Strengthening Corporate Governance in Saudi Firms Through Effective Financial Practices

Introduction

In the evolving economic landscape of the Kingdom of Saudi Arabia, robust corporate governance is no longer optional; it is a necessity. As firms navigate the complexities of regulatory changes, market expansion, and investor expectations, embedding sound financial practices with a strong governance framework becomes critical. Engaging in risk management advisory services can help boards and management teams align their financial strategies with governance standards. Many organizations turn to consulting companies in Riyadh to guide this transformation and ensure compliance, transparency, and long term resilience.

The Strategic Context Why Governance Matters in Saudi Arabia Today

Saudi Arabia’s capital markets have undergone a remarkable transformation in recent years. By the end of 2024, assets under management in the Saudi capital market exceeded SAR 1 trillion for the first time, a growth of 20.9 per cent compared to the previous year. The number of investment funds rose to 1,549 and the number of fund subscribers public and private surpassed 1.72 million, reflecting a 47 per cent increase compared to 2023.

At the same time, the total value of listed sukuk and debt instruments climbed to SAR 663.5 billion by end 2024 from SAR 549.8 billion in 2023, a growth of 20.6 per cent. Such rapid growth underscores the need for firm level financial discipline; without effective governance, firms may expose themselves to liquidity risk, compliance issues, or reputational hazards. Furthermore, regulatory reforms introduced by the Capital Market Authority and other bodies have raised the bar for transparency and accountability, making strong governance an imperative.

Against this backdrop, Saudi firms, especially listed companies, must adopt effective financial practices to meet stakeholder expectations, regulatory standards, and to support sustainable growth.

Core Principles of Financial Practices That Strengthen Governance

To reinforce corporate governance, Saudi firms should embed the following financial practices:

Transparent Financial Reporting and Disclosure

Transparent financial reporting is fundamental. Firms must ensure accurate, timely, and comprehensible disclosure of financial results, risk exposures, debt instruments, and liquidity positions. This enhances investor confidence and supports market integrity. With increased sukuk and bond issuances, transparent reporting helps stakeholders assess firm health and manage risks.

Internal Audit and Oversight Mechanisms

In line with the updated corporate governance regulations under the 2024 to 2026 strategic plan, listed companies are required to establish an internal audit unit, adopt internal audit plans, and prepare periodic audit reports. This ensures that financial operations are monitored, risks are identified early, and corrective actions are taken proactively. Internal audit strengthens accountability and reduces the likelihood of financial misstatements or compliance breaches. In many cases, consulting companies in Riyadh are engaged to set up or improve audit frameworks, giving firms access to expert advice.

Prudent Capital Structure and Debt Management

Excessive leverage or poor debt management can undermine a company’s stability, especially during economic downturns or tightening monetary conditions. By managing debt prudently considering interest coverage ratios, debt maturities, and liquidity buffers, firms can avoid default risk and maintain financial flexibility. For firms operating in Saudi Arabia’s dynamic environment, this discipline is a cornerstone of good governance.

Risk Assessment and Scenario Planning

Effective governance demands forward looking risk assessment. Firms should assess business, market, credit, and liquidity risks, simulate stress scenarios, and prepare contingency plans. Engaging risk management advisory services helps organizations embed a risk aware culture and ensures that financial decisions such as capital expenditure, dividend distribution, or debt issuance are aligned with long term strategic objectives.

Alignment with Regulatory and ESG Standards

Beyond financial compliance, firms must align with evolving regulatory frameworks and sustainability expectations. For example, by the end 2024, among the top 100 Main Market issuers in Saudi Arabia, 65 per cent disclosed sustainability practices, up from 58 per cent in 2023. Such disclosures build trust with investors and reflect a commitment to long term value creation. Incorporating ESG and governance metrics into financial planning enhances transparency, risk awareness, and stakeholder confidence.

Quantitative Gains from Governance Aligned Financial Practices

Adopting effective financial practices in line with strong governance enables Saudi firms to unlock tangible benefits:

• Increased investor interest, as of 2024, net foreign investments in the capital market reached SAR 218 billion, up from SAR 198 billion the previous year, a 10.1 per cent rise.
• Broader funding access, because of regulatory reforms and greater investor confidence, more firms are able to tap debt instruments. The value of listed sukuk and debt instruments rose to SAR 663.5 billion in 2024.
• Enhanced market valuation, the main stock exchange, Tadawul, saw market capitalization reach approximately US$2.7 trillion by end 2024, marking a dramatic long term increase of 463 per cent since 2014.
• Faster economic growth via capital raising, the number of listed companies rose to 247 by end 2024, up from 231 in 2023.

These figures illustrate how disciplined financial practices coupled with strong governance can enhance access to capital, support growth, and attract domestic and foreign investments, key goals under the Vision 2030 economic transformation agenda.

Challenges and Common Pitfalls

While the benefits are clear, many firms still struggle with:

• Weak board oversight or inexperienced audit committees, resulting in insufficient monitoring of financial and operational risks.
• Overreliance on short term debt or aggressive leverage, which can strain liquidity during economic fluctuations or interest rate increases.
• Poor transparency and delayed disclosures, undermining investor trust and limiting access to capital.
• Lack of integrated risk management culture, where financial risk, operational risk, compliance risk, and ESG risk are managed separately instead of holistically.

Addressing these gaps often requires specialised expertise, which is why many firms in the Kingdom engage consulting companies in Riyadh to build robust governance and financial frameworks.

Governance in Practice What Leading Firms Do

Leading Saudi firms that demonstrate strong governance typically follow a pattern of practices:

• They engage external advisors or consulting companies in Riyadh to assess governance structure, design internal audit frameworks, and align reporting practices with regulatory standards.
• They maintain conservative debt to equity ratios and ensure adequate liquidity buffers to withstand market volatility.
• They disclose financial and non financial information including ESG metrics, sustainability practices, and debt exposure on a timely and regular basis.
• They embed quarterly internal audit reviews and board level risk committees to ensure accountability and oversight.
• They adopt long term investment planning, scenario based stress testing, and risk adjusted capital allocation instead of short term opportunistic financing.

Such firms tend to attract higher foreign and institutional investment, benefit from lower cost of capital, and enjoy greater market trust, ultimately supporting sustainable growth and value creation.

The Role of Regulatory Reforms and Market Environment

Regulatory reforms in recent years have provided a strong impetus for better governance. Under the 2024 to 2026 strategic plan of the CMA, companies are mandated to establish internal audit units and ensure periodic audit reporting.

Moreover, with the market capitalization of Tadawul reaching record levels and the rising volume of sukuk, bonds, and equity issues, firms are under increased scrutiny by investors, regulators, and analysts. This environment rewards companies that demonstrate governance maturity, transparency, and financial discipline.

As the number of listed firms continues to grow, 247 by end 2024, up from 231 a year earlier, this competitive environment pressures firms to adhere to robust governance and financial practices to remain credible and attractive in the eyes of investors.

Recommendations for Saudi Firms

For firms seeking to strengthen corporate governance through effective financial practices, the following steps are recommended:

1. Engage qualified external advisors, often consulting companies in Riyadh, to review and design internal audit frameworks and risk management policies.
2. Commit to transparent, regular financial and non financial disclosures including ESG metrics, sustainability practices, and debt exposure.
3. Maintain prudent capital structure policies with conservative leverage and sufficient liquidity reserves.
4. Establish board level risk committees and internal audit units that meet regularly to review financial and operational risks.
5. Incorporate forward looking risk assessment and scenario planning into strategic decision making, including stress testing for financial, market, and operational risks.

By institutionalizing these practices, firms can not only comply with regulations but also build long term resilience and investor confidence.

Conclusion and Call to Action

As Saudi Arabia accelerates its economic transformation under Vision 2030, the importance of strong corporate governance paired with effective financial practices becomes ever more pronounced. Firms that adopt transparent reporting, disciplined debt management, internal audit oversight, and proactive risk assessment are better positioned to thrive.

If your firm is ready to strengthen governance and financial practices, reach out to Insight Advisory, we specialise in delivering customised governance and financial advisory solutions tailored for Saudi companies. Let us help you build a robust foundation for sustainable growth and stakeholder trust.

Working with experienced consulting companies in Riyadh ensures compliance, transparency, and strategic alignment, laying the groundwork for long term success in the Kingdom.