It’s an exciting time in Saudi Arabia with Vision 2030. The country is opening its doors to new economic opportunities, ushering in investment and accelerated growth.
In a move to diversify the economy and foster the growth of public service sectors such as healthcare, education, infrastructure, recreation, and tourism, the Kingdom experienced the highest economic growth among the G20 nations in 2022. The overall growth rate reached 8.7 percent, primarily fuelled by strong private consumption and non-oil private investments.
With increasing foreign investment, there is a growing awareness among Saudi companies that they must meet evolving global stakeholder expectations around regulations, digital infrastructure, and carbon neutrality.
To deliver effectively, Saudi boards need to rethink their roles, better anticipate threats and disruptive elements, and constantly evaluate their performance to ensure alignment with organisational goals and requirements.
How Saudi boards are transforming in tandem with the economy
There is a growing preference for members with previous board experience, with the number of first-time board members dropping from 43 percent in 2021 to 36 percent in 2022. Furthermore, companies are looking to appoint directors who can dedicate more time to their board responsibilities in addition to their day-to-day leadership duties, as reflected in an 18 percent drop in the appointment of active board members.
For companies to thrive, it will be essential to adopt a wider range of viewpoints as diversity, equity, and inclusion have become a strategic business imperative today. Fifty percent of executives say their diversity efforts contribute to their business success to a large extent, up from 22 percent three years ago, according to a global Heidrick & Struggles 2022 study.
This trend is likely accelerated by government efforts and initiatives to boost women’s participation in the workplace and attract foreign talent to the kingdom, and boards are also prioritising gender diversity. Among the new directors appointed to Saudi boards, the number of seats that went to women in 2022 rose to 10 percent from 8 percent in 2021.
Boards are also realising that there could be insufficient alignment between the skills of board members and the strategic direction of companies. As digital transformation becomes a priority, organisations are increasingly in need of board members with direct experience and expertise in the digital domain.
This is exacerbated by the wider skills shortage and increased competition for talent, especially for experienced executives, in the Kingdom as it diversifies away from the oil and gas sector. On a board level, the number of Saudi nationals appointed dipped from 90 percent to 84, reflecting the rising importance of international experience and diverse perspectives.
What Saudi boards should do to drive strategic growth and enhance performance:
Board evaluation
For Saudi boards to become more strategic and elevate effectiveness, they must prioritise evaluation and integrate it into board culture. While external evaluation is still not part of Saudi board culture as many board members are not comfortable being scrutinised, it can drive performance and improve the board’s ability to quickly identify progress and necessary change.
Best practice suggests that an in-depth board review should be conducted at least every three years. This would ideally be by an independent agency in the first year and a self-review led by the nomination and remuneration committee in the following two years.
Succession planning
This is an area where Saudi directors see their boards falling short compared to their global counterparts. In many cases, Saudi boards prioritise CEO succession on top of other crucial roles, and a significant number of boards lack a formal succession-planning process altogether.
Boards need to expand the scope of their discussions on succession planning beyond the CEO position and include the wider leadership team and other pivotal roles within the organisation. They can also take proactive measures to test succession plans for all critical positions and ensure the presence of at least two qualified successors in areas where skills are lacking, such as in digital functions.
Optimised makeup
Bringing together the right combination of experience and perspectives, and regularly reviewing that mix, is one of the most important indicators of board success. New regulations are helping boards move in the right direction. As an example, the New Companies Law for Listed Joint Stock Companies has introduced several regulatory provisions.
These include the requirement of holding four board meetings annually, implementing term limits of four years with the possibility of re-election if necessary, eliminating maximum caps on director remuneration, and addressing non-compete clauses for directors.
As Saudi Arabia progresses towards achieving the goals of Vision 2030, it is essential for boards to evolve and meet the changing demands of the economy. The shift in board composition, with a focus on previous board experience and diversity in gender, nationality, and cross-industry expertise, reflects the growing stakeholder expectations placed on boards.
By prioritising board evaluation, succession planning, and diverse board composition, Saudi boards can play a crucial role in transforming companies and driving growth in alignment with the wider aims of Vision 2030.