Corporate governance is not merely a compliance exercise; from a business perspective, it is a condition for stability and sustainable growth. It clarifies authority, allocates responsibility, and protects the company from internal disorder. In practical terms, governance enables a company to function as an institution, rather than being driven by competing personal interests. In times of crisis, that role becomes even more important, because governance may be the very structure that keeps the company from slipping into confusion, paralysis, or loss of control.
This understanding is reflected in Article 1 of UAE Federal Decree-Law No. 32 of 2021 on Commercial Companies, which defines governance as a set of controls, standards, and procedures that achieve institutional discipline in the management of the company, while defining the responsibilities of the board of directors and executive management and protecting the rights of shareholders and stakeholders. This definition is significant because it presents governance as a legal framework for proper management, not merely an internal administrative arrangement.
The importance of governance is reinforced by Article 6 of UAE Federal Decree-Law No. 32 of 2021 on Commercial Companies, which provides that the UAE Minister of Economy shall issue the governance decision applicable to companies other than public joint stock companies, while the board of the Securities and Commodities Authority issues the governance decision applicable to public joint stock companies, subject in each case to the relevant regulatory framework. The same article also provides that the board of directors, or the managers as the case may be, bear responsibility for implementing governance rules and standards.
That position is strengthened by Article 7 of UAE Federal Decree-Law No. 32 of 2021 on Commercial Companies, which provides that the governance decisions must include fines, to be determined by the Ministry or the Authority, each within its jurisdiction, against companies, their chairmen, board members, managers, and auditors in the event of violations, provided that such fines do not exceed AED 10,000,000. This reflects the seriousness with which the legislator treats governance and confirms that it is a matter of real legal consequence.
Pursuant to this framework, the UAE Minister of Economy issued Ministerial Decision No. 137 of 2024 concerning the Regulation of the Registrar’s Functions, the Controls Governing Private Joint Stock Companies, and Rules of Governance. That does not mean, however, that limited liability companies fall outside the importance of corporate governance. Rather, governance remains highly relevant to them, even if it does not appear through the same formal structures applicable to joint stock companies.
In limited liability companies, governance is often reflected in a more tailored way through the memorandum of association, shareholders’ agreements, management controls, approval mechanisms, and internal accountability structures. The legal form may differ, but the underlying objective remains the same: proper management, clear allocation of authority, and proper oversight. In times of uncertainty, those features may become the company’s first line of internal protection.
Corporate governance can also be seen in the way a company structures authority and supervision. This includes defining powers in writing, regulating conflicts of interest, and ensuring that important decisions are subject to proper approval rather than informal influence. In practical terms, this helps prevent abuse of authority, unchecked discretion, and weak accountability, particularly at moments when crisis may otherwise encourage rushed or unstructured decision-making.
Corporate governance becomes even more important in times of crisis, when pressure may disrupt operations, strain management, and test the company’s internal decision-making framework. Crisis does not only expose the company to external risk; it may also place pressure on shareholders and management in the way decisions are made during difficult periods. In such circumstances, differences in priorities may become more visible, decision-making may become more sensitive, and the company may face internal strain alongside the external challenges it is already confronting. Corporate governance helps preserve discipline in that environment by clarifying authority, maintaining proper decision-making structures, and helping ensure that the company’s interests remain protected despite the pressures affecting both shareholders and managers. In that sense, governance is not merely part of the company’s legal framework; in times of crisis, it may be its rescue ring.
In the next part, we will address another important dimension of the going concern: the liability of management and shareholders.
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