Tadawul's governance code: which rules bind Main Market boards and which only guide

For companies listed on the Saudi Exchange's Main Market, Saudi Arabia's Corporate Governance Regulations work as a rulebook with a guidance layer attached. The Capital Market Authority's text says the regulations "are mandatory for companies listed on the Main Market except the provisions that contain a reference of being guiding provisions", Article 2 states. Which provisions carry that reference is the practical question for boards, and the answer is not always where readers expect it.

This explainer uses the CMA's English translation of the regulations, issued in February 2017 and amended by Board resolution 8-5-2023 of 18 January 2023, the version published on the authority's website. Arabic is the official text. The companion Implementing Regulation of the Companies Law for Listed Joint Stock Companies, which governs matters such as board elections and removals, was last amended on 30 March 2026 and is not covered here.

The binding core

Board composition is mandatory. The majority of directors must be non-executive, and the number of independent directors "shall not be less than two members or one-third of the Board members, whichever is greater", under Article 16. The bylaws must set a board of at least three, terms may not exceed four years, and a director may not sit on the boards of more than five listed joint stock companies at once, under Article 17.

Article 19 sets out circumstances that negate independence, "by way of example". They include holding 5 per cent or more of the company or a group company, or being a relative of someone who does; being related to a board member or senior executive; having been an employee of the company or its group in the preceding two years; having a direct or indirect interest in the company's contracts; receiving payments beyond board fees of more than SAR 200,000 or 50 per cent of the previous year's board remuneration, whichever is less; competing with the company; and having served more than nine years on its board, consecutively or not, according to the text. The board must evaluate each independent director's independence annually.

The audit committee is also mandatory in its basics. It is formed by board resolution, has three to five members including one specialised in finance and accounting, may include no executive director, and must have at least one independent director, under Article 51. Anyone who worked in the company's finance department, executive management or for its external auditor in the previous two years may not sit on it, and no member may sit on more than five listed companies' audit committees. Remuneration and nomination committees are required too, each with no executive directors and at least one independent member, and may be combined into a single committee.

The guiding layer

Several provisions that boards might assume are binding are marked as guidance in the Saudi text. Two sit inside the audit committee article itself: paragraph (c), that the chairman of the audit committee shall be an independent director, and paragraph (d), that half of its members must be independent, are both footnoted as "Guiding paragraph", the regulations show.

The risk management committee, whose chairman and majority must be non-executive, is a guiding article, as are the following article on its competencies and the formation of a corporate governance committee. So are the conditions for board membership in Article 18, which list leadership, competency, financial literacy and fitness. The annual performance assessment in Article 39, including an external assessment by a competent third party every three years, is also marked guiding.

The status of a provision can change. The text records CMA resolutions that converted items between categories, for example making the nine-year limit on independent directors mandatory for board terms starting after 1 January 2019, and declaring Article 27, which bars appointing a chief executive as chairman during the first year after his or her service ends, a guiding article.

Where comply or explain comes in

The guidance layer is not optional in the sense of being invisible. Article 87 requires the board's annual report to include the "implemented and non-implemented provisions of these Regulations, and justifications therefor", alongside the names, qualifications and experience of directors, committee members and executives, according to the text. A company that does not appoint an independent audit chair or skips the external board assessment has to say so, and say why, in a document its shareholders read.

The regime is lighter on the Parallel Market, Nomu. There, only a short list of provisions is mandatory, including paragraph (b) of Article 50 on committee quorum and voting, paragraph (a) of Article 51 on forming the audit committee, Article 52 on its competencies, Article 56 on its powers and Article 88 on the audit committee's report, and the rest are guiding unless another rule says otherwise, under Article 2.

Three practical points follow from the text. First, a board that meets the mandatory one-third independence floor may still have an audit committee chaired by a non-independent director, because that requirement is guidance; the Article 87 disclosure is where to look. Second, independence under Article 19 is tested against examples rather than an exhaustive list, and the board's annual evaluation is the mechanism that applies it. Third, the boundary between mandatory and guiding moves by CMA resolution, so the footnotes in the current version matter as much as the articles.