Navigating Regulatory and Legal Challenges for Registered Managers

Tied to these significant duties and responsibilities, Registered Managers face legal burdens and complex off-boarding requirements which can hinder their ability to transition roles efficiently, such as the following.

• Dependency on replacements – a new Registered Manager must be sourced and appointed before the outgoing manager can be removed from the commercial register. Failure to properly manage this transition can lead to delays in the transition process, particularly if there are ongoing disputes between the outgoing manager and shareholders.
• Personal liability risks – in certain instances, where a company faces financial distress, Registered Managers can be held responsible for overseeing operations and compliance during this difficult period, which can prolong their involvement with the company, expose them to potential liabilities, and cause them to miss out on new opportunities elsewhere.
• Maintaining commercial register – this can prove to be a significant hurdle for Registered Managers, particularly if a company is facing an internal dispute between the heirs, over the ownership structure. Registered Managers are held accountable for maintaining the validity of the commercial register. This obligation will further complicate and delay the off-boarding process.

These current arrangements risk stunting the growth of the managers, businesses and the wider organisation, potentially escalating into lengthy litigation battles. To effectively address these challenges, it is essential to establish robust dispute resolution mechanisms that facilitate efficient navigation through critical aspects such as corporate transitions, regulatory fines, compliance adjustments, compensation structures and managerial accountability.

Enhancing Managerial Mobility and Transitions

As part of Saudi Arabia’s continuous regulatory reform, refining mechanisms that facilitate smooth transitions for Registered Managers will drastically enhance business efficiency and governance. There are mutually beneficial options which can be implemented to optimise these processes whilst maintaining corporate compliance obligations, this includes the following.

• Developing arbitration and mediation frameworks – to ensure seamless resolutions during corporate transitions, it is crucial to expand and refine the current arbitration and mediation systems in place. This could involve creating specialised panels or establishing dedicated forums focused on corporate transition-related disputes.
• Establishing appeal mechanisms – instituting fair and transparent appeal processes, for both businesses and Registered Managers to navigate potential administrative or procedural complexities more effectively. This will ensure that the resolution process is both equitable and efficient.
• Promoting dialogue and negotiation – encouraging the use of structured negotiation processes to tackle leadership changes and other corporate transition issues can help to foster a more collaborative and efficient approach to resolving conflicts.
• Implementing structured compliance advisory support – providing guidance and support on best practices through a well-structured advisory system can empower businesses and Registered Managers to maintain compliance while effectively managing regulatory changes and adjustments.
• Expanding corporate policies – further align business leadership transition policies with international best practices, ensuring managerial mobility while safeguarding corporate obligations.
• Increasing the transparency of compensation structures – ensuring that compensation packages for managers involved in corporate transitions align with industry best practices can help to mitigate disputes and foster a culture of fairness and trust.
• Strengthening corporate governance safeguards – fortifying corporate governance mechanisms, businesses can achieve a balance between managerial accountability and regulatory efficiency. This will contribute to a more stable and sustainable business environment.

By refining mechanisms for managerial mobility, optimising corporate governance transitions and strengthening dispute resolution frameworks, the Kingdom reinforces its commitment to a dynamic and investor-friendly market in line with Vision 2030. This will enable Registered Managers to focus their efforts on supporting business growth, investment confidence, and corporate stability in Saudi Arabia’s evolving economic landscape.