While going through a collection of old newspapers, I found an article by Dr. Abdul Wahid Al-Hamid published by Riyadh newspaper more than 20 years ago, precisely on 2 Jumada Al Thani 1419, corresponding to 22 September 1998. In the article titled “Losing”, he wrote sarcastically: “With joy and delight, a Saudi joint stock company announced this summer that its loss during the first six months of this year was only 6.5 million riyals.”

He added: “A result, worthy of admiration, at least from the point of view of the officials of that company... True, they receive their salaries regularly, but their hearts are with the shareholders... The shareholders are people who have not tasted the flavor of profit since the establishment of the company more than 10 years ago. The company has never thought of distributing dividends among its shareholders. It is their destiny to wait for a day to come when they might receive dividends from the company despite the fact that the company receives subsidies from the government...”

The writer continued cynically: “This company considered that the loss of only SR6.5 million was a big gain because the company’s loss during the same period in the previous year was SR6.9 million... Everybody who knows the basics of arithmetic is aware of the fact that the loss of 6.5 million is not as much as a loss of 6.9 million! One calamity is less than another calamity and hence patience is the key to happiness.”

This is what Dr. Abdul Wahid Al-Hamid wrote about an unnamed company that may still be incurring losses, and might avoid bankruptcy by increasing its capital once again, and later reducing it again. At the same time, perhaps, the company’s officials themselves will be receiving their salaries, allowances and bonuses. Shareholders may still be waiting for the dividends they had been promised when they bought shares from the market at exorbitant prices when the company offered them to the public. They secured shares with the hope that they would get a profit one day but that day has not yet come and may not be coming in the future, although the officials of that company and other similar companies receive their salaries and bonuses without any interruption. These officials have no one to hold them accountable or to carry out an investigation into their handling of their businesses unless their conscience acts as a deterrent.

Some companies, especially family firms, sold their shares to the public with a high share premium after providing data indicating the company’s achievements and success. This resulted in a tremendous response from the public eager to take part in the initial public offering (IPO) in order to earn a share in the profits that the company earned before launching the IPO and on the basis of which the company fixed its share premium.

Not long after this, the value of the shares began to fall and was worth less than the price at the time of IPO, which means that the data provided was not accurate. Similarly, the achievements claimed by the owners of those companies when they decided to launch an IPO were misleading and incorrect. It was also evident that those who fixed the prices of shares and the amount of the share premium were not accurate and fair in their dealings.

Otherwise the value of shares would not have fallen within a short period of time to a level well below the price that existed at the time of the public offering. The loss in the value of shares of some of these firms amounted to nearly half of their capital, and reached a level that threatened a halt to trading. Moreover, the owners of some family businesses who sold a percentage of their shares for an exorbitant share premium continued maintaining their control over the firm with the authority to select members of the board of directors and executive management. They managed to monopolize the business of the company even after selling a part of the shares of their company to the public.

These owners engage in transactions, such as signing contracts with other companies at their own will without consulting the public who bought the shares at a high premium. They even violate the provisions of the corporate governance law in this regard. They justify making such transactions on the pretext that they have the approval of the general assembly in line with the provisions of the corporate governance law. In fact, they sold only one-third of their shares and retained the remaining two-thirds for themselves. Therefore, it is easy for them to get the approval of the general assembly for their decisions simply because they enjoy a two-thirds majority.

— Dr. Ali Al-Ghamdi is a former Saudi diplomat who specializes in Southeast Asian affairs. He can be reached at algham@hotmail.com