CORPORATE GOVERNANCE IN SAUDI BANKS:THE ROLE OF BOARDS OF DIRECTORS

Abstract

This thesis sets out to investigate the roles played by boards of directors in the governance of Saudi banks. It explores the factors influencing the selection of board members and the subsequent effects. It also attempts to provide indications of how the selection process influences directors' interactions both inside and outside the boardroom. Furthermore, it presents indications of how the external contextual environment of banks influences the process of director selection and interactions. To achieve the aims of this study, a qualitative case study approach was adopted, involving directors of both listed and non-listed Saudi banks as well as financial regulatory authorities' representatives. This has provided rich insights into the complex web of factors which shape the effectiveness of Saudi banking boards.There are several micro-level (controlling shareholders) and macro-level (political, legal, social and cultural) factors affecting the Saudi business environment which are more related to the practice of corporate governance. The environment of the Saudi business practice possesses some characteristics of the free market found in developed countries, but differs in certain critical aspects. The early stage of the development of these factors in the country makes the Saudi business practices significantly different from that of developed countries. Thus, the country's attempt to balance free market capitalism with the protection of highly valued social and cultural traditions has led to a unique set of governance mechanisms.The findings indicate that boards' seats are dominated by controlling shareholders' representatives. Boards that are dominated by directors who come through personal relationships are more likely to follow the interests of those who appointed them and be accountable only to them, ignoring other stakeholders. Personal ties and relationships have greater significance in the selection and appointment of directors to banks' boards than experience, qualifications or financial expertise. The selection and appointment of incompetent directors have substantial effects on the group dynamics and interactions both inside and outside the boardroom. The limitations of the regulatory and supervisory authorities in implementing and enforcing laws and regulations have an overall implication for a poor corporate governance framework. The controlling shareholders and influential actors (e.g., CEO or chairman) seem to be able to capitalise on social and cultural values (such as respect and seniority) in order to maintain control over other directors. Subsequently, those directors are more likely to engage in unacceptable ethical and moral behaviours. This study contributes to the growing stream of literature examining corporate boards and corporate governance, particularly in emerging markets. Overall, this study provides theoretical validity by suggesting that new institutional sociology (NIS) theory is more appropriate than agency theory in describing the practices of boards of directors and corporate governance in developing countries such as Saudi Arabia.

Date of Award	31 Dec 2014
Original language	English
Awarding Institution	The University of Manchester
Supervisor	Pamela Stapleton (Supervisor) & Mahbub Zaman (Supervisor)