Corporate governance refers to the system by which companies are directed, managed, and overseen. While it may sound technical, it has very real implications for businesses and the public. Good corporate governance creates an environment of trust, transparency, and accountability, which, in turn, encourages long-term investment and sustainable business growth.
In practice, this means clear rules and strong oversight to ensure companies are run ethically and in the best interests of their stakeholders. In recent years, the United Arab Emirates (UAE) has made corporate governance a top priority by updating laws, aligning with international standards, and reshaping how boards of directors operate.
International Finance explores the principles of corporate governance, how boards’ roles have evolved from ceremonial to strategic, and what makes boards effective today.
It also highlights the UAE’s progress, focusing on a real example from the Commercial Bank of Dubai in raising governance standards.
What is corporate governance?
At its simplest, corporate governance is about how a company is controlled and directed for the benefit of its owners (shareholders) and other stakeholders. It sets out the relationships among shareholders, boards of directors, and management, defining their roles and responsibilities. A well-governed company has systems to balance the interests of everyone involved, from investors and managers to employees, customers, and the community.
With the right structures in place, good corporate governance facilitates an atmosphere of trust and openness inside and outside the company. For example, companies that adhere to governance best practices routinely publish honest and thorough reports on their financial health and operations, which builds transparency and credibility.
Such transparency makes it easier for investors to trust the company, knowing they will receive timely, accurate information. As the OECD (a global policy standard-setter) notes, governance promotes “trust, transparency, and accountability, which promotes long-term patient capital”—in other words, it attracts investors who are willing to commit to the long term.
Strong governance also enhances accountability: clear rules mean that executives and directors can be held responsible for their decisions and performance. When companies are governed well, shareholders have ways to hold management to account, and management, in turn, is accountable to the board. All of this reduces the risk of mismanagement or corruption and leads to more sustainable success.
Crucially, governance is linked to long-term business sustainability. Companies that operate transparently and accountably tend to make decisions that favour long-term growth over short-term gambles. By setting checks and balances like independent board oversight and strong audit controls, corporate governance helps ensure a company can weather challenges and continue thriving for years to come.
In the UAE, regulators explicitly state that governance aims to achieve transparency, protect shareholders, combat improper conduct, and ensure companies meet their goals and long-term strategy.
As one corporate advisory firm summarised, strong governance enhances investor confidence by demonstrating transparency and attracting investment. It also leads to better risk management and decision-making, ultimately improving a company’s reputation and stability.
The evolution of board roles
As recently as the 1990s, serving on a board was often seen as an “honorary” position, a form of recognition, and many closely held businesses didn’t bother having a formal board at all. Boards would convene infrequently to rubber-stamp decisions or provide polite oversight, but seldom to actively shape strategy. They were, as one account puts it, “largely ceremonial” in those days.
A series of corporate scandals and crises in the late 20th and early 21st centuries changed this. Major failures, from the Cadbury corporate governance scandals in the United Kingdom in the early 1990s to the infamous Enron collapse in 2001 and the 2008 global financial crisis, exposed that inactive or complacent boards were often a weak link in corporate oversight.
Each crisis prompted reforms and sharpened expectations for boards. Laws like the Sarbanes-Oxley Act (2002) and codes of best practice worldwide put the onus on boards to truly monitor management, ensure financial integrity, and manage risk. As a result, the public and regulators began to expect directors to be watchdogs and strategic guides rather than figureheads.
Fast forward to today, and the role of boards has expanded dramatically. A modern board is “asked to be all things to all people.” Not only must it provide direction and approve major decisions, but it must also guarantee compliance with laws and regulations, diligently monitor risks, and even act as a champion of corporate social responsibility.
In other words, boards have shifted from being symbols of stability to active stewards of the company’s future. One analysis describes the board of directors now as the “fulcrum for change”—sandwiched between shareholders’ expectations and society’s demands. They are expected to ensure the company not only profits but also behaves responsibly towards employees, the environment, and the community.
This evolution is also evident in the UAE’s corporate landscape. Traditionally, some boards in the region were dominated by founding families or prominent figures, and their oversight could be considered light-touch. But the pressures of globalisation and a maturing economy have driven change.
As Wajahat Gul Memon, a corporate governance lead at the Commercial Bank of Dubai, explained, “Boards are no longer merely fulfilling regulatory requirements. They are driving long-term value creation and ensuring that the organisation remains resilient in the face of changing market conditions.”
UAE’s corporate governance advancements
In the past decade, and especially in recent years, the UAE has made a concerted push to elevate corporate governance standards across its business sector. This effort has involved enacting new regulations, updating existing codes, and ensuring local practices keep pace with international norms. These changes are not happening in isolation, as they are part of the UAE’s broader strategy to promote a world-class business environment that attracts investment and sustains growth.
One cornerstone of the UAE’s governance reform was the Securities and Commodities Authority (SCA)’s Corporate Governance Guide for public joint-stock companies, which was approved in 2020 (via Decision No. 3/Chairman of 2020) and later amended in 2021 and 2024. The SCA, which regulates stock markets in the UAE, introduced these rules to strengthen oversight of listed companies.
Some of the key reforms include requiring that at least one-third of board members be independent directors, with clear criteria to define independence and avoid conflicts of interest. Notably, a special exemption that once allowed certain government-affiliated representatives to be deemed “independent” was eliminated to ensure true independence on boards.
Then there is mandating board diversity by insisting that each board have at least one female director. This moved diversity from a nice-to-have to a legal must-have, catalysing the sharp rise in women’s participation in boardrooms.
The reform also emphasises director competence and engagement, for instance by stipulating that board members must have relevant experience/qualifications and limiting the number of directorships one person can hold to ensure they have time to fulfil their duties.
“Audit Committees,” “Nomination & Remuneration Committees,” and “Risk Management Committees” are compulsory for listed firms, each with defined roles to enhance financial oversight, fair appointments, and risk governance.
Additionally, companies must implement robust internal control and risk management systems, with boards required to regularly assess their effectiveness. Recent amendments even specify that risk frameworks should align with globally recognised best practices like the COSO framework for internal controls.
Companies now also have to provide more detailed public reports—not just financial statements but also governance reports and even sustainability (ESG) reports. For example, an Integrated Report combining financial, governance, and other disclosures must be published within three months of the year-end. These measures ensure shareholders and the market get a fuller picture of each company’s performance and governance practices.
Protecting shareholder rights, especially minority investors, is also a big concern. The reforms bolstered mechanisms for calling shareholder meetings, voting on major transactions, and disallowing last-minute agenda additions that could disadvantage minority shareholders. The overall aim is to make sure all shareholders are treated fairly and have a voice.
They are also introducing board evaluations and improved governance processes. UAE-listed companies must perform annual evaluations of their board’s performance, with an independent external evaluation at least once every three years. There are also new guidelines for board secretaries (who support governance administration) to ensure they are qualified and operate with a degree of protection from undue interference. All these steps underscore a theme that the UAE is aligning its corporate governance framework with international best practices.
In fact, the SCA explicitly stated that these changes are part of “ongoing efforts to align the UAE’s corporate governance standards with international best practices, thereby facilitating a more robust and transparent business environment.”
The 2024 amendments to the governance code, in particular, were described as a “critical shift towards strengthening governance in line with global standards,” covering independence criteria, related-party definitions, and board composition. Likewise, officials from the SCA have noted that adopting global best practices in governance is key to the UAE’s vision for an inclusive, sustainable economy.
The impact on the investment climate has been significant and positive. Stronger corporate governance has made UAE markets more attractive to local and foreign investors. When investors see rules that ensure transparency, accountability, and minority protection, they are more willing to invest their capital, knowing their interests will be safeguarded.
A country report on the UAE’s financial markets observed that regulatory reforms, including improved corporate governance and disclosure rules, are part of the “broader efforts to enhance the attractiveness of UAE capital markets for investors and businesses.”
In practical terms, this means higher demand for UAE stock offerings and greater participation by institutional investors who typically insist on good governance. Indeed, the UAE has recently witnessed a boom in public listings (IPOs) and an inflow of global investment, supported by confidence in the market’s regulatory integrity.
Companies with good governance are generally less risky and more stable, which lowers the cost of capital. As one corporate advisor explained, compliance with the new code isn’t just about avoiding penalties as it “goes beyond just meeting compliance requirements” by yielding benefits like higher investor trust, stronger risk management, better decision-making, and enhanced brand value. All of these factors encourage a healthier investment climate. We can see this manifest in the UAE with rising investor interest and trust in UAE companies.