Enabling the Kingdom of Saudi Arabia to engage in a cross-border framework to control clientelistic corporate self-dealing

Abstract

The recent cross-border investments in innovative or ‘disruptive’ entrepreneurship have been placed under the spotlights of academics worldwide. On the one hand, much of the research focus has been on investing in the ecosystem of entrepreneurship and how it aids gross domestic product (GDP), employment, education, and innovation, and reduces public spending. On the other hand, many obstacles have blocked international equity investors. Among other reasons, clientelism has led to the failure of emerging markets to attract investments, whereas equity fund managers are less likely to leave jurisdictions where they retain more political power in corporate boardrooms to build an entrepreneurial ecosystem. The existing general discourse is that each state is defining its own gatekeepers to protect the benefits of shareholders or foreign investors in a business venture, leading to less cross-border cooperation to harmonise anti-clientelistic rules. Nonetheless, less focus has been given to the arbitrage opportunity of crossborder legal caveat, hence why new forms of abusive ‘clientelistic self-dealing’ have emerged. Political economic scholars, examining equity fund managers’ control, both at corporate or State levels, agree that laws have failed to enable rigorous cross-border protection of minority shareholders or foreign investors. We found that many self-dealing rules as they are soft law or process normative lacking a consistent jurisprudential rulemaking. The key argument of the study is that, in addition to the formal and informal economic actors, there is a third-actor with concealed powers to influence corporate decision making. The recent membership of the Kingdom in UNCITRAL is an opportunity for the Kingdom to lead the proposed reforms. The principal findings of this study are delineated as follows: 1) Inadequacy of ‘Expropriation’ Clauses in Investment Model Laws: as it has been discerned that the prevailing expropriation clauses enshrined within investment model laws exhibit insufficiencies. Consequently, it is advocated that model laws ought to broaden the scope of actionable legal measures to encompass instances of clientelism, 2) Strong Association Between Clientelism and Corporate Self-Dealing: This investigation has revealed a qualitative association between the phenomenon of clientelism and the practice of corporate self-dealing. The latter pertains to situations wherein individuals with positions of authority within a corporate entity exploit their roles for personal gain, often to the detriment of the corporate or its shareholders, and 3) Feasibility of Establishing a Universal Regulatory Framework for Cooperative Corporate Self-Dealing: It is posited that the establishment of a comprehensive regulatory framework, applicable universally, for the governance of cooperative corporate self-dealing is a plausible endeavour. The viability of such an instrument is contingent upon an intricate analysis of factors, including but not limited to macro-legitimacy, which denotes the overarching legitimacy of corporate members’ actions. Additionally, this feasibility hinges upon an examination of how macrolegitimacy influences decision-making processes that either facilitate opportunities under the aegis of the doctrine of corporate opportunities or interdict transactions through the incorporation of a 'no-conflict' provision. These findings underscore the exigency for a more nuanced and inclusive approach to legal frameworks governing investments, corporate conduct, and governance, particularly in the context of addressing issues related to clientelism and corporate self-dealing.