The Capital Market Authority (CMA) entered a new phase in raising awareness toward current and potential investors in the capital market, where it issued another guidebook to help stakeholders read the listed companies’ board of directors’ report. The guidebook, which is the 15th issued by CMA, targets a specific cultural awareness trend among stakeholders, ensuring that investment decisions are taken according to information available to investors.
The move of releasing such a guide is to allow shareholders to know how the Board of Directors’ Report would assist them in recognizing the company’s activity, the nature of its investment, as well as corporate restructuring and performance during the fiscal year. The report is considered to be a significant contributor to investors in building the investment decision as it is the annual letter from the board of directors to shareholders.
The new publication is based on the investment principle that refers to the need of avoiding investing in a company where the shareholder is not fully aware of its activity. Board of Directors’ Report is considered a basic reference of the company’s background and its major projects. In addition, it analyzes the operational and financial results and provides a clear vision on the structure of the board and the company’s commitment to the corporate governance regulation.
Moreover, to what is stated in the listing rules about the contents of the report which is attached to the annual company’s financial statements, corporate governance regulations determine the elements of disclosure that must be contained in the report.
The report also includes a brief description and duties of the board’s main committees such as the audit committee, the nomination and the remuneration committee, indicating their respective meetings. The report should also contain details of compensation and remunerations paid to the members of the board of directors and the top five executives who have received the highest compensations and remuneration from the company and the CEO and the chief finance officer shall be included if they are not with in the top five. The report includes any punishment or penalty or preventive restriction imposed on the company by the authority or any other supervisory or regulatory or judiciary body and the results of the annual audit of the effectiveness of internal control procedures of the company.
The guidebook is available on the CMA’s website www.cma.org.sa and will be distributed freely among other publications which seek to raise awareness in public and economic events where CMA is participating in. Furthermore, well as in mobile exhibitions in universities and shopping centers- this guide will explain to investors the difference between the board of directors’ report and the financial statements of a company. It has separate sections regarding what the report contains and explains such as its relation with profitability and the level of risk associated with the companies’ activities, which would assist the investor to make a better investment decision.
At the end of the guidebook, the investor is asked a number of questions; once the answers are available, the investor should be well informed with what is happening in the company and hence build an investment decisions on a solid base. It is known that the CMA guidebooks differ according to their different target groups. These publications include: Investment, Investment in the Stock Market, Glossary of Investment Terms, Information and its Sources, How to Make a Complaint, Corporate Governance, A Shareholder Guide Into Participating in the General Assemblies of Listed Companies, and a Guide for Dealing with Points of Litigation Disputes in the Securities.
