A Quarterly Newsletter from the UAE and Oman member firms of the PKF International Ltd.

VOL 18, Issue 3 July 2016



Oman’s Capital Market Authority (CMA) is the legislative, regulatory and supervisory body for the capital market, and for the insurance sector in the Sultanate. Oman was the first country in the GCC to establish an independent capital market regulator and to adopt a code of corporate governance. The corporate governance code, issued and revised by the CMA from time to time, defines a binding model framework for the management and regulation of all public joint stock companies in Oman, to promote transparency, accountability, fairness, and responsibility.


The stock exchange in Oman, the Muscat Securities Market (MSM), was first established in 1988. Then, and even now, a large number of public companies in Oman were family-owned or otherwise closely held. A company can go public in Oman and be listed on the MSM while the promoters hold 60% stake. Hence, it was common for the owners to hold many positions in their company. A company’s Chief Executive Officer was also the Chairman of the Board of Directors. A majority of the directors were also substantial shareholders. Managers managed the day-to-day operations based on instructions received from the board of directors. With restrictions on a person sitting on more than five (5) board of directors or acting as Chairman of more than three (3) joint stock company boards, owners of the family-held conglomerates designated relatives or other proxies to represent their interests on the boards. Hence, in spite of the restrictions, fertile ground existed for related party transactions and conflicts of interest. Companies tried to keep disclosures to the minimum and were reluctant to comply with many of the disclosure requirements, especially if such disclosure had a negative impact on their share prices. Minority shareholders in effect had little control or voice in the policies or operations of the companies.

During 1997 and 1998, the MSM enjoyed a period of phenomenal growth, with the market capitalization rising to a high of over OMR 3 billion, tempting new investors to enter the market to take advantage of the rising market. Subsequently, the market dropped abruptly, with some companies seeking Government assistance while others declared bankruptcy. Hence, in 1998, Oman’s government established the CMA as an independent body to regulate the MSM. In 2002, the CMA introduced a code of corporate governance requiring all MSM-listed companies to comply with the code. The code requires companies to provide greater disclosure on related-party transactions and to separate operations of the board and management by having a board that is independent of the management. Oman’s code of corporate governance focuses heavily on conflicts of interests that exist in many family-owned companies in Oman. Moreover, the code requires all companies to include a report on corporate governance in their annual report to the shareholders.

New code of corporate governance

The CMA has issued the new Code of Corporate Governance (the “New Code”), which will apply to all public joint stock companies (SAOGs) listed on the MSM. The New Code was issued on 22 July 2015 and will come into force from 22 July 2016. The aim of the New Code, which is in line with the GCC Code of Corporate Governance, is to enhance and expand on the existing principles of corporate governance.

Key new rules introduced by the Code

  • Board to comprise only non-executive directors: 
    Previously, the code required that a majority of the directors should be non-executive directors while the New Code mandates that all members of the board should be non-executive directors.
  • Nomination and Remuneration Committee:
    The New Code contains provisions concerning the establishment of the Nomination and Remuneration Committee to assist the shareholders in nominating and then electing competent members for board membership and executive positions, and to assist the company to produce clear and credible policies on remuneration.
  • Definition of an independent director:
    Previously, the code stipulated that a director shall be considered as independent if he or she, or any of his or her first degree relatives had not occupied any senior positions in the company within the last two years. Also, he or she should not have had any significant financial transactions with the company, its parent company or any of its subsidiaries. The New Code has defined the factors to determine the independence of directors. A director is not deemed independent in any of the following cases:

    • a) Holds ten per cent (10%) or more shares in the company, its parent company, or any of its subsidiary or associate companies.
    • b) Represents a juristic person who holds ten per cent (10%) or more in the company, its parent company, or any of its subsidiary or associate companies.
    • c) Had been, during the two years preceding candidacy or nomination to the board, a senior executive or employee of the company, its parent company or any of its subsidiary or associate companies.
    • d) Is a first degree relative of any of the directors or senior executives of the company, its parent company or any of its subsidiary or associate companies.
    • e) Is a director of the parent company or any of the subsidiary or associate companies of the company in which he/she is being nominated.
    • f) Has, during the two years preceding candidacy or nomination to the board, an employee of any of the parties contractually engaged with the company (including external auditors, major suppliers or civil society organizations receiving support in excess of 25% of its annual budget).
    • g) Holds 20% of the shares of any of the above mentioned parties during the two years preceding candidacy or nomination to the board.

    The independent director has to notify the board if a change in circumstances occurs which affects his/her independence status or condition, within a period of not more than thirty (30) days.

    In all cases, the independent director has to submit an annual statement at the end of the financial year of the company, indicating whether or not a change in circumstances has occurred which might impair his/her independence.

    The aforesaid requirements pertaining to independence of directors will apply to each publicly-listed joint stock company upon the expiration of the validation period of the board of directors, unlike the other rules which will be applicable from 22 July 2016.

  • Other rules:Some of the other rules included in the New Code are as follows
    • It prohibits a CEO of any SAOG to act as a CEO of an affiliate of that company, regardless of whether the affiliate is in the Sultanate of Oman or abroad.
    • The chairperson of the audit committee cannot be a member of any other board sub-committee.
    • The chairperson of a board committee or sub-committee cannot be the Chairperson of any other board sub-committee (e.g. the chairperson of the risk committee cannot be chairperson of the investment committee).
    • The secretary of the board cannot be senior management or a related party and should have a legal, accounting, auditing or secretarial background. For example, the CFO cannot act as the board secretary
    • The audit committee will invite proposals for external auditor directly, and not through the CFO, CEO, etc.
    • Auditors can now report any suspected material fraud directly to the respective regulator (such as CMA, CBO, AER, TRA) without the need to obtain approval from the company’s board.
    • Performance of the board is to be measured by a third party (other than external or internal auditors).
    • Only up to two board meetings a year can be held by video conference.

Considering the recent fall in oil prices and the fact that still many of the companies listed on the MSM are family-owned or closely held businesses, there is still room and reason for conflict of interest and sugar-coating of the financial statements. Hence, with the launch of the New Code, Oman seeks to improve investor confidence and hopes to attract more FDI into the country by further enhancing transparency, fairness and accountability for listed companies and their boards.

(This article is compiled by Mr. Kalpesh Abhani, Deputy Audit Manager in PKF L.L.C., the PKF member firm in the Sultanate of Oman.)