System Tried Companies in Saudi Arabia - Research Paper Example

Writing Tried Companies in Saudi Arabia Customer’s Name Customer’s Grade Course Customer Tutor’s Name 19th August, 2010 System tried companies in Saudi Arabia Responsibilities of members of board in joint stock companies Outline of the Study This study aims at analyzing the roles played by the board of directors in various companies, and more so in Saudi Arabia in major decision making. The study would use instruments such as Interviews, observations and questionnaires. The interviews would be limited to the top management and some members of the board while observation would be done to some lowly ranked employees and middle employees on roles of the board. The questionnaires would attempt to answer questions like: a) Highlight some of the roles the shareholders have outlined for the board of director for this company. b) How are these roles executed by the members of the board? c) Have the roles of the board of directors ever conflicted on the management by top managers in the organization? d) Describe the recruitment process or the hiring and dismissal of top managers in the organization by the board of directors. e) What are some of the major decisions which have been made by the board of directors in your organization, and had they been discussed during the shareholders meeting. f) As a member of the board of directors, describe the roles which you undertake to enhance corporate management. g) Highlight some of the crucial roles the board has ever carried out. Did they contribute to organizational change and achievement of objectives? h) What is the role of the shareholders in the management of the organization? i) What strategies do you use to ensure that their issues are taken at heart as well as those of other interested parties like the government? Literature Review 1The responsibilities of members of a company’s board of directors in most nations are outlined in the Corporate Governance and the company laws of particular companies. In china for example, the corporate governance system has taken the German style which has prescribed a two tier structure of a board of directors. There is also an oversight supervisory board which has the sole mandate to ensure that employees are adequately represented on the supervisory board. In a company, the board of directors has its roles outlined by the General Shareholder Meeting which is the highest authority. The GSM has rights and responsibilities ranging from determining the strategy of a company and operational business, appointment and dismissal of representatives of shareholders, examination and approval of the companies profit generation, approval of company’s annual reports, and approving decisions to either decrease or increase the company’s registered capital. Using China as an example, the board of directors is the highest decision making body in Chinas Joint-stock companies, and this board has the number ranging from five to twenty. They are selected during the Shareholders meetings and are accountable to the General Meeting of Shareholders. The responsibilities range from: Calling and hosting annual and special shareholder’s meetings, working on resolutions made by the shareholders, coming up with the company’s operating and investment plans and the divided polices plus equity financing plans, drafting plans for mergers if any, or de-merger and dissolutions, and appointing, dismissing or deciding on the payments of the general manager of a company. The roles are as outlined in the general meeting and can change from time to time due to emerging trends in management of companies. The Case of Saudi Arabia Until the year 2003, the Saudi Arabian capitals markets were regulated by the monetary agency Central bank in that country. There was a great need to come up with regulatory board in that country so as to enhance the local interest in the stock market had swelled, which was prompted by the surge in oil prices and successful IPOs. The CMA in Saudi Arabia was created within the frameworks of the capital market and it proved active in the creation of solid legal basin under which there would be proper operation of the advanced capital markets. 2Companies needed to be regulated for ethical operations and this prompted the CMA to issues rules and regulations to companies’ operation. In November 2006, the CMA issued rules regarding the corporate governance and that included the roles of both the shareholders and the board of directors. It was aimed at improving companies’ poor methods in disclosure procedure and the transparency procedures. The companies were to use the rules as their marketing tools, even though; there were still loopholes which needed to be filled in improving information and transparency, especially the banks in Saudi Arabia. The roles and responsibilities of members of the board of directors in Saudi Arabia include: to set up and develop strategies, objectives and policies, to set up an appropriate organizational structure, coming up with appropriate committees constitution and delegation of powers and authorities; monitoring and implementation of policies and performance and assessment of risks, appointment of internal auditing staff and monitoring, approving external auditors, appointment of internal auditors, and responding to the shareholder’s and other parties’.3 The Organization for Economic Cooperation and Development (OECD) outlines the functions of the Board of directors as: reviewing and guiding corporate strategy, coming up with major plans of action, policies on risk management, monitoring effectiveness of the company’s governance practices, selection, compensation and monitoring of key executives and succession planning; aligning executive members and board remuneration, ensuring formal and transparent board nomination and election process, management of potential conflicts in the company as well as involved interest.4 For the purpose of this discussion, this paper would discuss seven key responsibilities as guided by the above. This would be in relation to the Saudi Arabian system of corporate governance geared towards improving the management of companies in that nation. The discussed responsibilities of the members of board of directors in joint companies include: monitoring company’s growth, remuneration of key executives and board members, company’s risk management, reviewing and guiding corporate strategies, plans and policies, enhancement of transparency in the organizations, appointment and recruitment of key executive members, and taking care of concerns from the shareholders and other parties. This would majorly be related to commercial banks in Saudi Arabian and other monetary organizations in efforts to manage the growth and economy of Saudi Arabia. Monitoring of Company’s Growth In Saudi Arabian nation, the members of the board of directors can access the company’s information especially that which includes the progress and operations. Before the company can release the information to the public for scrutiny, the board of directors has the sole responsibility of guiding the executive management on the best ways to manage. This is to ensure that the company stays on the right path and is not subjected to public concern on its operations. 5Public scrutiny and the access to information could only be effective when the financial information is first scrutinized by the current and potential investors, and this can only be done when the board of directors has ensured that it sends the right and intended image to the public. The potential investors as well as the current ones would have confidence in the management of the company if the image reflected out is their aspirations, and thus increased investment. Therefore, the members in a company’s board of directors form a crucial part in the monitoring of company’s growth. In a country like Saudi Arabia, the regulators do access ownership of the company as well as its financial records, and so there is need for the company’s board of directors to give it a thorough smoothening before it is let out. Risk Management in Companies 6Banks in the Islamic countries such as Saudi Arabia have a unique form of risks, and therefore, there is need for a unique form of management of these risks. In such banks, the board of directors is bestowed with responsibilities of effective risk management. The boards create a risk management environment by identifying the risk objectives and the strategies to be involved in effective management. They do this by creating a proficient internal control system which can detect such risks, and thus managed before they emerge. These risks are reported to enhance development, that is, the processes of managing the banks are not derailed by the emergence of a crisis as risks are capable of paralyzing everything. There is an internal rating system (IRS) which is highly relevant for these banks, where at initial stages, there is a risk based inventory of individuals risks and the assets of the bank. Such systems fill the gaps of in the risk management systems and thus enhancing external rating of the institutions. To make this effective, the board of directors is responsible for identifying the best forms and systems to implement in the banks for effective management of the risks. Shareholders and Other Parties The shareholders are always at the heart of the management and their issues can never be ignored. Too are the concerns of other interested parties since they can become part of the management in future or can invest in the company for growth. The board of directors thus makes sure that their concerns are well handled in an efficient manner to remove conflicts in the management. 7Usually, the shareholders have a great say, especially in the General Meetings where they can appoint or dismiss a member of the board of directors, or even dismantle the whole board of directors to come up with a new one which would take their issues at heart. Transparency Transparency is the key to effective management of companies, and the board of directors comes in handy to ensure that this is the case. The members can scrutinize all books of accounts to analyze how major financial investments have been carried out by the management. 8Just like the shareholders who have a great say on how the company is to be managed, the board of directors takes their concerns and magnify it by investigating on how the company’s management is carrying out the duties bestowed on it. Transparency is when there is openness on how funds have been used, and the board of directors accounts for every cent used by the management and whether it was used with the intended project. Still, it has to investigate whether there was overspending in the particular project and if the project brings in any use. Remuneration of Key Executives and the Board of Directors On regular basis, the board of directors ought to review the remunerations of key executives and the members of the board of directors. This is due to the emerging trends and the emerging challenges which require the management be motivated. The remuneration of key objectives should be enhanced when their issue is taken in the Shareholder’s meeting by the board of directors. The board of directors is to prepare a report of the current trends and why there is great need for members of the executive management and the board members be motivated by having their various allowances increased by a certain percentage to be discussed by the shareholders. Remunerations are not designed by outsiders by the board of directors which form a remuneration committee. Usually, this follows after new members of the executives are brought on board and when they promise to bring in substantial energy to the organization9. It contains a commitment of the insiders that they are to follow the goals to the letter and bring in good and tangible results. Saudi Arabia forms an important example of how the board of directors decides on the remuneration package. Reviewing and Guiding Corporate Strategy The management of an organization cannot work in isolation in formulation of key corporate strategies which can drive the organization to envisaged heights. The board of directors helps in the management of the organization and so they have to give in help needed in the formulation and reviewing of corporate strategies. 10An example is the International Monetary Fund which recommends that the board of directors should be made autonomy in the management of key organizations to help in strategic thinking. The board should be enhanced and full of strategic thinkers whose mind can be of good asset to the organization in how strategies are formulated and implemented. Recruitment and Appointment of Executives The board of directors has a sole responsibility of knowing who is to sit in as the manager of a particular section in an organization. The recruitment and appointment of executives in key areas of management is a responsibility which is exercised by the members of the board of directors. The directors seek application from interested parties with particular qualifications and then there is the vetting process which ensures that they get the best and the most qualified as well as experienced member to join the management. For example, if a vacancy emerges in the organization, the board would quickly settle down to discuss how the post is to be filled and how they would go about this in a most and transparent manner. If left for other people to manage this issue, nepotism can easily creep in and this would bring out scrutiny from interested parties as well as the shareholders. It is not only when there is a vacancy, but also when the members feel that there is need to increase the workforce to get close to the targeted goals for the organization. 11The appointment and dismissal of a high ranking officer in an organization is a function of the board of directors. For example, the board of directors engages in headhunting for the Chief executive officer to fill in what is missing and the dismissal of such a person is done in a diplomatic and fair manner. Therefore, the board of directors is expected to act fast when there is such a vacancy so as not to cripple the organization or make other competing organizations get the better side in management and market share. Conclusion to Literature Review The board of directors in an organization is important in many facets and cannot be ignored. It comes in as another arm of management and links the management with the outside world as well as to the organizations shareholders. The literature review has mostly majored in Saudi Arabia and other countries in the world for the best form of organizational management through the use of the board of directors. There are many functions of the board of directors, and all of them have been condensed to seven strong ones: Monitoring Company’s growth, remuneration of key executives, risk management, reviewing and guiding corporate strategy, transparency, appointments of executives and taking care of the concerns of the shareholders and other parties. The Methodology to Carrying Out the Study The methodology to be used would specifically seek to understand the roles of members of the board of directors in various companies, and especially those in Saudi Arabia. The study would not leave out other relevant companies in other nations as this would be crucial in providing sufficient information in the general operations of a company. The methodology would encompass instrument to gather information, the recording of the findings and the analysis of the information recorded. The instruments include questionnaires, observation and interviews. Instrument one: The Questionnaires The questionnaire method would be done to important organs of operations in various organizations. Top managers and corporate executives would be issued with written questions and places to fill which guides them on how to go about answering the questions. If some of them do not understand what is required in the answering of questions, I would be in a position to be contacted so as to give guidelines. Saudi Arabian corporate organizations would be used as example and the guide to this research, even though, a number of the questionnaires would too be distributed to some other few nations. The questions would major in requesting for information and importance of board of directors in organizations. Some of the questionnaires would be given to some members of various boards in various organizations on their roles, and whether they have been successful in the management of the organization’s affairs. They would also be asked of the roles of the shareholders in key decisions made. Instrument Two: Observation This tool may be regarded as though it cannot work, but observation can easily give information on how people in organizations hold of board of directors. Observation would not be done in isolation, as informal questions would be used to determine whether the members of the board have had great role in the management of the organization which I have targeted. This observation strategy would be done in a manner that the respondents would not know that a particular study is being carried on them. Instrument Three: Interviews This tool is of utmost importance in this study since I would be in a position to get right hand information from the people I will seek information from. For example, top managers would be asked on their view in regard to the roles of the members of the board of directors in the particular organization and whether the management holds them as important in strategy formulation. Questions would concentrate on whether their operation like in the recruitment is done in a fair manner. Questions too would be asked some of the members of the boards in various organizations and their roles noted down. Works cited Burghof Hans-Peter. Disclosure of Executive Remuneration in Large Banks. Universitat Hohenheim, 2008 pp 26 Byrt W.J. The Australian Company. London: Croom Helm Ltd, 1981 pp91 Co-Publication. Doing Business in 2005: Removing Obstacles to Growth. Washington D.C: Oxford University Press, International Bank for Reconstruction and World Bank, 2005 pp 53 Diaz Leonardo Martinez. Executive Boards in International Organizations: Lessons for Strengthening IMF Governance. Journal of Independent Evaluation Office of the IMF, Aug 2008 pp 33 Journal of OECD. China in the World Economy: The Domestic policy challenges. China, 2002 pp 434 Journal of OECD. Policy Brief on improving Corporate Governance of Banks in the Middle East and North America. November 2009 pp 29 Journal of Oxford Business Group. The Report: Saudi Arabia 2008. Saudi Arabia, 2008 pp 62 Journal. Subject page part one Exchange Rate Policy: Instructions to Banks. Saudi Arabia pp 9 Khan Tariqullah & Habib Ahmed. Risk Management: An analysis of issues in Islamic Financial Industry. Saudi Arabia: Islamic Development Bank & Islamic Research & Training Institute, 2001 pp 21 (Occasional paper No. 5) Rose Paul. Sovereigns as Shareholders. October 21, 2008 pp 121 Read More