Obligations of Board Members and Investor Relations Officers

The management of companies listed on the Egyptian Exchange and the conduct of non-banking financial activities require compliance with a stringent regulatory framework aimed at protecting shareholders’ rights and ensuring market transparency.

The new amendments and regulations issued by the Financial Regulatory Authority (FRA) and the Egyptian Exchange (EGX) concerning the obligations of board members and investor relations officers impose precise legal and operational responsibilities on corporate leadership.

Whether the company is locally incorporated or operates as a branch of a foreign company, understanding and implementing disclosure and corporate governance obligations remain essential to avoiding criminal and administrative penalties and ensuring the stability of the commercial operations of multinational companies and international investors in Egypt.

Legal and Regulatory Framework Governing the Board of Directors and Investor Relations Department

The obligations of senior management and investor relations officers in Egypt are governed by an integrated network of laws and regulations that define the nature of their legal duties and the liabilities arising from any breach.

• Law No. 159 of 1981 on Joint-Stock Companies, Partnerships Limited by Shares, and Limited Liability Companies, as amended: It defines the general duties of board members, particularly the stewardship of investments, the Duty of Care, the Duty of Loyalty, and the avoidance of conflicts of interest.
• Capital Market Law No. 95 of 1992 and its Executive Regulations: It governs disclosure requirements and prohibits price manipulation and trading based on undisclosed inside information (Insider Trading).
• Listing and Delisting Rules of the Egyptian Exchange and their amendments: They specify the detailed requirements for periodic and immediate disclosure and the structural obligations associated with the appointment and qualification of the Investor Relations Officer (Investor Relations Officer – IRO).
• Resolutions of the Board of Directors of the Financial Regulatory Authority (FRA) concerning corporate governance rules: They establish the requirements governing board composition and its committees, such as the Audit Committee and Risk Committee, the required levels of independent and female representation, and the obligations to disclose related dealings and related parties.

Implementation Note: Egyptian law requires board members to act in the interests of the company and all shareholders, rather than in the interests of a specific category or a particular major shareholder. Accordingly, legal liability may be personal and joint and several in cases of gross negligence or breach of the duty of care.

Obligations of Board Members: Scope and Fundamental Duties

A board member performs a dual role combining strategic direction and executive oversight. Their legal obligations center on the following duties:

1. Duty of Care and Loyalty and Avoidance of Conflicts of Interest

• Exercising the Care of a Prudent Person: A board member must make decisions based on sufficient information and due diligence studies.
• Disclosure of Interest: A member is prohibited from voting or participating in deliberations on any resolution in which they have a direct or indirect personal interest. Prior authorization from the company’s general meeting must also be obtained for Related Party Transactions.
• Prohibition of Competition: A board member must refrain from conducting business that competes with the company’s activities unless express prior approval is obtained in accordance with the applicable legal requirements.

2. Financial and Operational Disclosure and Transparency Obligations

• Approval and Certification: Signing and approving the periodic financial reports, whether quarterly or annual, together with the board of directors’ report presented to the general meeting.
• Disclosure of Personal Transactions: Notifying the Exchange and the FRA of any transactions carried out by a board member or their relatives up to the second degree in the shares of the company or its subsidiaries, while complying with the Blackout Periods preceding and following the announcement of financial results.

3. Implementation of Corporate Governance Rules and Board Committees

• Ensuring that the Audit Committee is composed of non-executive members who possess sufficient financial expertise.
• Monitoring internal control and risk management systems and implementing cybersecurity and business continuity requirements.
• Complying with the required levels of independent representation on the board and verifying satisfaction of the regulatory conditions prescribed by the Financial Regulatory Authority.

Obligations of the Investor Relations Officer (IRO) Under the Latest Regulations

The Investor Relations Officer serves as the direct and official link between the listed company, the Egyptian Exchange, the Financial Regulatory Authority, and the community of investors and financial analysts.

[Company Management / Board of Directors]
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[Investor Relations Officer (IRO)]
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 ┌───────┴────────┬────────────────┐
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[Egyptian Exchange]  [Financial Regulatory Authority]  [Investors and the Market]

The obligations and responsibilities of the Investor Relations Officer include the following:

1. Management and Publication of Material and Immediate Disclosures

• Preparing and publishing Material Events immediately upon their occurrence and before or during the commencement of the trading session, in accordance with the prescribed rules, including acquisitions, changes to the board of directors, major contracts, and legal proceedings brought against the company.
• Publishing periodic financial reports and approved summaries through the Exchange’s disclosure screens and the company’s website in Arabic and English to serve international clients.

2. Communication with Regulatory Authorities and Investors

• Responding immediately to inquiries from the Egyptian Exchange and the Financial Regulatory Authority concerning any rumors or unusual movements in the share price.
• Organizing investor conferences (Earnings Calls) and preparing presentations (Investor Presentations) without disclosing any material information that has not been made available to the public, while observing the principle of equal transparency Fair Disclosure.

3. Record-Keeping and Management of Shareholder Databases

• Monitoring the shareholder structure and changes in ownership percentages in coordination with Misr for Central Clearing, Depository and Registry (MCD).
• Preparing annual corporate governance reports in cooperation with the company’s legal department and corporate secretariat.

Legal Risks and Criminal and Civil Liability

Violations committed by board members or the Investor Relations Officer give rise to extremely serious legal and commercial consequences.

Considerations for International Investors and Cross-Border Companies

Foreign companies and international investors that hold interests in companies listed on the Egyptian Exchange or participate on their boards of directors face comparable challenges that require consideration of several matters.

• Differences in the Legislative Environment: Certain practices accepted in foreign jurisdictions may conflict with mandatory provisions of Egyptian legislation, such as voting mechanisms and procedures for related-party transactions.
• Translation and Drafting of Disclosures: Disclosures directed to international markets require exceptional precision to avoid any inconsistency between the original Arabic text, which is legally recognized before the Egyptian authorities, and the English text.
• Liability of Non-Resident Board Members: A foreign board member’s non-residence in Egypt does not exempt them from personal or joint and several liability for resolutions adopted by the board, which necessitates ongoing Local Counsel support.

Common Mistakes and Practical Best Practices

Common Mistakes to Avoid

1. Selective Disclosure: Leaking material information to financial analysts or selected investors before announcing it to all market participants on the Exchange.
2. Delayed Disclosure of Material Events: Assuming that the execution of non-binding memoranda of understanding does not require disclosure, even though the regulations require disclosure whenever they may affect the share price or an investor’s decision.
3. Failure to Update Investor Relations Officer Information: Failure to notify the FRA and the Exchange immediately upon a change in the Investor Relations Officer or their official contact details.

Practical Best Practices (Best Practices)

• Developing an internal disclosure and corporate governance manual and policy that specify the precise conditions and timing for publication and the authorized sources of media statements.
• Implementing periodic training programs for board members and executive management concerning the prohibition against trading based on inside information.
• Adopting a digital internal control and audit system that ensures immediate coordination between the legal department, the Investor Relations Officer, and external legal counsel.

When Is the Involvement of a Specialist Legal Adviser or Local Counsel in Egypt Required?

Egypt’s complex regulatory environment requires the immediate involvement of a law firm specializing in capital markets and corporate law in the following circumstances:

• Structuring Major Transactions and Acquisitions: To verify that approval has been obtained from the Financial Regulatory Authority and that the disclosure requirements have been satisfied in advance.
• Drafting and Reviewing Corporate Governance Reports and Complex Disclosures: To ensure their linguistic and regulatory accuracy and avoid financial penalties.
• Representing Management Before Regulatory Authorities: In regulatory investigations, Exchange inquiries, or disputes concerning insider transactions.
• Advising Foreign Investors and Non-Resident Board Members: To provide a precise and updated legal interpretation of the relevant Egyptian laws and regulations.

How Can Specialized Legal Support Help?

The team at El Rouby Law Firm provides integrated and ongoing legal services to boards of directors and investor relations officers at joint-stock companies and cross-border institutions, including:

• Regulatory Compliance and Corporate Governance: Reviewing and developing internal corporate governance frameworks, preparing disclosure manuals, identifying periodic obligations, and verifying their conformity with the latest developments introduced by the Financial Regulatory Authority and the Egyptian Exchange.
• Risk Management and Dispute Prevention: Conducting prior legal assessments of board resolutions and limiting exposure to criminal or civil liability arising from inaccurate disclosures.
• Drafting Contracts and Disclosure Reports: Reviewing and drafting corporate governance reports, related-party transaction agreements, and market disclosures in Arabic and English.
• Representation Before Egyptian Authorities: Publicizing and publishing amendments and providing formal attendance and representation before the Financial Regulatory Authority (FRA), the Egyptian Exchange (EGX), and the General Authority for Investment and Free Zones (GAFI).
• Negotiation, Settlement, Litigation, and Arbitration: Managing disputes arising from board resolutions and defending members in civil claims or regulatory and criminal investigations relating to the capital market.

Conclusion

Managing companies listed on the Egyptian Exchange requires strict compliance with the latest regulatory requirements governing the obligations of board members and investor relations officers.

The effects of compliance are not limited to avoiding penalties; they also contribute directly to enhancing the company’s investment valuation and strengthening the confidence of local and international markets.

Frequently Asked Questions

Q1: What legal liability does a board member bear for unsound decisions?

A: A board member is released from civil or criminal liability if it is established that they expressly objected to the resolution in the meeting minutes or demonstrated that they exercised the care of a prudent person and relied on reliable professional reports without negligence or bad faith.

Q2: May an Investor Relations Officer disclose the company’s financial results to a major investor before their publication on the Exchange?

A: This is strictly prohibited under the Egyptian Capital Market Law and the securities listing rules. Such conduct violates the principle of transparency and is classified as selective disclosure, giving rise to criminal and regulatory liability.

Q3: What do the Blackout Periods applicable to board members’ transactions cover?

A: These are periods during which board members, executive management, and subsidiaries are prohibited from trading in the company’s shares. They usually begin several days before the end of the relevant quarterly or annual financial period and continue until the official financial results are announced on the Exchange.

Q4: Must listed companies appoint a dedicated Investor Relations Officer?

A: Yes. The Listing and Delisting Rules of the Egyptian Exchange require the appointment of a qualified Investor Relations Officer dedicated to performing these duties, and the Exchange and the FRA must be notified of the officer’s details and formal qualifications.

Q5: What is the extent of the liability of foreign companies and parties represented on the boards of Egyptian companies?

A: Foreign members are subject, without distinction, to the same liabilities and legal provisions prescribed under Egyptian legislation. The penalties and obligations issued by the Financial Regulatory Authority apply to them in their personal and corporate capacities.