Oman’s new governance principles for closed joint stock companies

Oman has taken significant steps in strengthening the corporate governance of its Closed Joint Stock Companies (SAOCs) under Ministerial Decision No. 5/2025 issued by the Ministry of Commerce, Industry, and Investment Promotion (MOCIIP).

The Principles of Governance (the Code), effective from 14 January 2025, aims to implement a strict governance regime similar to what is applicable to Omani Public Joint Companies (SAOGs). The Code requires most SAOCs to amend their statutes to adapt to its provisions within 1 year of its effective date.

This article considers some of the key takeaways arising from the Code and highlights the implications that it will have on governance structures for SAOCs.

Board Formation and Composition

The Code sets forth a robust framework which companies can utilise to form their boards. It specifies that the board shall be formed by an odd number of members (between 3 to 11), who have the competence and experience to perform well in their role and meet specified membership requirements.

The composition of the board should be such that:

• the Chairman and Vice-Chairman seats are separate from the CEO
• at least one-third of the members are non-executive members (i.e. are not company employees)
• between 2 to 7 members are independent from the company

There is an overlap between independent and non-executive directors, as all independent directors are by definition non-executive. However, not all non-executive directors are considered independent since some may have prior affiliations with the company or may be appointed to represent significant shareholders, which can affect their independence.

It also specifies that the company should make an announcement, at least 14 days before the general assembly meeting, inviting those who wish to nominate themselves as independent members of the board.

A legal consultant shall be responsible for reviewing and approving the candidacy forms after ensuring that such forms satisfy the appointment conditions and that the election is conducted in line with relevant statutes.

The Code also requires the company to implement necessary procedures to ensure that the nomination process for membership on the board remains transparent.

Key Members

The decision also specifies the key members involved in exercising governance within the company.

1. The Chairman: The Chairman is the leader of the board of directors and is the primary agent who ensures that the firm performs its duties to its shareholders. The Code sets out strict guidelines for the appointment of the Chairman, requiring that he/she have high leadership skills that qualify him/her to manage the board in harmony while exercising strong governance.
2. Independent Members: An independent member is one who does not have any material, economic or financial interest in the company and its subsidiaries, and is not a member of a company engaged in similar/competing activities to this company.  Independent members play an important role in board meetings by providing objective independent opinions that enable them to make decisions that serve the best interests of the company.
3. The Secretary: The secretary is an individual elected by the board who is experienced and qualified in law, accounting, audit, or corporate secretariat, and has at least 3 years of management experience.  The secretary is primarily tasked with preparing, documenting, and following up on board minutes and decisions, organising its meetings, and coordinating with the legal consultants and auditors to ensure the fulfilment of the tasks.
4. Executive Management: The management (including the CEO) are responsible for running the day-to-day activities of the company, implementing the company’s objectives, and informing the board of the risks and difficulties encountered by the company.  The management are required not to disclose any confidential information and are held accountable to the board for all their actions.

Conduct of Board Meetings

The Code also specifies conditions regarding how often board meetings must be held, stating that:

• at least 4 meetings per year shall be held, with the interval between any 2 meetings not exceeding 120 days
• the agenda of the periodic meeting shall be sent to all board members at least 7 working days prior to the date of the meeting
• the agenda of urgent meetings shall be sent to all board members at least 3 working days prior to the date of the meeting, unless the Chairman of the board decides, due to extreme urgency, to hold the meeting within 24 hours

If the above conditions are not met, and the meeting is not postponed until the required information is provided, the board members may refrain from voting on this matter, with their reasons being recorded in the meeting minutes.

The Code also gives the board freedom to conduct its meetings digitally through modern means (provided the secretary can see/ hear all members, and a copy of the meeting recording is retained), and enables the approval of decisions through circulation (except for any decision relating to the approval of the audited financial statements).

Powers of the Board of Directors

The Code states that the board is ultimately responsible for determining and implementing the future vision of the company, developing the necessary policies to achieve the vision, and verifying the effectiveness of existing internal systems in all divisions of the company.

It is also responsible for appointing, training, and monitoring board members and the executive management, delegating authority to them across various levels.

Finally, the Code explicitly provides mentions that no member of the board may make any declarations without prior written permission from the board or its Chairman.

Monitoring Board Performance

The Code strongly requires that the board establishes a mechanism to monitor the performance of its members in their compliance in various areas including the code of professional conduct and discipline in attending meetings. It also requires that strict accountability procedures are established in case of non-compliance.

The Code specifically mentions that the board members shall be held liable for their decisions during their tenure, requiring that the members, individually and jointly, act with due diligence in addressing the matters presented to them. It also states that the board shall undergo a performance assessment (based on the criteria established by the Minister of MOCIIP) at least once during each session.

Audit and Risk Management Committees

The Code enables the board to form specialised committees from among its members.

The audit and risk management committee oversees the internal audit activities of the company, ensures the suitability and effectiveness of the internal control systems, recommends the appointment of external auditors, and acts as a communication channel between the board, external auditors, and internal auditors.

When forming the committee, the company needs to ensure that there are at least 3 members, the majority being non-executives and at least 1 member being experienced in finance and accounting. The chair shall be from among the independent members and shall not be combined with the Chairman of the board (unless the risk management and audit committees are independent of each other).

The Code requires that the committee meet with external and internal auditors separately, without the presence of management, at least once per year, to consult with them to enhance the company’s governance and compliance levels.

The Code also sets out guidelines for the appointment of external auditors, stating that the annual general assembly shall appoint an external auditor for 1 financial year, which is renewable for similar periods of up to 4 financial years in total, after which the same auditor can be reappointed only after 1 financial year.

The Code also expressly forbids the appointed auditor from engaging in non-audit activities that may affect its impartiality or independence.

Professional Conduct Principles

The Code requires the board to publish principles of professional conduct and ethics. These principles should require members to possess sufficient knowledge and professionalism to perform their duties, to act with due diligence, integrity, honesty, and independence in decision making, to participate in all board meetings, and to avoid any conflict of interest in all activities related to the company.

The Code states that the board should ensure that the principles of conduct are made available to the members of the board, the executive management, and all employees of the Company, and requires the board to monitor their compliance with the principles.

Treatment of Other Shareholders

The Code also emphasizes the clear definition of the shareholders’ rights, requiring the company to specify the way for shareholders, even minority ones, to protect and exercise these rights. It requires the company to establish sufficient mechanisms to enable them to safely express their views regarding the company’s activities.

Related Party Transactions

The Code introduces the rigorous inspection and disclosure of related party transactions (according to the IFRS accounting standards), requiring the audit and risk management committee to review all such transactions and submit recommendations regarding them to the board.

It also requires the company to disclose any rights and benefits granted to those related parties that may affect the integrity of the company’s decision-making.

Social Responsibility

Finally, the Code provides guidelines for the company to meet its social responsibility requirements. It requires that the board approve the company’s social responsibility policies in line with the best international practices and Government approaches, and that the management develop a strategy or annual plan to implement the policy.

The plan, at a minimum, should include the allocated budget, the available means of support, the values that the company seeks to spread through the policy, and the social segments targeted by the company. The company is also required to disclose in its annual report the activities undertaken, the amount spent, and its measured impact and sustainability.

Government Companies

The Code also states that its provisions are applicable only to those SAOCs in which the Government holds no shares.

Conclusion

The Code represents a significant step forward in strengthening corporate governance and managerial efficiency for SAOCs.

By aligning with international standards, the Code provides SAOCs with the necessary productivity, resilience, and accountability to thrive in the increasingly competitive Middle Eastern markets while greatly improving Oman’s attractiveness to foreign investors.

This article was prepared with the assistance of Anirudh Sanjay, an intern in CMS Oman.

For further guidance on how the Code may impact your SAOC, please reach out to our legal team for tailored advice and support.