An investigation of Corporate Governance practices in Saudi Arabia listed companies: Adoption and policy challenges

The purpose of this study is to investigate corporate governance (CG) practices in Saudi Listed Companies (SLCs) in order to understand how such practices are influenced by the larger institutional environment and socio-contextual factors. It explores the emergence, development and adoption of the recent regulations of CG introduced in 2015 and 2017 by examining the different types of institutional pressures that drive SLCs to implement CG practices from the perceptions of various stakeholders. The study also investigates the relevant challenges that are associated with the process of adopting CG in the SLCs. Finally, the study tries to understand the reasons for some companies’ avoidance or resistance to compliance with the CG regulation. To achieve the purpose of this study, an interpretive approach and qualitative methods were adopted. Data were collected primarily from thirty-six face-to-face semi-structured interviews with various groups of CG actors. The interview data was supported by secondary sources, namely, documentary analysis and field observations. Data analysis was carried out, using neo-institutional theory as proposed by DiMaggio and Powell (1983) and Scott (2008), which focuses on the importance of social context and environmental impacts, to explain the current practices observed. Findings suggest that the implementation of CG practices are driven primarily by coercive pressure and to a lesser extent by normative and mimetic pressures. Furthermore, the new CG regulations, adapted from more developed countries is considered to be inappropriate for SLCs because ownership structures and socio-cultural characteristics in Saudi Arabia are different from Anglo-Saxon countries. The evidence also provides an indication of the challenges that companies experience in CG implementation. CG actors’ perceptions reveal that these challenges are the consequences of the contextual and cultural influences of Saudi Arabia. The findings show how the dominant nature of major shareholders could influence the is evidenced in the pattern of board appointments as CG actors use social networks as a channel to strengthen their power and control. Simultaneously, the board appointment pattern also provides evidence of how social networks are affecting the independence and competency of the directors, and therefore could affect economic decisions and shape practices of CG. This leads to the adoption of avoidance strategies when implementing some CG provisions in SLCs, such as decoupling their companies’ formal adoption of a practice from its implementation. This study will contribute to research knowledge on CG by showing the implications of such behaviour, which can be useful to regulators in their attempts to constrain the incidence of symbolic practices and enhance the efficiency of monitoring mechanisms.