Directors' Liabilities of Joint Stock Companies in Kuwait

In Kuwait, corporate governance is still in its infancy and underdeveloped compared to its neighboring countries within the GCC. While the other GCC countries have made considerable progress in developing their respective country codes for corporate governance, Kuwait is still lacking in this aspect. One survey revealed that companies in Kuwait have the lowest standards of corporate governance in the GCC. Despite the above, significant initiatives are underway to improve corporate governance in Kuwait. This includes the introduction of the new capital markets law which establishes an independent capital market authority. The authority is given the power and independence to regulate and supervise the capital markets, including implementing a full-disclosure policy to ensure fairness and transparency and avoid conflicts of interest and exploitation of internal information. Corporate governance is loosely defined as the policies and practices that affect the relationships between a company's shareholders, board of directors (the "Board"), management and other stakeholders with legitimate interests in a company's performance (employees, customers, creditors, etc.). It aims to protect the interests of stakeholders by, for example, requiring that the board of directors be transparent, accountable and fair in its relationship with the stakeholders. "Good" corporate governance gives comfort to a company's investors that their investments are being used prudently by the management in order to enhance their value. While noting that there are no specific regulations addressing corporate governance in Kuwait, related laws are found in the following:

The Kuwait Commercial Companies Law (the "CCL"); The rules and regulations of the Central Bank of Kuwait (the "CBK") for banks and investment companies; The listing rules of the Kuwait Stock Exchange (the "KSE") for listed companies; and The new Kuwait Capital Markets Law (the "CML"). This article focuses on corporate governance related to a joint stock / Kuwait stock company ("KSC") and the role, duties and liabilities of the Board. Duties and Powers The management of a KSC is vested with the Board. Appointed by the shareholders, Directors have the duty to manage the company for the benefit of the shareholders and, therefore, are accountable to them. Directors are required to carry out their management duties with diligence, honesty, and reasonable care. They must disclose any interest, direct or indirect...