The Impact of Saudi Arabian Culture on Minority Shareholders’ Rights
Alfordy, Faisal D.
HF5387_Ethics | HG4001_Finance | HG4501_Investment
The aim of this research study is to examine the impact of Saudi Arabian culture on corporate governance (CG) and its regulatory compliance with respect to the protection of minority shareholders’ interests. The protection of minority shareholders is a primary concern in the area of CG and particularly as defined by the Organization for Economic Co-operation and Development (OECD) principles. In Saudi Arabia, CG is a newly introduced regime. Its set of CG principles was initially issued after the first market crash in 2006, which signified the need for appropriate CG standards in Saudi Arabia because minority shareholders suffered catastrophic losses. Moreover, CG legislation in Saudi Arabia is still slowly moving from voluntary to obligatory because family-owned firms, which is the dominant form of incorporation, are stifling corporate growth by their reluctance to open their equity to outside shareholders, as argued by the OECD report of Koldertsova (2011). Hence, the conceptual framework for understanding how Saudi Culture affects minorities is based upon Hofstede’s (1980-2010) Cultural Value Dimension (CVD) model linking societal constructs with the legal and political milieu. Thus, this research sets out to examine this link in relevance to Saudi Culture. In addition, this undertaking will extend, via the second research question, to uncover other factors, such as the legal and political, influencing the level of compliance of listed Saudi corporations with the OECD principles with respect to the protection of minority shareholder rights.\ud The findings of this study provides significant correlations between each of Hofstede’s CVDs: Individualism, Power Distance, Uncertainty Avoidance, Femininity, and Long Term Orientation and the quality of the exercise of minority shareholders’ rights as defined by the OECD’s principles of CG in Saudi Arabia. Moreover, the distribution of each CV dimension was found not to be the same when comparing groups of Majority and Minority shareholders. Hence, the significant correlations expose two different subcultures: an active culture pertaining to Majority shareholders and a passive culture pertaining to Minority shareholders in Saudi Arabia. Moreover, the current legal environment guiding the CG procedures in Saudi Arabia was found to attach a low level of significance to minority shareholders in terms of: ease of litigation, establishment of specialised courts, appointment of competent qualified judges in CG commercial cases, and creation of awareness programmes for minority shareholders’ rights. In addition, the lack of a solid constitution was found to weaken popular pressure to safeguard shareholders' rights and promote a block-holding model of corporate control. Hence, due to governmental institutions falling short on their responsibilities, Saudi controlling families can practically be considered as an institution, as indicated by Institutional Theory, and this familial institution is likely to continue to manifest itself in the governance of emerging economic systems such as Saudi Arabia's as its survival is dependent on the institutional context.