Introduction: The Rising Importance of Director Conflict of Interest Rules for Businesses
In today’s rapidly evolving corporate landscape in the Gulf, understanding and adhering to conflict of interest regulations is an operational and reputational necessity. For organizations with directorships or investment exposure in Saudi Arabia, especially those with a footprint or stakeholders in the UAE, awareness of the Kingdom’s conflict of interest rules has become paramount. This urgency is sharply increased by the ongoing economic diversification under Vision 2030, heightened foreign investment flows, and a wave of legislative modernization bringing Saudi practice ever closer to international best standards. The devastating reputational and regulatory fallout from high-profile corporate scandals—both regionally and globally—has spurred both regulatory authorities and the business community to instil a robust compliance culture. Recent updates in Saudi company law have introduced clearer obligations and heavier penalties for directors regarding conflicts of interest. These developments require UAE businesses, HR managers, board secretaries, in-house legal teams, and compliance officers to pay very close attention, ensuring their operational realities align with legal and ethical expectations. This article aims to provide a comprehensive, consultancy-grade analysis of the conflict of interest regime for company directors in Saudi Arabia, its practical implications for UAE-linked entities, and forward-looking compliance strategies.
Table of Contents
- Overview of Saudi Conflict of Interest Laws
- Key Legislation and Regulatory Framework
- Director Duties and Fiduciary Obligations
- Identifying and Disclosing Conflicts of Interest
- Comparative Analysis: Old vs New Regulations
- Illustrative Case Studies and Hypotheticals
- Risks of Non-Compliance and Legal Consequences
- Application and Guidance for UAE-Based Entities
- Best Practices for Compliance and Practical Recommendations
- Conclusion and Strategic Outlook
Overview of Saudi Conflict of Interest Laws
Conflict of interest provisions for company directors are not only a matter of good governance but are enshrined as binding obligations under Saudi law. As the Kingdom strengthens its appeal to foreign investment, directors with connections to UAE entities—and vice versa—must grasp both the letter and spirit of these laws to avoid grave civil and criminal consequences. Historically, Saudi Arabia’s conflict of interest provisions were perceived as generic and not rigorously enforced. However, the latest amendments to the Saudi Companies Law (issued by Royal Decree No. M/3 dated 28/01/1437H, and its further updates in 2022-2023) have imposed more stringent compliance requirements directly on directors, dramatically increasing the stakes for individuals and businesses alike.
This landscape means conflict of interest management is no longer a procedural formality but an active, ongoing responsibility for every director with a role in a Saudi-domiciled entity, whether primary or subsidiary, joint venture or holding company.
Key Legislation and Regulatory Framework
Primary Statutes and Regulatory Authorities
The principal statute governing company director relationships and conflict of interest in Saudi Arabia is the Saudi Companies Law (the Law), most recently revised and issued via Cabinet Resolution No. 678 dated 29/11/1443H. Specific provisions relating to director conflict of interest are crystallized mainly within Articles 27, 29, 30, 31, 32, and 65 of the updated Law.
Regulatory oversight and guidance emanate from:
- The Ministry of Commerce and Investment (MoCI) – for all corporate entities;
- The Saudi Capital Market Authority (CMA) – particularly relevant for public joint-stock companies and listed entities;
- The Saudi Center for Commercial Arbitration (SCCA) – for dispute resolution.
These authorities may issue supplementary resolutions and guidelines that further delineate directors’ conduct expectations, disclosure mechanisms, and compliance best practices.
References to International Best Practices
Notably, the Saudi regulator has actively benchmarked recent amendments against international corporate governance standards (notably those adopted by the UAE, UK Companies Act, and OECD Guidelines for Multinational Enterprises). This intentional alignment is especially relevant for UAE-based businesses used to advanced regulatory environments, as Saudi requirements are now rarely less stringent and sometimes more prescriptive.
Director Duties and Fiduciary Obligations
The Duty of Loyalty, Good Faith, and Avoidance of Conflict
At the heart of the conflict of interest regime is a director’s duty to act in good faith for the benefit of the company and its shareholders. Article 27 explicitly obliges directors to exercise their powers for bona fide corporate purposes, to avoid self-dealing, and to refrain from leveraging their office for personal or affiliated gain without full disclosure and approval.
Key Directorial Obligations Under Saudi Law:
- The duty to avoid situations where interests conflict with those of the company;
- The obligation to disclose any direct or indirect interest in company transactions (“related party transactions”);
- Requirement to secure advance approval from the board or general assembly for conflicted transactions;
- The obligation not to compete directly or indirectly with the company’s business without formal consent.
Practical Insight
For directors serving on both UAE and Saudi boards, it is critical to maintain ongoing awareness of parallel obligations under UAE Federal Decree Law No. (32) of 2021 (concerning commercial companies), which also binds directors to transparency and loyalty. Cross-border directorship structures often result in heightened scrutiny where related party transactions bridge UAE and Saudi entities, demanding rigorous conflict management and documentary trails.
Identifying and Disclosing Conflicts of Interest
Categories of Conflicts Recognized in Saudi Law
Saudi law recognizes a broad array of “interests” caught by conflict regulations, including:
- Personal financial interests (direct or indirect benefit in company contracts);
- Interests of close relatives or entities in which the director has a material shareholding;
- Business opportunities discovered through directorship which are then exploited personally;
- Competing with the company’s activities either individually or through another business (see Article 31 on the prohibition of competition).
Real-world examples regularly include directors sitting on the boards of suppliers, contractors, or even direct competitors, or those with ongoing consultancy relationships outside the company.
Disclosure Procedures
A director must:
- Declare the nature and scope of any interest to the board in writing and prior to discussion or decision on the relevant matter;
- Promptly update such disclosure if circumstances change (e.g., acquisition of a new related party interest);
- Refrain from voting (and often from participating) in any decision where a conflict exists;
- Ensure the disclosure is recorded in the minutes of the board meeting and, for major transactions, is notified to shareholders at the next general assembly.
UAE Comparison
Practical Tip: Unlike some international regimes, Saudi and UAE law both place the disclosure burden on the individual director rather than the company itself. Failing to ‘speak up’ is viewed as a material breach of fiduciary duty.
Comparative Analysis: Old vs New Regulations
Saudi companies and directors accustomed to the pre-2022 regime must adapt quickly to new, clarified standards. A comparative table below illustrates the key changes:
| Provision | Pre-2022 Law | 2022–2023 Law |
|---|---|---|
| Director Interest Disclosure | Required, but mechanisms vaguely defined | Mandatory written disclosure before transaction; board/GA approval required; minutes notation |
| Competing Activities | Discouraged; poorly enforced | Explicit prohibition without GA approval; breach leads to damages and removal |
| Penalty Structure | Administrative fines mostly | Increased fines, potential personal liability, criminal prosecution for egregious cases |
| Enforcement | Ad hoc, rare interventions | MoCI and CMA actively monitor, investigate, and penalize breach; whistleblower protection |
Suggested Visual: Incorporate a process flow diagram outlining the director conflict of interest disclosure pathway, from notice → board review → resolution or recusal → minutes entry → shareholder notification for major matters.
Illustrative Case Studies and Hypotheticals
Case Study 1: Director Serving on Competing Boards
Scenario: A UAE citizen serves as a director of a Saudi construction company and is also appointed to the board of a competing UAE contractor. If unsolicited project information belonging to the Saudi company is shared—even inadvertently—the director risks breaching both Saudi and UAE company law, facing removal and civil damages in both jurisdictions. Under the new Saudi model, the director must declare the other position, recuse from relevant meetings, and obtain express shareholder approval before accepting or continuing the competing role.
Case Study 2: Related Party Transactions
Scenario: The Saudi subsidiary of a UAE-based holding wishes to appoint a UAE director’s cousin’s logistics company as a supplier. The director must declare the connection, abstain from voting, and document the process. If failure to disclose is discovered, not only is the transaction voidable, but the director may face fines up to SAR 500,000 and potential criminal referral for aggravated concealment.
Hypothetical Example: Unintentional Conflict Discovery
Suppose a company discovers that a director failed to disclose a minor shareholding in a customer entity that is now converting into a significant joint venture. Under both the Saudi and UAE models, prompt remedial disclosure and transparent handling can mitigate liability, while “willful blindness” or suppression will exacerbate penalties.
Risks of Non-Compliance and Legal Consequences
Enforcement Trends and Liability Exposure
The Saudi regulator’s posture since the 2022 reform has shifted from education toward enforcement. Recent publicized enforcement actions demonstrate that breaches are met not just with administrative penalties, but with personal director liability and reputational damage. Additional risks include:
- Transaction voidance by aggrieved shareholders or creditors;
- Personal damages claims by the company for any losses suffered;
- In cases of public interest companies, criminal prosecution and board disqualification;
- Regulatory reporting obligations across jurisdictions (including in the UAE, under anti-money laundering and anti-fraud regulations).
Penalty Comparison Table (Suggested Visual)
| Jurisdiction | Administrative Fine | Criminal Exposure | Reputational/Operational Impact |
|---|---|---|---|
| Saudi Arabia (2023+) | Up to SAR 1,000,000 per breach | For gross misconduct; board disqualification; imprisonment for serious offenses | Public disclosure of enforcement, industry blacklist, loss of key licenses |
| UAE (2021+) | Up to AED 1m under Federal Decree Law No. 32 of 2021 | Yes, for wilful misstatement/omission; removal from office | Reputational penalty, director ban, regulatory notification |
Application and Guidance for UAE-Based Entities
Navigating Dual Jurisdictional Risks
For UAE businesses and directors active in or partnering with Saudi companies, conflict of interest obligations become cross-border. Best practice is to apply the higher or more specific standard. Particular diligence is warranted when:
- UAE holding companies appoint directors to Saudi subsidiaries or joint ventures;
- Bid teams, project managers, and directors have parallel active roles in both UAE and Saudi corporations;
- Enterprises enter into related-party transactions stretching across both jurisdictions (e.g. transfer pricing, intra-group management contracts).
Practical Guidance:
- Maintain a consolidated conflicts register for all directors serving across UAE and Saudi entities;
- Regular independent audits of board minutes, disclosures, and related party registers;
- Ensure ongoing director training referencing both Saudi and UAE legal frameworks (citing, for the UAE, the UAE Government Portal and Ministry of Justice guidance);
- Integrate Saudi compliance into UAE group compliance and risk management protocols.
Remedial Steps for Suspected Non-Compliance
If an organization suspects past failures to disclose or manage director conflicts, prompt remedial steps are crucial:
- Cease all related party transactions pending review;
- Voluntarily disclose the breach to the board and, where required, to the authorities;
- Retain external legal counsel to oversee any internal investigation and remediation;
- Implement structural changes to prevent recurrence (see next section on best practices).
Best Practices for Compliance and Practical Recommendations
Building a Robust Director Conflict Management System
Boards and compliance departments must foster a culture where conflict identification and transparent reporting are habitual, not exceptional or reactive. Practical consultancy recommendations include:
- Annual and ad hoc director conflict declarations, using standardized forms referencing both Saudi and UAE laws;
- Automated agenda controls tracking which directors are recused from which agenda items;
- Quarterly board-level review of related party transactions, with external auditing where feasible;
- Company-wide training programs on conflict recognition and reporting, not limited to directors but cascading to management and finance teams;
- Maintaining a confidential whistleblowing channel overseen by independent compliance officers;
- Incorporating conflict of interest clauses in all director service agreements, tailored to dual UAE-Saudi exposures.
Compliance Checklist (Suggested Visual)
| Compliance Item | Action Required | Recommended Frequency |
|---|---|---|
| Conflict Registers | Update with all new directorships, shareholdings, related parties | Quarterly & upon appointment |
| Director Training | Mandatory on appointment and annual updates; Saudi & UAE content | Annually |
| Board Minutes | Record all disclosures, recusals, and related party decisions | Every meeting |
| External Audit | Review of conflicts and related party transactions | Annually |
Practical Note: UAE-headquartered companies with regular business in Saudi Arabia would do well to align Khobar, Riyadh, or Jeddah boardroom procedures to these standards and ensure seamless documentary evidence is generated across both sets of compliance requirements.
Conclusion and Strategic Outlook
The recent tightening of Saudi Arabia’s conflict of interest regime for company directors is a defining moment for the region’s corporate governance ecosystem. Directors—especially those with cross-border mandates involving the UAE—face a materially heightened standard of conduct, and complacency is no longer viable. The legal pendulum has swung decisively toward accountability, transparency, and proactivity. For UAE-based businesses with active or planned Saudi exposure, the practical path forward is clear: attain a granular understanding of both legal environments, build robust compliance and training systems, and foster a boardroom ethos of full disclosure. The persistent direction of regulatory travel is toward international best practice, with heavy penalties for non-compliance but also immense value creation for those who master the new rules. Integrating these director conflict of interest protocols is not only a legal obligation—it is a corporate imperative for trust, competitiveness, and sustainable growth across the evolving GCC marketplace.
For personalized guidance on director obligations and crafting bulletproof conflict management policies for your UAE or Saudi business, contact our expert legal consultants today.