The 2026 amendments to corporate

With the issuance of Decision No. 56-2026 by the Capital Markets Authority CMA’s Board, the shareholding companies on “Boursa Kuwait” face a new challenge.

The Decision No. 56-2026 provides for substantive amendments to Corporate Governance Book No. 15, issued pursuant to Executive Instructions No. 7-2010 of the Law Establishing the CMA.

Thus, the attention of shareholding companies in Kuwait is now waiting for the areas of amendment to be identified in the governance book and interpreted clearly so as not to fall into violations that were not taken into account before the 2026 amendment.

Shareholding companies fear the risks of violating corporate governance rules, starting with disciplinary penalties and fines from the CMA, and ending with a decrease in the company’s market value on the stock exchange “Boursa Kuwait”.

Accordingly, we present this study with the aim of clarifying the scope of entry into force and validity of the new amendments to the Corporate Governance Book No. 15, and then explaining and simplifying the amended rules related to the governance of shareholding companies in Kuwait.

First: Where is the effective time of the amendments to the Governance Book No. 15 for the year 2026?

The Decision No. 56-2026 issued by the Board of CMA differentiated between two types of rules in terms of the effective time of the new amendments, as follows:

(a) Immediate implementation of the new regulations for an “independent board member” on the board of directors of any shareholding company^[1]. The independent member must enjoy the conditions imposed by the 2026 amendment with the first election of the first board of directors, following the issuance of the amendment by Decision No. 56-2026 on 5/6/2026.

For example, assuming that the company’s board of directors expires on May 5, 2026, and that the general assembly meeting to elect the board will be on May 7, 2026, the new rule must be taken into account for the independent members within the new board of directors.

(b) Immediate access to the governance “forms” submitted through the CMA’s electronic portal, as these forms are effective as soon as the CMA’s new decision is issued^[2].

^[1] Article III-1, Decision 56-2026, which stipulated the effective date of Article 2-3, Book 15, as amended in 2026.

^[2] Article III-2, Decision 56-2026, which stipulated the effective date of Article 13-1, Book 15, as amended in 2026.

For example, if the company wishes to submit its governance report on 5/7/2026, it must fill out this report on the new governance form after the amendment attached to Decision No. 56-2026^[1].

All remaining amendments to the governance rules of joint stock companies will be effective as soon as 2026 ends^[2].

Second: What is the scope of application of the Governance Book amendments for the year 2026?

Regarding companies to which Corporate Governance Book No. 15 applies, we must distinguish between two things:

(1) The scope of application has not changed initially, as the Corporate Governance Book remains applicable to:

(b) Licensed shareholding companies, whether listed or not listed on the stock exchange.

(2) A new exception to the scope of application; It concerns “branches” of foreign companies licensed in Kuwait, whose parent company is subject to corporate governance rules from regulatory bodies similar to the CMA^[3].

The reason behind this new exception is that foreign companies no longer have to contract with a local agent after Article 24 of the Commercial Law No. 68-1980 was amended by Law No. 1-2024, as the foreign company became able to open branches in Kuwait directly.

A branch is a private establishment part of a foreign parent company that is opened directly in Kuwait without a local agent. The branch does not have any independent legal personality, as it is not a new company established in Kuwait, but rather merely an establishment that represents an integral part of the parent company’s legal personality.

As long as the parent company is a shareholding company subject to the supervision of a regulatory body similar to the financial market authority in its country, there is no need for the branch to be subject again to the governance rules in Kuwait, because it is an integral part of the foreign company that follows the governance rules in its country.

In fact, governance rules around the world are similar because countries follow the guidelines of the Organization for Economic Cooperation and Development (OECD) in cooperation with the G20 (G20).

So, in order to be precise in determining whether the new exception includes or does not, we must distinguish between two aspects:

(a) A “subsidiary” of a foreign parent company; that is, a company that has a legal personality but whose capital is controlled by the foreign parent company. This is an independent company in its legal personality from the parent company, and therefore it is subject to the Corporate Governance Book in Kuwait.

For example, the Swiss company “Nestlé” opened a company in Kuwait called Nestlé-Kuwait with capital and a legal personality independent of Nestlé Switzerland, so here Nestlé-Kuwait is subject to the Corporate Governance Book in Kuwait.

(b) A “branch” affiliated with the foreign parent company; in this case, the branch does not have any independent legal personality nor any capital independent of the foreign parent company, but rather is part of it, and is not subject to the Corporate Governance Book in Kuwait if the parent company is subject to corporate governance rules under the supervision of the authority to which it is subject in its country.

For example, if Nestlé Switzerland opens a branch in Kuwait under the same Nestlé brand after obtaining a license to do so, then this branch is not subject to Kuwaiti corporate governance rules because the parent company, Nestlé, is subject to governance rules under the supervision of a competent authority in its country, Switzerland.

We can explain the subjects of corporate governance amendments for 2026 according to the following sections:

Given that corporate governance rules are strict and may not be compatible with a wide range of Kuwaiti companies, it is unrealistic to impose governance rules in a strictly binding manner.

If the CMA enforces ultra-strict and modern governance rules on companies, such as the use of sustainability methods in their operations or artificial intelligence “AI” beyond their financial capacity, most of these companies will declare bankruptcy or exit the Kuwaiti market.

Therefore, a company that is unable to comply with certain governance rules can disclose to the CMA its inability to implement certain governance rules while providing a convincing, logical explanation. Accordingly, the principle is called “Comply or Explain.”

However, the CMA has identified only some advanced or perfect rules that are subject to the principle of commitment or interpretation, such as sustainability rules. The remaining substantive governance rules are subject to the principle of compliance under penalty of disciplinary action by the CMA.

(2) What was the definition of the principle of “Comply or Explain” before the 2026 Governance Rules were amended?

The previous definition only included providing some governance rules that companies could violate, with the company having to state in its governance report the rule it did not adhere to, and the reason that forced it to do not adhere.

(3) How did the principle of “Comply or Explain” become defined after the 2026 Governance Rules Amendment?

The CMA added, pursuant to Decision No. 56-2026, to the definition of the principle of “Comply or Explain”, that justifications must be presented to the CMA justifying the company’s non-compliance with the governance rule.

The new amendment to the definition has raised the ceiling of the company’s justification for its failure to adhere to the governance rule, as the new definition considered that the company would be in a state of “non-compliance” if its interpretation of its failure to adhere to the governance rule was insufficient or unjustified according to the CMA’s models^[4]; which opens the CMA’s hands to take appropriate punitive measures in the event that it does not accept the company’s justifications.

For example, a company that uses a water-polluting production line in its operational activity can justify this violation of sustainability rules within governance by saying that it cannot change the entire production line, because this currently exceeds the company’s financial capacity, and it must fill out an explanation form for non-compliance with sustainability rules on this basis; while the CMA may not be convinced by this justification and believes that the company should have purchased equipment to mitigate the negative environmental impact, which is expensive and within the company’s reach.

(4) What is the expected impact of amending the definition of the principle of “Comply or Explain”?

Companies will have to be more careful within the scope of governance rules that are subject to “Comply or Explain”; it is no longer enough for the company to provide reasons for not adhering to them, but rather these reasons must be accompanied by a set of logical and convincing justifications for the CMA, all under penalty of considering the company non-compliant, and then imposing disciplinary punishment against the company.

Second: Tightening the standards of “independent” among members of the company’s board of directors

The CMA requires companies that a portion of their board members be “independent” members, i.e., those independent of interests.

These are members who do not have a fundamental personal interest that might influence the direction of their voting on the board. A non-independent member with interests that conflict with the company may vote to serve his personal interest rather than the interests of the company and shareholders.

For example, a board member who owns a substantial percentage of the capital exceeding 5% can vote against any takeover offer for fear of losing influence in the company, even if the takeover offer is beneficial to the company and profitable for shareholders.

Therefore, the independence rule considers owning 5% or more of the company’s capital to be inconsistent with independence, and classifies a member under the heading of “non-independent member.” This requires the company to find another independent member in order to complete the quorum of independent members on the board of directors, which is 20% of the whole number of board members.

(2) What were the independence rules before the governance rules were amended in 2026?

• It was not a preventer of independence for a candidate for board membership to own shares in the company’s group, but only in the company itself.

• The kinship relationship between the candidate for membership in the Board of Directors and the rest of the members, executive management, or parties related to the company, which is incompatible with independence, was only first-degree kinship.

For example, it is incompatible with independence for a board candidate to be the son of the company’s CEO.

• Dual board membership, which was incompatible with independence, was only membership in the two boards of directors at the same group. Executive positions in one of the group’s companies were not incompatible with the independence of a member of the board of directors of one of the group’s companies.

(3) How did independence standards become after the governance rules were amended in 2026?

• It has become a preventer of independence for a candidate for board membership to own 5% or more of the capital of any company in the company group, and not just in the company itself^[5].

• The degree of kinship that is incompatible with independence has been expanded to the second degree from the candidate for board membership towards members of the company’s board of directors, executive management, or parties related to the company^[6], which includes grandparents, grandchildren, brothers and sisters.

• Dual board membership, which is incompatible with independence, has become dual board membership with companies in the company’s group, in addition to having a position in executive management in one of those companies or in parties related to the company^[7].

For example, the CEO of a holding company is a non-independent candidate for membership in the board of directors of a company within the group owned by the holding company or of any company related to it, such as the parent company of the holding company.

• The preventers of independence include the presence of a direct or indirect interest of the independent board member or any of his relatives up to the first degree in the company’s contracts or in its group^[8].

For example, an independent board member will lose his independence status if his son becomes one of the company’s suppliers.

• A time limit for independence has been added, which is membership in the Board of Directors as an independent member for two consecutive terms, with no less than 3 consecutive years between them^[9].

For example, an independent member of the Board of Directors from mid-2017 to mid-2021, and then from mid-2021 to mid-2025, may not run as an independent member even if he has not encountered any objection to independence until 3 consecutive years have passed, that is, after mid-2028.

• A periodic duty has been imposed on the independent member of the Board of Directors to submit a declaration to the Rewards and Nominations Committee, stating that his independence continues and that he does not fall under any of the obstacles to independence. If any of these obstacles occur, the independent member must notify the aforementioned committee immediately^[10].

(4) What is the impact of the independence standards after the 2026 amendment?

No member or candidate for membership in the Board of Directors can evade his interests that conflict with the company, whether directly through the ownership percentage in the company, or indirectly by controlling ownership percentages in the companies of the economic group to which the company belongs.

The duplication prohibited for an independent member regarding the company’s management positions has also expanded from duplication of board membership in two companies from the same group to any executive position that meets with the board membership.

Most importantly, the anti-independence kinship relationship in nominating independent members has expanded to the second level with current members or executive management.

A board member can no longer pass on his interests that conflict with the company’s interest by contracting with his first-degree relatives.

• The minimum number of Board of Directors meetings has become from at least 6 before the amendment, to any number exceeding, provided that it is stipulated in the company contract^[11].

• The pass decision no longer covers the Board of Directors meeting^[12]; the issuance of this decision is not considered part of the number of Board of Directors meetings.

• The possibility of holding Board of Directors meetings using modern means^[13].

• Adding the title “Governance Report” to the Board of Directors’ report on the extent to which the company’s governance procedures and requirements have been completed^[14].

• It has become the duty of the Board of Directors to adopt a special remuneration policy prepared by the Nominations and Remuneration Committee^[15].

• A new task has been added to the Nominations and Remuneration Committee to take special measures in the event of a vacancy in the position of independent board member, including recommending the nomination of a new member^[16].

• The name of the risk management has been amended to the Risk Unit^[17], in order to emphasize its independence.

• Opening the possibility of assigning its staff to a party completely external to the company to measure the risks in the company^[18]; this is an affirmation of the independence of risk management activity in companies.

• The Internal Audit Department has been named the unit^[19], with the possibility of relying on an external party in the audit process as well^[20].

• Setting a maximum time limit of 90 days from the end of the fiscal year to provide the CMA with an internal control report^[21].

• The company’s business charter must include a set of obligations, including not exploiting the company’s funds to achieve personal interests that concern members of the board of directors or the company’s employees and their relatives^[22].

• Defining the tasks of the Investor Relations Unit in announcing information and data to investors, communicating with them, and responding to their inquiries; This includes current and potential shareholders and anyone interested in investing^[23].

• The company’s website must include an introductory overview of the company, the names of its board members, financial statements for the last five years, minutes of general assembly meetings, the company’s social responsibilities, and communication information with the company^[24].

• Commitment to the forms prepared in advance by the Authority and sending them via the CMA’s electronic platform^[25].

The 2026 amendments to the corporate governance rules in Kuwait appear to be of the essential type with regard to raising the level of transparency, efficiency, and integrity of the boards of directors of shareholding companies.

The severity of the amendment was evident in the purpose of each amendment, both in terms of classifying a broader spectrum of board members under the category of “non-independents” and in terms of preventing them from indirectly exploiting their positions to serve their interests.

In fact, the amendments are not intended to make it more difficult to implement governance standards in shareholding companies, but rather to raise the quality of management in these companies.

That is, implementing the governance standards amended in 2026 will lead to more protection for investors in financial markets, a more attractive climate for investment towards them, and more market value added to companies committed to the highest governance standards; This is in the interest of investors and companies at the same time.

^[1] Annex 2, Decision of the Board of Commissioners of the Authority No. 56-2026.

^[2] Article Three, Decision of the Board of Commissioners of the Authority No. 56-2026.