Navigating Corporate Governance in
DMCC (Dubai Multi Commodities Centre)

By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it – Adam Smith, The Wealth of Nations.

How can self-interest, which, by definition, is about the self, end up benefiting society as a whole?

While this may sound counterintuitive, Adam Smith believed that in a competitive market, this happens all the time. To improve quality, reduce costs, and cater to customer demands, businesses try to outdo each other. Their drive for growth leads to innovation and creates better products and services. The “invisible hand” turns individual ambitions into a force for progress in a competitive marketplace.

However, what happens when there is no such external competition?

Conflicting self-interest can create challenges and fissures that need to be managed through structured rules, processes, and practises. For companies, this is where corporate governance comes in. In this blog, we will explore the concept of corporate governance. We will specifically look at the corporate governance regulations for companies operating in the Dubai Multi Commodities Centre (DMCC).

The 2023 G20/OECD Principles of Corporate Governance outline six key principles shown in the chart below that are intended for policymakers to help them in strengthening the legal and regulatory framework surrounding corporate governance. While these principles aren’t specific to corporate governance within a particular company, understanding them helps fathom the overall direction of governance practises globally.

^{Source: G20/OECD Principles of Corporate Governance 2023}

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At the level of a company, corporate governance provide a structure for power, accountability, and the chain of decision-making. It also acts as a framework that helps management and the board deal with the challenges of running a business effectively. By having clear decision-making processes and controls in place, good corporate governance makes sure that the interests of all stakeholders—shareholders, employees, suppliers, customers, and the community—are balanced. It also helps build trust with investors, the community, and officials. It clearly shows the company’s goals and values, making it easier to attract investment and grow financially in the long run.

For companies in the DMCC, the world’s top free zone for nine consecutive years, corporate governance plays an important role in building confidence among investors and stakeholders, as both would expect companies in DMCC to operate with highest degree of transparency, accountability, and ethical business practises. From 2010 to 2023, the number of companies in DMCC increased by 800%. Apart from infrastructural and governance support, the trust and integrity associated with the businesses would be another important reason for this growth. In one of our previous blogs, we explored the process of setting up a business in DMCC. Once such a company is established in the DMCC, it needs to follow DMCCA’s corporate governance framework, which not only helps in structuring the company’s decision-making and accountability processes but also supports its sustainable growth and long-term success.

The DMCCA Company Regulations 2020, particularly Section 9, outline the corporate governance requirements for entities that fall under its jurisdiction. This section emphasises the importance of maintaining strong governance structures to ensure effective management of companies. It covers various key aspects, such as the Officer Rules, which detail the roles, responsibilities, and duties of company officers, including directors, managers, and secretaries.

In a DMCC company, directors are responsible for overseeing the business and making key strategic decisions. They manage all company functions except those specifically reserved for shareholders. Directors in a DMCC company must act in good faith, avoid conflicts of interest, and ensure the company follows all legal rules. Their duties include planning for the future, managing risks, and ensuring that governance rules are followed. Directors also oversee the performance of the company’s secretary and manager.

To be a director in a DMCC company, individuals must be at least 21 years old and free of any criminal convictions related to dishonesty in the past ten years. Directors are appointed by shareholders for a period determined by the shareholders. There must always be at least one director in a company, and any change in the director of a company must be notified to the registrar within 14 days.

The Officers Rules outline the seven key duties of DMCC company directors:

1. Act Within Powers: Directors must use their authority as outlined in the company’s Articles of Association and only for the intended purposes.
2. Promote Company Success: Directors should make decisions that benefit the company and its shareholders, considering long-term effects, employee interests, customer and supplier relationships, and the impact on the community and environment. They must act honestly and lawfully while making decisions.
3. Exercise Independent Judgement: Directors must make decisions freely, without outside influence, unless they are bound by agreements restricting them to exercise their discretion.
4. Use Reasonable Care, Skill, and Diligence: Directors are expected to apply care, skill, and diligence for a company’s benefit.
5. Avoid Conflicts of Interest: Directors should avoid situations where their personal interests may conflict with the company’s interests.
6. Do Not Accept Benefits from Third Parties: Directors cannot accept gifts or benefits that may compromise their decision-making.
7. Declare Interest in Transactions: Directors must disclose any personal interest in a company transaction before proceeding.

Every DMCC company must have a secretary responsible for filing important documents in accordance with the regulatory requirements. These tasks may include submitting documents such as director resolutions, licence amendments, and audited financial statements. Secretaries may also have other administrative duties, such as organising shareholder meetings, providing necessary information to the Registrar for the Security Register, and maintaining official records, including Minutes Register. Secretaries must complete all these tasks in a timely manner.

Every DMCC company must appoint a manager to handle its day-to-day operations. Working under the Board of Directors, the manager is required to see that the company runs smoothly and efficiently while acting in the best interests of the business. The manager is sometimes referred to as a Licence Manager, and his name appears on the Licence as the primary contact for the DMCC entity. It’s important to note that for the purposes of company regulations, the manager is an office holder of a DMCC company appointed by the directors and not just any employee with the word ‘manager’ in their job title. Managers must see that the DMCC Company operates in accordance with permitted licence activities included in the licence.

Annual General Meetings (AGMs) play an important role in ensuring transparency and accountability within the company, allowing shareholders to stay informed about the company’s performance and future plans. A DMCC company must hold Annual General Meetings (AGMs) within 18 months of registration and every 12 months after that. These meetings also provide shareholders the chance to review and approve financial statements, appoint or reappoint auditors, and make decisions that affect shareholder rights, such as amending the Articles of Association. In addition to AGMs, shareholders holding at least 10% of the company’s share capital can request an Extraordinary General Meeting (EGM), which must be organised by the directors or secretary within 60 business days. This gives minority shareholders the opportunity to raise urgent concerns and influence the company’s direction.

A DMCC company is also required to prepare financial accounts annually in line with International Financial Reporting Standards (IFRS), as per Article 71.2 of the DMCCA Company Regulations, 2020. IFRS is a set of accounting rules that detail how companies must maintain their records and report their expenses and income. It is maintained by the International Accounting Standards Board and helps make accounting consistent, standardized, and easy to understand, regardless of the country where such accounts are prepared. For a DMCC company these accounts must accurately reflect its financial standing, be approved by the directors, and be signed by at least one director. Detailed financial records must be kept for a minimum of five years.

A business runs on trust, and building that trust with both customers and investors is essential for long-term success. At the heart of this trust is strong corporate governance, ensuring companies operate transparently and ethically, while balancing the needs of shareholders, employees, suppliers, customers, and the wider community.

One of the best ways to strengthen corporate governance is by clearly communicating accountability within the company’s structure. This helps ensure governance policies are consistently followed throughout the organisation. To do this well, businesses need experts who understand not only local regulations but also unique challenges a company faces. Tailored solutions that meet both regulatory demands and business goals and communicated effectively are key to overcoming most corporate governance challenges.

Discover how AKW Consultants can provide you with expert support in building strong governance frameworks, ensuring compliance, and fostering transparency to drive sustainable business growth.