ARTICLES & UPDATES

Membership in a board of directors is considered a form of agency, as a board member acts as an agent on behalf of the shareholders and represents them in managing the company. This role is a mix between a paid agency and an unpaid (voluntary) agency. The remuneration of board members is discretionary and not legally mandatory. The role of a board member is mostly voluntary in nature and falls outside the scope of paid employment due to the absence of elements such as subordination, regular salary, or continuity.

The remuneration of board members is one of the most sensitive issues in joint-stock companies, as it represents a delicate balance between motivating leadership performance to act in the best interests of shareholders’ and preventing unjustified use of the company’s funds.

The Kuwaiti legislator addressed this matter in Article (198) of the Companies Law, which states that board members’ remuneration must be approved by the General Assembly, should be linked to the company’s performance and profits, and must not exceed specific percentages set by the law or the company’s bylaws.

However, in practice, there is often a gap between the legal text and its actual application, especially in companies that are operating at a loss or those whose shares are traded below their nominal value. In such cases, it has been observed that remuneration continues to be paid to board members or to committees formed under the board, under various labels such as “attendance fees,” “consultancy fees,” or “additional duties,” even in the absence of positive performance indicators or clear reform plans.

The board of directors undertakes all activities necessary for managing the company in accordance with its objectives. Although the board operates collectively, it may distribute tasks among its members based on the company’s nature of work. The board may delegate its members or a committee composed of its members to carry out specific tasks, supervise certain activities, or exercise some of the board’s powers and responsibilities.

This means that the work of the committees is essentially board work delegated to a committee, which is usually composed of board members. Therefore, a member serving on such a committee exercises his role and authority as a board member, performing original duties that have been delegated to the committee by the board.

Moreover, a trend has emerged of monopolizing executive and administrative positions for long periods without renewing leadership or reviewing competencies. In some companies, this has led to administrative stagnation and financial distress, as companies remain trapped in a cycle of losses with no serious initiatives for rescue or restructuring.

General Assemblies bear a fundamental responsibility in this regard. They are not only responsible for approving remuneration but also serve as the highest oversight authority capable of rejecting unjustified remuneration, especially when there is no actual performance that positively impacts the company’s financial position. The General Assembly also has the right, based on legal provisions, to change board members or refrain from renewing their terms if negligence is proven.

The same legal rules for board remuneration apply to committee remuneration under Article (198), and such compensation is considered undeserved if the company has incurred losses. More seriously, it constitutes a legal violation warranting accountability if the committees are merely formal and do not perform any real work, being instead a means to obtain unjustified benefits over other shareholders. In such cases, there is no genuine incentive to strive or make efforts toward achieving profits.

Addressing this issue is not merely a matter of financial regulation, but rather a reform of the corporate governance system and a guarantee of equal opportunities in the market. This helps create a healthy investment environment in Kuwait and strengthens the confidence of both local and foreign shareholders and investors.

This article was recently published in Arabic in Al-Jarida newspaper. You can view the original newspaper clipping here –https://www.aljarida.com/article/106353

Lawyer / Abdulrazzaq Abdullah E-mail: azq@arazzaqlaw.com