Corporate Governance in the UAE: Best Practices for Compliance and Accountability

In recent years, corporate governance has become a key area of focus for businesses in the UAE. As the country continues to attract global investors, the need for transparent and responsible business practices has grown significantly. Corporate governance ensures that companies operate ethically, with accountability to their shareholders, employees, and the public. For businesses in the UAE, the focus is on adhering to laws and regulations while implementing structures that promote sound decision-making and reduce risk.

The UAE’s Legal Framework for Corporate Governance

The UAE has built a solid legal foundation for corporate governance, with several key laws and regulations guiding businesses:

1. The UAE Commercial Companies Law (Federal Decree-Law No. 32 of 2021):

The UAE Commercial Companies Law (CCL) is one of the most significant pieces of legislation governing corporate governance for companies in the UAE. The law lays down the rules for the formation, management, and responsibilities of companies, particularly for public joint-stock companies (PJSCs). Key governance-related provisions include:

2. Corporate Governance Codes of DFM and ADX:

The Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange (ADX) have issued specific corporate governance codes that apply to companies listed on their respective exchanges. These codes emphasise: 

3. Central Bank of the UAE Governance Regulations:

For financial institutions, the Central Bank of the UAE provides governance regulations that focus on ensuring that banks and other financial entities adopt sound governance practices. These regulations include:

4. Securities and Commodities Authority (SCA) Guidelines:

The Securities and Commodities Authority (SCA) regulates public and private joint-stock companies in the UAE and enforces corporate governance rules. The SCA’s guidelines focus on:

5. Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) Laws:

Corporate governance in the UAE also intersects with compliance requirements under the Federal Decree-Law No. 20 of 2018, which addresses Anti-Money Laundering and Counter-Terrorist Financing. Companies must have internal procedures to detect and prevent illicit financial activities. Key governance responsibilities include:

6. Whistleblowing and Protection for Minority Shareholders (Federal Decree-Law No. 26 of 2020):

This law provides additional protections for minority shareholders and whistleblowers. It mandates that companies implement systems to allow whistleblowers to report corporate misconduct without fear of retaliation. It also strengthens the rights of minority shareholders, giving them a voice in AGMs and corporate decisions.

7. Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) Regulations:

Both the DIFC and ADGM are financial free zones with their own independent legal frameworks. They each have separate corporate governance rules:

• DIFC:  Governed by the DIFC Companies Law (No. 5 of 2018), which mandates sound corporate governance practices for companies operating within the DIFC. Companies are required to follow principles of transparency, accountability, and fairness.
• ADGM:  Corporate governance in the ADGM is regulated under ADGM Companies Regulations 2020. Companies must have corporate governance structures that ensure proper management, financial reporting, and shareholder engagement.

Ensuring Compliance: Key Practices for UAE Companies

To remain compliant and ensure accountability, UAE companies need to adopt several best practices:

1. Building an Accountable Board of Directors

A strong board of directors is the cornerstone of good governance. Directors in the UAE are expected to act in the company’s best interest, uphold transparency, and ensure that management is held accountable. The presence of independent directors helps avoid conflicts of interest and ensures objective decision-making. Regular board evaluations and clear communication with shareholders are essential.

2. Internal Control and Risk Management Systems

Robust internal controls are vital for compliance. Companies must establish internal audit functions and risk management frameworks to identify and mitigate operational, financial, and compliance risks. This is especially important for financial institutions and large corporations, where the consequences of governance failures can be severe.

3. Transparency and Shareholder Engagement

Maintaining transparency is not only a regulatory requirement but also a business necessity. PJSCs must regularly disclose financial information and provide clear reports on their governance practices. Annual general meetings (AGMs) offer a platform for shareholders to voice their concerns and discuss key corporate decisions. Transparency in operations and finance helps build trust, especially with minority shareholders.

4. Adherence to AML and CTF Laws

The UAE has strengthened its AML and CTF laws, aligning them with international standards. Companies must establish policies and procedures to prevent money laundering and financing of terrorism, including performing due diligence on customers and reporting suspicious activities.

5. Environmental, Social, and Governance (ESG) Initiatives

Although not yet mandatory across all sectors, ESG is becoming increasingly important for companies in the UAE. Incorporating sustainability into corporate governance reflects positively on the company’s reputation and long-term viability. By aligning with global CSR (Corporate Social Responsibility) practices, companies in the UAE can attract socially conscious investors and improve their standing within the community.

Accountability and Enforcement

The UAE’s corporate governance laws have teeth. Companies that fail to comply with governance requirements can face penalties, including fines and license suspensions. In some cases, directors may be personally liable for failing to uphold their duties. The Central Bank and SCA have the authority to take disciplinary action against companies that breach governance rules.

Public joint-stock companies must submit audited financial statements, corporate governance reports, and other documentation to regulators and shareholders. Regular internal and external audits help ensure that companies stay on track with compliance and best practices. This ongoing oversight is crucial for identifying gaps in governance structures and taking corrective action before problems escalate.

Final Thoughts

Corporate governance in the UAE is not just a legal requirement—it is a reflection of a company’s commitment to ethical practices and accountability. As the country’s business landscape becomes more complex, strong governance frameworks will continue to be essential for protecting shareholder rights, attracting investment, and fostering long-term success. Companies that prioritize transparency, risk management, and shareholder engagement are better positioned to thrive in the UAE’s dynamic economy.