Corporate Governance in Oman

Introduction

The business environment is rife with so many issues that ought to be considered by its Board of Directors and other stakeholders to realise sustainable development. Some of those issues are corporate governance, insurance laws, environmental conservation, regulatory and legal framework. In Omani, there are all manner of frameworks governing the above elements as shall be the subject of this paper henceforth.

Ethical and Legal Issues

Pollution

Often, legal and ethical issues are intertwined but there are also instances when the two can be separated from each other. In the present scenario, the Oman mining industry is beleaguered with noise and dust pollution concerns emanating from mining companies. Environmental law dictates that companies should take steps to minimise both noise and air pollution in their industries. These laws and attendant regulations are derived from the Oman Royal Decree. Therefore, a breach of law must as is expected attract sanctions against the offending persons and companies. For this reason, the Oman government responded by forcing quarry operators to relinquish affected sites for others (Mikesell and Whitney 2017:157). Other measures taken includes the imposition of a moratorium on the issuances of new permits in a bid to reduce any further negative effects on the communities around the quarries.

Damage to the environment

Ideally, companies should take into account the effect of their activities on the community and failure to do that raises issues that warrants government intervention and condemnation by the community. Therefore, companies undertaking mining and quarrying activities damage the environment in so many ways. The nature of their activities is such that it destroys habitats for wildlife and interferes with the natural scenery of a place. At the end of their operations in the mines and quarries, the companies involved are expected to reshape the affected land so that it can still be used for other economic activities apart from mining. In the present scenario, the government had undertaken to review practices in the mining and quarrying industry after stopping the issuance of new licenses (Xing and Zheng 2009: 58).. This is an important step in ensuing the companies in this sector use mining techniques that do not exacerbate damage to the environment. They can adopt alternative methods and practices that are eco-friendly.

Violation of licence terms

The government has taken radical steps to shut down mining and quarrying sites owing to the tendency of some companies to violate the terms of their licenses. Every mining company is expected to abide by the terms of licensed issued to them and follow the prescribed regulations for mining in Oman. There are documented cases of come operators running illegal quarries and mines contrary to their mining licenses. Almost all industries are regulated and the mining industry is no exception, the government has thus taken valid steps to bring sanity in the sector by dealing with illegalities by companies. Just as natural persons abide by the various laws in Oman, companies must also be subjected to the relevant law and be punished in case of violation.

Investment in community welfare schemes

After deliberations by the joint panel, it was agreed that as a condition for licensing at least five per cent of the profits will be invested in community welfare scheme. Social responsibility is an ethical obligation of a company to contribute to the welfare of its neighbouring community. Therefore, companies do necessarily need laws or conditions for them to undertake social responsibility. In fact most companies should be working towards sustainability which includes the relevant communities. However, sometimes the government must come in to enforce these requirements lest some companies fail to undertake such an ethical obligation.

Oman Laws breached and government response

Labour laws

The quarrying industry has been accused of not giving employment opportunities to locals. It appears that most of the companies engaged in mining and quarrying activities are foreign based hence have the tendency to employ people from their own countries or other foreign nationals. This has left out locals who may have the same professional and academic qualifications as the foreign nationals and expatriates. Oman labour laws have certain provisions that guide employers in all industries including the mining industry (Das and Gokhale 2009: 32). Generally, these labour laws are aimed at encouraging more Omani citizens to work in the private sector like in the mining industry.

In response to the above violation, the government decided to come up with new labour law measures including the Omanisation policy (Ansari and McGlade 2018: 55). The Public Authority for Mining (PAM) which is charged with the issuances of licenses to mining operators have implemented a requirement that joint companies must gave at least 35 Omani citizens. As a result, there will be more companies owned by Omanis and also employing the locals. Additionally, the government has made efforts to implement and update the Royal Decree no 35/2003 which has provisions requiring employers to ensure there is safe working environment for its employees.

Environmental laws

Omani environmental law is majorly found in Sultani Decrees and Ministerial Decisions. Through the Ministry of Environment and Climate Affairs (MECA) and laws like the Sultani Decree 114/01 environmental permit system, the government has been able to promote environmental conservation. The operators of mines and quarries were actively polluting the environment with loud noises and dust, and this was against the laws and regulations. Some of the company’s activities were a direct breach of health and safety laws. To deal with this problem, the Law on Conservation of Environment and Prevention of Pollution has been implemented and updated to deal with emerging challenges in the sector (Pauceanu and Hammouri 2016: 95). Therefore licenses will only be issued to companies that have been compliant with the minimum environmental standards. The authority can also conduct inspection of mining facilities to ensure there is actual compliance with licensing terms

Mining Law

When PAM issues licenses to mining companies, there are terms attached to them that prescribe the extent to which the company can carry its own activities. These conditions must be adhered to be the mining companies and failure to do so attracts penalties from the authority and ministry. It is documented in the scenario that there are mining and quarry companies that conducted activities which are not authorised by their licenses while others engaged in irregularities contrary to their licenses requirements. In response to the above violations of mining licenses, the government moved to stop the issuances of any further licenses to mining companies in a bid to regulate the sector. Further, the government proceeded to shut down some mining sites where the companies involved had been engaging in irregularities. In the alternative, the authority in conjunction with other government departments have provided other suitable mining sites for the company but under strict conditions that will minimise violations.

Company Law

The authority controls the type of entities allowed to be formed for purposes of mining and quarrying. It also prescribes minimum ownership percentage for locals and exceptions for foreign owned companies. Apparently, the new directives and conditions recommended by the panel were made in light of non- compliance with previous regulations. In the new regulations, licenses will only be issued to joint companies owned by a minimum of 35 Omani citizens. This was meant to take care of the interest of the local Omani population in the mining industry.

Recommendations to the Omani government

Stiffer penalties

A number of companies have been violating licenses terms, degrading the environment and engaging in irregular mining activities despite there being laws governing such conduct. There is need to introduce stiffer penalties for any such violations so as to deter any companies of persons who might consider doing the same. This can take the form of heavier fines to the offending companies so that they will consider the cost of their action compared to the profit they will derive from such an activity.

Heavy jail terms will also set an example and a lesson to other directors of such companies so that they will avoid violation of mining regulations. It can also take the form of cancellation of operating licenses of companies found to be flouting the mining regulations. Companies are afraid of losing their licenses because it is the only thing that allows them to do business and without it they have no business. Therefore it will promote high rate of compliance even better than fines and jail terms. Another effective measure could be to blacklist companies that have been convicted for flouting mining laws so that other countries and industries know about their negative trait.

Strict conditions

Before companies are issued with licenses, PMA should require them to adhere to certain strict conditions. In the United States, they have implemented very stringent conditions that must be met by mining companies and if they are not met, no license will ever be issued. If Omani government adopts this approach, it will largely reduce the many instances of a company being issued with a license then later it is found that it has not been compliant. After a demonstration of compliance and license is issued, the authority should undertake regular and impromptu inspection of these mining companies to monitor their progress in terms of compliance.

Raise minimum core capital/ Training/Awareness

In consideration of the violation of license terms by companies in the mining industry. It would be advisable to implement higher capital requirements so that it is only serious companies that will undertake mining. This would reduce instances of flagrant violations by companies that do not take seriously compliance issues because more a company spends in its project, it becomes concerned about compliance. The authority should also organise training and education programmes for companies to facilitate awareness and acquisition of requisite knowledge for compliance and sustainable development purposes. These intervention methods has been proven be some of the most effective in problem solving.

Reasons for continued non-compliance

Some of the companies in the mining industry are continuously, breaching license conditions, engaging in irregular and illegal activities, polluting the environment, violating company laws, disregarding social responsibility and doing other unwarranted things. First, some companies are driven by the need to make more money at the expense of regulations and conditions set for the industry. Second, the need to make profits at a lower costs has made some companies take shortcuts in production thus flouting environmental and labour laws. Third, the government is to blame for weak regulatory framework which needs to be strengthened to deal with emerging issues in the sector. Fourth, increased competition in the sector means that each company wants to stay ahead of the others sometimes by evading regulatory requirements. For instance, a company may use practices that are cheap but contribute to environmental degradation when there are prescribed practices. Fifth, inadequate inspection by the government has led to some companies becoming complacent in illegal mining activities. All these and many more reasons contribute to non-compliance by companies in the mining sector.

Insurance Companies Law

Utmost good faith and disclosure in Insurance law

Insurance law is concerned with a contract between the insured and the insurer, the agency relationship involving insured, insurer and third party, and regulation of insurance companies. The Capital Markets Authority (CMA) is mandated to deal with and regulate the insurance industry Royal pursuant to the Royal Decree 90/2004 which transferred insurance jurisdiction from the ministry of commerce and industry to the CMA. While the Royal Decree No 26/75 and 12/79 promulgated the Insurance Companies Law, subsequent decrees have amended it to bring an array of changes (Royal Decree 39/2014).

The principle of uberrimae fidei otherwise known as utmost good faith dictates that both the insured and the insurer must disclose all relevant material facts before creation of a policy. According to Circular No 2/2005 Code of Conduct for Insurance Business, CMA requires full disclosure of material facts by the insured including family medical history, lifestyle, food habits, and health condition among other details. Equally, this circular made pursuant to Royal Decree requires the insurance company to declare all its public disclosures and investment strategies. In case, there is non-disclosure or misrepresentation by either party, a policy may be considered void. In essence, dealings between the insured and the insured should be based on honesty and integrity so that there is full and accurate disclosure by the parties.

Representations made by an insured will be expected to be honest and truthful and the insurer should also provide accurate information regarding premium figures and coverage limitations. This principle applies to both general insurance products and life insurance policies. It is necessary for informed decision making by either party before subscribing to an insurance policy or issuing one. If a party conceals certain material information relating to a policy, the insurer has the option of voiding the contract or even refusing to pay for any amounts under it, that is, where the insured knew that it was pertinent to the policy.

Importance of an insurance cover

Insurance is important to most commercial enterprises because it mitigates risk that may occur in an organization or a given sector. It is one of the recommendations that is considered by organizations that require risk management systems. The world is full of uncertainties and businesses get razed down, swept away by floods or blown away by explosives. It is indeed difficult to start rebuilding a business from scratch. This is where insurance cover comes in for a business because instead of halting business, they will be compensated and commerce keeps moving forward (Alshubiri 2015: 26). In some industries, insurance is mandatory, hence a business or an individual cannot avoid it. For instance, banks insure loans that advanced to their clients in case they do not pay back, or upon their death. As a safety net for uncertain occurrences, insurance covers or policies ensures family and business stability such that the business will continue despite a massive set back. Additionally, insurance shifts the risk to another party hence granting an individual or business entity the peace of mind to focus on other important issues.

Corporate Governance

Principles

Corporate governance are a set of rules, practices and processes by which an organization is controlled and directed. It is a system of rules and practices that enable the Board of Directors to manage the organization’s relationship with its stakeholders including customers, investors, suppliers, government, employees and the community. Fairness is one of the principles of corporate governance that require that a company treats its shareholders, suppliers, employees, communities and government officials (Elghuweel, Ntim, Opong, and Avison 2017: 190). A company that treats all stake holders equally has the advantage of reducing pressure from interested parties. It also allows shareholders to obtain redress in case of violation of their rights.

Corporate accountability requires that a company through its Board of Directors provide explanation or reason for conducts and actions of the company. This principle necessitates that companies publicises it annual financial statements that correctly depicts its position and prospects in the industry. Further, it requires that the Board maintains a risk management system and strategies that assures the relevant stakeholders that it is able deal with uncertain events. In consideration of the principle of responsibility, the Board of a company is charged with the management duties and should therefore act in the best interest of the company while monitoring its performance. The Board is also accountable to the shareholders of the company hence the aspect of accountability comes in under this principle.

Good governance dictates that the company be transparent in its dealings and business by providing relevant information to stakeholders. Communications done in compliance with the above principle should be timely and accurate especially if it involves matters to do with risk and future plans of the company to allow stakeholders to make informed decisions( Baydoun, Maguire, Ryan and Willett 2012: 22). Notably, strong corporate governance is important for companies because it enhances investor confidence in a company which translates to economic growth and corporate success.

Practice

In accordance with the Code of Corporate Governance for Publicly Held Joint Stock Companies 2015, companies that are listed in the principle market are required by to issue an annual corporate governance report. However, before the coming into force of the current Code, Newras which subsequently rebranded to Oredoo expressed its commitment to corporate governance in its 2010 Corporate Governance Manual. In the manual approved by its Board, the company expressed its commitment to facilitating corporate governance. The manual further lists policies approved by the Board in pursuit of corporate governance including: the company code of ethics and conduct, directors’ code of ethic and standard, management committee charters, internal audit policy, people policy and procurement policy.

More recently, Oman Telecommunications Company SAOG released its corporate governance report for the year ended 31st December 2018. The report reiterates the company’s commitment to the highest standards of corporate governance. The above company has therefore applied several principles of corporate governance in the following areas: appointment of the members of the Board, ensuring adequacy and efficiency of internal controls and transparency in its dealings. Additionally, the company has a disclosure policy in compliance with CMA’s standards and guidelines as well as Telecommunications Regulatory Authority.

Role of Oman government in regulating pollution

Marine Pollution

The National Centre for Environmental conservation has raised concerns in its latest report that Oman beaches are heavily polluted with a waste of 85.4 kg collected form an area measuring 1300 metres long. Pursuant to Royal Decree 34/74, the Omani government has taken steps to curb marine pollution by the establishment of the Social Committee of the State Council which has the responsibility of reviewing the Maritime Pollution Control Law. This law outlaws the discharge of any untreated waste from a ship, shore location or any oil transport facility in the Pollution free Zone of Oman. The Ministry of Environment and Climate Affairs has implemented measure to curb marine pollution including regulations on marine security and safety requirements and risk education programmes. The government has signed international instruments on protection of marine life and has partnered with other countries to deal with marine pollution (Wanner, Al-Sulaimani, Waber and Wanner 2015: 67). Since, Oman is placed along the sea route where several oil tanker ships traverse frequently, it is a member of the Oil Pollution Compensation System which determines liability for compensation for oil spillages. Convention on Civil Liability for Oil Pollution 1969)

Air Pollution

Air pollution is rampant in Oman especially due to the prevalence of mining industries in the Sultanate of Oman. The government has taken steps to curb air pollution through initiatives like the Regulation on Controlling Air Pollutants (MD118/2004) which was issued by Ministry of Municipalities, Environment and Water Resources. These rules came into force after the one originally issued in MD 5/86. The above rules places responsibility upon the operators of factories and facilities emitting toxic and hazardous gases from the site to take all necessary measures to neutralise the hazardous effect. Under article 3 of the Regulation, open burning of organic o agricultural waste is prohibited and dark smoke is not permitted from any chimney or industry. In fact, the government retains the right to determine the appropriate height of any chimney for the purposes of regulating the nature and amount of smoke allowable in the atmosphere. The government retains the right to enter any premises for purposes of inspecting any work site and carry out any necessary tests.

Noise Pollution

Mining and quarrying are some of the economic activities in Oman hence noise pollution is a major issue in the Sultanate. The Ministerial Decision 80/94 issues regulations for noise pollution control in working environment. This directive is in accordance with the Royal Decree 10/82 on the Law for the Conservation of Environment and Prevention of Pollution and the attendant amendments. As a result, Ministries and Authorities are required to include noise abatement measures as a condition for issuance of licenses. Machines used for mining and other construction services are required to be designed in a manner that minimises the noise levels. Further, employers have responsibility to ensure that noise levels during working hours are kept as low as reasonably practicable (Al Harthy and Ba Omar 2019: 85). The Special Economic Zone Authority has also issued a Noise Abatement Technical Note (NATN) to ensure the compliance of businesses in Special Economic Zones at Duqm. The document provides for national and international noise related standards, prevention guidelines and monitoring and assessment of noise levels.

Conclusion

In the end, a business must remain alive to issues like corporate governance, compliance with codes and regulations and the role of insurance in risk reduction. All the above elements covered in this paper are basic tenets of any business and they have equal importance in the running of any business. To stay competitive and achieve sustainable development, businesses should embrace the above issues and principles.

References

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