The State as a Shareholder: A Study of Partial Privatization and Its Impacts on Corporate Governance in the Kingdom of Saudi Arabia

Abstract

Different studies show that partially privatized firms outperform their private peers in Saudi Arabia. Ownership of Saudi government of publicly traded companies may be feasible economically, but legally creates a hard case. The literature of corporate governance is still unable to absorb the implications of government ownership. This study attempts to examine those implications and its impacts on jurisdictions featuring dual judicial legal systems (administrative and civil courts) through presenting Saudi Arabia case.

The Saudi government adopts the single tier board structure. Under this structure, only shareholders are entitled to elect board of directors. When the government holds a controlling stake, its leverage over a firm’s affairs is difficult to challenge. Shedding lights on the Saudi experiment with government ownership, this study attempts to answer two questions that result from government ownership: procedurally, which court will review the government’s actions, the administrative court or commercial court? Substantially, what law will govern these actions?

The available evidence on the performance of firms partly owned by the government emphasizes the efficiency of government ownership. This implies that when the government exercises its rights as a shareholder it acts in a business-like capacity. Therefore, this study finds that its actions would be reviewed by the Commercial Courts and the Companies Act (Saudi Corporate Law) applies to it. Although there is no lawsuits against the government as a shareholder supporting this conclusion, but analyzing current regulations and rules would draw this conclusion.

Finally, this article sketches policy implications scrutinizing potential proposals aimed at eliminating the complications of state intervention in the stock market.

Keywords: Corporate Governance, Government Ownership, Privatization, Saudi Arabia